<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 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: 1-7736
--------
TAB PRODUCTS CO.
----------------
(Exact name of Registrant as specified in its charter)
DELAWARE 94-1190862
- - - - - - -------------------------------------- -----------------------------------
(State of Incorporation) (IRS Employer Identification No.)
1400 PAGE MILL ROAD, PALO ALTO, CALIFORNIA 94304
- - - - - - ------------------------------------------ ---------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number - including area code (415) 852-2400
-------------------------
NOT APPLICABLE
- - - - - - --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
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
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Common shares outstanding as
of November 30, 1996 - 4,862,951.
This report, including all exhibits and attachments, contains 82 pages.
------
<PAGE>
TAB PRODUCTS CO.
INDEX
PART I. FINANCIAL INFORMATION
Page No.
ITEM 1. Financial Statements:
Consolidated Condensed Balance Sheets
November 30, 1996 and May 31, 1996 3
Consolidated Condensed Statements of Earnings
Three months and six months ended
November 30,1996 and 1995 4
Consolidated Condensed Statements of Cash Flows
Six months ended November 30,
1996 and 1995 5
Supplemental Financial Data - Notes 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote by Security Holders 8
ITEM 6. Exhibits 10
Signatures 13
2
<PAGE>
PART 1: FINANCIAL INFORMATION
ITEM 1: Financial Statements
TAB PRODUCTS CO.
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(000's omitted except share data)
ASSETS November 30, 1996 May 31, 1996
----------------- ------------
Current assets:
Cash and cash equivalents $ 7,114 $ 9,331
Short-term investments 3,337 2,322
Accounts receivable, less allowances of
$676 and $620 for doubtful accounts 28,436 23,898
Inventories 11,182 11,313
Prepaid income taxes and other expenses 2,267 1,851
--------- --------
Total current assets 52,336 48,715
Property, plant and equipment, net of accumulated
depreciation of $33,609 and $33,250 20,240 20,800
Goodwill, net 4,593 4,777
Other assets 4,379 4,835
--------- --------
$ 81,548 $ 79,127
--------- --------
--------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 3,813 $ 3,813
Accounts payable 7,660 5,823
Compensation payable 3,459 3,553
Other accrued liabilities 7,825 8,102
--------- --------
Total current liabilites 22,757 21,291
--------- --------
Long-term debt 13,484 14,141
--------- --------
Deferred taxes and other non-current liabilities 2,234 2,233
--------- --------
Stockholders' equity:
Preferred stock: $0.01 par value, authorized -
500,000 shares, issued - none - -
Common stock: $0.01 par value, authorized -
25,000,000 shares, issued - November 1996
- 7,295,178 shares and May 1996 -7,284,178 73 73
Additional paid-in capital 12,771 12,705
Retained earnings 61,065 59,689
Treasury stock: November 1996 and May 1996 -
2,432,227 shares (31,365) (31,365)
Cumulative translation adjustment 529 360
--------- --------
Total stockholders' equity 43,073 41,462
--------- --------
$ 81,548 $ 79,127
--------- --------
--------- --------
3
<PAGE>
TAB PRODUCTS CO.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (UNAUDITED)
(000's omitted except share data)
Three Months Ended
November 30
-----------------------
1996 1995
--------- -------
Revenues $ 40,255 $ 38,862
--------- -------
Costs and expenses:
Cost of revenues 24,070 23,492
Selling, general and administrative 13,630 13,422
Research and development 207 96
--------- -------
Total costs and expenses 37,907 37,010
--------- -------
Operating income 2,348 1,852
Interest, net (254) (389)
--------- -------
Earnings before income taxes 2,094 1,463
Provision for income taxes 911 637
--------- -------
Net earnings $ 1,183 $ 826
--------- -------
--------- -------
Earnings per common and equivalent share $ 0.24 $ 0.17
---------- ----------
---------- ----------
Average common and equivalent shares outstanding 4,874,025 4,851,951
Six Months Ended
November 30
------------------------
1996 1995
---------- ----------
Revenues $ 75,267 $ 76,276
---------- ----------
Costs and expenses:
Cost of revenues 44,977 46,315
Selling, general and administrative 26,079 26,443
Research and development 380 200
---------- ----------
Total costs and expenses 71,436 72,958
---------- ----------
Operating income 3,831 3,318
Interest, net (535) (807)
---------- ----------
Earnings before income taxes 3,296 2,511
Provision for income taxes 1,434 1,092
---------- ----------
Net earnings $ 1,862 $ 1,419
---------- ----------
---------- ----------
Earnings per common and equivalent share $ 0.38 $ 0.29
---------- ----------
---------- ----------
Average common and equivalent shares outstanding 4,873,323 4,851,951
4
<PAGE>
TAB PRODUCTS CO.
CONSOLIDATED CONDENSED STATEMENTS OF CASHFLOWS (UNAUDITED)
(000's omitted)
Six Months Ended
November 30
---------- ----------
1996 1995
---------- ----------
Operating Activities:
Net earnings $ 1,862 $ 1,419
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization of property, 1,733 1,825
plant and equipment
Other 59 (10)
Changes in operating assets and liabilities:
Accounts receivable (4,594) (2,920)
Inventories 131 (979)
Prepaid income taxes and other expenses (416) 1,283
Goodwill and other assets 640 (99)
Accounts payable 1,837 1,234
Commissions payable (94) 433
Other accrued liabilities (277) 258
---------- ----------
Net cash provided by operating
activities 881 2,444
---------- ----------
Investing Activities:
Purchase of property, plant and equipment, net (1,175) (1,562)
Purchases of short-term investments (3,875) (2,437)
Sales of short-term investments 2,860 1,497
---------- ----------
Net cash required by investing activities (2,190) (2,502)
---------- ----------
Financing Activities:
Repayment of long-term debt (657) (656)
Proceeds from issuance of common stock 66 -
Dividends paid (486) (485)
---------- ----------
Net cash required by financing activities (1,077) (1,141)
---------- ----------
Effect of exchange rate changes on cash 169 (32)
---------- ----------
Decrease in cash and cash equivalents (2,217) (1,231)
Cash and cash equivalents at beginning of period 9,331 6,753
---------- ----------
Cash and cash equivalents at end of period $ 7,114 $ 5,522
---------- ----------
---------- ----------
5
<PAGE>
TAB PRODUCTS CO.
SUPPLEMENTAL FINANCIAL DATA - NOTES (UNAUDITED)
1. Inventories consisted of the following (000's omitted):
November 30, 1996 May 31, 1996
----------------- ------------
Finished goods $ 7,445 $ 7,421
Work in process 541 516
Raw materials 3,196 3,376
----------------- -----------
$ 11,182 $ 11,313
----------------- -----------
----------------- -----------
2. Earnings per share data are computed using the average number of common and
dilutive common equivalent shares outstanding.
3. Dividends declared for the six month periods ended November 30, 1996 and
1995 were as follows:
Record Date Shares Outstanding Per Share Dividend
----------- ------------------ ------------------
November 25, 1996 4,862,951 $ 0.05
August 26, 1996 4,851,951 $ 0.05
November 22, 1995 4,851,951 $ 0.05
August 25, 1995 4,851,951 $ 0.05
4. The above financial information reflects all adjustments consisting of
normal recurring items which are, in the opinion of management, necessary for a
fair presentation of the results of the interim periods. These financial
statements should be read in conjunction with the company's audited financial
statements for the year ended May 31, 1996.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
At November 30, 1996 the company had cash and short-term investments of $10.5
million, a decrease of $1.2 million from the $11.7 million in cash and short-
term investments at May 31, 1996. The company's working capital position at
November 30, 1996 increased by $2.2 million to $29.6 million as compared with
$27.4 million at May 31, 1996. The current ratio of 2.3 at November 30, 1996
remained unchanged from May 31, 1996. Accounts receivable at November 30, 1996
was $28.4 million as compared to $23.9 million at May 31, 1996. The increase in
accounts receivable is primarily due to higher revenues in the quarter ended
November 30, 1996 as compared to the quarter ended May 31, 1996. Management
believes that the company's cash and cash equivalents, available credit
facilities and operational cash flows will adequately finance anticipated
growth, capital expenditures and debt obligations for the foreseeable future.
Investments in property, plant and equipment to support operations were $1.2
million during the six months ended November 30, 1996. Capital expenditures to
support operations for fiscal 1997 are expected to be in the range of $2.5 to
$3.0 million.
At November 30, 1996, the company had $13.5 million of long-term debt
outstanding which bears interest rates ranging from 6.9% to 9.0%.
For the six month period ended November 30, 1996 the company paid cash dividends
of $486,000 as compared to $485,000 in the prior fiscal year.
The company has an unsecured revolving line of credit of $10 million with a bank
which expires on October 31, 1998. There were no borrowings outstanding under
the line of credit at November 30, 1996.
RESULTS OF OPERATIONS
REVENUES for the second quarter of fiscal 1997 were $40.3 million, up $1.4
million or 4% from revenues of $38.9 million for the second quarter of fiscal
1996. The increased revenues were attributable to both higher unit volumes and
price increases. Revenues for the six months ended November 30, 1996 were $75.3,
down $1.0 million or 1% from revenues of $76.3 million in the first six months
of the prior fiscal year. The decrease in year to date revenues was primarily
the result of a decrease in U.S. government revenues.
COST OF REVENUES, as a percentage of revenues, was 59.8% for the second quarter
of fiscal 1997, down from the 60.4% reported for the second quarter of fiscal
1996. For the six months ended November 30, 1996 cost of revenues was 59.8% as
compared to 60.7% in the first six months of the prior fiscal year. Cost of
revenues, as a percentage of revenues, declined from the second quarter of
fiscal 1996 and on a year to date basis, primarily as a result of continued
emphasis on product cost reductions and improved manufacturing efficiencies.
OPERATING EXPENSES, for the quarter ended November 30, 1996 were $13.8 million
as compared to $13.5 million for the quarter ended November 30, 1995. The
increase in operating expenses during the second quarter is primarily the result
of increased commission expense as a result of higher revenues in the quarter.
For the six months ended November 30, 1996, operating expenses were $26.5
million as compared to $26.6 for the six months
7
<PAGE>
ended November 30, 1995. As a percentage of revenues, operating expenses were
34.4% for the quarter ended November 30, 1996 as compared to 34.8% for the
quarter ended November 30, 1995. For the first six months of fiscal 1997,
operating expenses as a percentage of revenues were 35.2% as compared to 34.9%
for the prior year's first six months.
INTEREST EXPENSE, net, was $254,000 in the second quarter of fiscal 1997 as
compared to $389,000 in the second quarter of fiscal 1996. For the six months
ended November 30, 1996 interest expense, net, was $535,000 as compared to
$807,000 in the prior fiscal year. The decreases in interest expense, net for
the three and six months ended November 30, 1996 was primarily due to a lower
level of debt, as a result of debt repayments, and higher cash balances over the
comparable periods of fiscal 1996.
EARNINGS PER SHARE for the three months ended November 30, 1996 were $.24 per
share, an increase of 41% over the $.17 per share earned in the second quarter
of fiscal 1996. For the six months ended November 30, 1996 earnings per share
were $.38 per share, an increase of 31% over the $.29 per share reported for the
six months ended November 30, 1995.
FACTORS WHICH MAY AFFECT QUARTERLY RESULTS
The company's actual results could differ materially from those anticipated as a
result of risks related to the company's ability to develop and market new
products and services, market acceptance of new products and services,
increasing demands for technological innovation, the costs of components for the
company's products, competition and economic conditions in the company's
markets, product sales mix and risks relating to government contracting.
PART II: OTHER INFORMATION
ITEMS 1 - 3. Not applicable.
ITEM 4. Submission of Matters to a Vote by Security Holders
(a) The company held its annual meeting of stockholders
on October 17, 1996.
(b) All of management's nominees as listed in the proxy
statement were elected.
(c) The votes for each Director are indicated below:
Director For Withheld Authority
-------- --- ------------------
R. R. Augsburger 4,321,981 69,980
R. S. Cecil 4,369,481 22,480
Dr. K. S. Hanson 4,368,304 23,657
J. K. Myers 4,369,604 22,357
J. W. Peth 4,290,555 101,406
H. A. Wolf 4,322,381 69,580
8
<PAGE>
(d) The company's 1996 Outside Directors Stock Option Plan
was approved. The vote is indicated below:
For 3,799,358
Against 432,621
Abstain 98,165
Non-Vote 61,817
(e) The company's appointment of Deloitte & Touche LLP as the
independent accountants for the fiscal year ending
May 31, 1997 was approved. The vote is indicated below:
For 4,366,734
Against 10,843
Abstain 14,384
Non-Vote 0
ITEM 5. Not applicable.
9
<PAGE>
ITEM 6. Exhibits
(a) 3.1 Certificate of Incorporation (Exhibit 3.1 of 1993
Form 10-K)(2)
3.2 Certificate of Designation, Preferences and Rights of
the Terms of the Series A Preferred Stock
3.3 Second Amended and Restated Bylaws of the company dated
October 17, 1996 (Exhibit 4 of Form 8-K dated
October 17, 1996)(2)
4.1 Form of Rights Agreement between the company and
ChaseMellon Shareholder Services, L.L.C., as Rights
Agent (including as Exhibit A the form of Certificate
of Designation, Preferences and Rights of the Terms of
the Series A Preferred Stock, as Exhibit B the form of
Right Certificate, and as Exhibit C the Summary of
Terms of Rights Agreement) (Exhibit 1 of Form 8-K dated
October 17, 1996)(2)
10.1 Registrants 1981 Incentive Stock Option Plan (Exhibit
(10) of the 1983 10-K)(1,2)
10.2 Amended 1981 Incentive Stock Option Plan (Exhibit (10)
of the 1987 10-K)(1,2)
10.3 1991 Stock Option Plan (Exhibit 10.1 of the 1991
10-K)(1,2)
10.4 Employment Agreement between John W. Peth and the
Registrant dated August 18, 1991 (Exhibit 10.2 of the
1991 10-K)(1,2)
10.5 Agreement between John W. Peth and the Registrant dated
August 18, 1991 (Exhibit 10.3 of the 1991 10-K)(1,2)
10.6 Agreement between Michael A. Dering and the Registrant
dated May 15, 1989 (Exhibit 10.4 of the 1991 10-K)(1,2)
10.7 Amendment to Agreement between Michael A. Dering and
the Registrant dated August 28, 1991 (Exhibit 10.5 of
the 1991 10-K)(1,2)
10.8 Common Stock Purchase Agreement (Exhibit 10.2 of the
1992 10-K)(2)
10.9 Promissory Note dated October 18, 1991 (Exhibit 10.3 of
the 1992 10-K)(2)
10.10 Bank of America Business Loan Agreement dated
October 24, 1991 (Exhibit 10.4 of the 1992 10-K)(2)
10.11 Note Agreement of Tab Products Co. dated as of
March 20, 1992 in the aggregate principal amount of
$15,000,000 (Exhibit 10.5 of the 1992 10-K)(2)
10.12 Bank of America Revision Agreement dated March 20, 1992
(Exhibit 10.6 of the 1992 10-K)(2)
10.13 Agreement for Purchase and Sale of Assets (Exhibit 10.7
of the 1992 10-K)(2)
10.14 Amendment dated September 15, 1992 to Business Loan
Agreement dated October 24, 1991 (Exhibit filed with
Form 10-Q for the quarter ended November 30, 1993)(2)
10.15 Business Loan Agreement dated August 20, 1993 (Exhibit
filed with Form 10-Q for the quarter ended November 30,
1993)(2)
10.16 Amendment dated July 27, 1993 to Note Agreement of
Tab Products Co. dated as of March 20, 1992 (Exhibit
filed with Form 10-Q for the quarter ended August 31,
1993)(2)
10.17 Bank of America Business Loan Agreement dated
August 20, 1993 (Exhibit filed with Form 10-Q for the
quarter ended August 31, 1993)(2)
10
<PAGE>
10.18 Bank of America Amendment No. 1 dated October 6, 1993
to Business Loan Agreement (Exhibit filed with
Form 10-Q for the quarter ended August 31, 1993)(2)
10.19 Bank of America Amendment No. 2 dated October 13, 1993
to Business Loan Agreement (Exhibit filed with
Form 10-Q for the quarter ended August 31, 1993)(2)
10.20 Note Agreement of Tab Products Co. dated October 7,
1993 (Exhibit filed with Form 10-Q for the quarter
ended August 31, 1993)(2)
10.21 Letter dated October 7, 1993 amending the Note
Agreement dated March 20, 1992 (Exhibit filed with Form
10-Q for the quarter ended August 31, 1993)(2)
10.22 Bank of America Amendment No. 3 dated December 3, 1993
to Business Loan Agreement dated August 20, 1993
(Exhibit 10.22 filed with Form 10-Q for the quarter
ended February 28, 1994)(2)
10.23 Bank of America Amendment No. 4 dated February 9, 1994
to Business Loan Agreement dated August 20, 1993
(Exhibit 10.23 filed with Form 10-Q for the quarter
ended February 28, 1994)(2)
10.24 Bank of America Amendment No. 5 dated February 28, 1994
to Business Loan Agreement dated August 20, 1993
(Exhibit 10.24 filed with Form 10-Q for the quarter
ended February 28, 1994)(2)
10.25 Bank of America Amendment No. 6 dated March 30, 1994 to
Business Loan Agreement dated August 20, 1993 (Exhibit
10.25 filed with Form 10-Q for the quarter ended
February 28, 1994)(2)
10.26 Bank of America Amendment No. 7 dated April 4, 1994 to
Business Loan Agreement dated August 20, 1993 (Exhibit
10.26 filed with Form 10-Q for the quarter ended
February 28, 1994)(2)
10.27 Letter dated October 27, 1993 amending the Prudential
Note Agreement dated March 20, 1992 (Exhibit 10.27
filed with the 1994 Form 10-K)(2)
10.28 Bank of America Amendment No. 8 dated May 9, 1994 to
Business Loan Agreement dated August 20, 1993 (Exhibit
10.28 filed with the 1994 Form 10-K)(2)
10.29 Bank of America Amendment No. 9 to Business Loan
Agreement dated August 20, 1993 (Exhibit 10.29 filed
with the 1994 Form 10-K)(2)
10.30 Bank of America Amendment No. 10 dated August 8, 1994
to Business Loan Agreement dated August 20, 1993
(Exhibit 10.30 filed with the 1994 Form 10-K)(2)
10.31 Bank of America Amendment No. 11 dated August 22, 1994
to Business Loan Agreement dated August 20, 1993
(Exhibit 10.31 filed with the 1994 Form 10-K)(2)
10.32 Letter dated June 15, 1995 amending the Prudential Note
Agreement dated March 20, 1992 (Exhibit 10.32 filed
with the 1995 Form 10-K)(2)
10.33 Letter dated July 21, 1995 amending the Prudential Note
Agreement dated March 20, 1992 (Exhibit 10.33 filed
with the 1995 Form 10-K)(2)
10.34 Bank of America Business Loan Agreement dated
December 7, 1995 (Exhibit 10.34 filed with Form 10-Q
for the quarter ended November 30, 1995)(2)
11
<PAGE>
10.35 Letter dated December 13, 1995 amending the Prudential
Note Agreement dated March 20, 1992 (Exhibit 10.35
filed with Form 10-Q for the quarter ended November 30,
1995)(2)
10.36 Bank of America Business Loan Agreement dated
August 26, 1996 (Exhibit 10.36 filed with the 1996 Form
10-K)(2)
10.37 Letter dated August 20, 1996 amending the Prudential
Note Agreement dated March 20, 1992 (Exhibit 10.37
filed with the 1996 Form 10-K)(2)
10.38 Form of Indemnity Agreement between the company and
each of its Executive Officers and Directors
10.39 Change of Control Agreement between the company and
Jack Peth
10.40 Form of Change of Control Agreement between the company
and named Executive Officers other than the Acting
Chief Executive Officer
10.41 Outside Directors' Option Plan and Agreement
(1) Compensatory Plan or Arrangement.
(2) Incorporated by reference from the noted previously
filed document.
(b) Form 8-K filed November 22, 1996 filing the Adoption of
Rights Agreement and Amendment of Bylaws.
12
<PAGE>
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.
TAB PRODUCTS CO.
---------------------------------------
(Registrant)
Date: January 11, 1997 /s/ John M. Palmer .
---------------------------------------
John M. Palmer, Vice President,
Finance and Chief Financial Officer
Date: January 11, 1997 /s/ James L. Anderson .
---------------------------------------
James L. Anderson, Controller
13
<PAGE>
Exhibit 3.2
EXHIBIT A
TAB PRODUCTS CO.
CERTIFICATE
OF DESIGNATION, PREFERENCES AND RIGHTS
OF THE TERMS OF THE
Series A Preferred Stock
Pursuant to Section 151 of the General Corporation Law of the State of
Delaware
We, the Acting President and Chief Executive Officer and Secretary,
respectively, of TAB Products Co., organized and existing under the General
Corporation Law of the State of Delaware, in accordance with the provisions of
Section 103 thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by the
Certificate of Incorporation of the said Corporation, the said Board of
Directors on October 24, 1996, adopted the following resolution creating a
series of 200,000 shares of Preferred Stock designated as Series A Preferred
Stock:
RESOLVED, that pursuant to the authority vested in the Board of Directors
of this Corporation in accordance with the provisions of its Certificate of
Incorporation, a series of Preferred Stock of the Corporation be and it hereby
is created, and that the designation and amount thereof and the powers,
preferences and relative, participating, optional and other special rights of
the shares of such series, and the qualifications, limitations or restrictions
thereof are as follows:
Section 1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Series A Preferred Stock" (the "Series A Preferred Stock"), $.01
par value per share, and the number of shares constituting such series shall be
200,000.
Section 2. DIVIDENDS AND DISTRIBUTIONS.
(A) The dividend rate on the shares of Series A Preferred Stock shall
be for each quarterly dividend (hereinafter referred to as a "quarterly dividend
period"), which quarterly dividend periods shall commence on January 1, April 1,
July 1 and October 1 each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date") (or in the case of original issuance, from
the date of original issuance) and shall end on and include the day next
preceding the first date of the next quarterly dividend period, at a rate per
quarterly dividend period (rounded to the nearest cent) equal to the greater of
(a) $88.50 or (b) subject to the provisions for adjustment hereinafter set
forth, 100 times the aggregate per share amount of all cash dividends,
<PAGE>
and 100 times the aggregate per share amount (payable in cash, based upon the
fair market value at the time the non-cash dividend or other distribution is
declared as determined in good faith by the Board of Directors) of all non-cash
dividends or other distributions other than a dividend payable in shares of
Common Stock or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared (but not withdrawn) on the Common
Stock, par value $.01 per share, of the Corporation (the "Common Stock") during
the immediately preceding quarterly dividend period, or, with respect to the
first quarterly dividend period, since the first issuance of any share or
fraction of a share of Series A Preferred Stock. In the event this Company
shall at any time after November 6, 1996 (the "Rights Declaration Date")
(i) declare any dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in each such case the amount
to which holders of shares of Series A Preferred Stock were entitled immediately
prior to such event under clause (b) of the preceding sentence shall be adjusted
by multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Series A Preferred Stock, unless
the date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Series A Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment Date,
in either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series A Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series A Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be no more than 45 days prior to the date fixed
for the payment thereof.
Section 3. VOTING RIGHTS. The holders of shares of Series A Preferred
Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder thereof to 100
votes on all matters submitted to a vote of the stockholders of the Corporation.
In the event the Corporation shall at any time after the Rights Declaration Date
(i) declare any dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in each such case the number
of votes per share to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event shall be adjusted by multiplying such
number by a fraction the numerator of which is
2
<PAGE>
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in the Certificate of
Incorporation or by law, the holders of shares of Series A Preferred Stock and
the holders of shares of Common Stock shall vote together as one class on all
matters submitted to a vote of stockholders of the Corporation.
(C) Except as set forth herein, in the Certificate of Incorporation
and in the Bylaws, holders of Series A Preferred Stock shall have no special
voting rights and their consent shall not be required (except to the extent they
are entitled to vote with holders of Common Stock as set forth herein) for
taking any corporate action.
Section 4. REACQUIRED SHARES. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
to be created by resolution or resolutions of the Board of Directors, subject to
the conditions and restrictions on issuance set forth herein.
Section 5. LIQUIDATION, DISSOLUTION OR WINDING UP.
(A) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of the Series A
Preferred Stock shall be entitled to receive the greater of (a) $3,500 per
share, plus accrued dividends to the date of distribution, whether or not earned
or declared, or (b) an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount to be distributed
per share to holders of Common Stock. In the event the Corporation shall at any
time after the Rights Declaration Date (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of shares,
then in each such case the amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event pursuant to clause
(b) of the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Section 6. CONSOLIDATION, MERGER, ETC. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common
3
<PAGE>
Stock is changed or exchanged. In the event the Corporation shall at any time
after the Rights Declaration Date (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of shares,
then in each such case the amount set forth in the preceding sentence with
respect to the exchange or change of shares of Series A Preferred Stock shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. NO REDEMPTION. The shares of Series A Preferred Stock shall
not be redeemable.
Section 8. FRACTIONAL SHARES. Series A Preferred Stock may be issued
in fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and have the benefit of all other rights of holders
of Series A Preferred Stock. All payments made with respect to fractional
shares hereunder shall be rounded to the nearest whole cent.
Section 9. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series A Preferred Stock outstanding shall have
been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series A Preferred
Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except dividends paid ratably on the Series A Preferred
Stock and all such parity stock on which dividends are payable or in
arrears in proportion to the total amounts to which the holders of all such
shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, provided that the Corporation may at any time redeem,
purchase or otherwise acquire shares of any such parity stock in exchange
for shares of any stock of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the Series A
Preferred Stock; or
4
<PAGE>
(iv) purchase or otherwise acquire for consideration any shares
of Series A Preferred Stock, or any shares of stock ranking on a parity
with the Series A Preferred Stock, except in accordance with a purchase
offer made in writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual dividend rates and
other relative rights and preferences of the respective series and classes
shall determine in good faith will result in fair and equitable treatment
among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 9, purchase or otherwise acquire such shares at such time and in
such manner.
Section 10. RANKING. The Series A Preferred Stock shall be junior to
all other Series of the Corporation's preferred stock as to the payment of
dividends and the distribution of assets, unless the terms of any series shall
provide otherwise.
Section 11. AMENDMENT. The Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of
two-thirds or more of the outstanding shares of Series A Preferred Stock voting
together as a single class.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate and od
affirm the foregoing as true under the penalties of perjury this 24th day of
October, 1996.
/S/ JACK PETH
-----------------------------------
Jack Peth, Acting President and
Chief Executive Officer
Attest:
/S/ ROBERT J. SEXTON
- - - - - - -------------------------------
Robert W. Sexton, Secretary
5
<PAGE>
Exhibit 10.38
INDEMNITY AGREEMENT
This Indemnity Agreement, dated as of October 30, 1996, is made by and
between TAB Products Co., a Delaware corporation (the "Company"), and
(the "Indemnitee").
- - - - - - --------------------------------------------------------
RECITALS
A. The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors, officers or agents of corporations
unless they are protected by comprehensive liability insurance or
indemnification, due to increased exposure to litigation costs and risks
resulting from their service to such corporations, and due to the fact that the
exposure frequently bears no reasonable relationship to the compensation of such
directors, officers and other agents.
B. The statutes and judicial decisions regarding the duties of
directors and officers are often difficult to apply, ambiguous, or conflicting,
and therefore fail to provide such directors, officers and agents with adequate,
reliable knowledge of legal risks to which they are exposed or information
regarding the proper course of action to take.
C. Plaintiffs often seek damages in such large amounts and the costs
of litigation may be so enormous (whether or not the case is meritorious), that
the defense and/or settlement of such litigation is often beyond the personal
resources of directors, officers and other agents.
D. The Company believes that it is unfair for its directors, officers
and agents and the directors, officers and agents of its subsidiaries to assume
the risk of huge judgments and other expenses which may occur in cases in which
the director, officer or agent received no personal profit and in cases where
the director, officer or agent was not culpable.
E. The Company recognizes that the issues in controversy in litigation
against a director, officer or agent of a corporation such as the Company or its
subsidiaries are often related to the knowledge, motives and intent of such
director, officer or agent, that he is usually the only witness with knowledge
of the essential facts and exculpating circumstances regarding such matters, and
that the long period of time which usually elapses before the trial or other
disposition of such litigation often extends beyond the time that the director,
officer or agent can reasonably recall such matters; and may extend beyond the
normal time for retirement for such director, officer or agent with the result
that he, after retirement or in the event of his death, his spouse, heirs,
executors or administrators, may be faced with limited ability and undue
hardship in maintaining an adequate defense, which may discourage such a
director, officer or agent from serving in that position.
1
<PAGE>
F. Based upon their experience as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and attract
talented and experienced individuals to serve as directors, officers and agents
of the Company and its subsidiaries and to encourage such individuals to take
the business risks necessary for the success of the Company and its
subsidiaries, it is necessary for the Company to contractually indemnify its
directors, officers and agents and the directors, officers and agents of its
subsidiaries, and to assume for itself maximum liability for expenses and
damages in connection with claims against such directors, officers and agents in
connection with their service to the Company and its subsidiaries, and has
further concluded that the failure to provide such contractual indemnification
could result in great harm to the Company and its subsidiaries and the Company's
stockholders.
G. Section 145 of the General Corporation Law of Delaware, under which
the Company is organized ("Section 145"), empowers the Company to indemnify its
directors, officers, employees and agents by agreement and to indemnify persons
who serve, at the request of the Company, as the directors, officers, employees
or agents of other corporations or enterprises, and expressly provides that the
indemnification provided by Section 145 is not exclusive.
H. The Company desires and has requested the Indemnitee to serve or
continue to serve as a director, officer or agent of the Company and/or one or
more subsidiaries of the Company free from undue concern for claims for damages
arising out of or related to such services to the Company and/or one or more
subsidiaries of the Company.
I. Indemnitee is willing to serve, or to continue to serve, the
Company and/or one or more subsidiaries of the Company, provided that he is
furnished the indemnity provided for herein.
AGREEMENT
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. DEFINITIONS.
(a) AGENT. For the purposes of this Agreement, "agent" of the
Company means any person who is or was a director, officer, employee or other
agent of the Company or a subsidiary of the Company; or is or was serving at the
request of, for the convenience of, or to represent the interests of the Company
or a subsidiary of the Company as a director, officer, employee or agent of
another foreign or domestic corporation, partnership, joint venture, trust or
other enterprise; or was a director, officer, employee or agent of a foreign or
domestic corporation which was a predecessor corporation of the Company or a
subsidiary of the Company, or was a director, officer, employee or agent of
another enterprise at the request of, for the convenience of, or to represent
the interests of such predecessor corporation.
2
<PAGE>
(b) EXPENSES. For purposes of this Agreement, "expenses"
include all out-of-pocket costs of any type or nature whatsoever (including,
without limitation, all attorneys' fees and related disbursements), actually and
reasonably incurred by the Indemnitee in connection with either the
investigation, defense or appeal of a proceeding or establishing or enforcing a
right to indemnification under this Agreement or Section 145 or otherwise;
provided, however, that "expenses" shall not include any judgments, fines, ERISA
excise taxes or penalties, or amounts paid in settlement of a proceeding.
(c) PROCEEDING. For the purposes of this Agreement,
"proceeding" means any threatened, pending, or completed action, suit or other
proceeding, whether civil, criminal, administrative, or investigative.
(d) SUBSIDIARY. For purposes of this Agreement, "subsidiary"
means any corporation of which more than 50% of the outstanding voting
securities is owned directly or indirectly by the Company, by the Company and
one or more other subsidiaries, or by one or more other subsidiaries.
2. AGREEMENT TO SERVE. The Indemnitee agrees to serve and/or continue
to serve as agent of the Company, at its will (or under separate agreement, if
such agreement exists), in the capacity Indemnitee currently serves as an agent
of the Company, so long as he is duly appointed or elected and qualified in
accordance with the applicable provisions of the Bylaws of the Company or any
subsidiary of the Company or until such time as he tenders his resignation in
writing; provided, however, that nothing contained in this Agreement is intended
to create any right to continued employment by Indemnitee.
3. LIABILITY INSURANCE.
(a) MAINTENANCE OF D&O INSURANCE. The Company hereby covenants
and agrees that, so long as the Indemnitee shall continue to serve as an agent
of the Company and thereafter so long as the Indemnitee shall be subject to any
possible proceeding by reason of the fact that the Indemnitee was an agent of
the Company, the Company, subject to Section 3(c), shall promptly obtain and
maintain in full force and effect directors' and officers' liability insurance
("D&O Insurance") in reasonable amounts from established and reputable insurers.
(b) RIGHTS AND BENEFITS. In all policies of D&O Insurance, the
Indemnitee shall be named as an insured in such a manner as to provide the
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if the Indemnitee is a director; or of the
Company's officers, if the Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, if the Indemnitee is not a director
or officer but is a key employee.
(c) LIMITATION ON REQUIRED MAINTENANCE OF D&O INSURANCE.
Notwithstanding the foregoing, the Company shall have no obligation to obtain or
maintain D&O Insurance if the Company determines in good faith that such
insurance is not reasonably available, the premium costs for such insurance are
disproportionate to the amount of coverage provided, the coverage
3
<PAGE>
provided by such insurance is limited by exclusions so as to provide an
insufficient benefit, or the Indemnitee is covered by similar insurance
maintained by a subsidiary of the Company.
4. MANDATORY INDEMNIFICATION. Subject to Section 9 below, the Company
shall indemnify the Indemnitee as follows:
(a) SUCCESSFUL DEFENSE. To the extent the Indemnitee has been
successful on the merits or otherwise in defense of any proceeding (including,
without limitation, an action by or in the right of the Company) to which the
Indemnitee was a party by reason of the fact that he is or was an Agent of the
Company at any time, against all expenses of any type whatsoever actually and
reasonably incurred by him in connection with the investigation, defense or
appeal of such proceeding.
(b) THIRD PARTY ACTIONS. If the Indemnitee is a person who was
or is a party or is threatened to be made a party to any proceeding (other than
an action by or in the right of the Company) by reason of the fact that he is or
was an agent of the Company, or by reason of anything done or not done by him in
any such capacity, the Company shall indemnify the Indemnitee against any and
all expenses and liabilities of any type whatsoever (including, but not limited
to, judgments, fines, ERISA excise taxes and penalties, and amounts paid in
settlement) actually and reasonably incurred by him in connection with the
investigation, defense, settlement or appeal of such proceeding, provided the
Indemnitee acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Company and its stockholders, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
(c) DERIVATIVE ACTIONS. If the Indemnitee is a person who was
or is a party or is threatened to be made a party to any proceeding by or in the
right of the Company by reason of the fact that he is or was an agent of the
Company, or by reason of anything done or not done by him in any such capacity,
the Company shall indemnify the Indemnitee against all expenses actually and
reasonably incurred by him in connection with the investigation, defense,
settlement, or appeal of such proceeding, provided the Indemnitee acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company and its stockholders; except that no indemnification
under this subsection 4(c) shall be made in respect to any claim, issue or
matter as to which such person shall have been finally adjudged to be liable to
the Company by a court of competent jurisdiction unless and only to the extent
that the court in which such proceeding was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such amounts which the court shall deem proper.
(d) ACTIONS WHERE INDEMNITEE IS DECEASED. If the Indemnitee is
a person who was or is a party or is threatened to be made a party to any
proceeding by reason of the fact that he is or was an agent of the Company, or
by reason of anything done or not done by him in any such capacity, and if prior
to, during the pendency of after completion of such proceeding Indemnitee
becomes deceased, the Company shall indemnify the Indemnitee's heirs, executors
and administrators against any and all expenses and liabilities of any type
whatsoever (including, but
4
<PAGE>
not limited to, judgments, fines, ERISA excise taxes and penalties, and amounts
paid in settlement) actually and reasonably incurred to the extent Indemnitee
would have been entitled to indemnification pursuant to Sections 4(a), 4(b), or
4(c) above were Indemnitee still alive.
(e) Notwithstanding the foregoing, the Company shall not be
obligated to indemnify the Indemnitee for expenses or liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
and penalties, and amounts paid in settlement) for which payment is actually
made to or on behalf of Indemnitee under a valid and collectible insurance
policy of D&O Insurance, or under a valid and enforceable indemnity clause,
by-law or agreement.
5. PARTIAL INDEMNIFICATION. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes and penalties, and amounts
paid in settlement) incurred by him in the investigation, defense, settlement or
appeal of a proceeding, but not entitled, however, to indemnification for all of
the total amount hereof, the Company shall nevertheless indemnify the Indemnitee
for such total amount except as to the portion hereof to which the Indemnitee is
not entitled.
6. MANDATORY ADVANCEMENT OF EXPENSES. Subject to Section 8(a) below,
the Company shall advance all expenses incurred by the Indemnitee in connection
with the investigation, defense, settlement or appeal of any proceeding to which
the Indemnitee is a party or is threatened to be made a party by reason of the
fact that the Indemnitee is or was an agent of the Company. Indemnitee hereby
undertakes to repay such amounts advanced only if, and to the extent that, it
shall be determined ultimately that the Indemnitee is not entitled to be
indemnified by the Company as authorized hereby. The advances to be made
hereunder shall be paid by the Company to the Indemnitee within twenty (20) days
following delivery of a written request therefor by the Indemnitee to the
Company. In the event that the Company fails to pay expenses as incurred by the
Indemnitee as required by this paragraph, Indemnitee may seek mandatory
injunctive relief from any court having jurisdiction to require the Company to
pay expenses as set forth in this paragraph. If Indemnitee seeks mandatory
injunctive relief pursuant to this paragraph, it shall not be a defense to
enforcement of the Company's obligations set forth in this paragraph that
Indemnitee has an adequate remedy at law for damages.
7. NOTICE AND OTHER INDEMNIFICATION PROCEDURES.
(a) Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the Indemnitee
shall, if the Indemnitee believes that indemnification with respect thereto may
be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.
(b) If, at the time of the receipt of a notice of the
commencement of a proceeding pursuant to Section 7(a) hereof, the Company has
D&O Insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
5
<PAGE>
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(c) In the event the Company shall be obligated to pay the
expenses of any proceeding against the Indemnitee, the Company, if appropriate,
shall be entitled to assume the defense of such proceeding, with counsel
approved by the Indemnitee, upon the delivery to the Indemnitee of written
notice of its election so to do. After delivery of such notice, approval of
such counsel by the Indemnitee and the retention of such counsel by the Company,
the Company will not be liable to the Indemnitee under this Agreement for any
fees of counsel subsequently incurred by the Indemnitee with respect to the same
proceeding, provided that (i) the Indemnitee shall have the right to employ his
counsel in any such proceeding at the Indemnitee's expense; and (ii) if (A) the
employment of counsel by the Indemnitee has been previously authorized by the
Company, (B) the Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and the Indemnitee in the conduct of
any such defense, or (C) the Company shall not, in fact, have employed counsel
to assume the defense of such proceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
8. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance
expenses to the Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by the Indemnitee and not by way of defense, unless (i) such
indemnification is expressly required to be made by law, (ii) the proceeding was
authorized by the Board, (iii) such indemnification is provided by the Company,
in its sole discretion, pursuant to the powers vested in the Company under the
General Corporation Law of Delaware or (iv) the proceeding is brought to
establish or enforce a right to indemnification under this Agreement or any
other statute or law or otherwise as required under Section 145.
(b) LACK OF GOOD FAITH. To indemnify the Indemnitee for any
expenses incurred by the Indemnitee with respect to any proceeding instituted by
the Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or
(c) UNAUTHORIZED SETTLEMENTS. To indemnify the Indemnitee under
this Agreement for any amounts paid in settlement of a proceeding unless the
Company consents to such settlement, which consent shall not be unreasonably
withheld.
9. NON-EXCLUSIVITY. The provisions for indemnification and
advancement of expenses set forth in this Agreement shall not be deemed
exclusive of any other rights which the Indemnitee may have under any provision
of law, the Company's Certificate of Incorporation or Bylaws, the vote of the
Company's stockholders or disinterested directors, other agreements, or
otherwise, both as to action in his official capacity and to action in another
capacity while occupying his position as an agent of the Company, and the
Indemnitee's rights hereunder shall continue after
6
<PAGE>
the Indemnitee has ceased acting as an agent of the Company and shall inure to
the benefit of the heirs, executors and administrators of the Indemnitee.
10. ENFORCEMENT. Any right to indemnification or advances granted by
this Agreement to Indemnitee shall be enforceable by or on behalf of Indemnitee
in any court of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of such claim is
made within ninety (90) days of request therefor. Indemnitee, in such
enforcement action, if successful in whole or in part, shall be entitled to be
paid also the expense of prosecuting his claim. It shall be a defense to any
action for which a claim for indemnification is made under this Agreement (other
than an action brought to enforce a claim for expenses pursuant to Section 6
hereof, provided that the required undertaking has been tendered to the Company)
that Indemnitee is not entitled to indemnification because of the limitations
set forth in Sections 4 and 8 hereof. Neither the failure of the Corporation
(including its Board of Directors or its stockholders) to have made a
determination prior to the commencement of such enforcement action that
indemnification of Indemnitee is proper in the circumstances, nor an actual
determination by the Company (including its Board of Directors or its
stockholders) that such indemnification is improper, shall be a defense to the
action or create a presumption that Indemnitee is not entitled to
indemnification under this Agreement or otherwise.
11. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
12. SURVIVAL OF RIGHTS.
(a) All agreements and obligations of the Company contained
herein shall continue during the period Indemnitee is an agent of the Company
and shall continue thereafter so long as Indemnitee shall be subject to any
possible claim or threatened, pending or completed action, suit or proceeding,
whether civil, criminal, arbitrational, administrative or investigative, by
reason of the fact that Indemnitee was serving in the capacity referred to
herein.
(b) The Company shall require any successor to the Company
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Company, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no such succession had
taken place.
13. INTERPRETATION OF AGREEMENT. It is understood that the parties
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent permitted by law
including those circumstances in which indemnification would otherwise be
discretionary.
14. SEVERABILITY. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
(i) the validity, legality and
7
<PAGE>
enforceability of the remaining provisions of the Agreement (including without
limitation, all portions of any paragraphs of this Agreement containing any such
provision held to be invalid, illegal or unenforceable, that are not themselves
invalid, illegal or unenforceable) shall not in any way be affected or impaired
thereby, and (ii) to the fullest extent possible, the provisions of this
Agreement (including, without limitation, all portions of any paragraph of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
be construed so as to give effect to the intent manifested by the provision held
invalid, illegal or unenforceable and to give effect to Section 13 hereof.
15. MODIFICATION AND WAIVER. No supplement, modification or amendment
of this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
16. NOTICE. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee or (ii) if mailed by
certified or registered mail with postage prepaid, on the third business day
after the mailing date. Addresses for notice to either party are as shown on
the signature page of this Agreement, or as subsequently modified by written
notice.
17. GOVERNING LAW. This Agreement shall be governed exclusively by and
construed according to the laws of the State of Delaware as applied to contracts
between Delaware residents entered into and to be performed entirely within
Delaware.
The parties hereto have entered into this Indemnity Agreement effective
as of the date first above written.
THE COMPANY:
TAB PRODUCTS CO.
By
----------------------------------------
Title
-------------------------------------
Address:
----------------------------------
1400 Page Mill Road
Palo Alto, California 94304
INDEMNITEE:
8
<PAGE>
-------------------------------------------
[Indemnitee's Printed Name]
Address:
----------------------------------
-------------------------------------------
9
<PAGE>
Exhibit 10.39
TAB PRODUCTS CO.
CHANGE OF CONTROL AGREEMENT
---------------------------
This Change of Control Agreement (the "Agreement") is effective as of
October 17, 1996, by and between Jack Peth (the "Employee"), and Tab
Products Co., a Delaware corporation (the "Company").
RECITALS
A. The Employee presently serves at the pleasure of the Board of
Directors as Acting President and Chief Executive Officer of the Company and
performs significant strategic and management responsibilities necessary to the
continued conduct of the Company's business and operations.
B. The Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its stockholders to assure
that the Company will have the continued dedication and objectivity of the
Employee, notwithstanding the possibility or occurrence of a Change of Control
(as defined below) of the Company.
C. The Board believes that it is imperative to provide the Employee
with certain severance benefits upon the Employee's termination of employment
following a Change of Control which provide the Employee with enhanced financial
security and provide sufficient incentive and encouragement to the Employee to
remain with the Company following a Change of Control.
D. The Board has determined that it is in the best interests of the
Company and its stockholders to provide Employee with certain severance benefits
upon the Employee's termination of employment by the Company apart from a Change
of Control.
E. Certain capitalized terms used in the Agreement are defined in
Section 3 below.
In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of Employee by the Company, the
parties agree as follows:
1. TERMS OF EMPLOYMENT. The Company and the Employee agree that the
Employee's employment is at will, and that their employment relationship may be
terminated by either party at any time, with or without cause. If the
Employee's employment terminates for any reason, the Employee shall not be
entitled to any payments, benefits, damages, awards or compensation other than
as provided by this Agreement. The provisions of this Agreement shall terminate
on October 1, 2001 (except that the Employee's employment by the Company shall
continue to be "at will"). Any termination of this Agreement shall not affect
any required payment or benefit that accrues prior to such termination.
1
<PAGE>
2. SEVERANCE BENEFITS. Subject to Sections 2(d) and 2(e) below,
(a) TERMINATION FOLLOWING A CHANGE OF CONTROL. If the
Employee's employment is terminated within one (1) month prior to or twelve (12)
months following a Change of Control, then the Employee shall be entitled to
receive severance benefits as follows:
(i) INVOLUNTARY TERMINATION. If the Employee's
employment is terminated as a result of Involuntary Termination (as defined in
Section 3(b) below), then the Employee shall be entitled to receive severance
pay in an amount equal to 150% of the Employee's annual base salary at the time
of such termination, plus the full amount of Employee's annual bonus at the
"on-target" level for the fiscal year in which Employee is terminated, which
amount shall be paid in lieu of any bonus or commission that may be owing, or
becomes owed to Employee at any time thereafter. Any severance payments to
which the Employee is entitled pursuant to this section shall be paid in a lump
sum within thirty (30) days of the Employee's termination. In addition, for a
period of up to eighteen (18) months after any termination under this
Section 2(a)(i), (i) the Company shall, if permitted under the Company's
existing health insurance plan at no additional premium to the Company, continue
Employee's existing group health insurance coverage, or if not so permitted,
reimburse the Employee for any COBRA premiums paid by the Employee for continued
group health insurance coverage and (ii) the Company shall continue to pay
premiums for life insurance maintained by the Company on behalf of Employee in
the same amount of coverage as was in place prior to the termination of
employment, PROVIDED THAT such insurance coverage can be continued on an
individual basis following Employee's termination and PROVIDED FURTHER that the
Company shall not be required to pay any additional premium amount for
individual coverage (the "Employment Benefits"). Such Employment Benefits shall
terminate upon the earlier of (i) eighteen (18) months from the date of the
Employee's termination or (ii) upon commencement of New Employment by the
Employee. In addition, Employee shall be entitled to reimbursement of up to
$10,000 worth of outplacement services actually used.
(ii) VOLUNTARY RESIGNATION. If the Employee's employment
terminates by reason of the Employee's voluntary resignation (and is not an
Involuntary Termination or a Termination for Cause), then the Employee shall not
be entitled to receive severance or other benefits following the date of such
termination under the terms of this Agreement, and the Company shall have no
obligation to provide for the continuation of any health and medical benefit or
life insurance plans existing on the date of such termination except as
otherwise required by applicable law.
(iii) DISABILITY; DEATH. If the Company terminates the
Employee's employment as a result of the Employee's Disability, or such
Employee's employment is terminated at any time due to the death of the
Employee, then the Employee shall not be entitled to receive severance or other
benefits following the date of such termination under the terms of this
Agreement, and the Company shall have no obligation to provide for the
continuation of any health and medical benefit or life insurance plans existing
on the date of such termination except as otherwise required by applicable law.
2
<PAGE>
(iv) TERMINATION FOR CAUSE. If the Employee is
terminated for Cause, then the Employee shall not be entitled to receive any
severance or other benefits following the date of such termination under the
terms of this Agreement, and the Company shall have no obligation to provide for
the continuation of any health and medical benefit or life insurance plans
existing on the date of such termination except as otherwise required by
applicable law.
(v) ACCELERATION OF STOCK OPTIONS. The Employee shall be
entitled to acceleration of vesting for Employee's stock options as provided
under the Company's 1991 Stock Option Plan or any applicable successor plan.
(b) TERMINATION APART FROM CHANGE OF CONTROL. (i) If the
Employee's employment is terminated by reason of an Involuntary Termination
either prior to the occurrence of a Change of Control or after the expiration of
twelve (12) months following a Change of Control, then the Employee shall be
entitled to receive the following: (A) severance pay in an amount equal to 50%
of the Employee's annual base salary at the time of the termination; (B) if
targets have been met through the date of Employee's termination, the amount of
Employee's on-target bonus for the fiscal year in which Employee's employment
was terminated, multiplied by a fraction the numerator of which is the number of
full months of Employee's employment during such fiscal year and the denominator
of which is twelve (12), PROVIDED THAT the amounts payable under
subsections (i)(A) and (ii)(B) shall be paid in a lump sum within thirty (30)
days of the Employee's termination; (C) in the event Employee has not commenced
New Employment by the end of the sixth month following the termination (the
"Initial Period"), Employee shall be entitled to additional severance pay in the
amount of 67% of Employee's monthly base salary at the time of termination,
which amount shall be payable monthly on the first day of each of the six months
following the Initial Period (the "Additional Period"), PROVIDED THAT, such
monthly payments shall terminate upon the commencement of New Employment by the
Employee and in any event shall terminate following the sixth such payment; and
(D) in the event Employee shall commence New Employment during the Initial
Period or the Additional Period, the Employee shall be entitled to receive an
additional severance payment in accordance with the schedule attached hereto as
EXHIBIT A, payable in a lump sum thirty (30) days after Employee's notice of
commencement of New Employment.
(ii) In addition, for a period of up to twelve (12) months after any
Involuntary Termination covered under this Section 2(b), the Company shall
provide the Employment Benefits, provided that such Employment Benefits shall
terminate upon the earlier of (A) twelve months from the date of the Employee's
termination or(B) upon commencement of New Employment by the Employee and the
Employee shall be entitled to reimbursement for up to $10,000 worth of
outplacement services actually used.
(iii) Following an Involuntary Termination subject to this Section 2(b)
which occurs prior to June 9, 1997, acceleration of 30,000 then unvested shares
of any stock option granted to the Employee under the Company's 1991 Stock
Option Plan shall automatically occur as set forth under this Section 2(b)(iii)
and the Employee shall automatically have the right to exercise all or any
portion of such stock option to the extent so accelerated, in addition to any
portion of the option exercisable prior to acceleration.
3
<PAGE>
(iv) If the Employee's employment is terminated by reason of voluntary
resignation, Disability, death or for Cause either prior to the occurrence of a
Change of Control or after the expiration of twelve (12) months following a
Change of Control, then the Employee shall not be entitled to receive any
severance or other benefits following the date of such termination under the
terms of this Agreement, and the Company shall have no obligation to provide for
the continuation of any health and medical benefit or life insurance plans
existing on the date of such termination except as otherwise required by
applicable law.
(c) REPURCHASE OPTION. In partial consideration of the
benefits granted Employee hereunder, Employee hereby grants to the Company the
right (the "Company Repurchase Option"), exercisable in the sole discretion of
the Company, to repurchase from the owner thereof, on the terms set forth in
this Section 2(c), any and all shares of the capital stock of the Company
beneficially owned by Employee (or by any transferee of Employee or subsequent
transferee, except as otherwise provided below) which shall have been acquired
by Employee pursuant to the exercise of any stock option granted to Employee by
the Company (the "Repurchase Shares").
(i) EXERCISE OF COMPANY REPURCHASE OPTION. The Company may
exercise the Company Repurchase Option by written notice to Employee, Employee's
legal representative, or other owner of the Repurchase Shares, as the case may
be, during the Repurchase Period. The "Repurchase Period" shall commence upon
the date of Employee's termination of employment for any reason or no reason,
other than (A) any termination of employment occurring less than thirty (30)
days prior to a Change of Control and (B) any termination of employment
following a Change of Control. The Repurchase Period shall terminate, with
respect to Repurchase Shares acquired upon the exercise of any Company stock
option, on the later of (A) the date ten (10) days after the commencement of the
Repurchase Period or (B) the date ten (10) days after such Company stock option
is last exercised; provided, however, that the Repurchase Period with respect to
all Repurchase Shares shall terminate on the date which is thirty (30) days
prior to a Change of Control. If the Company fails to give such notice of
exercise during the Repurchase Period, the Company Repurchase Option shall
terminate (unless the Company and Employee have agreed in writing to extend the
time for the exercise of the Company Repurchase Option).
(ii) PAYMENT FOR REPURCHASE SHARES. The repurchase price per
share being repurchased by the Company pursuant to the Company Repurchase Option
shall be an amount equal to the greater of (A) the closing price per share of
the class of securities subject to the Company Repurchase Option as reported on
the securities exchange or market system constituting the primary market for
such class of the Company's securities (the "Closing Price") on the date of
Employee's termination of employment or (B) the Closing Price on the date of the
exercise of any Company stock option (the "Determination Date"). For purposes
of establishing the Determination Date, if the date of termination of Employee's
employment does not fall on a day on which such class of securities is traded on
such exchange or market system, the repurchase price per share shall be
determined in accordance with the preceding sentence on the last day on which
such securities were so traded. If there is then no public market for the class
of securities subject to the Company Repurchase Option, the repurchase price per
share shall be the fair market value per share of such class of securities as
determined in good faith by the Board of Directors of
4
<PAGE>
the Company. Payment by the Company to the owner of the Repurchase Shares shall
be made in cash on or before the last day of the Repurchase Period. For
purposes of the foregoing, cancellation of any indebtedness of Employee to the
Company shall be treated as payment to Employee in cash to the extent of the
unpaid principal and any accrued interest canceled.
(iii) ASSIGNMENT OF COMPANY REPURCHASE OPTION. The Company shall
have the right to assign the Company Repurchase Option at any time, whether or
not such option is then exercisable, to one or more persons as may be selected
by the Company.
(iv) TRANSFEREES OF REPURCHASE SHARES. All transferees and
subsequent transferees of the Repurchase Shares or any interest therein, other
than the Company or any transferees who acquired such shares pursuant to a sale
of such shares in a "brokers' transaction" within the meaning of Rule 144 under
the Securities Act of 1933, as amended, shall be required as a condition of such
transfer to agree in writing (in a form satisfactory to the Company) to receive
and hold such Repurchase Shares or any interest therein subject to all of the
terms and conditions of this Section 2(c). Any transfer of Repurchase Shares
shall be void unless the requirements of this Section 2(c) are satisfied. The
Company may at any time place legends referencing the Company Repurchase Option
on certificates representing the Repurchase Shares.
(d) RELEASE OF CLAIMS; RESIGNATION. Employee's entitlement to any
benefits under this Section 2 is conditioned upon Employee's execution and
delivery to the Company of (i) a general release of claims in a form
satisfactory to the Company and (ii) a resignation from all of Employee's
positions with the Company, including from the Board of Directors and any
committees thereof on which Employee serves, in a form satisfactory to the
Company.
(e) LIMITATION OF PAYMENTS AND BENEFITS.
(i) To the extent that any of the payments and benefits
provided for in this Agreement or otherwise payable to the Employee constitute
"parachute payments" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"), and, but for this Section 2(e), would be
subject to the excise tax imposed by Section 4999 of the Code or any similar or
successor provision, the aggregate amount of such payments and benefits shall be
reduced, but only to the extent necessary so that none of such payments and
benefits are subject to excise tax pursuant to Section 4999 of the Code.
(ii) Within sixty (60) days after the later of
termination of employment or the related Change in Control, the Company shall
notify the Employee in writing if it believes that any reduction in the payments
and benefits that would otherwise be paid or provided to the Employee under the
terms of this Agreement is required to comply with the provisions of
Subsection 2(e)(i). If the Company determines that any such reduction is
required, it will provide the Employee with copies of the information used and
calculations made by the Company to determine the amount of such reduction. The
Company shall determine, in a fair and equitable manner after consultation with
the Employee, which payments and benefits are to be reduced so as to result in
the maximum benefit for the Employee.
5
<PAGE>
(iii) Within thirty (30) days after the Employee's receipt
of the Company's notice pursuant to Subsection 2(e)(ii), the Employee shall
notify the Company in writing if the Employee disagrees with the amount of
reduction determined by the Company, or the selection of the payments and the
benefits to be reduced. As part of such notice, the Employee shall also advise
the Company of the amount of reduction, if any, that the Employee has, in good
faith, determined to be necessary to comply with the provisions of
Subsection 2(e)(i) and/or the payments and benefits to be reduced. Failure by
the Employee to provide this notice within the time allowed will be treated by
the Company as acceptance by the Employee of the amount of reduction determined
by the Company and/or the payments and benefits to be reduced. If any
differences regarding the amount of the reduction and/or the payments and
benefits to be reduced have not been resolved by mutual agreement within sixty
(60) days after the Employee's receipt of the Company's notice pursuant to
Subsection 2(e)(ii), the amount of reduction and/or the payments and benefits to
be reduced as determined by the Employee will be conclusive and binding on both
parties unless, prior to the expiration of such sixty (60) day period, the
Company notifies the Employee in writing of the Company's intention to have the
matter submitted to arbitration for resolution and proceeds to do so promptly.
If the Company gives no notice to the Employee of a required reduction as
provided in Subsection 2(e)(ii), the Employee may unilaterally determine the
amount of reduction required, if any, and/or the payments and benefits to be
reduced, and, upon written notice to the Company, the amount and/or the payments
and benefits to be reduced will be conclusive and binding on both parties.
(iv) If, as a result of the reductions required by
Subsection 2(e)(i), the amounts previously paid to the Employee exceed the
amount to which the Employee is entitled, the Employee will promptly return the
excess amount to the Company.
(f) CONSULTING SERVICES. In consideration for the other benefits
provided hereunder, during the twelve (12) months following any Involuntary
Termination subject to Section 2(b) hereof, Employee shall provide consulting
services to the Company at the request of the Chairman or the Chief Executive
Officer. Such services shall include any reasonable requests for information or
assistance by the Chairman or Chief Executive Officer, including but not limited
to the transition of Employee's duties and shall be provided at mutually
convenient times.
3. DEFINITION OF TERMS. The following terms referred to in this
Agreement shall have the following meanings:
(a) CHANGE OF CONTROL. "Change of Control" shall mean the
occurrence of either of the following events:
(i) Any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing fifty percent (50%) or
more of the total voting power represented by the Company's then outstanding
voting securities; or
6
<PAGE>
(ii) (A) A merger or consolidation of the Company with
any other corporation, other than a merger or consolidation which would result
in the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least fifty percent (50%) of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation; or (B) the complete liquidation of the Company; or (C) the sale
or disposition by the Company of all or substantially all the Company's assets.
(b) INVOLUNTARY TERMINATION. "Involuntary Termination" shall
mean the Employee's resignation within 60 days after any of the following:
(i) Without the Employee's express written consent, the
assignment to the Employee of any significant duties or the significant
reduction of the Employee's duties, either of which is materially inconsistent
with the Employee's position with the Company and responsibilities in effect
immediately prior to such assignment, or the removal of the Employee from such
position and responsibilities, which is not effected for death, Disability or
for Cause;
(ii) Without the Employee's express written consent, a
substantial reduction, without good business reasons, of the facilities and
perquisites (including office space and location) available to the Employee
immediately prior to such reduction;
(iii) Any reduction by the Company in an amount greater
than 10% in the base salary and/or prospective bonus of the Employee as in
effect immediately prior to such reduction, other than a reduction applied
generally to executive officers of the Company;
(iv) Any reduction by the Company in the kind or level of
employee benefits to which the Employee is entitled immediately prior to such
reduction, other than a reduction applied generally to executive officers of the
Company;
(v) The relocation of the Employee to a facility or a
location more than 40 miles from the Employee's then present location, without
the Employee's express written consent; or
(vi) The failure of the Company to obtain the assumption
of the terms of this Agreement by any successors contemplated in Section 4
below.
PROVIDED, HOWEVER, that the Employee's resignation as a result of any of the
foregoing conditions shall be a voluntary resignation, and not an involuntary
termination, unless the Employee gives written notice of any such condition(s)
to the Board and allows the Company at least 10 days thereafter to correct such
condition(s). It shall also be an Involuntary Termination if the Company
terminates the Employee for any reason other than Disability, death or for
Cause.
(c) CAUSE. For purposes of this Agreement, a termination "for
Cause" occurs if the Employee is terminated for any of the following reasons:
7
<PAGE>
(i) Theft, dishonesty, or intentional falsification of
any employment or Company records;
(ii) Improper disclosure of the Company's confidential or
proprietary information;
(iii) Any action by the Employee that Employee knew or
should have known could have a material detrimental effect on the Company's
reputation or business;
(iv) The Employee's failure or inability to perform any
reasonable assigned duties after written notice from the Company to the Employee
of, and a reasonable opportunity to cure, such failure or inability; or
(v) The Employee's conviction (including any plea of
guilty or nolo contendre) for any criminal act that impairs his ability to
perform his duties for the Company.
(d) DISABILITY. "Disability" shall mean that the Employee is
unable to perform his duties as an employee of the Company as the result of his
incapacity due to physical or mental illness for 120 days (not necessarily
consecutive) in any one year period. Termination resulting from Disability may
only be effected after at least 30 days' written notice by the Company of its
intention to terminate the Employee's employment. In the event that the
Employee resumes the performance of substantially all of his duties as an
employee of the Company before the termination of his employment becomes
effective, the notice of intent to terminate shall automatically be deemed to
have been revoked.
(e) NEW EMPLOYMENT. For purposes of this Agreement, "New
Employment" shall mean any salaried position with any employer.
4. EMPLOYEE COVENANT REGARDING NONSOLICITATION. For a period of one
(1) year following termination of employment for any reason, the Employee shall
not recruit, solicit, or invite the solicitation of any employees of the Company
to terminate their employment with the Company.
5. SUCCESSORS.
(a) COMPANY'S SUCCESSORS. Any successor to the Company
(whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) to all or substantially all of the
Company's business and/or assets shall assume the obligations under this
Agreement and agree expressly to perform the obligations under this Agreement in
the same manner and to the same extent as the Company would be required to
perform such obligations in the absence of a succession. For all purposes under
this Agreement, the term "Company" shall include any successor to the Company's
business and/or assets which executes and delivers the assumption agreement
described in this subsection (a) or which becomes bound by the terms of this
Agreement by operation of law.
8
<PAGE>
(b) EMPLOYEE'S SUCCESSORS. All rights of the Employee
hereunder shall inure to the benefit of, and be enforceable by, the Employee's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. Employee shall have no right to assign any
of his obligations or duties under this Agreement to any other person or entity.
6. NOTICE.
(a) GENERAL. Notices and all other communications contemplated
by this Agreement shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by U.S. registered or certified
mail, return receipt requested and postage prepaid. In the case of the
Employee, mailed notices shall be addressed to him at the home address which he
most recently communicated to the Company in writing. In the case of the
Company, mailed notices shall be addressed to its corporate headquarters, and
all notices shall be directed to the attention of its Secretary.
(b) NOTICE OF TERMINATION. Any termination by the Company for
Cause or by the Employee as a result of a voluntary resignation or an
Involuntary Termination shall be communicated by a notice of termination to the
other party hereto given in accordance with Section 6 of this Agreement. Such
notice shall indicate the specific termination provision in this Agreement
relied upon, shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination under the provision so indicated, and
shall specify the termination date (which shall be not more than 15 days after
the giving of such notice).
7. MISCELLANEOUS PROVISIONS.
(a) NO DUTY TO MITIGATE. The Employee shall not be required to
mitigate the amount of any payment contemplated by this Agreement (whether by
seeking New Employment or in any other manner), nor shall any such payment be
reduced by any earnings that the Employee may receive from any other source.
(b) WAIVER. No provision of this Agreement shall be modified,
waived or discharged unless the modification, waiver or discharge is agreed to
in writing and signed by the Employee and by an authorized officer of the
Company (other than the Employee). No waiver by either party of any breach of,
or of compliance with, any condition or provision of this Agreement by the other
party shall be considered a waiver of any other condition or provision or of the
same condition or provision at another time.
(c) CHOICE OF LAW. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of the State of
California.
(d) SEVERABILITY. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.
9
<PAGE>
(e) ARBITRATION. In the event of any dispute or claim relating
to or arising out of the Employee's employment relationship with the Company,
this Agreement, or the termination of the Employee's employment with the Company
for any reason (including, but not limited to, any claims of breach of contract,
wrongful termination, fraud or age, race, sex, national origin, disability or
other discrimination or harassment), the Employee and the Company agree that all
such disputes shall be fully, finally and exclusively resolved by binding
arbitration conducted by the American Arbitration Association in Santa Clara
County, California. The Employee and the Company hereby knowingly and willingly
waive their respective rights to have any such disputes or claims tried to a
judge or jury. Provided, however, that this arbitration provision shall not
apply to any disputes or claims relating to or arising out of the actual or
alleged misuse or misappropriation of the Company's property, including, but not
limited to, its trade secrets or proprietary information.
(f) NO ASSIGNMENT OF BENEFITS. The rights of any person to
payments or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
law, including (without limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this subsection (f) shall be
void.
(g) EMPLOYMENT TAXES. All payments made pursuant to this
Agreement will be subject to withholding of applicable income and employment
taxes.
(h) ASSIGNMENT BY COMPANY. The Company may assign its rights
under this Agreement to an affiliate, and an affiliate may assign its rights
under this Agreement to another affiliate of the Company or to the Company;
provided, however, that no assignment shall be made if the net worth of the
assignee is less than the net worth of the Company at the time of assignment.
In the case of any such assignment, the term "Company" when used in a section of
this Agreement shall mean the corporation that actually employs the Employee.
(i) COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.
(j) PRIOR AGREEMENTS. This Agreement shall supersede all prior
arrangements whether written or oral, and understandings, regarding the subject
matter of this Agreement.
10
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Company by its duly authorized officer, as of the day and year
first above written.
COMPANY TAB PRODUCTS CO.
By:
-----------------------------------
Title:
--------------------------------
EMPLOYEE By:
-----------------------------------
11
<PAGE>
EXHIBIT A
---------
SEVERANCE PAYMENT UNDER SECTION 2(b)
In the event that Employee is entitled to severance benefits pursuant to Section
2(b) of the Agreement and commences New Employment within the Initial Period or
the Additional Period (as defined in the Agreement), the Employee shall be
entitled to a severance payment as follows:
-------------------------------------------------------------------------
NEW EMPLOYMENT COMMENCES SEVERANCE AMOUNT
-------------------------------------------------------------------------
-------------------------------------------------------------------------
During Initial Period $67,500
-------------------------------------------------------------------------
During 1st Month Following Initial Period $56,250
-------------------------------------------------------------------------
During 2nd Month Following Initial Period $45,000
-------------------------------------------------------------------------
During 3rd Month Following Initial Period $33,750
-------------------------------------------------------------------------
During 4th Month Following Initial Period $22,500
-------------------------------------------------------------------------
During 5th Month Following Initial Period $11,250
-------------------------------------------------------------------------
During 6th Month Following Initial Period $0
-------------------------------------------------------------------------
12
<PAGE>
Exhibit 10.40
TAB PRODUCTS CO.
CHANGE OF CONTROL AGREEMENT
---------------------------
This Change of Control Agreement (the "Agreement") is effective as of
November ___, 1996, by and between _____________________________________ (the
"Employee"), and TAB Products Co., a Delaware corporation (the "Company").
RECITALS
A. The Employee presently serves at the pleasure of the Board of
Directors of the Company and performs significant strategic and management
responsibilities necessary to the continued conduct of the Company's business
and operations.
B. The Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its stockholders to assure
that the Company will have the continued dedication and objectivity of the
Employee, notwithstanding the possibility or occurrence of a Change of Control
(as defined below) of the Company.
C. The Board believes that it is imperative to provide the Employee with
certain severance benefits upon the Employee's termination of employment
following a Change of Control which provide the Employee with enhanced financial
security and provide sufficient incentive and encouragement to the Employee to
remain with the Company following a Change of Control.
D. Certain capitalized terms used in the Agreement are defined in Section
3 below.
In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of Employee by the Company, the
parties agree as follows:
1. TERMS OF EMPLOYMENT. The Company and the Employee agree that the
Employee's employment is at will, and that their employment relationship may be
terminated by either party at any time, with or without cause. If the
Employee's employment terminates for any reason, the Employee shall not be
entitled to any payments, benefits, damages, awards or compensation other than
as provided by this Agreement or in accordance with Company policies then in
effect. The provisions of this Agreement shall terminate on October 1, 2001
(except that the Employee's employment by the Company shall continue to be "at
will"). Any termination of this Agreement shall not affect any required payment
or benefit that accrues prior to such termination.
2. SEVERANCE BENEFITS. Subject to Sections 2(b) and 2(c) below,
1
<PAGE>
(a) TERMINATION FOLLOWING A CHANGE OF CONTROL. If the Employee's
employment is terminated within one (1) month prior to or twelve (12) months
following a Change of Control, then the Employee shall be entitled to receive
severance benefits as follows:
(i) INVOLUNTARY TERMINATION. If the Employee's employment is
terminated as a result of Involuntary Termination (as defined in Section 3(b)
below), then the Employee shall be entitled to receive severance pay in an
amount equal to 100% of the Employee's annual base salary at the time of such
termination, plus the full amount of Employee's annual bonus at the "on-target"
level for the fiscal year in which Employee is terminated, which amount shall be
paid in lieu of any bonus or commission that may be owing, or becomes owed to
Employee at any time thereafter. Any severance payments to which the Employee
is entitled pursuant to this section shall be paid in a lump sum within thirty
(30) days of the Employee's termination. In addition, for a period of up to
twelve (12) months after any termination under this Section 2(a)(i), (i) the
Company shall reimburse the Employee for any COBRA premiums paid by the Employee
for continued group health insurance coverage (the "Employment Benefits"). Such
Employment Benefits shall terminate upon the earlier of (i) twelve (12) months
from the date of the Employee's termination or (ii) upon commencement of new
employment by the Employee.
(ii) VOLUNTARY RESIGNATION. If the Employee's employment
terminates by reason of the Employee's voluntary resignation (and is not an
Involuntary Termination or a Termination for Cause), then the Employee shall not
be entitled to receive severance or other benefits following the date of such
termination under the terms of this Agreement, and the Company shall have no
obligation to provide for the continuation of any health and medical benefit or
life insurance plans existing on the date of such termination except as
otherwise required by applicable law.
(iii) DISABILITY; DEATH. If the Company terminates the
Employee's employment as a result of the Employee's Disability, or such
Employee's employment is terminated at any time due to the death of the
Employee, then the Employee shall not be entitled to receive severance or other
benefits following the date of such termination under the terms of this
Agreement, and the Company shall have no obligation to provide for the
continuation of any health and medical benefit or life insurance plans existing
on the date of such termination except as otherwise required by applicable law.
(iv) TERMINATION FOR CAUSE. If the Employee is terminated for
Cause, then the Employee shall not be entitled to receive any severance or other
benefits following the date of such termination under the terms of this
Agreement, and the Company shall have no obligation to provide for the
continuation of any health and medical benefit or life insurance plans existing
on the date of such termination except as otherwise required by applicable law.
(v) ACCELERATION OF STOCK OPTIONS. The Employee shall be
entitled to acceleration of vesting for Employee's stock options as provided
under the Company's 1991 Stock Option Plan or any applicable successor plan.
2
<PAGE>
(b) LIMITATION OF PAYMENTS AND BENEFITS.
(i) To the extent that any of the payments and benefits
provided for in this Agreement or otherwise payable to the Employee constitute
"parachute payments" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"), and, but for this Section 2(b), would be
subject to the excise tax imposed by Section 4999 of the Code or any similar or
successor provision, the aggregate amount of such payments and benefits shall be
reduced, but only to the extent necessary so that none of such payments and
benefits are subject to excise tax pursuant to Section 4999 of the Code.
(ii) Within sixty (60) days after the later of termination of
employment or the related Change in Control, the Company shall notify the
Employee in writing if it believes that any reduction in the payments and
benefits that would otherwise be paid or provided to the Employee under the
terms of this Agreement is required to comply with the provisions of
Subsection 2(b)(i). If the Company determines that any such reduction is
required, it will provide the Employee with copies of the information used and
calculations made by the Company to determine the amount of such reduction. The
Company shall determine, in a fair and equitable manner after consultation with
the Employee, which payments and benefits are to be reduced so as to result in
the maximum benefit for the Employee.
(iii) Within thirty (30) days after the Employee's receipt of the
Company's notice pursuant to Subsection 2(b)(ii), the Employee shall notify the
Company in writing if the Employee disagrees with the amount of reduction
determined by the Company, or the selection of the payments and the benefits to
be reduced. As part of such notice, the Employee shall also advise the Company
of the amount of reduction, if any, that the Employee has, in good faith,
determined to be necessary to comply with the provisions of Subsection 2(b)(i)
and/or the payments and benefits to be reduced. Failure by the Employee to
provide this notice within the time allowed will be treated by the Company as
acceptance by the Employee of the amount of reduction determined by the Company
and/or the payments and benefits to be reduced. If any differences regarding
the amount of the reduction and/or the payments and benefits to be reduced have
not been resolved by mutual agreement within sixty (60) days after the
Employee's receipt of the Company's notice pursuant to Subsection 2(b)(ii), the
amount of reduction and/or the payments and benefits to be reduced as determined
by the Employee will be conclusive and binding on both parties unless, prior to
the expiration of such sixty (60) day period, the Company notifies the Employee
in writing of the Company's intention to have the matter submitted to
arbitration for resolution and proceeds to do so promptly. If the Company gives
no notice to the Employee of a required reduction as provided in
Subsection 2(b)(ii), the Employee may unilaterally determine the amount of
reduction required, if any, and/or the payments and benefits to be reduced, and,
upon written notice to the Company, the amount and/or the payments and benefits
to be reduced will be conclusive and binding on both parties.
(iv) If, as a result of the reductions required by
Subsection 2(b)(i), the amounts previously paid to the Employee exceed the
amount to which the Employee is entitled, the Employee will promptly return the
excess amount to the Company.
3
<PAGE>
3. DEFINITION OF TERMS. The following terms referred to in this
Agreement shall have the following meanings:
(a) CHANGE OF CONTROL. "Change of Control" shall mean the occurrence
of either of the following events:
(i) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing fifty percent (50%) or
more of the total voting power represented by the Company's then outstanding
voting securities; or
(ii) (A) A merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least fifty percent (50%) of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation; or (B) the complete liquidation of the Company; or (C) the sale
or disposition by the Company of all or substantially all the Company's assets.
(b) INVOLUNTARY TERMINATION. "Involuntary Termination" shall mean
the Employee's resignation within 60 days after any of the following:
(i) Without the Employee's express written consent, the
assignment to the Employee of any significant duties or the significant
reduction of the Employee's duties, either of which is materially inconsistent
with the Employee's position with the Company and responsibilities in effect
immediately prior to such assignment, or the removal of the Employee from such
position and responsibilities, which is not effected for death, Disability or
for Cause;
(ii) Without the Employee's express written consent, a
substantial reduction, without good business reasons, of the facilities and
perquisites (including office space and location) available to the Employee
immediately prior to such reduction;
(iii) Any reduction by the Company in an amount greater than 10%
in the base salary and/or prospective bonus of the Employee as in effect
immediately prior to such reduction, other than a reduction applied generally to
executive officers of the Company;
(iv) Any reduction by the Company in the kind or level of
employee benefits to which the Employee is entitled immediately prior to such
reduction, other than a reduction applied generally to executive officers of the
Company;
(v) The relocation of the Employee to a facility or a location
more than 40 miles from the Employee's then present location, without the
Employee's express written consent; or
4
<PAGE>
(vi) The failure of the Company to obtain the assumption of the
terms of this Agreement by any successors contemplated in Section 4 below.
PROVIDED, HOWEVER, that the Employee's resignation as a result of any of the
foregoing conditions shall be a voluntary resignation, and not an involuntary
termination, unless the Employee gives written notice of any such condition(s)
to the Board and allows the Company at least 10 days thereafter to correct such
condition(s). It shall also be an Involuntary Termination if the Company
terminates the Employee for any reason other than Disability, death or for
Cause.
(c) CAUSE. For purposes of this Agreement, a termination "for Cause"
occurs if the Employee is terminated for any of the following reasons:
(i) Theft, dishonesty, or intentional falsification of any
employment or Company records;
(ii) Improper disclosure of the Company's confidential or
proprietary information;
(iii) Any action by the Employee that Employee knew or should
have known could have a material detrimental effect on the Company's reputation
or business;
(iv) The Employee's failure or inability to perform any
reasonable assigned duties after written notice from the Company to the Employee
of, and a reasonable opportunity to cure, such failure or inability; or
(v) The Employee's conviction (including any plea of guilty or
nolo contendre) for any criminal act that impairs his ability to perform his
duties for the Company.
(d) DISABILITY. "Disability" shall mean that the Employee is unable
to perform his duties as an employee of the Company as the result of his
incapacity due to physical or mental illness for 120 days (not necessarily
consecutive) in any one year period. Termination resulting from Disability may
only be effected after at least 30 days' written notice by the Company of its
intention to terminate the Employee's employment. In the event that the
Employee resumes the performance of substantially all of his duties as an
employee of the Company before the termination of his employment becomes
effective, the notice of intent to terminate shall automatically be deemed to
have been revoked.
4. EMPLOYEE COVENANT REGARDING NONSOLICITATION. For a period of one (1)
year following termination of employment for any reason, the Employee shall not
recruit, solicit, or invite the solicitation of any employees of the Company to
terminate their employment with the Company.
5. SUCCESSORS.
5
<PAGE>
(a) COMPANY'S SUCCESSORS. Any successor to the Company (whether
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets shall assume the obligations under this Agreement and agree
expressly to perform the obligations under this Agreement in the same manner and
to the same extent as the Company would be required to perform such obligations
in the absence of a succession. For all purposes under this Agreement, the term
"Company" shall include any successor to the Company's business and/or assets
which executes and delivers the assumption agreement described in this
subsection (a) or which becomes bound by the terms of this Agreement by
operation of law.
(b) EMPLOYEE'S SUCCESSORS. All rights of the Employee hereunder
shall inure to the benefit of, and be enforceable by, the Employee's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. Employee shall have no right to assign any
of his obligations or duties under this Agreement to any other person or entity.
6. NOTICE.
(a) GENERAL. Notices and all other communications contemplated by
this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or when mailed by U.S. registered or certified mail,
return receipt requested and postage prepaid. In the case of the Employee,
mailed notices shall be addressed to him at the home address which he most
recently communicated to the Company in writing. In the case of the Company,
mailed notices shall be addressed to its corporate headquarters, and all notices
shall be directed to the attention of its Secretary.
(b) NOTICE OF TERMINATION. Any termination by the Company for Cause
or by the Employee as a result of a voluntary resignation or an Involuntary
Termination shall be communicated by a notice of termination to the other party
hereto given in accordance with Section 6 of this Agreement. Such notice shall
indicate the specific termination provision in this Agreement relied upon, shall
set forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination under the provision so indicated, and shall specify the
termination date (which shall be not more than 15 days after the giving of such
notice).
7. MISCELLANEOUS PROVISIONS.
(a) NO DUTY TO MITIGATE. The Employee shall not be required to
mitigate the amount of any payment contemplated by this Agreement (whether by
seeking New Employment or in any other manner), nor shall any such payment be
reduced by any earnings that the Employee may receive from any other source.
(b) WAIVER. No provision of this Agreement shall be modified, waived
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by the Employee and by an authorized officer of the Company
(other than the Employee). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement
6
<PAGE>
by the other party shall be considered a waiver of any other condition or
provision or of the same condition or provision at another time.
(c) CHOICE OF LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California.
(d) SEVERABILITY. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.
(e) ARBITRATION. In the event of any dispute or claim relating to or
arising out of the Employee's employment relationship with the Company, this
Agreement, or the termination of the Employee's employment with the Company for
any reason (including, but not limited to, any claims of breach of contract,
wrongful termination, fraud or age, race, sex, national origin, disability or
other discrimination or harassment), the Employee and the Company agree that all
such disputes shall be fully, finally and exclusively resolved by binding
arbitration conducted by the American Arbitration Association in Santa Clara
County, California. The Employee and the Company hereby knowingly and willingly
waive their respective rights to have any such disputes or claims tried to a
judge or jury. Provided, however, that this arbitration provision shall not
apply to any disputes or claims relating to or arising out of the actual or
alleged misuse or misappropriation of the Company's property, including, but not
limited to, its trade secrets or proprietary information.
(f) NO ASSIGNMENT OF BENEFITS. The rights of any person to payments
or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
law, including (without limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this subsection (f) shall be
void.
(g) EMPLOYMENT TAXES. All payments made pursuant to this Agreement
will be subject to withholding of applicable income and employment taxes.
(h) ASSIGNMENT BY COMPANY. The Company may assign its rights under
this Agreement to an affiliate, and an affiliate may assign its rights under
this Agreement to another affiliate of the Company or to the Company; provided,
however, that no assignment shall be made if the net worth of the assignee is
less than the net worth of the Company at the time of assignment. In the case
of any such assignment, the term "Company" when used in a section of this
Agreement shall mean the corporation that actually employs the Employee.
(i) COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
(j) PRIOR AGREEMENTS. This Agreement shall supersede all prior
arrangements whether written or oral, and understandings, regarding the subject
matter of this Agreement.
7
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer, as of the day and year first
above written.
COMPANY TAB PRODUCTS CO.
By:
------------------------------------
Title:
---------------------------------
EMPLOYEE By:
------------------------------------
8
<PAGE>
Exhibit 10.41
TAB PRODUCTS CO.
1996 OUTSIDE DIRECTORS STOCK OPTION PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. The TAB Products Co. 1996 Outside Directors Stock
Option Plan (the "PLAN") is hereby established effective as of October 17, 1996,
the date on which the Plan was initially approved by the stockholders of the
Company (the "EFFECTIVE DATE").
1.2 PURPOSE. The purpose of the Plan is to advance the interests of
the Participating Company Group and its stockholders by providing an incentive
to attract and retain highly qualified persons to serve as Outside Directors of
the Company and by creating additional incentive for Outside Directors to
promote the growth and profitability of the Participating Company Group.
1.3 TERM OF PLAN. The Plan shall continue in effect until the
earlier of its termination by the Board or the date on which all of the shares
of Stock available for issuance under the Plan have been issued and all
restrictions on such shares under the terms of the Plan and the agreements
evidencing Options granted under the Plan have lapsed.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Whenever used herein, the following terms shall
have their respective meanings set forth below:
(a) "BOARD" means the Board of Directors of the Company. If one
or more Committees have been appointed by the Board to administer the Plan,
"Board" also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of 1986, as amended,
and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means a committee of the Board duly appointed to
administer the Plan and having such powers as shall be specified by the Board.
Unless the powers of the Committee have been specifically limited, the Committee
shall have all of the powers of the Board granted herein, including, without
limitation, the power to amend or terminate the Plan at any time, subject to the
terms of the Plan and any applicable limitations imposed by law.
1
<PAGE>
(d) "COMPANY" means TAB Products Co., a Delaware corporation, or
any successor corporation thereto.
(e) "CONSULTANT" means any person, including an advisor, engaged
by a Participating Company to render services other than as an Employee or a
Director.
(f) "DIRECTOR" means a member of the Board or the board of
directors of any other Participating Company.
(g) "EMPLOYEE" means any person treated as an employee
(including an officer or a Director who is also treated as an employee) in the
records of a Participating Company; provided, however, that neither service as a
Director nor payment of a director's fee shall be sufficient to constitute
employment for purposes of the Plan.
(h) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(i) "FAIR MARKET VALUE" means, as of any date, if there is then
a public market for the Stock, the closing price of the Stock (or the mean of
the closing bid and asked prices of the Stock if the Stock is so reported
instead) as reported on the American Stock Exchange (the "AMEX") or such other
national or regional securities exchange or market system constituting the
primary market for the Stock. If the relevant date does not fall on a day on
which the Stock is trading on the AMEX or other national or regional securities
exchange or market system, the date on which the Fair Market Value shall be
established shall be the last day on which the Stock was so traded prior to the
relevant date. If there is then no public market for the Stock, the Fair Market
Value on any relevant date shall be as determined by the Board without regard to
any restriction other than a restriction which, by its terms, will never lapse.
(j) "OPTION" means a right to purchase Stock (subject to
adjustment as provided in Section 4.2) pursuant to the terms and conditions of
the Plan.
(k) "OPTIONEE" means a person who has been granted one or more
Options.
(l) "OPTION AGREEMENT" means a written agreement between the
Company and an Optionee setting forth the terms, conditions and restrictions of
the Option granted to the Optionee.
(m) "OUTSIDE DIRECTOR" means a Director of the Company who is
not an Employee.
2
<PAGE>
(n) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(o) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation.
(p) "PARTICIPATING COMPANY GROUP" means, at any point in time,
all corporations collectively which are then Participating Companies.
(q) "RETIREMENT" means the termination of an Optionee's Service
on or after the date on which the Optionee attains age seventy (70) for any
reason other than the Optionee's death or permanent and total disability within
the meaning of Section 22(e)(3) of the Code.
(r) "RULE 16b-3" means Rule 16b-3 as promulgated under the
Exchange Act, as amended from time to time, or any successor rule or regulation.
(s) "SERVICE" means the Optionee's service with the
Participating Company Group, whether in the capacity of an Employee, a Director
or a Consultant. The Optionee's Service shall not be deemed to have terminated
merely because of a change in the capacity in which the Optionee renders Service
to the Participating Company Group or a change in the Participating Company for
which the Optionee renders such Service, provided that there is no interruption
or termination of the Optionee's Service. The Optionee's Service shall be
deemed to have terminated either upon an actual termination of Service or upon
the corporation for which the Optionee performs Service ceasing to be a
Participating Company.
(t) "STOCK" means the common stock, par value $0.01, of the
Company, as adjusted from time to time in accordance with Section 4.2.
(u) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
2.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural, the plural shall include the singular, and
use of the term "or" shall include the conjunctive as well as the disjunctive.
3
<PAGE>
3. ADMINISTRATION.
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be administered by
the Board, including any duly appointed Committee of the Board. All questions
of interpretation of the Plan or of any Option shall be determined by the Board,
and such determinations shall be final and binding upon all persons having an
interest in the Plan or such Option. Any officer of a Participating Company
shall have the authority to act on behalf of the Company with respect to any
matter, right, obligation, determination or election which is the responsibility
of or which is allocated to the Company herein, provided the officer has
apparent authority with respect to such matter, right, obligation, determination
or election.
3.2 LIMITATIONS ON AUTHORITY OF THE BOARD. Notwithstanding any other
provision herein to the contrary, the Board shall have no authority, discretion,
or power to select the Outside Directors who will receive Options, to set the
exercise price of the Options, to determine the number of shares of Stock to be
subject to an Option or the time at which an Option shall be granted, to
establish the duration of an Option, or to alter any other terms or conditions
specified in the Plan, except in the sense of administering the Plan subject to
the provisions of the Plan.
4. SHARES SUBJECT TO PLAN.
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as
provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be one hundred fifty thousand (150,000) and
shall consist of authorized but unissued shares or reacquired shares of Stock or
any combination thereof. If an outstanding Option for any reason expires or is
terminated or canceled or shares of Stock acquired, subject to repurchase, upon
the exercise of an Option are repurchased by the Company, the shares of Stock
allocable to the unexercised portion of such Option, or such repurchased shares
of Stock, shall again be available for issuance under the Plan.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of
any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital structure of the
Company, appropriate adjustments shall be made in the number and class of shares
subject to the Plan, to the "Initial Option" and "Annual Option" (as defined in
Section 6.1), and to any outstanding Options, and in the exercise price of any
outstanding Options. If a majority of the shares which are of the same class as
the shares that are subject to outstanding Options are exchanged for, converted
into, or otherwise become (whether or not pursuant to an "Ownership Change
Event" as defined in Section 8.1) shares of another corporation (the "NEW
SHARES"), the Board may unilaterally amend the outstanding Options to provide
that such Options are exercisable for New Shares. In the event of any such
amendment, the number of
4
<PAGE>
shares subject to, and the exercise price of, the outstanding Options shall be
adjusted in a fair and equitable manner as determined by the Board, in its sole
discretion. Notwithstanding the foregoing, any fractional share resulting from
an adjustment pursuant to this Section 4.2 shall be rounded down to the nearest
whole number, and in no event may the exercise price of any Option be decreased
to an amount less than the par value, if any, of the stock subject to the
Option.
5. ELIGIBILITY AND TYPE OF OPTIONS.
5.1 PERSONS ELIGIBLE FOR OPTIONS. An Option shall be granted only to
a person who, at the time of grant, is an Outside Director.
5.2 OPTIONS AUTHORIZED. Options shall be nonstatutory stock options;
that is, options which are not treated as incentive stock options within the
meaning of Section 422(b) of the Code.
6. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by Option
Agreements specifying the number of shares of Stock covered thereby, in such
form as the Board shall from time to time establish. Option Agreements may
incorporate all or any of the terms of the Plan by reference and shall comply
with and be subject to the following terms and conditions:
6.1 AUTOMATIC GRANT OF OPTIONS. Subject to execution by an Outside
Director of the appropriate Option Agreement, Options shall be granted
automatically and without further action of the Board, as follows:
(a) INITIAL OPTION. Each person who (i) is an Outside Director
on the Effective Date, or (ii) first becomes an Outside Director after the
Effective Date shall be granted an Option to purchase ten thousand (10,000)
shares of Stock on the Effective Date or the date of his or her initial election
or appointment, respectively (an "INITIAL OPTION"). Notwithstanding anything
herein to the contrary, a Director of the Company who previously did not qualify
as an Outside Director shall not receive an Initial Option in the event that
such Director subsequently becomes an Outside Director.
(b) ANNUAL OPTION. Each Outside Director (including any
Director of the Company who previously did not qualify as an Outside Director
but who subsequently becomes an Outside Director) shall be granted, on the date
of each annual meeting of the stockholders of the Company (an "ANNUAL MEETING")
immediately following which such person remains an Outside Director, an Option
to purchase two thousand (2,000) shares of Stock (an "ANNUAL OPTION").
Notwithstanding the foregoing, an Outside Director who received an Initial
Option within six (6) months of the date of such Annual Meeting shall not
receive an Annual Option on such date.
5
<PAGE>
(c) RIGHT TO DECLINE OPTION. Notwithstanding the foregoing, any
person may elect not to receive an Option by delivering written notice of such
election to the Board no later than the day prior to the date such Option would
otherwise be granted. A person so declining an Option shall receive no payment
or other consideration in lieu of such declined Option. A person who has
declined an Option may revoke such election by delivering written notice of such
revocation to the Board no later than the day prior to the date such Option
would be granted pursuant to Section 6.1(a) or (b), as the case may be.
6.2 EXERCISE PRICE. The exercise price per share of Stock subject to
an Option shall be the Fair Market Value of a share of Stock on the date the
Option is granted.
6.3 EXERCISE PERIOD. Each Option shall terminate and cease to be
exercisable on the date ten (10) years after the date of grant of the Option
unless earlier terminated pursuant to the terms of the Plan or the Option
Agreement.
6.4 RIGHT TO EXERCISE OPTIONS.
(a) INITIAL OPTION. Except as otherwise provided in the Plan or
in the Option Agreement, an Initial Option shall (i) first become exercisable on
the date which is one (1) year after the date on which the Initial Option was
granted (the "INITIAL OPTION VESTING DATE"); and (ii) be exercisable on and
after the Initial Option Vesting Date and prior to the termination thereof in an
amount equal to the number of shares of Stock initially subject to the Initial
Option multiplied by the Vested Ratio as set forth below, less the number of
shares previously acquired upon exercise thereof. The Vested Ratio described in
the preceding sentence shall be determined as follows:
VESTED RATIO
Prior to Initial Option Vesting Date 0
On Initial Option Vesting Date, 1/4
provided the Optionee's Service
is continuous from the date of grant
of the Initial Option until the
Initial Option Vesting Date
PLUS
For each full year of 1/4
of the Optionee's continuous
Service from the Initial Option
Vesting Date until the Vested
6
<PAGE>
Ratio equals 1/1, an additional
(b) ANNUAL OPTION. Except as otherwise provided in the Plan or
in the Option Agreement, an Annual Option shall become fully vested and
exercisable on the date immediately preceding the date of the first Annual
Meeting which occurs after the date of grant of the Annual Option (the "ANNUAL
OPTION VESTING DATE"), provided that the Optionee's Service is continuous from
the date of grant of the Annual Option until the Annual Option Vesting Date.
The Annual Option shall be exercisable on and after the Annual Option Vesting
Date and prior to the termination thereof in an amount equal to the number of
shares of Stock initially subject to the Annual Option, less the number of
shares previously acquired upon exercise thereof.
(c) RETIREMENT. In addition to the foregoing, if an Optionee's
Service is terminated because of the Optionee's Retirement, any unexercisable or
unvested portion of such Optionee's outstanding Options shall become fully
exercisable and vested as of the date of the Optionee's Retirement.
6.5 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the exercise price for the number of shares of Stock
being purchased pursuant to any Option shall be made (i) in cash, by check, or
cash equivalent, (ii) by tender to the Company of shares of Stock owned by the
Optionee having a Fair Market Value not less than the exercise price, (iii) by
the assignment of the proceeds of a sale or loan with respect to some or all of
the shares being acquired upon the exercise of the Option (including, without
limitation, through an exercise complying with the provisions of Regulation T as
promulgated from time to time by the Board of Governors of the Federal Reserve
System) (a "CASHLESS EXERCISE"), or (iv) by any combination thereof.
(b) TENDER OF STOCK. Notwithstanding the foregoing, an Option
may not be exercised by tender to the Company of shares of Stock to the extent
such tender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock.
Unless otherwise provided by the Board, an Option may not be exercised by tender
to the Company of shares of Stock unless such shares either have been owned by
the Optionee for more than six (6) months or were not acquired, directly or
indirectly, from the Company.
(c) CASHLESS EXERCISE. The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to establish,
decline to approve or terminate any program or procedures for the exercise of
Options by means of a Cashless Exercise.
7
<PAGE>
6.6 TAX WITHHOLDING. The Company shall have the right, but not the
obligation, to deduct from the shares of Stock issuable upon the exercise of an
Option, or to accept from the Optionee the tender of, a number of whole shares
of Stock having a Fair Market Value equal to all or any part of the federal,
state, local and foreign taxes, if any, required by law to be withheld by the
Participating Company Group with respect to such Option or the shares acquired
upon exercise thereof. Alternatively or in addition, in its sole discretion,
the Company shall have the right to require the Optionee to make adequate
provision for any such tax withholding obligations of the Participating Company
Group arising in connection with the Option or the shares acquired upon exercise
thereof. The Company shall have no obligation to deliver shares of Stock until
the Participating Company Group's tax withholding obligations have been
satisfied.
7. STANDARD FORM OF OPTION AGREEMENT.
7.1 INITIAL OPTION. Unless otherwise provided for by the Board at
the time an Initial Option is granted, each Initial Option shall comply with and
be subject to the terms and conditions set forth in the form of Nonstatutory
Stock Option Agreement for Outside Directors (Initial Option) adopted by the
Board concurrently with its adoption of the Plan and as amended from time to
time.
7.2 ANNUAL OPTION. Unless otherwise provided for by the Board at the
time an Annual Option is granted, each Annual Option shall comply with and be
subject to the terms and conditions set forth in the form of Nonstatutory Stock
Option Agreement for Outside Directors (Annual Option) adopted by the Board
concurrently with its adoption of the Plan and as amended from time to time.
7.3 AUTHORITY TO VARY TERMS. Subject to the limitations set forth in
Section 3.2, the Board shall have the authority from time to time to vary the
terms of any of the standard forms of Option Agreement described in this
Section 7 either in connection with the grant or amendment of an individual
Option or in connection with the authorization of a new standard form or forms;
provided, however, that the terms and conditions of any such new, revised or
amended standard form or forms of Option Agreement are not inconsistent with the
terms of the Plan. Such authority shall include, but not by way of limitation,
the authority to grant Options which are immediately exercisable subject to the
Company's right to repurchase any unvested shares of Stock acquired by the
Optionee upon the exercise of an Option in the event such Optionee's Service is
terminated for any reason. In no event, however, shall the Board be permitted
to vary the terms of any standard form of Option Agreement if such change would
cause the Plan to cease to comply with the definition, if any, of a "formula
plan" pursuant to Rule 16b-3 at any such time as any class of equity security of
the Company is registered pursuant to Section 12 of the Exchange Act.
8
<PAGE>
8. TRANSFER OF CONTROL.
8.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred
if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a single or
series of related transactions by the stockholders of the Company of more than
fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is a
party;
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "TRANSFER OF CONTROL" shall mean an Ownership Change Event
or a series of related Ownership Change Events (collectively, the "TRANSACTION")
wherein the stockholders of the Company immediately before the Transaction do
not retain immediately after the Transaction, in substantially the same
proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
8.2 EFFECT OF TRANSFER OF CONTROL ON OPTIONS. In the event of a
Transfer of Control, any unexercisable or unvested portion of the outstanding
Options shall be immediately exercisable and vested in full as of the date ten
(10) days prior to the date of the Transfer of Control. The exercise or vesting
of any Option that was permissible solely by reason of this Section 8.2 shall be
conditioned upon the consummation of the Transfer of Control, and any shares so
acquired by an Optionee shall have the same rights as all other shares of the
same class. In addition, the surviving, continuing, successor, or purchasing
corporation
9
<PAGE>
or parent corporation thereof, as the case may be (the "ACQUIRING CORPORATION"),
may either assume the Company's rights and obligations under outstanding Options
or substitute for outstanding Options substantially equivalent options for the
Acquiring Corporation's stock. Any Options which are neither assumed or
substituted for by the Acquiring Corporation in connection with the Transfer of
Control nor exercised as of the date of the Transfer of Control shall terminate
and cease to be outstanding effective as of the date of the Transfer of Control.
Notwithstanding the foregoing, shares acquired upon exercise of an Option prior
to the Transfer of Control and any consideration received pursuant to the
Transfer of Control with respect to such shares shall continue to be subject to
all applicable provisions of the Option Agreement evidencing such Option except
as otherwise provided in such Option Agreement. Furthermore, notwithstanding
the foregoing, if the corporation the stock of which is subject to the
outstanding Options immediately prior to an Ownership Change Event described in
Section 8.1(a)(i) constituting a Transfer of Control is the surviving or
continuing corporation and immediately after such Ownership Change Event less
than fifty percent (50%) of the total combined voting power of its voting stock
is held by another corporation or by other corporations that are members of an
affiliated group within the meaning of Section 1504(a) of the Code without
regard to the provisions of Section 1504(b) of the Code, the outstanding Options
shall not terminate.
9. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee,
an Option shall be exercisable only by the Optionee or the Optionee's guardian
or legal representative. No Option shall be assignable or transferable by the
Optionee, except by will or by the laws of descent and distribution.
10. INDEMNIFICATION. In addition to such other rights of indemnification
as they may have as members of the Board or officers or employees of the
Participating Company Group, members of the Board and any officers or employees
of the Participating Company Group to whom authority to act for the Board is
delegated shall be indemnified by the Company against all reasonable expenses,
including attorneys' fees, actually and necessarily incurred in connection with
the defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan, or any right
granted hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) 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 person is liable for gross
negligence, bad faith or intentional misconduct in duties; provided, however,
that within sixty (60) days after the institution of such action, suit or
proceeding, such person shall offer to the Company, in writing, the opportunity
at its own expense to handle and defend the same.
10
<PAGE>
11. RESERVATION AND REGISTRATION OF SHARES. During the term of the Plan,
the Company shall at all times reserve and keep available the number of shares
of Stock as shall be sufficient to satisfy the requirements of the Plan. To the
extent practicable, the Company shall take such action as necessary or
appropriate for compliance with the registration or qualification requirements
under the securities laws of the United States of America and any other
appropriate governmental authorities and the requirements of any stock exchange
or market system upon which the Stock may then be listed. However, the
inability of the Company to obtain from any regulatory body having jurisdiction
the authority, if any, deemed by the Company's legal counsel to be necessary to
the lawful issuance and sale of any securities under the Plan shall relieve the
Company of any liability in respect of the failure to issue or sell such
securities as to which such requisite authority shall not have been obtained.
12. TERMINATION OR AMENDMENT OF PLAN. The Board may terminate or amend
the Plan at any time. However, subject to changes in the law or other legal
requirements that would permit otherwise, without the approval of the Company's
stockholders, there shall be (a) no increase in the total number of shares of
Stock that may be issued under the Plan (except by operation of the provisions
of Section 4.2), and (b) no expansion in the class of persons eligible to
receive Options. In any event, no termination or amendment of the Plan may
adversely affect any then outstanding Option, or any unexercised portion
thereof, without the consent of the Optionee, unless such termination or
amendment is necessary to comply with any applicable law or government
regulation.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that
the foregoing TAB Products Co. 1996 Outside Directors Stock Option Plan was duly
adopted by the Board on April 18, 1996 and by the stockholders of the Company on
October 17, 1996.
------------------------------
Secretary
11
<PAGE>
PLAN HISTORY
April 18, 1996 Board adopts Plan, with an initial reserve of 150,000
shares.
October 17, 1996 Stockholders approve Plan, with an initial reserve of
150,000 shares.
12
<PAGE>
TAB PRODUCTS CO.
NONSTATUTORY STOCK OPTION AGREEMENT
FOR OUTSIDE DIRECTORS
(INITIAL OPTION)
THIS NONSTATUTORY STOCK OPTION AGREEMENT FOR OUTSIDE DIRECTORS (INITIAL
OPTION) (the "OPTION AGREEMENT") is made and entered into as of ___________,
199_, by and between TAB Products Co. and ___________________________ (the
"OPTIONEE").
The Company has granted to the Optionee an option to purchase certain
shares of Stock, upon the terms and conditions set forth in this Option
Agreement (the "OPTION").
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. Whenever used herein, the following terms shall
have their respective meanings set forth below:
(a) "DATE OF OPTION GRANT" means _____________________, 199_.
(b) "NUMBER OF OPTION SHARES" means ten thousand (10,000) shares
of Stock, as adjusted from time to time pursuant to Section 9.
(c) "EXERCISE PRICE" means $ ____________ per share of Stock, as
adjusted from time to time pursuant to Section 9.
(d) "INITIAL VESTING DATE" means the date occurring one (1) year
after the Date of Option Grant.
(e) "VESTED RATIO" means, on any relevant date, the ratio
determined as follows:
Vested Ratio
------------
Prior to Initial Vesting Date 0
1
<PAGE>
On Initial Vesting Date, 1/4
provided the Optionee's Service
is continuous from the Date of
Option Grant until the Initial
Vesting Date
PLUS
For each full year of the 1/4
Optionee's continuous Service
from the Initial Vesting Date
until the Vested Ratio equals
1/1, an additional
(f) "OPTION EXPIRATION DATE" means the date ten (10) years after
the Date of Option Grant.
(g) "BOARD" means the Board of Directors of the Company. If one
or more Committees have been appointed by the Board to administer the Plan,
"Board" shall also mean such Committee(s).
(h) "CODE" means the Internal Revenue Code of 1986, as amended,
and any applicable regulations promulgated thereunder.
(i) "COMMITTEE" means a committee of the Board duly appointed to
administer the Plan and having such powers as shall be specified by the Board.
Unless the powers of the Committee have been specifically limited, the Committee
shall have all of the powers of the Board granted in the Plan, including,
without limitation, the power to amend or terminate the Plan at any time,
subject to the terms of the Plan and any applicable limitations imposed by law.
(j) "COMPANY" means TAB Products Co., a Delaware corporation, or
any successor corporation thereto.
(k) "CONSULTANT" means any person, including an advisor, engaged
by a Participating Company to render services other than as an Employee or a
Director.
(l) "DIRECTOR" means a member of the Board or of the board of
directors of any other Participating Company.
(m) "DISABILITY" means the permanent and total disability of the
Optionee within the meaning of Section 22(e)(3) of the Code.
2
<PAGE>
(n) "EMPLOYEE" means any person treated as an employee
(including an officer or a Director who is also treated as an employee) in the
records of a Participating Company; provided, however, that neither service as a
Director nor payment of a director's fee shall be sufficient to constitute
employment for purposes of the Plan.
(o) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(p) "FAIR MARKET VALUE" means, as of any date, if there is then
a public market for the Stock, the closing price of the Stock (or the mean of
the closing bid and asked prices of the Stock if the Stock is so reported
instead) as reported on the American Stock Exchange (the "AMEX") or such other
national or regional securities exchange or market system constituting the
primary market for the Stock. If the relevant date does not fall on a day on
which the Stock is trading on the AMEX or other national or regional securities
exchange or market system, the date on which the Fair Market Value shall be
established shall be the last day on which the Stock was so traded prior to the
relevant date. If there is then no public market for the Stock, the Fair Market
Value on any relevant date shall be as determined by the Board without regard to
any restriction other than a restriction which, by its terms, will never lapse.
(q) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(r) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation.
(s) "PARTICIPATING COMPANY GROUP" means, at any point in time,
all corporations collectively which are then Participating Companies.
(t) "PLAN" means the TAB Products Co. 1996 Outside Directors
Stock Option Plan.
(u) "RETIREMENT" means the termination of the Optionee's Service
on or after the date on which the Optionee attains age seventy (70) for any
reason other than the Optionee's death or Disability.
(v) "RULE 16b-3" means Rule 16b-3 as promulgated under the
Exchange Act, as amended from time to time, or any successor rule or regulation.
(w) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
3
<PAGE>
(x) "SERVICE" means the Optionee's service with the
Participating Company Group, whether in the capacity of an Employee, a Director
or a Consultant. The Optionee's Service shall not be deemed to have terminated
merely because of a change in the capacity in which the Optionee renders Service
to the Participating Company Group or a change in the Participating Company for
which the Optionee renders such Service, provided that there is no interruption
or termination of the Optionee's Service. The Optionee's Service shall be
deemed to have terminated either upon an actual termination of Service or upon
the corporation for which the Optionee performs Service ceasing to be a
Participating Company.
(y) "STOCK" means the common stock, par value $0.01, of the
Company, as adjusted from time to time in accordance with Section 9.
(z) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
1.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural, the plural shall include the
singular, and the term "or" shall include the conjunctive as well as the
disjunctive.
2. TAX STATUS OF THE OPTION. This Option is intended to be a
nonstatutory stock option and shall not be treated as an incentive stock option
within the meaning of Section 422(b) of the Code.
3. ADMINISTRATION. All questions of interpretation concerning this
Option Agreement shall be determined by the Board, including any duly appointed
Committee of the Board. All determinations by the Board shall be final and
binding upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
4. EXERCISE OF THE OPTION.
4.1 RIGHT TO EXERCISE.
(a) Except as otherwise provided herein, the Option shall be
exercisable on and after the Initial Vesting Date and prior to the termination
of the Option (as provided in Section 6) in an amount not to exceed the Number
of Option Shares multiplied by the Vested Ratio less the number of shares
previously
4
<PAGE>
acquired upon exercise of the Option. In no event shall the Option be
exercisable for more shares than the Number of Option Shares.
(b) Notwithstanding the foregoing, in the event that the
adoption of the Plan or any amendment of the Plan affecting the Option is
subject to the approval of the Company's stockholders in order for the Plan or
the grant of the Option to comply with the requirements of Rule 16b-3, the
Option shall not be exercisable prior to such stockholder approval.
4.2 METHOD OF EXERCISE. Exercise of the Option shall be by written
notice to the Company which must state the election to exercise the Option, the
number of whole shares of Stock for which the Option is being exercised and such
other representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option Agreement. The written notice must be signed by the Optionee and must be
delivered in person, by certified or registered mail, return receipt requested,
by confirmed facsimile transmission, or by such other means as the Company may
permit, to the Chief Financial Officer of the Company, or other authorized
representative of the Participating Company Group, prior to the termination of
the Option as set forth in Section 6, accompanied by full payment of the
aggregate Exercise Price for the number of shares of Stock being purchased. The
Option shall be deemed to be exercised upon receipt by the Company of such
written notice and the aggregate Exercise Price.
4.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the aggregate Exercise Price for the number of shares
of Stock for which the Option is being exercised shall be made (i) in cash, by
check, or cash equivalent, (ii) by tender to the Company of whole shares of
Stock owned by the Optionee having a Fair Market Value not less than the
aggregate Exercise Price, (iii) by means of a Cashless Exercise, as defined in
Section 4.3(c), or (iv) by any combination of the foregoing.
(b) TENDER OF STOCK. Notwithstanding the foregoing, the Option
may not be exercised by tender to the Company of shares of Stock to the extent
such tender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock. The
Option may not be exercised by tender to the Company of shares of Stock unless
such shares either have been owned by the Optionee for more than six (6) months
or were not acquired, directly or indirectly, from the Company.
(c) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means the
assignment in a form acceptable to the Company of the proceeds of a sale or loan
with respect to some or all of the shares of Stock acquired upon the exercise of
5
<PAGE>
the Option pursuant to a program or procedure approved by the Company
(including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to decline to
approve or terminate any such program or procedure.
4.4 TAX WITHHOLDING. At the time the Option is exercised, in whole
or in part, or at any time thereafter as requested by the Company, the Optionee
agrees to make adequate provision for any sums required to satisfy the federal,
state, local and foreign tax withholding obligations of the Participating
Company Group, if any, which arise in connection with the Option, including,
without limitation, obligations arising upon (i) the exercise, in whole or in
part, of the Option, (ii) the transfer, in whole or in part, of any shares
acquired upon exercise of the Option, or (iii) the lapsing of any restriction
with respect to any shares acquired upon exercise of the Option.
4.5 CERTIFICATE REGISTRATION. Except in the event the Exercise Price
is paid by means of a Cashless Exercise, the certificate for the shares as to
which the Option is exercised shall be registered in the name of the Optionee,
or, if applicable, the heirs of the Optionee.
4.6 RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES. The
grant of the Option and the issuance of shares of Stock upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares of Stock upon exercise would
constitute a violation of any applicable federal, state or foreign securities
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the Stock may then be listed. In addition, the Option
may not be exercised unless (i) a registration statement under the Securities
Act shall at the time of exercise of the Option be in effect with respect to the
shares issuable upon exercise of the Option or (ii) in the opinion of legal
counsel to the Company, the shares issuable upon exercise of the Option may be
issued in accordance with the terms of an applicable exemption from the
registration requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT
THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED.
ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED
EVEN THOUGH THE OPTION IS VESTED. To the extent practicable, the Company shall
take such action as necessary or appropriate for compliance with the
registration or qualification requirements under the securities laws of the
United States of America and any other appropriate governmental authorities and
the requirements of any stock exchange or market system upon which the Stock may
then be listed. However, the inability of the Company to obtain from any
regulatory body having jurisdiction the authority, if any, deemed
6
<PAGE>
by the Company's legal counsel to be necessary to the lawful issuance and sale
of any shares subject to the Option shall relieve the Company of any liability
in respect of the failure to issue or sell such shares as to which such
requisite authority shall not have been obtained. As a condition to the
exercise of the Option, the Company may require the Optionee to satisfy any
qualifications that may be necessary or appropriate, to evidence compliance with
any applicable law or regulation and to make any representation or warranty with
respect thereto as may be requested by the Company.
4.7 FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during
the lifetime of the Optionee only by the Optionee or the Optionee's guardian or
legal representative and may not be assigned or transferred in any manner except
by will or by the laws of descent and distribution. Following the death of the
Optionee, the Option, to the extent provided in Section 7, may be exercised by
the Optionee's legal representative or by any person empowered to do so under
the deceased Optionee's will or under the then applicable laws of descent and
distribution.
6. TERMINATION OF THE OPTION. The Option shall terminate and may no
longer be exercised on the first to occur of (a) the Option Expiration Date,
(b) the last date for exercising the Option following termination of the
Optionee's Service as described in Section 7, or (c) a Transfer of Control to
the extent provided in Section 8.
7. EFFECT OF TERMINATION OF SERVICE.
7.1 OPTION EXERCISABILITY.
(a) DISABILITY. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of twelve (12) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date.
(b) DEATH. If the Optionee's Service with the Participating
Company Group is terminated because of the death of the Optionee, the Option, to
the extent unexercised and exercisable on the date on which the Optionee's
Service terminated, may be exercised by the Optionee's legal representative or
other person who acquired the right to exercise the Option by reason of the
Optionee's death at any time prior to the expiration of twelve (12) months after
7
<PAGE>
the date on which the Optionee's Service terminated, but in any event no later
than the Option Expiration Date.
(c) RETIREMENT. If the Optionee's Service with the
Participating Company Group is terminated because of the Retirement of the
Optionee, (i) any unexercised portion of the Option shall become fully
exercisable and vested as of the date of the Optionee's Retirement, and (ii) the
Option, to the extent unexercised on the date on which the Optionee's Service
terminated, may be exercised by the Optionee at any time prior to the expiration
of twelve (12) months after the date on which the Optionee's Service terminated,
but in any event no later than the Option Expiration Date.
(d) OTHER TERMINATION OF SERVICE. If the Optionee's Service
with the Participating Company Group terminates for any reason, except
Disability, death or Retirement, the Option, to the extent unexercised and
exercisable by the Optionee on the date on which the Optionee's Service
terminated, may be exercised by the Optionee within twelve (12) months after the
date on which the Optionee's Service terminated, but in any event no later than
the Option Expiration Date.
7.2 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date.
7.3 EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b). Notwithstanding
the foregoing, if a sale, within the applicable time periods set forth in
Section 7.1, of shares acquired upon the exercise of the Option would subject
the Optionee to suit under Section 16(b) of the Exchange Act, the Option shall
remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
8. OWNERSHIP CHANGE AND TRANSFER OF CONTROL.
8.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred
if any of the following occurs with respect to the Company:
8
<PAGE>
(i) the direct or indirect sale or exchange in a single or
series of related transactions by the stockholders of the Company of more than
fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is a
party;
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "TRANSFER OF CONTROL" shall mean an Ownership Change Event
or a series of related Ownership Change Events (collectively, the "TRANSACTION")
wherein the stockholders of the Company immediately before the Transaction do
not retain immediately after the Transaction, in substantially the same
proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
8.2 EFFECT OF TRANSFER OF CONTROL ON OPTION. In the event of a
Transfer of Control, any unexercised portion of the Option shall be immediately
exercisable and vested in full as of the date ten (10) days prior to the date of
the Transfer of Control. Any exercise of the Option that was permissible solely
by reason of this Section 8.2 shall be conditioned upon the consummation of the
Transfer of Control, and any shares so acquired by the Optionee shall have the
same rights as all other shares of the same class. In addition, the surviving,
continuing, successor, or purchasing corporation or parent corporation thereof,
as the case may be (the "ACQUIRING CORPORATION"), may either assume the
Company's rights and obligations under the Option or substitute for the Option a
substantially equivalent option for the Acquiring Corporation's stock. The
Option shall terminate and cease to be outstanding effective as of the date of
the Transfer of Control to the extent that the Option is neither assumed or
substituted for by the Acquiring Corporation in connection with the Transfer of
Control nor exercised as of the date of the Transfer of Control.
Notwithstanding the foregoing, shares
9
<PAGE>
acquired upon exercise of the Option prior to the Transfer of Control and any
consideration received pursuant to the Transfer of Control with respect to such
shares shall continue to be subject to all applicable provisions of this Option
Agreement except as otherwise provided herein. Furthermore, notwithstanding the
foregoing, if the corporation the stock of which is subject to the Option
immediately prior to an Ownership Change Event described in Section 8.1(a)(i)
constituting a Transfer of Control is the surviving or continuing corporation
and immediately after such Ownership Change Event less than fifty percent (50%)
of the total combined voting power of its voting stock is held by another
corporation or by other corporations that are members of an affiliated group
within the meaning of Section 1504(a) of the Code without regard to the
provisions of Section 1504(b) of the Code, the Option shall not terminate.
9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number, Exercise Price and class of
shares of stock subject to the Option. If a majority of the shares which are of
the same class as the shares that are subject to the Option are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change Event) shares of another corporation (the "NEW SHARES"), the Board may
unilaterally amend the Option to provide that the Option is exercisable for New
Shares. In the event of any such amendment, the Number of Option Shares and the
Exercise Price shall be adjusted in a fair and equitable manner, as determined
by the Board, in its sole discretion. Notwithstanding the foregoing, any
fractional share resulting from an adjustment pursuant to this Section 9 shall
be rounded down to the nearest whole number, and in no event may the Exercise
Price be decreased to an amount less than the par value, if any, of the stock
subject to the Option.
10. RIGHTS AS A STOCKHOLDER. The Optionee shall have no rights as a
stockholder with respect to any shares covered by the Option until the date of
the issuance of a certificate for the shares for which the Option has been
exercised (as evidenced by the appropriate entry on the books of the Company or
of a duly authorized transfer agent of the Company). No adjustment shall be
made for dividends, distributions or other rights for which the record date is
prior to the date such certificate is issued, except as provided in Section 9.
11. LEGENDS. The Company may at any time place legends referencing any
applicable federal, state or foreign securities law restrictions on all
certificates representing shares of stock subject to the provisions of this
Option Agreement. The Optionee shall, at the request of the Company, promptly
present to the Company any and all certificates representing shares acquired
pursuant to the Option in the possession of the Optionee in order to carry out
the provisions of this Section.
10
<PAGE>
12. BINDING EFFECT. Subject to the restrictions on transfer set forth
herein, this Option Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
13. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan
or the Option at any time; provided, however, that no such termination or
amendment may adversely affect the Option or any unexercised portion hereof
without the consent of the Optionee unless such termination or amendment is
necessary to comply with any applicable law or government regulation. No
amendment or addition to this Option Agreement shall be effective unless in
writing.
14. INTEGRATED AGREEMENT. This Option Agreement constitutes the entire
understanding and agreement of the Optionee and the Participating Company Group
with respect to the subject matter contained herein, and there are no
agreements, understandings, restrictions, representations, or warranties among
the Optionee and the Participating Company Group with respect to such subject
matter other than those as set forth or provided for herein. To the extent
contemplated herein, the provisions of this Option Agreement shall survive any
exercise of the Option and shall remain in full force and effect.
15. APPLICABLE LAW. This Option Agreement shall be governed by the laws
of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
TAB PRODUCTS CO.
By:
--------------------------------
Title:
-----------------------------
11
<PAGE>
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement and hereby accepts the Option subject to all
of the terms and provisions thereof. The Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board upon
any questions arising under this Option Agreement.
OPTIONEE
Date:
----------------------------------- -----------------------------------
12
<PAGE>
TAB PRODUCTS CO.
NONSTATUTORY STOCK OPTION AGREEMENT
FOR OUTSIDE DIRECTORS
(ANNUAL OPTION)
THIS NONSTATUTORY STOCK OPTION AGREEMENT FOR OUTSIDE DIRECTORS (ANNUAL
OPTION) (the "OPTION AGREEMENT") is made and entered into as of ___________,
199_, by and between TAB Products Co. and ___________________________ (the
"OPTIONEE").
The Company has granted to the Optionee an option to purchase certain
shares of Stock, upon the terms and conditions set forth in this Option
Agreement (the "OPTION").
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. Whenever used herein, the following terms shall
have their respective meanings set forth below:
(a) "DATE OF OPTION GRANT" means _____________________, 199_.
(b) "NUMBER OF OPTION SHARES" means two thousand (2,000) shares
of Stock, as adjusted from time to time pursuant to Section 9.
(c) "EXERCISE PRICE" means $_____________ per share of Stock, as
adjusted from time to time pursuant to Section 9.
(d) "INITIAL VESTING DATE" means the date immediately preceding
the date of the first annual meeting of the Company's stockholders occurring
after the Date of Option Grant.
(e) "VESTED RATIO" means, on any relevant date, the ratio
determined as follows:
Vested Ratio
------------
Prior to Initial Vesting Date 0
1
<PAGE>
On Initial Vesting Date, 1/1
provided the Optionee's Service
is continuous from the Date of
Option Grant until the Initial
Vesting Date
(f) "OPTION EXPIRATION DATE" means the date ten (10) years after
the Date of Option Grant.
(g) "BOARD" means the Board of Directors of the Company. If one
or more Committees have been appointed by the Board to administer the Plan,
"Board" shall also mean such Committee(s).
(h) "CODE" means the Internal Revenue Code of 1986, as amended,
and any applicable regulations promulgated thereunder.
(i) "COMMITTEE" means a committee of the Board duly appointed to
administer the Plan and having such powers as shall be specified by the Board.
Unless the powers of the Committee have been specifically limited, the Committee
shall have all of the powers of the Board granted in the Plan, including,
without limitation, the power to amend or terminate the Plan at any time,
subject to the terms of the Plan and any applicable limitations imposed by law.
(j) "COMPANY" means TAB Products Co., a Delaware corporation, or
any successor corporation thereto.
(k) "CONSULTANT" means any person, including an advisor, engaged
by a Participating Company to render services other than as an Employee or a
Director.
(l) "DIRECTOR" means a member of the Board or of the board of
directors of any other Participating Company.
(m) "DISABILITY" means the permanent and total disability of the
Optionee within the meaning of Section 22(e)(3) of the Code.
(n) "EMPLOYEE" means any person treated as an employee
(including an officer or a Director who is also treated as an employee) in the
records of a Participating Company; provided, however, that neither service as a
Director nor payment of a director's fee shall be sufficient to constitute
employment for purposes of the Plan.
(o) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
2
<PAGE>
(p) "FAIR MARKET VALUE" means, as of any date, if there is then
a public market for the Stock, the closing price of the Stock (or the mean of
the closing bid and asked prices of the Stock if the Stock is so reported
instead) as reported on the American Stock Exchange (the "AMEX") or such other
national or regional securities exchange or market system constituting the
primary market for the Stock. If the relevant date does not fall on a day on
which the Stock is trading on the AMEX or other national or regional securities
exchange or market system, the date on which the Fair Market Value shall be
established shall be the last day on which the Stock was so traded prior to the
relevant date. If there is then no public market for the Stock, the Fair Market
Value on any relevant date shall be as determined by the Board without regard to
any restriction other than a restriction which, by its terms, will never lapse.
(q) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(r) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation.
(s) "PARTICIPATING COMPANY GROUP" means, at any point in time,
all corporations collectively which are then Participating Companies.
(t) "PLAN" means the TAB Products Co. 1996 Outside Directors
Stock Option Plan.
(u) "RETIREMENT" means the termination of the Optionee's Service
on or after the date on which the Optionee attains age seventy (70) for any
reason other than the Optionee's death or Disability.
(v) "RULE 16b-3" means Rule 16b-3 as promulgated under the
Exchange Act, as amended from time to time, or any successor rule or regulation.
(w) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
(x) "SERVICE" means the Optionee's service with the
Participating Company Group, whether in the capacity of an Employee, a Director
or a Consultant. The Optionee's Service shall not be deemed to have terminated
merely because of a change in the capacity in which the Optionee renders Service
to the Participating Company Group or a change in the Participating Company for
which the Optionee renders such Service, provided that there is no interruption
or termination of the Optionee's Service. The Optionee's Service shall be
deemed to have terminated either upon an actual termination of Service or upon
the
3
<PAGE>
corporation for which the Optionee performs Service ceasing to be a
Participating Company.
(y) "STOCK" means the common stock, par value $0.01, of the
Company, as adjusted from time to time in accordance with Section 9.
(z) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
1.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural, the plural shall include the
singular, and the term "or" shall include the conjunctive as well as the
disjunctive.
2. TAX STATUS OF THE OPTION. This Option is intended to be a
nonstatutory stock option and shall not be treated as an incentive stock option
within the meaning of Section 422(b) of the Code.
3. ADMINISTRATION. All questions of interpretation concerning this
Option Agreement shall be determined by the Board, including any duly appointed
Committee of the Board. All determinations by the Board shall be final and
binding upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
4. EXERCISE OF THE OPTION.
4.1 RIGHT TO EXERCISE.
(a) Except as otherwise provided herein, the Option shall be
exercisable on and after the Initial Vesting Date and prior to the termination
of the Option (as provided in Section 6) in an amount not to exceed the Number
of Option Shares multiplied by the Vested Ratio less the number of shares
previously acquired upon exercise of the Option. In no event shall the Option
be exercisable for more shares than the Number of Option Shares.
(b) Notwithstanding the foregoing, in the event that the
adoption of the Plan or any amendment of the Plan affecting the Option is
subject to the approval of the Company's stockholders in order for the Plan or
the grant of the Option to comply with the requirements of Rule 16b-3, the
Option shall not be exercisable prior to such stockholder approval.
4
<PAGE>
4.2 METHOD OF EXERCISE. Exercise of the Option shall be by written
notice to the Company which must state the election to exercise the Option, the
number of whole shares of Stock for which the Option is being exercised and such
other representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option Agreement. The written notice must be signed by the Optionee and must be
delivered in person, by certified or registered mail, return receipt requested,
by confirmed facsimile transmission, or by such other means as the Company may
permit, to the Chief Financial Officer of the Company, or other authorized
representative of the Participating Company Group, prior to the termination of
the Option as set forth in Section 6, accompanied by full payment of the
aggregate Exercise Price for the number of shares of Stock being purchased. The
Option shall be deemed to be exercised upon receipt by the Company of such
written notice and the aggregate Exercise Price.
4.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the aggregate Exercise Price for the number of shares
of Stock for which the Option is being exercised shall be made (i) in cash, by
check, or cash equivalent, (ii) by tender to the Company of whole shares of
Stock owned by the Optionee having a Fair Market Value not less than the
aggregate Exercise Price, (iii) by means of a Cashless Exercise, as defined in
Section 4.3(c), or (iv) by any combination of the foregoing.
(b) TENDER OF STOCK. Notwithstanding the foregoing, the Option
may not be exercised by tender to the Company of shares of Stock to the extent
such tender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock. The
Option may not be exercised by tender to the Company of shares of Stock unless
such shares either have been owned by the Optionee for more than six (6) months
or were not acquired, directly or indirectly, from the Company.
(c) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means the
assignment in a form acceptable to the Company of the proceeds of a sale or loan
with respect to some or all of the shares of Stock acquired upon the exercise of
the Option pursuant to a program or procedure approved by the Company
(including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to decline to
approve or terminate any such program or procedure.
4.4 TAX WITHHOLDING. At the time the Option is exercised, in whole
or in part, or at any time thereafter as requested by the Company, the Optionee
5
<PAGE>
agrees to make adequate provision for any sums required to satisfy the federal,
state, local and foreign tax withholding obligations of the Participating
Company Group, if any, which arise in connection with the Option, including,
without limitation, obligations arising upon (i) the exercise, in whole or in
part, of the Option, (ii) the transfer, in whole or in part, of any shares
acquired upon exercise of the Option, or (iii) the lapsing of any restriction
with respect to any shares acquired upon exercise of the Option.
4.5 CERTIFICATE REGISTRATION. Except in the event the Exercise Price
is paid by means of a Cashless Exercise, the certificate for the shares as to
which the Option is exercised shall be registered in the name of the Optionee,
or, if applicable, the heirs of the Optionee.
4.6 RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES. The
grant of the Option and the issuance of shares of Stock upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares of Stock upon exercise would
constitute a violation of any applicable federal, state or foreign securities
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the Stock may then be listed. In addition, the Option
may not be exercised unless (i) a registration statement under the Securities
Act shall at the time of exercise of the Option be in effect with respect to the
shares issuable upon exercise of the Option or (ii) in the opinion of legal
counsel to the Company, the shares issuable upon exercise of the Option may be
issued in accordance with the terms of an applicable exemption from the
registration requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT
THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED.
ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED
EVEN THOUGH THE OPTION IS VESTED. To the extent practicable, the Company shall
take such action as necessary or appropriate for compliance with the
registration or qualification requirements under the securities laws of the
United States of America and any other appropriate governmental authorities and
the requirements of any stock exchange or market system upon which the Stock may
then be listed. However, the inability of the Company to obtain from any
regulatory body having jurisdiction the authority, if any, deemed by the
Company's legal counsel to be necessary to the lawful issuance and sale of any
shares subject to the Option shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained. As a condition to the exercise of the
Option, the Company may require the Optionee to satisfy any qualifications that
may be necessary or appropriate, to evidence compliance with any applicable law
or regulation and to make any representation or warranty with respect thereto as
may be requested by the Company.
6
<PAGE>
4.7 FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during
the lifetime of the Optionee only by the Optionee or the Optionee's guardian or
legal representative and may not be assigned or transferred in any manner except
by will or by the laws of descent and distribution. Following the death of the
Optionee, the Option, to the extent provided in Section 7, may be exercised by
the Optionee's legal representative or by any person empowered to do so under
the deceased Optionee's will or under the then applicable laws of descent and
distribution.
6. TERMINATION OF THE OPTION. The Option shall terminate and may no
longer be exercised on the first to occur of (a) the Option Expiration Date,
(b) the last date for exercising the Option following termination of the
Optionee's Service as described in Section 7, or (c) a Transfer of Control to
the extent provided in Section 8.
7. EFFECT OF TERMINATION OF SERVICE.
7.1 OPTION EXERCISABILITY.
(a) DISABILITY. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of twelve (12) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date.
(b) DEATH. If the Optionee's Service with the Participating
Company Group is terminated because of the death of the Optionee, the Option, to
the extent unexercised and exercisable on the date on which the Optionee's
Service terminated, may be exercised by the Optionee's legal representative or
other person who acquired the right to exercise the Option by reason of the
Optionee's death at any time prior to the expiration of twelve (12) months after
the date on which the Optionee's Service terminated, but in any event no later
than the Option Expiration Date.
(c) RETIREMENT. If the Optionee's Service with the
Participating Company Group is terminated because of the Retirement of the
Optionee, (i) any unexercised portion of the Option shall become fully
exercisable and vested as of the date of the Optionee's Retirement, and (ii) the
Option, to the extent unexercised on the date on which the Optionee's Service
terminated, may be exercised by the Optionee at any time prior to the expiration
of twelve (12)
7
<PAGE>
months after the date on which the Optionee's Service terminated, but in any
event no later than the Option Expiration Date.
(d) OTHER TERMINATION OF SERVICE. If the Optionee's Service
with the Participating Company Group terminates for any reason, except
Disability, death or Retirement, the Option, to the extent unexercised and
exercisable by the Optionee on the date on which the Optionee's Service
terminated, may be exercised by the Optionee within twelve (12) months after the
date on which the Optionee's Service terminated, but in any event no later than
the Option Expiration Date.
7.2 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date.
7.3 EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b). Notwithstanding
the foregoing, if a sale, within the applicable time periods set forth in
Section 7.1, of shares acquired upon the exercise of the Option would subject
the Optionee to suit under Section 16(b) of the Exchange Act, the Option shall
remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
8. OWNERSHIP CHANGE AND TRANSFER OF CONTROL.
8.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred
if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a single or
series of related transactions by the stockholders of the Company of more than
fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is a
party;
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
8
<PAGE>
(b) A "TRANSFER OF CONTROL" shall mean an Ownership Change Event
or a series of related Ownership Change Events (collectively, the "TRANSACTION")
wherein the stockholders of the Company immediately before the Transaction do
not retain immediately after the Transaction, in substantially the same
proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
8.2 EFFECT OF TRANSFER OF CONTROL ON OPTION. In the event of a
Transfer of Control, any unexercised portion of the Option shall be immediately
exercisable and vested in full as of the date ten (10) days prior to the date of
the Transfer of Control. Any exercise of the Option that was permissible solely
by reason of this Section 8.2 shall be conditioned upon the consummation of the
Transfer of Control, and any shares so acquired by the Optionee shall have the
same rights as all other shares of the same class. In addition, the surviving,
continuing, successor, or purchasing corporation or parent corporation thereof,
as the case may be (the "ACQUIRING CORPORATION"), may either assume the
Company's rights and obligations under the Option or substitute for the Option a
substantially equivalent option for the Acquiring Corporation's stock. The
Option shall terminate and cease to be outstanding effective as of the date of
the Transfer of Control to the extent that the Option is neither assumed or
substituted for by the Acquiring Corporation in connection with the Transfer of
Control nor exercised as of the date of the Transfer of Control.
Notwithstanding the foregoing, shares acquired upon exercise of the Option prior
to the Transfer of Control and any consideration received pursuant to the
Transfer of Control with respect to such shares shall continue to be subject to
all applicable provisions of this Option Agreement except as otherwise provided
herein. Furthermore, notwithstanding the foregoing, if the corporation the
stock of which is subject to the Option immediately prior to an Ownership Change
Event described in Section 8.1(a)(i) constituting a Transfer of Control is the
surviving or continuing corporation and immediately after such Ownership Change
Event less than fifty percent (50%) of the total combined voting power of its
voting stock is held by another corporation or by other corporations that are
members of an affiliated group within the meaning of Section 1504(a) of the Code
without regard to the provisions of Section 1504(b) of the Code, the Option
shall not terminate.
9
<PAGE>
9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number, Exercise Price and class of
shares of stock subject to the Option. If a majority of the shares which are of
the same class as the shares that are subject to the Option are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change Event) shares of another corporation (the "NEW SHARES"), the Board may
unilaterally amend the Option to provide that the Option is exercisable for New
Shares. In the event of any such amendment, the Number of Option Shares and the
Exercise Price shall be adjusted in a fair and equitable manner, as determined
by the Board, in its sole discretion. Notwithstanding the foregoing, any
fractional share resulting from an adjustment pursuant to this Section 9 shall
be rounded down to the nearest whole number, and in no event may the Exercise
Price be decreased to an amount less than the par value, if any, of the stock
subject to the Option.
10. RIGHTS AS A STOCKHOLDER. The Optionee shall have no rights as a
stockholder with respect to any shares covered by the Option until the date of
the issuance of a certificate for the shares for which the Option has been
exercised (as evidenced by the appropriate entry on the books of the Company or
of a duly authorized transfer agent of the Company). No adjustment shall be
made for dividends, distributions or other rights for which the record date is
prior to the date such certificate is issued, except as provided in Section 9.
11. LEGENDS. The Company may at any time place legends referencing any
applicable federal, state or foreign securities law restrictions on all
certificates representing shares of stock subject to the provisions of this
Option Agreement. The Optionee shall, at the request of the Company, promptly
present to the Company any and all certificates representing shares acquired
pursuant to the Option in the possession of the Optionee in order to carry out
the provisions of this Section.
12. BINDING EFFECT. Subject to the restrictions on transfer set forth
herein, this Option Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
13. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan
or the Option at any time; provided, however, that no such termination or
amendment may adversely affect the Option or any unexercised portion hereof
without the consent of the Optionee unless such termination or amendment is
necessary to comply with any applicable law or government regulation. No
amendment or addition to this Option Agreement shall be effective unless in
writing.
<PAGE>
14. INTEGRATED AGREEMENT. This Option Agreement constitutes the entire
understanding and agreement of the Optionee and the Participating Company Group
with respect to the subject matter contained herein, and there are no
agreements, understandings, restrictions, representations, or warranties among
the Optionee and the Participating Company Group with respect to such subject
matter other than those as set forth or provided for herein. To the extent
contemplated herein, the provisions of this Option Agreement shall survive any
exercise of the Option and shall remain in full force and effect.
15. APPLICABLE LAW. This Option Agreement shall be governed by the laws
of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
TAB PRODUCTS CO.
By:
--------------------------------
Title:
-------------------------------
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement and hereby accepts the Option subject to all
of the terms and provisions thereof. The Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board upon
any questions arising under this Option Agreement.
OPTIONEE
Date:
------------------------------- ------------------------------------
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 7,114
<SECURITIES> 3,337
<RECEIVABLES> 29,112
<ALLOWANCES> 676
<INVENTORY> 11,182<F1>
<CURRENT-ASSETS> 52,336
<PP&E> 53,849
<DEPRECIATION> 33,609
<TOTAL-ASSETS> 81,548
<CURRENT-LIABILITIES> 22,757
<BONDS> 13,484
0
0
<COMMON> 42,544
<OTHER-SE> 529
<TOTAL-LIABILITY-AND-EQUITY> 81,548
<SALES> 70,201
<TOTAL-REVENUES> 75,267
<CGS> 40,525
<TOTAL-COSTS> 44,977
<OTHER-EXPENSES> 26,459
<LOSS-PROVISION> 196
<INTEREST-EXPENSE> 535
<INCOME-PRETAX> 3,296
<INCOME-TAX> 1,434
<INCOME-CONTINUING> 1,862
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,862
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
<FN>
<F1>Inventory detail at November 30, 1996 was finished goods $7445; work in process
$541; raw materials $3196.
</FN>
</TABLE>
