UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 27, 1998
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 1-13970
CHROMCRAFT REVINGTON, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 35-1848094
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1100 North Washington Street, Delphi, IN 46923
--------------------------------------------------------------------------
(Address, including zip code, of Registrant's principal executive offices)
(765) 564-3500
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding for each of the Registrant's classes of common
stock as of the latest practicable date: 11,083,088 shares of the Company's
Common Stock, $.01 par value, were outstanding as of July 27, 1998.
TABLE OF CONTENTS
Page Number
-----------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Earnings ....................... 3
Condensed Consolidated Balance Sheets ..................... 4
Condensed Consolidated Statements of Cash Flows ........... 5
Notes to Condensed Consolidated Financial Statements ...... 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 of Security Holders ....... 9
Item 5. Other Information ......................................... 10
Item 6. Exhibits and Reports on Form 8-K .......................... 10
Signatures ............................................................ 10
2
Part I. Financial Information
-----------------------------
Item 1. Financial Statements
Consolidated Statements of Earnings (unaudited)
Chromcraft Revington, Inc.
(In thousands, except per share data)
Three Months Ended Six Months Ended
-------------------- --------------------
June 27, June 28, June 27, June 28,
1998 1997 1998 1997
-------- -------- -------- --------
Sales $ 57,500 $ 54,074 $118,302 $113,543
Cost of sales 43,193 40,309 88,681 85,437
-------- -------- -------- --------
Gross margin 14,307 13,765 29,621 28,106
Selling, general and administrative expenses 7,668 8,008 15,885 15,851
-------- -------- -------- --------
Operating income 6,639 5,757 13,736 12,255
Interest expense 179 347 332 665
-------- -------- -------- --------
Earnings before income tax expense 6,460 5,410 13,404 11,590
Income tax expense 2,577 2,164 5,348 4,636
-------- -------- -------- --------
Net earnings $ 3,883 $ 3,246 $ 8,056 $ 6,954
======== ======== ======== ========
Earnings per share of common stock
Basic $ .35 $ .28 $ .71 $ .61
======== ======== ======== ========
Diluted $ .33 $ .28 $ .69 $ .59
======== ======== ======== ========
Shares used in computing earnings per share
Basic 11,214 11,455 11,274 11,469
======== ======== ======== ========
Diluted 11,643 11,772 11,680 11,797
======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements.
3
Condensed Consolidated Balance Sheets (unaudited)
Chromcraft Revington, Inc.
(In thousands)
June 27, June 28, December 31,
1998 1997 1997
-------- -------- --------
Assets
------
Accounts receivable $ 31,613 $ 28,420 $ 26,905
Inventories 38,491 35,965 35,172
Deferred income taxes and other assets 3,507 3,739 2,974
-------- -------- --------
Current assets 73,611 68,124 65,051
Property, plant and equipment, net 36,619 38,783 37,445
Intangibles and other assets 23,322 23,233 23,648
-------- -------- --------
Total assets $133,552 $130,140 $126,144
======== ======== ========
Liabilities and Stockholders' Equity
------------------------------------
Accounts payable $ 8,798 $ 8,316 $ 8,450
Accrued liabilities 12,370 13,127 12,670
-------- -------- --------
Current liabilities 21,168 21,443 21,120
Revolving credit facility 13,400 19,800 9,000
Deferred income taxes and other liabilities 5,209 4,836 5,118
-------- -------- --------
Total liabilities 39,777 46,079 35,238
-------- -------- --------
Stockholders' equity
Common stock and capital in excess of par value 14,201 20,231 19,388
Retained earnings 79,574 63,830 71,518
-------- -------- --------
Total stockholders' equity 93,775 84,061 90,906
-------- -------- --------
Total liabilities and stockholders' equity $133,552 $130,140 $126,144
======== ======== ========
See accompanying notes to condensed consolidated financial statements.
4
Condensed Consolidated Statements of Cash Flows (unaudited)
Chromcraft Revington, Inc.
(In thousands)
Six Months Ended
--------------------
June 27, June 28,
1998 1997
-------- --------
Operating Activities
Net earnings $ 8,056 $ 6,954
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation and amortization 2,256 2,195
Deferred income taxes 163 770
Changes in assets and liabilities, net
Accounts receivable (4,708) 1,364
Inventories (3,319) (3,569)
Accounts payable and accrued liabilities 48 (5,082)
Other (693) (321)
-------- --------
Cash provided by operating activities 1,803 2,311
-------- --------
Investing Activities
Capital expenditures (1,016) (1,093)
-------- --------
Cash used in investing activities (1,016) (1,093)
-------- --------
Financing Activities
Net borrowings (repayments) under revolving credit facility 4,400 (400)
Proceeds from exercise of stock options 92 -
Repurchase and cancellation of common stock (5,279) (818)
-------- --------
Cash used in financing activities (787) (1,218)
-------- --------
Net change in cash $ - $ -
======== ========
See accompanying notes to condensed consolidated financial statements.
5
Notes to Condensed Consolidated Financial Statements (unaudited)
Chromcraft Revington, Inc.
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statement presentation.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the six month period ended June 27, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Registrant's annual report on Form 10-K for
the year ended December 31, 1997.
Note 2. Two-For-One Stock Split
The Board of Directors of Chromcraft Revington, Inc. declared a two-for-one
stock split to stockholders of record on May 27, 1998. The additional shares
were distributed to stockholders on June 10, 1998. All references to the number
of shares outstanding and per share amounts in the condensed consolidated
financial statements and notes reflect the stock split.
Note 3. Shares Used In Computing Earnings Per Share
Weighted average shares used in the calculation of diluted earnings per share
included dilutive potential common shares (stock options) of approximately
429,000 and 317,000 shares for the three months ended June 27, 1998 and June 28,
1997, respectively, and 406,000 and 328,000 shares for the six months ended
June 27, 1998 and June 28, 1997, respectively.
Note 4. Inventories
Inventories consisted of the following:
(In thousands)
----------------------------------
June 27, June 28, December 31,
1998 1997 1997
-------- -------- --------
Raw materials $ 13,933 $ 11,937 $ 11,033
Work-in-process 6,316 5,613 5,810
Finished goods 20,058 19,849 19,880
-------- -------- --------
Inventories at FIFO cost 40,307 37,399 36,723
LIFO reserve (1,816) (1,434) (1,551)
-------- -------- --------
$ 38,491 $ 35,965 $ 35,172
======== ======== ========
6
Note 5. Accrued Liabilities
Accrued liabilities consisted of the following:
(In thousands)
----------------------------------
June 27, June 28, December 31,
1998 1997 1997
-------- -------- --------
Employee benefit plans $ 3,357 $ 3,733 $ 3,999
Salaries, wages and commissions 1,767 1,464 1,497
Vacation and holiday pay 1,234 1,558 1,234
Workers' compensation plans 1,255 992 1,268
Advertising and promotion 1,211 1,438 978
Other accrued liabilities 3,546 3,942 3,694
-------- -------- --------
$ 12,370 $ 13,127 $ 12,670
======== ======== ========
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The following table sets forth the results of operations of Chromcraft
Revington, Inc. (the "Company") for the three and six months ended June 27, 1998
and June 28, 1997 expressed as a percentage of sales.
Three Months Ended Six Months Ended
-------------------- --------------------
June 27, June 28, June 27, June 28,
1998 1997 1998 1997
-------- -------- -------- --------
Sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 75.1 74.6 75.0 75.2
-------- -------- -------- --------
Gross margin 24.9 25.4 25.0 24.8
Selling, general and administrative expenses 13.3 14.8 13.4 14.0
-------- -------- -------- --------
Operating income 11.6 10.6 11.6 10.8
Interest expense .3 .6 .3 .6
-------- -------- -------- --------
Earnings before income tax expense 11.3 10.0 11.3 10.2
Income tax expense 4.5 4.0 4.5 4.1
-------- -------- -------- --------
Net earnings 6.8 % 6.0 % 6.8 % 6.1 %
======== ======== ======== ========
7
Three and Six Months Ended June 27, 1998 Compared to Three and Six Months
Ended June 28, 1997.
- - -------------------------------------------------------------------------
Sales
Consolidated sales for the three and six months ended June 27, 1998 increased
6.3% and 4.2%, respectively, as compared to the prior year periods. The sales
increase for the quarter and first half of 1998 were primarily due to higher
shipments of occasional, bedroom and commercial furniture. Dining room
furniture sales were slightly lower for the quarter ended June 27, 1998 as
compared to the same period last year. For the first six months of 1998, dining
room furniture shipments were at approximately the same level as compared to
last year. Upholstered furniture sales were lower for the three and six months
ended June 27, 1998 as compared to the prior year periods primarily due to the
elimination of low margin or nonprofitable products.
The sales increase for the first six months of 1998 was primarily attributable
to higher volume. Selling prices were slightly higher as compared to a year
ago. Sales order backlog at the end of the second quarter was at approximately
the same level as compared to the prior year.
Cost of Sales
Cost of sales as a percentage of sales was 75.1% and 75.0% for the three and six
month periods ended June 27, 1998, respectively, as compared to 74.6% and 75.2%
for the three and six month periods ended June 28, 1997. The cost percentage
increase for the second quarter of 1998 was primarily due to an unfavorable
product sales mix and higher raw material costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percentage of sales were 13.3%
and 13.4% for the three and six month periods ended June 27, 1998 as compared to
14.8% and 14.0% for the year ago periods, respectively. The higher cost
percentage for last year's second quarter was due to an increase in the
allowance for doubtful accounts.
Interest Expense
Interest expense during the second quarter of 1998 was $179,000 as compared to
$347,000 during the second quarter of 1997. For the first six months of 1998,
interest expense was $332,000 as compared to $665,000 for the first six months
of 1997. The decrease in interest expense for the second quarter and first half
of 1998 was due to lower average bank borrowings.
Income Tax Expense
The Company's effective tax rate was 39.9% for the three and six month periods
ended June 27, 1998 as compared to 40.0% for the three and six month periods
ended June 28, 1997. The slight reduction in the Company's effective tax rate
was due to lower state income taxes.
8
Liquidity and Capital Resources
The operating activities of the Company provided $1,803,000 of cash during the
six months ended June 27, 1998 as compared to $2,311,000 during the six months
ended June 28, 1997. The decrease in cash generated from operating activities
during the first half of 1998 as compared to the prior year period was due, in
part, to an increase in working capital investment, primarily in accounts
receivable. Higher accounts receivable at June 27, 1998, as compared to the
prior year quarter end, were primarily attributable to the increased sales
volume in 1998.
The Company invested $1,016,000 in capital expenditures for the first half of
1998 as compared to $1,093,000 during the year ago period. The Company expects
additions to property, plant and equipment to be approximately $3,500,000 for
the year ending December 31, 1998. Capital expenditures for the year ended
December 31, 1997 were $2,712,000.
The Company's financing activities used $787,000 of cash during the first six
months of 1998 as compared to $1,218,000 used during the first six months of
1997. The Company's board of directors authorized the repurchase of the
Company's common stock. For the six months ended June 27, 1998, the Company
retired 293,248 shares of common stock purchased for $5,279,000. For the same
period last year, the Company retired 60,200 shares purchased for $818,000. As
of June 27, 1998, 565,152 shares were available for repurchase under the stock
buyback program.
For the first half of 1998, the Company financed a portion of its cash needs
through additional borrowings under its bank revolving credit facility. Total
borrowings under the facility were $13,400,000 at June 27, 1998. Unused
capacity under the revolving credit facility, after reduction for outstanding
letters of credit, equalled $44,822,000 at the end of the second quarter.
Part II. Other Information
---------------------------
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its annual meeting of stockholders on May 8, 1998.
(b) At the annual meeting, the holders of the common stock of the Company
elected seven directors to serve until the next annual meeting of
stockholders and until their successors are duly elected and
qualified. Set forth below are the votes cast for each director.
Directors For Withheld
------------------ --------- --------
Bruce C. Bruckmann 5,252,632 288,170
David L. Kolb 5,252,908 287,894
Larry P. Kunz 5,252,809 287,993
H. Martin Michael 5,252,905 287,897
M. Saleem Muqaddam 5,252,809 287,993
Michael E. Thomas 5,252,697 288,105
Warren G. Wintrub 5,252,904 287,898
9
(c) At the annual meeting, the holders of the common stock of the Company
voted to amend the Company's 1992 Stock Option Plan. A total of
4,862,662 shares of common stock were voted for the proposal and
387,664 shares were voted against the proposal.
Item 5. Other Information
If a stockholder proposal is introduced at the 1999 Annual Meeting
without any discussion of the proposal in the proxy statement, and if
the proponent does not notify the Company on or before February 17,
1999, as required by Rule 14a-4(c)(1) under the Securities Exchange
Act of 1934, of the intent to raise such proposal at the Annual
Meeting, then proxies received by the Company for the 1999 Annual
Meeting will be voted by the persons named as proxies in their
discretion in regard to such proposal. Notice is to be given to the
Company in writing at its principal office, 1100 North Washington
Street, Delphi, Indiana 46923, directed to the attention of the
Secretary.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.4 Chromcraft Revington, Inc. 1992 Stock Option Plan, as amended.
(b) Reports on Form 8-K
On May 13, 1998, the Registrant filed a current report on Form 8-K
reporting the announcement of a two-for-one stock split and the
increase in the number of shares authorized by the Board of Directors
to be repurchased under its stock buyback program.
SIGNATURES
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.
CHROMCRAFT REVINGTON, INC.
----------------------------
(Registrant)
Date: August 11, 1998 /s/ Frank T. Kane
--------------- ----------------------------
Frank T. Kane
Vice President - Finance
(Duly Authorized Officer and
Chief Financial Officer)
10
EXHIBIT 10.4
CHROMCRAFT REVINGTON, INC.
1992 STOCK OPTION PLAN
(As amended on May 27, 1998)
ARTICLE I
Purpose
The purpose of Chromcraft Revington, Inc.'s 1992 Stock Option Plan is to
provide an established plan to attract and retain persons of ability as key
employees (including officers and directors who are also employees) and
directors and to motivate key employees and directors to exert their best
efforts on behalf of the Company and its Subsidiaries through the grant of
options to purchase Shares. Under the 1992 Stock Option Plan, the Company may
grant either options which qualify as ISO's as well as options which do not so
qualify.
ARTICLE II
Definitions
The following terms used in this Plan shall have the respective meanings
set forth below:
(A) "Code" shall mean the Internal Revenue Code of 1986, as amended, or any
successor statute thereto, and any reference to a specific provision of the Code
shall be deemed to refer to such provision (or any successor provision) as in
effect at the relevant time.
(B) "Company" shall mean Chromcraft Revington, Inc., a corporation
organized and existing under the laws of the State of Delaware, or any successor
(by merger, consolidation, purchase or otherwise) to such corporation which
shall have assumed the obligations of such corporation under this Plan.
(C) "Compensation Committee" shall mean a committee of three or more
members appointed by the Board of Directors of the Company from among those of
its members (i) who are not officers or employees of the Company and (ii) who
are "disinterested persons" as such term is used in Rule 16b-3(c)(2)(i)
promulgated under the Securities Exchange Act of 1934, as amended.
(D) "Fair Market Value" shall mean, on any given date, the mean between
the highest and lowest prices of actual sales of Shares on the principal
national securities exchange on which the Shares are listed, or if not so
listed, as reported on the New York Stock Exchange, on such date or, if Shares
were not traded on such date, on the last preceding day on which Shares were
traded. With respect to options granted on or before the effective date of the
Company's Registration Statement on Form S-1 (Registration Number 33-45902),
Fair Market Value of the Shares with respect to which such options are or
subsequently will become exercisable, determined as of the date on which such
options were granted shall mean the initial public offering price per share set
forth in such Registration Statement.
(E) "Holder" shall mean (i) an employee or director of the Company to whom
any options have been granted under the Plan; and (ii) except with respect to
Article VI, Sections (A), (C) and (E) hereof, a Family Member to whom any
options have been transferred in accordance with Article VI, Section (E) hereof.
(F) "ISO" shall mean an incentive stock option within the meaning of
Section 422 of the Code.
(G) "Plan" shall mean the provisions contained in this instrument and any
subsequent amendment to this instrument which shall have been adopted by the
Board of Directors of the Company pursuant to Article X.
(H) "Shares" shall mean the shares of Common Stock, par value $.01 per
share, of the Company.
(I) "Subsidiary" shall mean any corporation which at the time qualifies as
a "subsidiary corporation" of the Company in accordance with the terms of
Section 424(f) of the Code.
(J) "Family Member" shall mean (i) a Holder's spouse; (ii) a Holder's
children or more remote descendants (natural and adopted) (collectively, the
"Issue"); (iii) any partnerships which, by their terms, limit the partners
thereof to the Holder's spouse or Issue; and (iv) any trusts established solely
for the benefit of the Holder's spouse or Issue provided that such spouse or
Issue survives the trust's termination date; and, with respect to the persons or
entities referenced in (i) through (iv), to whom or to which any options have
been transferred in accordance with Article VI, Section (E) hereof.
(K) "Change in Control" as used herein shall mean and shall be deemed to
have occurred only in such circumstances as when both (i) the economic interest
of 399 Venture Partners, Inc. and its affiliates in the common equity securities
of the Company shall represent less than 20% of the total of such common equity
securities then issued and outstanding, and (ii) any "person" (as such term is
used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as
amended) shall be the beneficial owner, directly or indirectly, of common equity
securities of the Company representing more than 50% of the Company's then
issued and outstanding common equity securities.
ARTICLE III
Stockholder Approval
The provisions of this Plan are contingent upon the Plan being approved by
the stockholders of the Company within twelve months from the date of the adop-
tion of this Plan by the Company's Board of Directors.
2
ARTICLE IV
Number of Shares Available Under Plan
Subject to adjustment as provided in Article VI(G), the total number of
Shares which may be issued under options granted pursuant to the Plan is
1,800,000, and such Shares shall be reserved for options under the Plan. The
Company may from time to time grant ISO's to key employees of the Company or
any Subsidiary, or options which do not qualify as ISO's to any employees and
to directors of the Company or any Subsidiary; provided, however, that, during
the period when a director serves as a member of the Compensation Committee and
during the one year period immediately prior to such service, the Company may
not grant or award options under the Plan, or options of equity securities
under any other plan of the Company or any of its affiliates to such director.
The Shares issued upon exercise of options granted under the Plan may be author-
ized and unissued Shares or Shares held by the Company in its treasury.
ARTICLE V
Class of Eligible Employees
ISO's may be granted only to key employees. Key employees include
officers, directors who are also employees, and employees of the Company or of
any Subsidiary possessing the ability to enhance the successful management and
operation of the Company or any Subsidiary. Options which do not qualify as
ISO's may be granted to such key employees or to any other officer, employee or
director of the Company or of any Subsidiary; provided, however, that, during
the period when a director serves as a member of the Compensation Committee and
during the one year period immediately prior to such service, the Company may
not grant or award options under the Plan, or options or equity securities under
any other plan of the Company or any of its affiliates to such director.
ARTICLE VI
Option Provisions
Each option granted under the Plan shall be evidenced by an agreement
which shall be subject to the following express terms and conditions and to
such other terms and conditions as the Board of Directors may deem appropriate:
(A) Option Period. With respect to agreements evidencing the grant of
non-ISO options, the option agreement shall specify a period determined by the
Board of Directors, during which period the option is exercisable. With respect
to agreements evidencing the grant of ISO's, except as provided in Article VII
for 10% stockholders, each option agreement shall specify a period ending not
more than ten years from the date of grant of the ISO during which period the
option thereunder is exercisable and shall provide that the option shall expire
at the end of such period.
3
If any of the following events occurs before the expiration of the period
determined as provided above, any option granted hereunder shall expire upon
the earliest of:
(i) The day three (3) months from the date on which the Holder's
employment or service with the Company or any Subsidiary terminates for
any reason other than the Holder's disability within the meaning of
Section 422(c)(6) of the Code, or death or as specified in (iii) below;
(ii) The day one year from the date on which the Holder's employ-
ment or service with the Company or any Subsidiary terminates due to
the Holder's disability within the meaning of Section 422(c)(6) of the
Code, or death; or
(iii) The day upon which there is a finding by the Board of
Directors, after full consideration of the facts presented on behalf
of both the Company and the Holder, that the Holder has breached his
employment or service contract with the Company or any Subsidiary, or
has engaged in any act detrimental to the interests of the Company or
any Subsidiary, including without limitation, fraud, embezzlement,
theft, commission of a felony or proven dishonesty in the course of
his employment or service, or has disclosed trade secrets or
confidential information of the Company or any Subsidiary.
(B) Option Price. With respect to agreements evidencing the grant of non-
ISO options, the option price shall be determined by the Board of Directors.
With respect to agreements evidencing the grant of ISO's, except as provided in
Article VII for 10% stockholders, the option price per Share shall be determined
by the Board of Directors at the time any such option is granted and shall be
not less than the Fair Market Value of a Share (determined as of the date the
ISO is granted).
(C) Exercise of Option. All options granted hereunder shall be exercisable
only within the periods determined by the Company's Board of Directors or any
committee thereof duly so authorized and as set forth in the option agreements
entered into pursuant to such determinations and pursuant to the terms of this
Plan. During the lifetime of a Holder, all options granted hereunder shall be
exercisable only by the Holder, except with respect to options transferred by a
Holder to a Family Member. During the lifetime of a Family Member to whom any
options have been transferred in accordance with Article VI, Section (E) hereof,
such options shall be exercisable only by such Family Member. If any of the
events specified in Article VI(A)(i), (ii) or (iii) shall occur before any
unexercised options granted hereunder shall have expired, then those unexercised
options that are still in effect and that either are held by the Holder or by a
Family Member shall expire upon the earliest to occur of the events specified in
Article VI(A)(i), (ii) or (iii). Upon the death of a Holder or a Family Member
to whom any options have been transferred in accordance with Article VI, Section
(E) hereof, any options which were exercisable by such Holder or Family Member
immediately prior to his death may be exercised by the executor or administrator
of the Holder's or Family Member's estate, as the case may be (or, if applic-
able, by the partnership or trust to which the options have been transferred
hereunder); provided, however, that such executor's or administrator's right
4
(as well as the right of any partnership or trust to which any options have been
transferred hereunder) to exercise such options shall terminate upon the earlier
to occur of (i) one (1) year following the death of the Holder or the Family
Member, as the case may be; or (ii) the expiration of the option pursuant to
its terms.
(D) Payment of Purchase Price Upon Exercise. The purchase price of the
Shares as to which an option is exercised shall be paid in full to the Company
at the time of such exercise and such payment may be made either (i) in cash,
by certified or bank check or in any combination of cash and certified or bank
check; or (ii) with the consent of the Compensation Committee, and if permitted
by the restrictions in the Company's financing agreements, the purchase price
of the Shares as to which an option is exercised may be paid to the Company, in
whole or in part, in Shares (other than statutory stock option stock as to which
the applicable holding period as provided in Section 424(c)(3) of the Code has
not been met) valued at Fair Market Value on the date of such exercise by either
having such Shares withheld upon exercise of the option or by delivering such
Shares already owned by the Holder. Alternatively, the Compensation Committee
may permit a Holder to elect to pay the purchase price upon the exercise of an
option by authorizing a third party to sell Shares (or a sufficient portion of
the Shares) acquired upon exercise of the option and remit to the Company a
sufficient portion of the sale proceeds to pay the entire purchase price and any
tax withholding resulting from such exercise.
(E) Limited Transferability. No option granted under the Plan shall be
transferable except (i) by will or by the laws of descent and distribution; or
(ii) with respect only to options which do not qualify as ISO's, as may be
transferred by a Holder to a Family Member in accordance with this Section (E).
All options not qualifying as ISO's granted under the Plan shall be transferable
pursuant to this Section (E) regardless of whether such options are vested or
unvested at the time of transfer; provided, however, that any unvested options
transferred pursuant to this Section (E) shall expire and be forfeited by the
transferee if such options do not become fully vested by the times specified in
the option agreements covering such options. An option that is transferred by
a Holder to a Family Member pursuant to this Section (E) is not transferable by
the Family Member, except for any transfer by the Family Member's will or by the
laws of descent and distribution upon the death of such Family Member.
The transfer of options granted under the Plan by a Holder to a Family
Member in accordance with this Section (E) shall be evidenced by a written
agreement duly executed by the Holder, the Family Member and the Company.
(F) Investment Representation. Unless the Shares covered by this Plan are
the subject of an effective registration statement on Form S-8 or any successor
form for registration under the Securities Act of 1933, as amended, of
securities to be offered to employees pursuant to certain plans, each option
agreement shall contain a provision that, upon demand of the Board of Directors,
Holder shall deliver to the Company at the time of any exercise of an option, a
written representation that the Shares to be acquired upon such exercise are to
be acquired for investment and not for resale with a view to the distribution
5
thereof. Upon such demand, delivery of such representation shall be a condition
precedent to the right of Holder to purchase any Shares pursuant to the option.
(G) Adjustments in Event of Change in Shares. In the event of any change
in the Shares by reason of any stock dividend, recapitalization, reorganization,
merger, consolidation, split-up, combination, or exchange of Shares, or rights
offering to purchase Shares at a price substantially below fair market value, or
for any similar change affecting the Shares, the number and kind of Shares for
which thereafter an option may be granted and sold under the Plan, the number
and kind of Shares subject to option in outstanding option agreements and the
purchase price per Share, shall be appropriately adjusted consistent with such
change in such manner as the Board of Directors may deem equitable to prevent
substantial dilution or enlargement of the rights granted to, or available for,
Holders. Notwithstanding the foregoing provisions in this Article VI(G), no
adjustment shall be made which operates to reduce the option price of any ISO
below the fair market value of the stock (determined as of the time the option
was granted) which is subject to the ISO.
(H) Qualified Options. Each option agreement which provides for the grant
of an ISO to an employee shall contain the legend "Incentive Stock Option" and
such other terms and conditions as the Board of Directors may determine to be
necessary or desirable in order to qualify such option as an ISO within the
meaning of Section 422 of the Code.
(I) Withholding. It shall be a condition to the obligation of the Company
to issue or transfer Shares upon exercise of any option that the Holder pay to
the Company, upon its demand, such amount as may be requested by the Company
for the purpose of satisfying its liability to withhold federal, state or local
income or other taxes incurred by reason of the exercise of such option or the
transfer of Shares thereupon. If the amount requested is not paid, the Company
may refuse to issue or transfer Shares upon exercise of such option. At the
election of the Holder, but only with the consent of the Compensation Committee,
and only if permitted by the restrictions in the Company's financing agreements,
the Company shall have the right to retain upon exercise, or the right to
repurchase from shares already held by the Holder, the number of shares of
Common Stock whose Fair Market Value equals the amount to be withheld in
satisfaction of the applicable withholding taxes or to make loans on the terms
set forth in Article XI(A)(v) to pay the applicable withholding taxes. Each
option agreement shall contain appropriate provisions to effect withholding in
this manner.
(J) Aggregate Limitation. The aggregate Fair Market Value of stock with
respect to which ISO's are exercisable for the first time by an individual in
any calendar year (under all plans of the Company or any Subsidiary) shall not
exceed $100,000. For purposes of this Article VI(J) such Fair Market Value of
stock shall be determined as of the date on which the ISO exercisable with
respect thereto was granted.
(K) Change in Control. In the event of a Change in Control, all
outstanding options shall vest and may be exercised in full without regard to
any restrictions on the vesting of such options contained in the stock option
agreements.
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ARTICLE VII
Provisions For 10% Stockholders
If any employee, at the time an option which is intended to qualify as an
ISO is granted to him, owns 10% or more of the total combined voting power of
all classes of stock of the Company or any Subsidiary, the option price shall be
at least 110% of the Fair Market Value of the stock (determined as of the time
of grant) which is subject to the option and any such option shall not be
exercisable after the expiration of five years from the date of grant.
ARTICLE VIII
Prohibitions on Grant of Options
Options Granted Within 10 Years. No option which is intended to qualify
as an ISO shall be granted more than ten years following the earlier of (i)
adoption of the Plan by the Company's Board of Directors or (ii) approval of
the Plan by the stockholders of the Company.
ARTICLE IX
Miscellaneous Provisions
(A) No Rights as Stockholder. No Holder shall have any rights as a stock-
holder with respect to any Shares subject to options granted hereunder before
Holder gives notice of exercise to the Company and tenders the purchase price.
(B) No Rights to Continued Employment. The Plan and any option granted
under the Plan shall not confer upon any Holder any right for continuance of
employment by the Company or any Subsidiary, nor shall they interfere in any
way with the right of the Company or any Subsidiary by which any Holder is
employed to terminate his employment at any time.
(C) Compliance With Other Laws and Regulations. The Plan, the grant and
exercise of options hereunder, and the obligation of the Company to sell and
deliver Shares under such options, shall be subject to all applicable Federal
and state laws, rules and regulations and to such approvals by any government
or regulatory agency as may be required. The Company shall not be required to
issue or deliver any certificates for Shares unless it is satisfied that such
issuance is in compliance with all applicable laws, regulations, rules and
statutes under Federal and state law, and the requirements of any exchange on
which the Shares may then be listed. The Company shall not be obligated to
accept a note in whole or partial payment of the purchase price to the extent
that the amount or terms of any such note shall not be in compliance with all
applicable Federal and state laws, rules and regulations and such approvals by
any government or regulatory agency as may be required.
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(D) Re-issuance of Cancelled Options. Options which were issued in
accordance with the terms hereof, but which are no longer exercisable by reason
of expiration, termination of employment or otherwise, shall be deemed cancel-
led and may be reissued hereunder in accordance with the terms hereof.
ARTICLE X
Amendment and Discontinuance
The Board of Directors of the Company may from time to time amend, suspend
or discontinue the Plan; provided, however, that no action of the Board of
Directors may alter the provisions in a manner to disqualify Plan ISO's under
Section 422 of the Code. Without the written consent of a Holder, no amendment
or suspension of the Plan or option shall alter or impair any option previously
granted to him under the Plan.
ARTICLE XI
Administration
(A) Compensation Committee. The Plan shall be administered by the
Compensation Committee which shall have the power, consistent with the provi-
sions of the Plan, to:
(i) determine and designate from time to time those employees or
directors of the Company or of any Subsidiary to whom options are to
be granted, whether such options are intended to be ISO's and the
number of Shares for which options shall be granted to each such
employee;
(ii) determine the number of Shares subject to each option;
(iii) determine the time or times and the manner when each option
shall be exercisable and the duration of the exercise period;
(iv) establish procedures at the Compensation Committee's discre-
tion, and if permitted by the restrictions in the Company's financing
agreements, for a Holder (1) to have withheld from the total number of
Shares to be acquired upon the exercise of an option that number of
shares having a Fair Market Value, which, together with such cash as
shall be paid with respect to fractional Shares, shall equal the option
exercise price and/or the obligation of withholding for taxes incurred
by the Holder upon such exercise, or (2) to exercise an option by
delivering a number of Shares already owned by him having a Fair Market
Value which shall equal the option exercise price and/or the obligation
of withholding for taxes incurred by the Holder upon such exercise; and
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(v) establish a loan program, if permitted by the restrictions in
the Company's financing agreements, to loan to a Holder who is still
employed by the Company at the time of exercise an amount sufficient
to satisfy the obligation of withholding for taxes incurred by the
Holder upon such exercise and thereafter loan promptly to such Holder
additional amounts sufficient to pay further withholding obligations as
may be determined from time to time to be payable as a result of such
exercise. Any amounts loaned to such Holder shall be evidenced by a
promissory note from such Holder on such terms as are mutually agreed
to by the Compensation Committee and the Holder.
(B) Interpretations. The Board of Directors may interpret the Plan,
prescribe, amend, and rescind any rules and regulations necessary or appropriate
for the administration of the Plan, and make such other determinations and take
such other action as it deems necessary or advisable. Any interpretation,
determination, or other action made or taken by the Board of Directors shall be
final, binding and conclusive.
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