SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. _____)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, For Use of the Commission Only (as
[X] Definitive Proxy Statement permitted by Rule 14a-6(e)(2)
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
TAITRON COMPONENTS, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No Fee Required
Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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Fee paid previously with preliminary materials:
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[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing party:
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(4) Date filed:
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TAITRON COMPONENTS INCORPORATED
____________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held June 1, 2001
____________________
TO THE SHAREHOLDERS OF
TAITRON COMPONENTS INCORPORATED
You are cordially invited to attend the Annual Meeting of Shareholders of
Taitron Components Incorporated, a California corporation (the "Company"), which
will be held at the Hyatt Valencia, 24500 Town Center Drive, Valencia,
California 91355, on Friday, June 1, 2001, at 2:00 p.m. Pacific time, to
consider and act upon the following matters:
1. The election of directors;
2. To approve an amendment to the 1995 Stock Incentive Plan of Taitron
Components Incorporated increasing the number of shares which may be
issued under the Plan from 740,000 shares to 1,080,000 shares; and
3. Such other business as may properly come before the Annual Meeting and
any adjournment(s) thereof.
The Board of Directors has fixed April 20, 2001 as the record date for the
determination of shareholders entitled to notice of and to vote at the Annual
Meeting and any postponements or adjournments thereof, and only shareholders of
record at the close of business on that date are entitled to such notice and to
vote at the Annual Meeting. A list of shareholders entitled to vote at the
Annual Meeting will be available at the Annual Meeting and at the offices of the
Company for ten days prior to the Annual Meeting.
We hope that you will use this opportunity to take an active part in the
affairs of the Company by voting on the business to come before the Annual
Meeting, either by executing and returning the enclosed Proxy Card or by casting
your vote in person at the Annual Meeting.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE ANNUAL MEETING
REGARDLESS OF THE NUMBER OF SHARES YOU HOLD. YOU ARE INVITED TO ATTEND THE
ANNUAL MEETING IN PERSON, BUT WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE
COMPLETE, DATE, SIGN AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE.
IF YOU DO ATTEND THE ANNUAL MEETING, YOU MAY, IF YOU PREFER, REVOKE YOUR PROXY
AND VOTE YOUR SHARES IN PERSON.
By Order of the Board of Directors
/s/ Stewart Wang
Stewart Wang
CEO and President
28040 West Harrison Parkway
Valencia, California 91355
(661) 257-6060
April 21, 2001
TAITRON COMPONENTS INCORPORATED
_________________
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
June 1, 2001
_________________
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Taitron Components Incorporated, a
California corporation (the "Company"), for use at the Annual Meeting of
Shareholders to be held at the Hyatt Valencia, 24500 Town Center Drive,
Valencia, California 91355, on Friday, June 1, 2001, at 2:00 p.m. Pacific time.
Accompanying this Proxy Statement is the Board of Directors' Proxy for the
Annual Meeting, which you may use to indicate your vote as to the proposals
described in this Proxy Statement.
The expense of this solicitation of proxies will be borne by the Company.
Solicitations will be made only by use of the mail except that, if deemed
desirable, officers and regular employees of the Company may solicit proxies by
telephone, telegraph or personal calls. Brokerage houses, custodians, nominees
and fiduciaries will be requested to forward the proxy soliciting material to
the beneficial owners of the stock held of record by such persons and the
Company will reimburse them for their reasonable expenses incurred in this
connection.
The Company's Annual Report to Shareholders, including financial statements
for the fiscal year ended December 31, 2000, accompanies but does not constitute
part of this Proxy Statement.
The purpose of the meeting and the matters to be acted upon are set forth
in the attached Notice of Annual Meeting. As of the date of this Proxy
Statement, the Board of Directors knows of no other business which will be
presented for consideration at the Annual Meeting. All Proxies which are
properly completed, signed and returned to the Company prior to the Annual
Meeting, and which have not been revoked, will be voted in favor of the
proposals described in this Proxy Statement unless otherwise directed. A
shareholder may revoke his or her Proxy at any time before it is voted either by
filing with the Secretary of the Company, at its principal executive offices, a
written notice of revocation or a duly executed Proxy bearing a later date, or
by attending the Annual Meeting and expressing a desire to vote his or her
shares in person. If any other business shall properly come before the meeting,
votes will be cast pursuant to said proxies in respect of any such other
business in accordance with the judgement of the persons acting under said
proxies.
The Company's principal executive offices is located at 28040 West Harrison
Parkway, Valencia, CA 91355. It is anticipated that the mailing to shareholders
of this Proxy Statement and the enclosed proxy will commence on or about April
24, 2001.
OUTSTANDING SECURITIES AND VOTING RIGHTS
The close of business on April 20, 2001 has been fixed as the record date
for the determination of Shareholders entitled to notice of and to vote at the
Annual Meeting or any adjournment(s) of the Annual Meeting. As of the record
date, the Company had outstanding 4,927,170 shares of Class A Common Stock, par
value $.001 per share, (the "Class A Common Stock"), and 762,612 shares of Class
B Common Stock, par value $.001 per share (the "Class B Common Stock" and
collectively with the Class A Common Stock, the "Common Stock"). The Class A
Common Stock and the Class B Common Stock are the only outstanding voting
securities of the Company. As of the record date, the Company had approximately
100 Shareholders of record. The Company is informed and believes that there are
approximately 1,000 beneficial holders of its Class A Common Stock.
1
A holder of Class A Common Stock is entitled to cast one vote for each
share held on the record date on all matters to be considered at the Annual
Meeting. A holder of Class B Common Stock is entitled to cast ten votes for each
share held on the record date on all matters to be considered at the Annual
Meeting. The five nominees for election as Directors who receive the highest
number of votes will be elected. All other matters that may properly come
before the meeting require for approval the favorable vote of a majority of
shares voted at the meeting or by proxy. If the Company has fewer than 800
beneficial owners on April 20, 2001 and a shareholder requests cumulative
voting before commencement of the election (and if the candidates' names have
been placed in nomination prior to that time), then any shareholder may
distribute among as many candidates as desired a number of votes equal to the
number of directors to be elected multiplied by the number of shares held. The
Company believes it will have more than 800 beneficial shareholders as of the
record date, however, if cumulative voting is in effect, the persons named in
the accompanying proxy will vote the shares in their discretion among all or any
of the candidates named herein. Abstentions and broker non-votes will be
included in the determination of shares present at the Annual Meeting for
purposes of determining a quorum. Abstentions will be counted toward the
tabulation of votes cast on proposals submitted to shareholders and will have
the same effect as negative votes, while broker non-votes will not be counted as
votes cast for or against such matters.
PROPOSAL No. 1
ELECTION OF DIRECTORS
In accordance with the Articles of Incorporation and Bylaws of the Company,
the Board of Directors consists of not less than three nor more than seven
members, the exact number to be determined by the Board of Directors. At each
annual meeting of the Shareholders of the Company, directors are elected for a
one-year term. The Board of Directors is currently set at five members and
there currently exist no vacancies. At the 2001 Annual Meeting, each director
will be elected for a term expiring at the 2002 annual meeting. The Board of
Directors proposes the election of the nominees named below.
Unless marked otherwise, Proxies received will be voted FOR the election of
each of the nominees named below. If any such person is unable or unwilling to
serve as a nominee for the office of director at the date of the Annual Meeting
or any postponement or adjournment thereof, the Proxies may be voted for a
substitute nominee, designated by the present Board of Directors to fill such
vacancy. The Board of Directors has no reason to believe that any such nominee
will be unwilling or unable to serve if elected a director.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
ELECTION OF THE DIRECTORS NOMINATED HEREIN.
The Board of Directors proposes the election of the following nominees as
members of the Board of Directors:
Tzu Sheng (Johnson) Ku
Stewart Wang
Richard Chiang
Craig Miller
Felix M. Sung
If elected, the nominees are expected to serve until the 2002 Annual Meeting
of Shareholders.
2
Information with Respect to Each Nominee and Executive Officers.
The following table sets forth certain information with respect to each
nominee and executive officer of the Company as of March 31, 2001.
Name Age Position
---- ----- --------
Tzu Sheng (Johnson) Ku 52 Chairman of the Board and Director
Nominee
Stewart Wang 51 President, Chief Executive Officer,
Director and Director Nominee
Richard Chiang 44 Director and Director Nominee
Craig Miller 47 Director and Director Nominee
Felix M. Sung 51 Director and Director Nominee
Other Officers:
Michael Adams 46 Vice President of Sales
Steven H. Dong 34 Chief Financial Officer and Secretary
Sally Manley 60 Vice President of Procurement
Alex Miao 51 Vice President of Engineering and
Quality Assurance
________________________________________________________________________________
All officers are appointed by and serve at the discretion of the Board of
Directors. There are no family relationships between any directors or officers
of the Company.
Tzu Sheng ("Johnson") Ku, a co-founder of the Company, has been the
Chairman of the Company since it was founded in 1989. Mr. Ku is the Chairman
of Weekendz Off, Inc., which sells high quality casual sportswear to stores such
as Nordstrom, Bloomingdales, Saks Fifth Avenue and its own label "Weekendz Off".
Additionally, Mr. Ku is Chairman of both Johnson Premium Hardwood Flooring and
Americana Floors Incorporated, both located in Los Angeles, California.
Johnson Premium Hardwood Flooring is a manufacturer of pre-finished solid wood
floors and Americana Floors Incorporated is an importer, wholesaler and retailer
of name brand hard wood floors. From 1999 to 2000, Mr. Ku served as Chairman of
Etron Corporation which is a world wide distributor of consumer electronic
products.
Stewart Wang, a co-founder of the Company, has served as the Chief
Executive Officer, President and Director of the Company since its organization
in 1989. Prior to founding the Company, Mr. Wang attended Pepperdine University,
where he received his Masters of Business Administration degree in 1989. From
1985 to 1986, Mr. Wang was employed by Diodes Incorporated, a manufacturer and
reseller of discrete rectifiers located in Southern California, as Purchasing
and MIS Manager and later as Chief Operating Officer and President from 1986 to
1987. Prior thereto, from 1983 to 1985, Mr. Wang was Sales Manager for Rectron
Limited, a rectifier manufacturer in Taiwan.
Richard Chiang has been a Director of the Company since it was founded in
1989. Since 1986, Mr. Chiang has been the Chairman of Princeton Technology
Corporation, which is a fabless integrated circuit design company. Also, Mr.
Chiang is Chairman of Triton Management Corporation, which is a venture capital
fund management company. Since 1996, Mr Chiang also served as Chairman of
Proware Technology Corporation, which is a RAID subsystem business company and
Chariman of ARCHIC Technology Corporation which is a RF Analog IC design
company. Mr. Chiang also serves as a Director of both Alliance
3
Venture Capital Corporation which is a venture capital firm located in Taipei,
Taiwan, and Advanced Communications Devices Corporation which is a networking
switch controller chip design company located in Fremont CA. Also, Mr. Chiang
serves as a Director of both DataFab, Inc., which is a leading Flash Memory Card
Reader company in Taiwan and FiberCom which is a Fiber Optic Passive Components
manufacturer in Taiwan.
Craig Miller became a director of the Company in May 2000. Since 1998, Mr.
Miller has been a director of Mosaic Capital, LLC, an investment banking firm
located in Sherman Oaks, California. Prior thereto, Mr. Miller served as
Regional Vice President with Comerica Bank since 1994. From 1987 to 1994, Mr.
Miller served as Executive Vice President and Chief Financial Officer of Told
Corporation, an industrial real estate development firm. He started his career
with Union Bank in 1976 as a management trainee and left in 1987 as Senior Vice
President.
Felix M. Sung became a director of the Company in February 1995. Mr. Sung
is the Managing Director and former Vice President of Tai North Company, a
company engaged in exporting electronics, plastic parts and finished products to
the United States and various European countries.
Michael Adams, a co-founder of the Company, has been Vice President of
Western Regional Sales since 1993 and is currently Vice President of Sales. From
1990 to 1993, Mr. Adams served as an Executive Sales Manager for the Company.
Prior thereto, Mr. Adams was employed by Diodes Incorporated, as a Regional
Sales Manager.
Steven H. Dong joined the Company in March 1999 as its Chief Financial
Officer. Prior thereto, from 1995 to 1999, Mr. Dong practiced as an independent
financial consultant assisting publicly-held companies with high level
accounting projects and serving as interim Chief Financial Officer. From 1988
to 1995, Mr. Dong was employed by the international accounting firm of
PriceWaterhouseCoopers, LLP. Mr. Dong is a Certified Public Accountant and a
member in good standing with the American Institute of Certified Public
Accountants and California State Board of Accountancy.
Sally Manley, a co-founder of the Company, has been Vice President Central
Regional Sales since 1994 and is currently Vice President of Procurement. From
1990 to 1994, Ms. Manley served as an Executive Sales Manager of the Company.
Prior thereto, Ms. Manley was employed by Diodes Incorporated as a Regional
Sales Manager.
Alex Miao, has been Vice President of Engineering and Quality Assurance
since 1997. Prior to 1997, Mr. Miao served as quality assurance manager in the
computer products division at Analog Devices, Inc. Prior thereto, Mr. Miao
served in management positions for quality systems and product/test engineering
with Microchip Technologies, Inc., National Semiconductor Corporation, Micro
Power Systems, the Chung-San Science and Technology institute and RCA Taiwan,
Ltd.
During 2000, the Board of Directors met two times. Each director attended
one hundred percent of the Board of Directors meetings and the meetings of Board
committees on which he served.
Committees of the Board
Audit Committee - The Board of Directors has established an Audit Committee
that reviews the audit and control functions of the Company, the Company's
accounting principles, policies and practices and financial reporting, the scope
of the audit conducted by the Company's independent auditors, the fees and all
non-audit services of the independent auditors and the independent auditor's
opinion and management comment letter (if any) and management's response
thereto. The Audit Committee met once during the year. Members of the Audit
Committee are Mr. Chiang, Mr. Miller and Mr. Sung.
Compensation Committee - The Board of Directors has established a
Compensation Committee. The function of the Compensation Committee is to review
and make recommendations with respect to compensation of executive officers and
key employees, including administration of the Company's Stock Incentive Plan.
The Compensation Committee met once during the year. Members of the
Compensation Committee are Mr. Chiang, Mr. Miller and Mr. Sung.
4
The Board of Directors does not have a Nominating Committee or a committee
performing similar functions.
Compliance with Section 16(a) of the Securities Exchange Act.
Section 16(a) of the Securities and Exchange Act of 1934 (the "Exchange
Act") requires the Company's officers and directors, and persons who own more
than ten percent of a registered class of the Company's equity securities, to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission (the "SEC"). Officers, directors and greater than ten
percent shareholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file. Based solely on its review of the
copies of such forms received by it, or written representations from certain
reporting persons that Section 16(a) forms were required and filed by such
persons. The Company believes that, during the year ended December 31, 2000, all
filing requirements applicable to its officers, directors, and greater than ten
percent beneficial owners were complied with.
MANAGEMENT
SUMMARY COMPENSATION TABLE
The following table sets forth certain information as to the Company's
Executive Officers (the "Named Executive Officers") which total annual salary
plus bonus for the year ended December 31, 2000 exceeded $100,000:
Annual Compensation Long Term
---------------------------------- Compensation Stock All Other
Name and Principal Position Year Salary Bonus Option Awards (1) Compensation (2)
---------------------------- ------ ------ ----- ----------------- ----------------
Stewart Wang, CEO 2000 $185,911 $ - 20,000 $ 5,022
1999 $183,791 $ - 58,000 $ 8,820
1998 $188,941 $ - - $ 6,044
Steven Dong, CFO (3) 2000 $109,389 $ 1,720 - $ 4,984
1999 $ 89,737 $ - 20,000 $ 4,275
1998 $ - $ - - $ -
Mike Adams, VP of Sales 2000 $ 91,476 $ 2,500 5,000 $11,033
1999 $ 85,698 $ 3,000 4,000 $ 4,200
1998 $ 82,385 $ 7,000 - $ 4,280
Sally Manley, VP of 2000 $ 80,682 $ - 5,000 $28,290
Procurement 1999 $ 77,573 $ 3,000 3,000 $ 4,540
1998 $ 76,261 $ 5,000 - $ 8,170
- --------------------------------------------------------------------------------------------------------------------
(1) All numbers reflect number of shares of Class A Common Stock subject to
options granted during the year.
(2) The amount mostly consists of automobile allowances and sales commissions.
(3) Mr. Dong's salary for 1999 is from his date of hire of March 1, 1999.
5
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to grants of
options ("Options") to purchase Class A Common Stock under the Stock Option Plan
to the Named Executive Officers during the fiscal year ended December 31, 2000.
Potential Realizable
Value at Assumed
Number of % of Total Annual Rate of Stock
Securities Options Appreciation for
Underlying Granted to Exercise Option Term(2)
Options Employees Price Expiration -------------------
Name Granted(#) in Fiscal Year ($/sh)(1) Date 5% 10%
---- ---------- -------------- --------- ---------- ------- --------
Stewart Wang, CEO 20,000 18.05% (3) 2010 $40,120 $101,680
Mike Adams, VP of Sales 5,000 4.51% (3) 2010 $10,030 $ 25,420
Sally Manley, VP of 5,000 4.51% (3) 2010 $10,030 $ 25,420
Procurement
_______________
(1) The exercise price was market value of the Common Stock on the date of
grant.
(2) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on option exercises are dependent upon other factors,
including the future performance of the Common Stock and overall stock
market conditions.
(3) Options are exercisable at $3.19 per share .
OPTION EXERCISES AND FISCAL YEAR END VALUE
The following table sets forth with respect to the Named Executive Officers
information with respect to options exercised, unexercised options and year-end
option values with respect to options to purchase shares of Class A Common
Stock.
Aggregated Option Exercises During Fiscal 2000 and Fiscal Year-End Option Values
Number of Securities
Underlying Value of Unexercised
Unexercised Options at In the Money Options
Shares Value December 31, 2000(#) at December 31, 2000 (1)
Acquired on Realized -------------------------- --------------------------
Name Exercise(#) ($)(2) Exercisable Unexercisable Exercisable Unexercisable
----- ----------- ------ ----------- ------------- ----------- -------------
Stewart Wang, CEO -- -- 85,833 58,667 $31,805 $40,360
Steven Dong, CFO 6,667 22,534 6,666 6,667 $ 7,932 $ 7,933
Mike Adams, VP of -- -- 24,333 13,667 $ 8,313 $ 9,127
Sales
Sally Manley, VP of -- -- 23,333 11,667 $ 7,267 $ 7,033
Procurement
_______________
(1) Represents the difference between the last reported sale price of the
Common Stock on December 31, 2000 and the exercise price of the option
multiplied by the applicable number of shares.
(2) As of the date of this report, Mr. Dong still holds 6,667 shares from his
options exercised above.
6
Compensation of Directors
Non-employee directors receive $1,500 for attending the Annual Board of
Directors meeting. The Company pays all out-of-pocket fees associated with the
Directors attendance. In addition, members of the Compensation Committee
receive an annual grant of 5,000 non-statutory stock options under the Company's
1995 Stock Incentive Plan (the "1995 Plan"), exercisable at the fair market
value of the Company's Class A Common Stock on the date of grant, and which vest
1/3 upon each anniversary thereafter.
Employment Contract
Mr. Wang's employment agreement expired December 31, 1997. As of the date
of this Report, the Company and Mr. Wang have not entered into a new agreement
and they do not anticipate to do so. Mr. Wang and the other executive officers
are appointed by and serve at the discretion of the Board of Directors.
Compensation Committee Interlocks and Insider Participation
During the year ended December 31, 2000, the Company had sales of
approximately $48,000 to a company controlled by Mr. Chiang, a director of the
Company. All of these sales were of electronic component products carried by
the Company in inventory and the Company considers these sales to be in the
normal course of business and on an arm's length basis. The Company has entered
into a distributor agreement with the affiliated company, as such, the Company
expects that such sales may continue in the future.
During the year ended December 31, 2000, the Company purchased printing and
related services of approximately $78,000 from a company in which Mr. Ku and Mr.
Wang are affiliated. All of these purchases were for printing of catalogs and
other materials that the Company considers to be in the normal course of
business and on an arm's length basis.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee has the responsibility to determine and
administer the Company's executive compensation programs and make appropriate
recommendations concerning matters of executive compensation. Set forth below
are the principal factors underlying the Committee's philosophy used in setting
compensation for fiscal 2000.
Compensation Philosophy. At the direction of the Board of Directors, the
Committee endeavors to ensure that the compensation programs for executive
officers of the Company are competitive and consistent in order to attract and
retain key executives critical to the Company's long-term success. The
Committee believes that the Company's overall financial performance should be an
important factor in the total compensation of executive officers. At the
executive officer level, the Committee has a policy that a significant portion
of potential compensation should consist of variable, performance-based
components, such as stock options and bonuses, which can increase or decrease to
reflect changes in corporate and individual performance. These incentive
compensation programs are intended to reinforce management's commitment to the
enhancement of profitability and shareholder value.
The Committee takes into account various qualitative and quantitative
indicators of corporate and individual performance in determining the level and
composition of compensation for the Company's executive officers. In
implementing the Company's executive compensation objectives, the Committee has
designed an executive compensation program consisting of base salary, annual
incentive compensation, stock options and other employment benefits.
The Committee seeks to maintain levels of compensation that are competitive
with similar companies in the Company's industry. To that end, the Committee
reviews proxy data and other compensation data relating to companies within the
Company's industry. In addition, from time to time, the Committee also receives
assessments and advice regarding the Company's compensation practices from
independent compensation consultants.
7
Base Salary. The base salary of the executive officers represents the
fixed component of their compensation program. The Company's philosophy
regarding base salaries is to maintain salaries for the aggregate group of
executive officers at levels the Committee believes to be near the industry
average. Periodic increases in base salary relate to individual contributions
to the Company's performance.
Annual Incentive Compensation. The Company's executive officers are
eligible for annual incentive compensation consisting primarily of cash bonuses
based on the attainment of corporate earnings. While performance against
financial objectives is the primary measurement for executive officers' annual
incentive compensation, non-financial performance also affects pay. The
Committee considers such corporate performance measures as net income, basic
earnings per common share, return on average common shareholders' equity, sales
growth and expense management in making compensation decisions. The Committee
also appreciates the importance of achievements that may be difficult to
quantify, and accordingly recognizes qualitative factors, such as successful
supervision of major corporate projects and demonstrated leadership ability.
Stock Options. The Committee strongly believes that the Company's
compensation program should provide employees with an opportunity to increase
their equity ownership and potentially gain financially from Class A Common
Stock price increases. By this approach, the best interests of shareholders,
executives and employees will be closely aligned. Therefore, executives and
other employees are eligible to receive stock options, giving them the right to
purchase shares of Class A Common Stock of the Company at a specified price in
the future. The Committee believes that the use of stock options as the basis
for long-term incentive compensation meets the Committees compensation strategy
and business needs of the Company by achieving increased value for shareholders
and retaining key employees.
The Company recommended to the Board of Directors the granting of 73,200
options to purchase the company's Class A Common Stock during the 2000 fiscal
year. In approving grants and awards under the Plan, the quantitative and
qualitative factors and industry comparisons outlined above are considered. The
number of options previously awarded to and held by executive officers was an
important factor in determining the size of current option grants.
Other Employment Benefits. The Company provides a cafeteria plan to cover
health and welfare benefits to executives and all employees similar to those
provided by similar companies in the Company's industry. The Company also
provides a 401(k) plan in which all employees are eligible.
Chief Executive Officer Compensation. With respect to Mr. Wang, the
Company's Chief Executive Officer, the Compensation Committee established an
annual base salary of $185,911 for him. In determining the appropriate
compensation figure for Mr. Wang, the Compensation Committee considered a
variety of factors, including a comparison of Mr. Wang's compensation at his
level of experience with the executive compensation paid in similar industry
groups to executives with comparable levels of experience.
COMPENSATION COMMITTEE
Richard Chiang
Craig Miller
Felix Sung
The Report of the Compensation Committee on Executive Compensation shall
not be deemed incorporated by reference by any general statement incorporating
by reference this proxy statement into any filing under the Securities Act of
1933 as amended, or under the Securities Exchange Act of 1934, as amended,
except to the extent that the Company specifically incorporates this information
by reference, and shall not otherwise be deemed filed under such acts.
8
STOCK PERFORMANCE GRAPH
The following performance table compares the cumulative total return for the
period from April 19, 1995 through December 31, 2000, from an investment of $100
in (i) the Company's Class A Common Stock, (ii) the NASDAQ US Companies index,
(iii) the Peer Group of companies. For each group an initial investment of $100
is assumed on April 19, 1995 (the date of the Company's initial public
offering). The total return calculation assumes reinvestment of all dividends
for the indices. The Company did not pay dividends on its Class A Common Stock
during the time frame set forth below:
[PERFORMANCE GRAPH APPEARS HERE]
The data points depicted on the graph are as follows:
Date The Company NASDAQ US Companies Peer Group (2)
- ------------------ ----------- ------------------- --------------
April 19, 1995 (1) $100.00 $100.00 $100.00
- ------------------ ----------- ------------------- --------------
December 31, 1995 $150.00 $129.80 $128.84
- ------------------ ----------- ------------------- --------------
December 31, 1996 $ 45.24 $159.65 $130.35
- ------------------ ----------- ------------------- --------------
December 31, 1997 $ 52.38 $195.95 $130.90
- ------------------ ----------- ------------------- --------------
December 31, 1998 $ 29.14 $275.60 $ 90.17
- ------------------ ----------- ------------------- --------------
December 31, 1999 $ 34.96 $512.34 $155.62
- ------------------ ----------- ------------------- --------------
December 31, 2000 $ 46.85 $312.52 $152.34
- ------------------ ----------- ------------------- --------------
(1) The 1995 data begins April 19, 1995, the date of the Company's initial
public offering.
(2) The Peer Group consists of the following electronic and industrial
distribution companies:
All American Semiconductor, Inc. Jaco Electronics, Inc.
Arrow Electronics, Inc. Reptron Electronics, Inc.
Avnet, Inc.
9
PROPOSAL No. 2
APPROVAL OF AMENDMENT TO THE 1995 STOCK INCENTIVE PLAN
The Board of Directors believes it is in the best interests of the Company
to make substantial use of stock-based incentives to attract, retain and
motivate qualified employees. Accordingly, in May, 2000, the Board of Directors
unanimously adopted, subject to shareholder approval, an amendment to increase
the total number of shares of Class A Common Stock that may be issued under the
Taitron Components Incorporated 1995 Stock Incentive Plan (the "Plan") from
740,000 shares to 1,080,000 shares and is submitting such amendment to the Plan
to the shareholders for their approval at the Annual Meeting.
Description of the Plan
The full text of the Plan, and the amendment thereto, is attached to this
Proxy Statement as Exhibit A and the following discussion of the Plan is
qualified in its entirety by reference thereto. The following is a description
of the Plan as presently in effect.
General. The Plan provides for the issuance of "incentive stock options"
under Section 422 of the Internal Revenue Code of 1986, as amended,
"nonstatutory options" (collectively with incentive stock options, "Options")
and stock appreciation rights ("Rights") to directors, officers and other
employees of the Company.
The Plan is currently administered by the Company's Compensation Committee,
but may be administered by the Board of Directors or any other committee to whom
such authority is delegated by the Board of Directors (the "Administrator").
The Administrator has sole discretion and authority, consistent with the
provisions of the Plan, to select the directors, officers and other employees to
whom Options or Rights will be granted under the Plan, the number of shares
which will be covered by each Option or Right and the form and terms of
agreements to be used to represent the Options or Rights. All key employees,
officers and directors (other than members of the Compensation Committee who are
automatically granted, and limited to, 5,000 nonstatutory options per year) of
the Company are eligible to participate in the Plan. As of the record date,
there were fifty-six officers and employees and three non-employee directors
eligible to receive Options and/or Rights under the Plan.
Available Shares Under the Plan. Subject to adjustment for stock splits,
stock dividends and other similar events, an aggregate of 740,000 shares of
Class A Common Stock, par value $.001 per share, are reserved for issuance under
the Plan. As of the record date, Options and Rights covering 697,936 shares of
Class A Common Stock have been granted.
Options. The Administrator is empowered to determine the exercise price of
Options granted under the Plan, but the exercise price of incentive stock
options must not be less than the fair market value of a share of Class A Common
Stock on the date the incentive stock option is granted and nonstatutory options
must have an exercise price equal to at least 85% of the fair market value of a
share of Class A Common Stock on the date the nonstatutory option is granted
(the exercise price of any incentive stock option granted to an Option holder
who owns at least 10% of the outstanding Common Stock must not be less than 110%
of the fair market value of a share of Class A Common Stock on the date the
incentive stock option is granted). Incentive stock options may only be granted
to officers and employees of the Company. No incentive stock options may be
granted to any Option holder which first becomes exercisable during any calendar
year with respect to shares having an aggregate fair market value, measured at
the time of the grant of such options, in excess of $100,000. Options granted
under the Plan will generally become exercisable at a rate of from 20% to 33%
per year, commencing one year from the date of grant. All Options which have
not previously been exercised or terminated will expire on the tenth anniversary
of the date of grant.
10
The Plan also provides for automatic grants of nonstatutory options to
purchase 5,000 shares of Class A Common Stock to all members of the committee
administering the Plan, upon their initial election to such committee and each
year thereafter. The exercise price of such nonstatutory options will be equal
to the fair market value of a share of Class A Common Stock on the date of
grant.
Options terminate on the ninetieth day following the termination of
employment or services of the Option holder with the Company. If the Option
holder dies or becomes disabled during the term of the Option, the Option may be
exercised by the Option holder or by the Option holder's estate for a period of
one year following such date. An Option will be exercisable following
termination of employment or services only to the extent it was exercisable on
the date of such termination, but no Option may be exercised after the
expiration of its term.
Options granted under the Plan are not transferable other than by will or
by the laws of descent and distribution, and Options may be exercised, during
the lifetime of the Option holder, only by the Option holder or by the Option
holder's guardian or legal representative.
Payment of the exercise price may be made in cash, by check, or if all
necessary regulatory requirements have been satisfied and the Option Agreement
so provides, in shares of Class A Common Stock of the Company already owned by
the Option holder valued at their fair market value on the date of exercise of
the Option. The Plan also provides that as a condition of delivery of shares
purchased under the Plan, the Company may require the Option holder to deposit
with the Company an amount sufficient to satisfy any withholding tax
requirements relating to the delivery of the shares. Under certain conditions,
including the consent of the Administrator, the Option holder may elect to
satisfy his or her withholding obligations with a portion of the shares
otherwise deliverable by the Company.
Stock Appreciation Rights. Under the Plan, Rights may be granted
independently of any Option or in connection with Options granted under the
Plan. The exercise price of a Right must be equal to at least 100% of the fair
market value of a share of Class A Common Stock on the date the Right is granted
(the exercise price of any Right granted to a person who owns at least 10% of
the outstanding Common Stock must not be less than 110% of the fair market value
of a share of Class A Common Stock on the date the Right is granted).
Plan Duration. The Plan expires on March 31, 2005, ten years from the date
of its adoption by the Board of Directors. No Options or Rights may be granted
under the Plan after March 31, 2005. However, any Option or Right that was duly
granted on or prior to such date may thereafter be exercised or settled in
accordance with its terms.
Effect of Section 16(b) of the Securities Exchange Act of 1934. The
acquisition and disposition of Class A Common Stock by officers, directors and
more than 10% shareholders of the Company ("Insiders") pursuant to Options or
Rights granted to them under the Plan may be subject to Section 16(b) of the
Securities Exchange Act of 1934. Pursuant to Section 16(b), a purchase of Class
A Common Stock by an Insider within six months before or after a sale of Class A
Common Stock by the Insider could result in recovery by the Company of all or a
portion of any amount by which the sale proceeds exceed the purchase price.
Insiders are required to file reports of changes in beneficial ownership under
Section 16(a) of the Securities Exchange Act of 1934 upon acquisitions and
dispositions of shares. Rule 16b-3 provides an exemption from Section 16(b)
liability for certain transactions pursuant to certain employee benefit plans.
The Plan is designed to comply with Rule 16b-3.
Certain Federal Income Tax Considerations
The following is a brief description of the federal income tax treatment
that generally will apply to Options and Rights granted under the Plan, based on
federal income tax laws in effect on the date hereof. The exact federal income
tax treatment of Options and Rights will depend on the specific nature of the
Options and Rights.
11
Incentive Stock Options. Pursuant to the Plan, employees may be granted
Options that are intended to qualify as "incentive stock options" under the
provisions of Section 422 of the Internal Revenue Code. Except as described in
the following two sentences, the optionee generally is not taxed and the Company
is not entitled to a deduction on the grant or exercise of an incentive stock
option, provided the incentive stock option is exercised while the optionee is
an employee of the Company or within three months following termination of
employment (one year if termination is due to permanent disability). The amount
by which the fair market value of the shares acquired upon exercise of the
incentive stock option exceeds the exercise price will be included as a positive
adjustment in the calculation of the optionee's "alternative minimum taxable
income" in the year of exercise. The "alternative minimum tax" imposed on
individual taxpayers generally is equal to the amount by which a specified
percentage of the individual's alternative minimum taxable income (reduced by
certain exemption amounts) exceeds his or her regular income tax liability for
the year.
If the optionee sells shares acquired upon exercise of an incentive stock
option at any time within one year after the date of exercise or two years after
the date of grant of the incentive stock option, then:
(1) the optionee will recognize ordinary income in an amount equal to
the excess, if any, of the lesser of the sales price or the fair
market value of the shares on the date of exercise over the
exercise price;
(2) the optionee will recognize capital gain in an amount equal to
the excess, if any, of the sales price over the fair market value
of the shares on the date of exercise;
(3) the optionee will recognize capital loss equal to the excess, if
any, of the exercise price over the sales price; and
(4) the Company will generally be entitled to a deduction in an
amount equal to the amount of ordinary income recognized by the
optionee.
If the optionee sells shares acquired upon exercise of an incentive stock
option at any time after the first anniversary of the date of exercise and the
second anniversary of the date of grant of the incentive stock option, then the
optionee will recognize capital gain or loss equal to the difference between the
sales price and the exercise price of the incentive stock option, and the
Company will not be entitled to any deduction.
Nonstatutory Options. The grant of an Option to acquire Class A Common
Stock that does not qualify for treatment as an incentive stock option generally
is not a taxable event for the optionee. Upon exercise of the nonstatutory
option, the optionee generally will recognize ordinary income in an amount equal
to the excess of the fair market value of the shares on the date of exercise
over the exercise price, and the Company will be entitled to a deduction equal
to such amount. A subsequent sale of the shares generally will give rise to
capital gain or loss equal to the difference between the sales price and the sum
of the exercise price paid with respect to such shares plus the ordinary income
recognized with respect to such shares.
Special Rules for Options Granted to Insiders. If an Insider exercises an
Option within six months of the date of grant, the Insider generally will not
recognize ordinary income until the date of sale of the shares or, if earlier,
six months after the date of grant of the Option. If the Insider makes a
Section 83(b) Election within 30 days after the date (the "Acquisition Date") of
the exercise of the Option, he or she will recognize ordinary income on the
Acquisition Date equal to the excess of the fair market value of the shares on
that date over the exercise or purchase price. In addition, special rules apply
to an Insider who exercises an Option having an exercise price greater than the
fair market value of the underlying shares on the date of exercise.
12
Miscellaneous Tax Issues. Generally, the Company will be required to make
arrangements for withholding applicable taxes with respect to ordinary income
recognized by an employee in connection with Options or Rights granted under the
Plan. Special rules will apply in cases where the recipient of an Option or
Right pays the exercise price of the Option or applicable withholding tax
obligations by delivering previously owned shares or by reducing the number of
shares otherwise issuable pursuant to the Option. Such delivery of shares will
in certain circumstances result in the recognition of income with respect to
such shares.
The terms of the agreements pursuant to which specific Options or Rights
are granted to directors, officers and employees under the Plan may provide for
accelerated vesting in connection with a change in ownership or control of the
Company. In that event and depending upon the individual circumstances of the
recipient, certain amounts with respect to such Option or Right may constitute
"excess parachute payments" under the "golden parachute" provisions of the
Internal Revenue Code. Pursuant to these provisions, a recipient will be
subject to a 20% excise tax on any "excess parachute payment" and the Company
will be denied any deduction with respect to such payment. In certain
instances, the Company may be denied a deduction for compensation attributable
to Options granted to certain officers of the Company to the extent such
compensation exceeds $1,000,000 in a given year.
Previous Grants under the Plan
As of the record date, the Compensation Committee has granted Options and
Rights covering 697,936 shares of Class A Common Stock to eligible directors,
officers and employees and Options covering 65,000 shares of Class A Common
Stock have been granted to Compensation Committee members. The following table
sets forth the number of shares of Class A Common Stock underlying Options and
Rights granted to (i) Mr. Stewart Wang, the Company's Chief Executive Officer
and President; (ii) all current executive officers as a group; (iii) all current
directors who are not executive officers as a group; (iv) each nominee for
election as director; (v) each associate of any such directors, executive
officers or nominees; (vi) each other person who received five percent of such
Options or Rights; and (vii) all employees, including all current officers who
are not executive officers, as a group.
Number of Options
Name Title and Rights
---- ----- -----------------
Stewart Wang President, CEO/Director 144,500
All executive Officers as a group 281,400
All Directors who are not executive
officers as a group 65,000
Johnson Ku Chairman of the Board/
Director 30,000
Richard Chiang Director 30,000
Craig Miller Director 5,000
Felix Sung Director 30,000
Steven Dong CFO/Secretary 20,000
Michael Adams VP of Sales 38,000
Sally Manley VP of Procurement 35,000
Alex Miao VP of Engineering 13,900
All employees, including officers
who are not executive officers, as
a group 351,500
13
Amendment to the Plan
The amendment to the Plan would increase the aggregate number of shares of
Class A Common Stock which may be issued under the Plan from 740,000 shares to
1,080,000 shares. As set forth above, there are presently 100,000 shares
available for future grants under the Plan. The Board of Directors believes
that stock options and similar awards are an effective means of attracting and
retaining individuals as officers, employees, directors and consultants who can
contribute materially to the successful conduct of the business and affairs of
the Company. Accordingly, the Board of directors believes that an increase in
the number of shares which may be issued pursuant to the Plan is in the best
interest of the Company and its shareholders.
Board Recommendation and Vote
The affirmative vote of a majority of the outstanding shares of Common
Stock is required to approve the amendment to the Plan. All proxies will be
voted to approve the amendment to the Plan unless a contrary vote is indicated
on the enclosed proxy card. THE BOARD IS OF THE OPINION THAT THE AMENDMENT TO
THE PLAN IS IN THE BEST INTERESTS OF THE COMPANY AND RECOMMENDS A VOTE FOR THE
APPROVAL OF THE AMENDMENT TO THE PLAN.
14
PRINCIPAL SHAREHOLDERS
The following table sets forth as of March 31, 2001, certain information
regarding the ownership of the Company's Common Stock by (i) each person
(including any group) known by the Company to be the beneficial owner of more
than 5% of the outstanding shares of Common Stock, (ii) each of the Company's
directors and (iii) all of the Company's executive officers and directors as a
group. Except as otherwise indicated below, each person named in the table has
sole voting and investment power with respect to all shares of Common Stock
owned by such person. Unless otherwise indicated, the address of each person
shown is c/o the Company, 28040 West Harrison Parkway, Valencia, California
91355.
Class A Common Stock (1) Class B Common Stock (1)
------------------------ ------------------------ % of Vote of all Classes
Name and Address of Beneficial Owner Number of Shares % of Class Number of Share % of Class of Common Stock (1)
- ------------------------------------ ---------------- ---------- --------------- ------------- -------------------
Stewart Wang 868,479 (2) 17.59 % 762,612 100% 61.55 % (3)
Tzu Sheng Ku 1,230,907 (4) 21.60 % 9.80 %
FMR Corporation 383,900 (7) 7.78 % 3.06 %
82 Devonshire Street
Boston, MA 02109
Richard Chiang 292,194 (5) 5.92 % 2.33 %
Craig Miller 1,000 (5) * *
Felix Sung 44,227 (5) * *
All directors and executive officers
as a group (10 persons) 2,799,267 (6) 56.7% 762,612 100% 76.92 % (3)
* Less than 1.0%
(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission that deem shares to be beneficially owned
by any person who has or shares voting or investment power with respect to
such shares. Unless otherwise indicated, the persons named in this table
have sole voting and sole investment power with respect to all shares shown
as beneficially owned, subject to community property laws where applicable.
(2) Includes 762,612 shares of Class A Common Stock issuable upon conversion of
the 762,612 shares of Class B Common Stock owned by Mr. Wang, 700 shares of
Class A Common Stock owned by Mr. Wang's wife and 105,167 shares of Class A
Common Stock underlying options that are or will within 60 days of the date
hereof, be exercisable.
(3) Excludes 762,612 shares of Class A Common Stock issuable upon conversion of
the 762,612 shares of Class B Common Stock owned by Mr. Wang.
(4) Includes 81,962 shares of Class A Common Stock owned by Mr. Ku's wife and
178,180 shares of Class A Common Stock owned by Mr. Ku's four minor children
as to which Mr. Ku exercises sole voting control and includes 17,500 shares
of underlying options that are, or will within 60 days of the date hereof,
be exercisable.
(5) Includes 17,500 shares of underlying options that are, or will within 60
days of the date hereof, be exercisable.
(6) Includes the shares of Class A Common Stock referred to in footnotes (2),
(4) and (5) above.
(7) FMR Corporation filed a Form 13G/A on February 14, 2001, claiming
beneficial ownership of 383,900 shares of Class A Common Stock.
15
AUDITORS
Grant Thornton LLP, independent certified public accountants, were selected
by the Board of Directors to serve as independent auditors of the Company for
the fiscal year ended December 31, 1998, 1999 and 2000. Representatives of
Grant Thornton LLP are expected to be present at the Annual Meeting. They will
have an opportunity to make a statement if they desire to do so and will respond
to appropriate questions from shareholders.
REPORT OF THE AUDIT COMMITTEE
For many years, the Company has had an Audit Committee composed entirely of
non-management directors. The members of the Audit Committee meet the
independence and experience requirements of The National Association of
Securities Dealers' listing standards, as applicable and as may be modified or
suplemented. The Audit Committee has adopted, and our Board of Directors
approved, a charter outlining the practices it follows; a copy of the charter is
attached as Appendix I to this proxy statement.
During the year 2000, the Audit Committee met one time with the senior
members of the Company's financial management team. During the meeting,
management reviewed the audited financial statements in the Annual Report with
the Audit Committee including a discussion of the quality, not just the
acceptability, of the accounting principles, the reasonableness of significant
judgments, and the clarity of disclosures in the financial statements.
Additionally, the Audit Committee discussed written disclosures from the
independent auditors discussing matters required by SAS 61 (Codification of
Statement on Auditing Standards, AU Section 380) and Independence Standards
Board Standard No. 1 (Independence Standrads Board Standard No. 1, Independence
Discussions with Audit Committees).
In performing all of these functions, the Audit Committee acts only in an
oversight capacity. The Committee does not complete its reviews prior to the
Company's public announcements of financial results and, necessarily, in its
oversight role, the Committee relies on the work and assurances of the
Company's management, which has the primary responsibility for financial
statements and reports, and of the independent auditors, who, in their report,
express an opinion on the conformity of the Company's annual financial
statements to generally accepted accounting principles.
In reliance on these reviews and discussions, and the report of the
independent auditors, the Audit Committee has recommended to the Board of
Directors, and the Board has approved, that the audited financial statements be
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2000, for filing with the Securities and Exchange Commission.
AUDIT COMMITTEE
Richard Chiang
Craig Miller
Felix Sung
AUDIT FEES, FINANCIAL INFORMATION SYSTEMS DESIGN
AND IMPLEMENTAION FEES AND ALLOTHER FEES.
Fees for the last annual audit were approximately $40,000 and fees for
nonaudit services were approximately $25,000. Audit and nonaudit related
services generally include fees for statutory audits, business acquisitions, and
accounting consultations. No other fees were incurred or paid to the Company's
independent auditors.
PROPOSALS OF SHAREHOLDERS
A proper proposal submitted by a shareholder for presentation at the
Company's 2002 Annual Meeting and received at the Company's executive offices no
later than December 26, 2001, will be included in the Company's proxy
16
statement and form of proxy relating to the 2002 Annual Meeting.
OTHER MATTERS
The Board of Directors is not aware of any matter to be acted upon at the
Annual Meeting other than described in this Proxy Statement. Unless otherwise
directed, all shares represented by the persons named in the accompanying proxy
will be voted in favor of the proposals described in this Proxy Statement. If
any other matter properly comes before the meeting, however, the proxy holders
will vote thereon in accordance with their best judgment.
EXPENSES
The entire cost of soliciting proxies will be borne by the Company.
Solicitation may be made by mail. The Company will request brokerage houses,
nominees, custodians, fiduciaries and other like parties to forward soliciting
material to the beneficial owners of the Company's Common Stock held of record
by them and will reimburse such persons for their reasonable charges and
expenses in connection therewith.
ANNUAL REPORT TO SHAREHOLDERS
The Company's Annual Report for the year ended December 31, 2000 is being
mailed to Shareholders along with this Proxy Statement. The Annual Report is
not to be considered part of the soliciting material.
REPORT ON FORM 10-K
THE COMPANY UNDERTAKES, UPON WRITTEN REQUEST, TO PROVIDE, WITHOUT CHARGE,
EACH PERSON FROM WHOM THE ACCOMPANYING PROXY IS SOLICITED WITH A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2000, AS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE FINANCIAL
STATEMENTS AND SCHEDULES THERETO, BUT EXCLUDING EXHIBITS THERETO. REQUESTS
SHOULD BE ADDRESSED TO TAITRON COMPONENTS INCORPORATED, 28040 WEST HARRISON
PARKWAY, VALENCIA, CALIFORNIA, 91355, ATTENTION: CHIEF FINANCIAL OFFICER.
17
Exhibit 1
- ---------
TAITRON COMPONENTS INCORPORATED
1995 STOCK INCENTIVE PLAN
ARTICLE 1
General Purpose of Plan
The name of this plan is the Taitron Components Incorporated 1995 Stock
Incentive Plan (the "Plan"). The purpose of the Plan is to enable Taitron
Components Incorporated, a California corporation (the "Company"), and any
Parent or any Subsidiary to obtain and retain the services of the types of
employees, consultants, officers and Directors who will contribute to the
Company's long range success and to provide incentives which are linked directly
to increases in share value which will inure to the benefit of all shareholders
of the Company.
ARTICLE 2
Definitions
For purposes of the Plan, the following terms shall be defined as set forth
below:
"Administrator" shall have the meaning as set forth in Section 3.1 of the
Plan.
"Board" means the Board of Directors of the Company.
"Cash Election" shall have the meaning set forth in Section 7.2(c)(vii) of
the Plan.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor thereto.
"Committee" means a committee of the Board designated by the Board to
administer the Plan and composed of not less than the minimum number of persons
from time to time required both by the Rule and Section 162(m) of the Code, each
of whom is a Disinterested Person and an Outside Director.
"Company" means Taitron Components Incorporated, a corporation organized
under the laws of the State of California (or any successor corporation).
"Date of Grant" means the date on which the Administrator adopts a
resolution expressly granting Rights to a Participant, or if a different date is
set forth in such resolution as the Date of Grant, then such date as is set
forth in such resolution.
"Director" means a member of the Board.
"Disability" means permanent and total disability as defined by the
Administrator.
"Disinterested Person" shall have the meaning set forth in Rule 16b-
3(c)(2)(i) under the Exchange Act, or any successor definition adopted by the
SEC.
"Election" shall have the meaning set forth in Section 11.3(d)(i) of the
Plan.
"Eligible Person" means an employee, officer, consultant or, subject to the
limitations set forth in Article 5 of the Plan, Director of the Company, any
Parent or any Subsidiary.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
-1-
"Exercise Price" shall have the meaning set forth in Section 6.2(c) of the
Plan.
"Fair Market Value" per share at any date shall mean (i) if the Stock is
listed on an exchange or exchanges, or admitted for trading in a market system
which provides last sale data under Rule 11Aa3-1 of the General Rules and
Regulations of the SEC under the Exchange Act (a "Market System"), the last
reported sales price per share on the last business day prior to such date on
the principal exchange on which it is traded, or in a Market System, as
applicable, or if no sale was made on such day on such principal exchange or in
such a Market System, as applicable, the last reported sales price per share on
the most recent day prior to such date on which a sale was reported on such
exchange or such Market System, as applicable; or (ii) if the Stock is not then
traded on an exchange or in a Market System, the average of the closing bid and
asked prices per share for the Stock in the over-the-counter market as quoted on
NASDAQ on the day prior to such date; or (iii) if the Stock is not listed on an
exchange or quoted on NASDAQ, an amount determined in good faith by the
Administrator.
"Grantee" means a Participant who is granted a SAR pursuant to the Plan.
"Liquidating Event" shall have the meaning set forth in Section 9.1(b) of
the Plan.
"Liquidity Event" means any Reorganization Event which the Administrator
determines, in its sole and absolute discretion, to treat as such an event.
"Incentive Stock Option" means a Stock Option intended to qualify as an
"incentive stock option" as that term is defined in Section 422 of the Code.
"Initial Valuation" shall have the meaning set forth in Section 7.2(b) of
the Plan.
"Non-Statutory Stock Option" means a Stock Option intended to not qualify
as an Incentive Stock Option.
"Optionee" means a Participant who is granted a Stock Option pursuant to
the Plan.
"Outside Director" means a Director who is not (a) a current employee of
the Company (or any related entity), (b) a former employee of the Company (or
any related entity) who is receiving compensation for prior services (other than
benefits under a tax-qualified retirement plan), (c) a former officer of the
Company (or any related entity), or (d) a consultant or person otherwise
receiving compensation or other remuneration, either directly or indirectly, in
any capacity other than as a Director.
"Parent" means any present or future corporation which would be a "parent
corporation" as that term is defined in Section 424 of the Code.
"Participant" means any Eligible Person selected by the Administrator,
pursuant to the Administrator's authority set forth in Article 3 of the Plan, to
receive grants of Rights.
"Plan" means this Taitron Components Incorporated 1995 Stock Incentive
Plan, as the same may be amended or supplemented from time to time.
"Related SAR Option" shall have the meaning set forth in Section 7.1 of the
Plan.
"Reorganization Event" shall have the meaning set forth in Section 9.1(c)
of the Plan.
"Retirement" means retirement from active employment with the Company or
any Parent or Subsidiary as defined by the Administrator.
"Rights" means Stock Options and/or SARs.
-2-
"Rule" means Rule 16b-3 and any future rules promulgated in substitution
therefore under the Exchange Act.
"SAR" means a stock appreciation right granted alone or in tandem with a
Stock Option pursuant to Article 7.
"SEC" means the Securities and Exchange Commission.
"Section 16(b) Person" means a person subject to Section 16(b) of the
Exchange Act.
"Special Terminating Event" with respect to a Participant means the death
or Disability of that Participant.
"Spread" shall have the meaning set forth in 7.2(c)(iv) of the Plan.
"Stock" means the Class A Common Stock, par value $.001 per share, of the
Company.
"Stock Option" means an option to purchase shares of Stock granted pursuant
to Article 6 of the Plan.
"Stock Option Agreement" shall have the meaning set forth in Section 6.2 of
the Plan.
"SAR Agreement" shall have the meaning set forth in Section 7.2 of the
Plan.
"Subsidiary" means any present or future corporation which would be a
"subsidiary corporation" as that term is defined in Section 424 of the Code.
"Surviving Corporation" shall have the meaning set forth in Section 9.1(e)
of the Plan.
"Tax Date" shall have the meaning set forth in Section 11.3(d)(iii) of the
Plan.
"Ten Percent Shareholder" means a person who on the Date of Grant owns,
either directly or through attribution as provided in Section 424(d) of the
Code, Stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company or of any Parent or Subsidiary.
"Window Period" shall have the meaning set forth in Section 7.2(c)(vi) of
the Plan.
"Withholding Right" shall have the meaning set forth in Section 11.3(c) of
the Plan.
ARTICLE 3
Administration
Section 3.1 Administrator. The Plan shall be administered by the
-------------
Committee (referred to herein as the "Administrator").
Section 3.2 Powers in General. The Administrator shall have the power and
-----------------
authority to grant to Eligible Persons, pursuant to the terms of the Plan:
(i) Stock Options; (ii) SARs or (iii) any combination of the foregoing.
Section 3.3 Specific Powers. In particular, the Administrator shall have
---------------
the authority: (i) to construe and interpret the Plan and apply its provisions;
(ii) to promulgate, amend and rescind rules and regulations relating to the
administration of the Plan; (iii) to authorize any person to execute, on behalf
of the Company, any instrument required to carry out the purposes of the Plan;
(iv) to determine when Rights are to be granted under the Plan; (v) from time to
time to select, subject to the limitations set forth in this Plan, those
Eligible Persons to whom Rights
-3-
shall be granted; (vi) to determine the number of shares of Stock to be made
subject to each Right; (vii) to prescribe the terms and conditions of each Stock
Option, including, without limitation, the Exercise Price and medium of payment
and vesting provisions, to determine whether the Stock Option is to be an
Incentive Stock Option or a Non-Statutory Stock Option and to specify the
provisions of the Stock Option Agreement relating to such Stock Option; (viii)
to prescribe the terms and conditions of each SAR including, without limitation,
to determine whether such SAR is to be granted alone or in tandem with Stock
Options during the term of the Related SAR Option, and to specify the provisions
of the SAR relating to such SAR including, without limitation, the Initial
Valuation and vesting provisions; (ix) to amend any outstanding Rights for the
purpose of modifying the time or manner of vesting, the Initial Valuation or
Exercise Price, as the case may be, thereunder or otherwise, subject to
applicable legal restrictions and to the consent of the other party to such
agreement; (x) to determine when a consultant's relationship with the Company is
sufficient to constitute the equivalent of employment with the Company for
purposes of the Plan; (xi) to determine the duration and purpose of leaves of
absences which may be granted to a Participant without constituting termination
of their employment for purposes of the Plan; and (xii) to make any and all
other determinations which it determines to be necessary or advisable for
administration of the Plan.
Section 3.4 Decisions Final. All decisions made by the Administrator
---------------
pursuant to the provisions of the Plan shall be final and binding on the Company
and the Participants.
Section 3.5 The Committee. The Board may, in its sole and absolute
-------------
discretion, from time to time delegate any or all of its duties and authority
with respect to the Plan to the Committee whose members are to be appointed by
and to serve at the pleasure of the Board. Once appointed, the Committee shall
continue to serve until otherwise directed by the Board. From time to time, the
Board may increase or decrease (to not less than the minimum number of persons
from time to time required by both the Rule and Section 162(m) of the Code) the
size of the Committee, add additional members to, remove members (with or
without cause) from, appoint new members in substitution therefor, and fill
vacancies, however caused, in the Committee. The Committee shall act pursuant
to a vote of the majority of its members or, in the case of a committee
comprised of only two members, the unanimous consent of its members, whether
present or not, or by the written consent of the majority of its members or, in
the case of a committee comprised of only two members, the unanimous written
consent of its members, and minutes shall be kept of all of its meetings and
copies thereof shall be provided to the Board. Subject to the limitations
prescribed by the Plan and the Board, the Committee may establish and follow
such rules and regulations for the conduct of its business as it may determine
to be advisable.
ARTICLE 4
Stock Subject to Plan
Section 4.1 Stock Subject to the Plan. Subject to adjustment as
-------------------------
provided in Article 9, the total number of shares of Stock reserved and
available for issuance under the Plan shall be 740,000 1,080,000 shares. Solely
----------
for the purposes of determining the number of shares of Stock reserved and
available for issuance under the Plan, each SAR granted without relation to a
Stock Option shall be treated as a Stock Option.
Section 4.2 Unexercised Rights; Reacquired Shares. To the extent that
-------------------------------------
any Rights expire or are otherwise terminated without being exercised, the
shares of Stock underlying such Rights (and shares related thereto) shall again
be available for issuances in connection with future Rights under the Plan. If
and to the extent that the Company receives shares of Stock in payment of all or
a portion of the purchase price for any Stock, or in payment of any tax
liabilities, the receipt of such shares will not increase the number of shares
---
available for issuance under the Plan.
ARTICLE 5
Eligibility
Directors who are not members of the Committee, members of the Committee
(but only subject to the provisions of Article 8 hereof), officers, employees
and consultants of the Company, any Parent or any Subsidiary, who are
responsible for or contribute to the management, growth or profitability of the
business of the Company,
-4-
any Parent or any Subsidiary, shall be eligible to be granted Rights hereunder,
subject to limitations set forth in this Plan; provided, however, that only
officers and employees shall be eligible to be granted Incentive Stock Options
hereunder.
ARTICLE 6
Stock Options
Section 6.1 General. Stock Options may be granted alone or in addition
-------
to other Rights granted under the Plan. Each Stock Option granted under the
Plan shall be in such form and under such terms and conditions as the
Administrator may from time to time approve; provided, that such terms and
conditions are not inconsistent with the Plan. The provisions of Stock Option
Agreements entered into under the Plan need not be identical with respect to
each Optionee. Stock Options granted under the Plan may be either Incentive
Stock Options or Non-Statutory Stock Options.
Section 6.2 Terms and Conditions of Stock Options. Each Stock Option
-------------------------------------
granted pursuant to the Plan shall be evidenced by a written option agreement
between the Company and the Optionee (the "Stock Option Agreement"), which shall
comply with and be subject to the following terms and conditions.
(a) Number of Shares. Each Stock Option Agreement shall state the
----------------
number of shares of Stock to which the Stock Option relates.
(b) Type of Option. Each Stock Option Agreement shall identify the
--------------
portion (if any) of the Stock Option which constitutes an Incentive Stock
Option.
(c) Exercise Price. Each Stock Option Agreement shall state the
--------------
price at which shares subject to the Stock Option may be purchased (the
"Exercise Price"), which, with respect to Incentive Stock Options, shall not be
less than 100% of the Fair Market Value of the shares of Stock on the Date of
Grant; provided however, that in the case of an Incentive Stock Option granted
to a Ten Percent Shareholder, the Exercise Price shall not be less than 110% of
such Fair Market Value. With respect to Non-Statutory Stock Options, the
Exercise Price shall not be less than 85% of the Fair Market Value of the shares
of Stock on the Date of Grant of the Non-Statutory Stock Option.
(d) Value of Shares. The Fair Market Value of the shares of Stock
---------------
(determined as of the Date of Grant) with respect to which Incentive Stock
Options are first exercisable by an Optionee under this Plan and all other
incentive option plans of the Company and any Parent or Subsidiary in any
calendar year shall not, for such year, in the aggregate, exceed $100,000;
provided, however, that if the aggregate Fair Market Value of such shares
exceeds $100,000, then the incremental portion in excess of $100,000 shall be
treated as Non-Statutory Stock Options (and not as Incentive Stock Options);
provided, further, that this Section 6.2(d) shall not affect the right of the
Administrator to accelerate or otherwise alter the time of vesting of any Stock
Options granted as Incentive Stock Options, even, if as a result thereof, some
of such Stock Options cease being Incentive Stock Options.
(e) Medium and Time of Payment. The Exercise Price shall be paid
--------------------------
in full, at the time of exercise, (i) in cash or cash equivalents, (ii) with the
approval of the Administrator, in shares of Stock which have been held by the
Optionee for a period of at least six calendar months preceding the date of
surrender and which have a Fair Market Value equal to the Exercise Price, (iii)
in a combination of cash, cash equivalents and Stock, or (iv) in any other form
of legal consideration acceptable to the Administrator, and may be effected in
whole or in part (x) with monies received from the Company at the time of
exercise as a compensatory cash payment; or (y) with monies borrowed from the
Company in accordance with Section 11.5.
(f) Term and Exercise of Stock Options. Stock Options shall vest
----------------------------------
or become exercisable over the exercise period at the times the Administrator
may determine, as reflected in the related Stock Option Agreements; provided,
however, that the Optionees shall have the right to exercise the Stock Options
at the rate of at least 20% per year over five years from the Date of Grant of
such Stock Options. Unless a different vesting
-5-
schedule is established by the Administrator and reflected in the Stock Option
Agreement, each Optionee shall have the right to exercise the Stock Options
evidenced thereby as follows: 33% of the Stock Options (rounded up to the
nearest whole share) shall vest on the first anniversary of the Date of Grant of
the Stock Options, 33% of the Stock Options (rounded up to the nearest whole
share) shall vest on the second anniversary of the Date of Grant of the Stock
Options, and the remaining Stock Options shall vest on the third anniversary of
the Date of Grant of the Stock Options. The exercise period of any Stock Option
shall be determined by the Administrator, but shall not exceed ten years from
the Date of Grant of the Stock Option. In the case of an Incentive Stock Option
granted to a Ten Percent Shareholder, the exercise period shall be determined by
the Administrator, but shall not exceed five years from the Date of Grant of the
Stock Option. The exercise period shall be subject to earlier termination upon
the occurrence of either a Special Terminating Event, as provided in Section
11.6, or the termination of employment, as provided in Section 11.7. A Stock
Option may be exercised, as to any or all full shares of Stock as to which the
Stock Option has become exercisable, by giving written notice of such exercise
to the Company.
ARTICLE 7
Stock Appreciation Rights
Section 7.1 General. The Administrator shall have the authority to
-------
grant SARs in tandem with Stock Options granted under this Plan or under any
other stock option plan of the Company (the "Related SAR Option") with respect
to all or some of the shares of Stock covered by the Related SAR Option. SARs
granted in tandem with Related SAR Options may be granted either at the time of
grant of the Related SAR Option or at any time thereafter during the term of the
Related SAR Option. The Administrator shall also have the authority to grant
SARs without relation to any Stock Option granted under this Plan or under any
other stock option plan of the Company. Each SAR shall be granted on such terms
and conditions not inconsistent with the Plan as the Administrator may
determine. The provisions of the various SAR awards need not be the same with
respect to each Grantee.
Section 7.2 Terms and Conditions of SARs. Each SAR granted pursuant to
----------------------------
the Plan shall be evidenced by a written SAR agreement between the Company and
the Grantee (the "SAR Agreement"), which shall comply with and be subject to the
following terms and conditions.
(a) Number of SARs. Each SAR Agreement shall state the number of
--------------
shares of Stock to which the SAR relates.
(b) Initial Valuations. Each SAR Agreement shall provide that each
------------------
SAR granted in tandem with a Related Stock Option is valued at the Exercise
Price of the Related SAR Option and that each SAR granted without relation to a
stock Option is valued at the Fair Market Value of a share of Stock on the Date
of Grant (the "Initial Valuation").
(c) Term and Exercise of SARs.
-------------------------
(i) Each SAR granted otherwise than in tandem with a Stock
Option shall be exercisable as determined by the Administrator, but in no event
after 10 years from the Date of Grant. Each other SAR shall be exercisable only
if, and to the extent that, the Related SAR Option is exercisable and has not
yet terminated or expired, and in the case of a SAR granted in respect of an
Incentive Stock Option, only when the Fair Market Value per share of the Stock
exceeds the Exercise Price of the Related SAR Option; and upon the exercise of a
SAR, the related SAR Option shall cease to be exercisable to the extent of the
shares of Stock with respect to which such SAR is exercised, but shall be
considered to have been exercised to that extent for purposes of determining the
number of shares available for the grant of further Rights pursuant to the Plan.
Upon the exercise or termination of a Related SAR Option, the SAR granted in
tandem with such Related SAR Option shall terminate to the extent of the shares
of Stock with respect to which the Related SAR Option was exercised or
terminated.
(ii) To exercise a SAR granted in tandem with a Related SAR
Option, the Grantee shall (A) give written notice thereof to the Company
specifying the number of shares of Stock with respect to which the SAR is being
exercised and the percentage of the total amount the Grantee is entitled to
receive which the
-6-
Grantee elects to receive in cash or shares of Stock with respect to the
exercise of the SAR; and (B) if requested by the Administrator, deliver the
Related SAR Option agreement to the Secretary of the Company, who shall endorse
thereon a notation of such exercise and return the Related SAR Option agreement
to the Grantee. To exercise a SAR granted without relation to a Stock Option,
the Grantee shall give written notice thereof to the Company specifying the
number of shares of Stock with respect to which the SAR is being exercised and
the percentage or sum of the total amount the Grantee is entitled to receive
which the Grantee elects to receive in cash, and the percentage or sum the
Grantee elects to receive in shares of Stock, with respect to the exercise of
the SAR. The date of exercise of a SAR which is validly exercised shall be
deemed to be the date on which there shall have been delivered to the Company
the appropriate aforesaid instruments.
(iii) Upon the exercise of a SAR, the holder thereof, subject to
Section 7.2(c)(vii), shall be entitled at the holder's election to receive
either:
(A) a number of shares of Stock equal to the quotient
computed by dividing the Spread (as defined in Section 7.2.(c)(iv)) by the Fair
Market Value per share of Stock on the date of exercise of the SAR; provided,
however, that in lieu of fractional shares, the Company shall pay in cash or
cash equivalents an amount equal to the same fraction of the Fair Market Value
per share of Stock on the date of exercise of the SAR; or
(B) an amount payable in cash or cash equivalents equal to
the Spread; or
(C) a combination of an amount payable in cash or cash
equivalents and a number of shares calculated as provided in Section
7.2.(c)(iii)(A) (after reducing the Spread by such cash amount); plus any
amounts payable in lieu of any fractional shares as provided above.
(iv) The term "Spread" as used in Section 7.2(c) shall mean an
amount equal to the product computed by multiplying (A) the excess of (x) the
Fair Market Value per share of Stock on the date the SAR is exercised, over
either (y) in the case of an SAR in tandem with a Related SAR Option, the
Exercise Price per share of the Related SAR Option, or (z) in the case of an SAR
not granted in tandem with a Stock Option, the Initial Valuation of the SAR; by
(B) the number of shares with respect to which such SAR is being exercised.
(v) Notwithstanding the provisions of this Section 7.2, and
while the SAR Agreement may provide for longer vesting periods, no SAR may be
exercised during the first six months following its Date of Grant, and, with
respect to SARs granted in tandem with a Related SAR Option, neither the SAR nor
the Related SAR Option may be exercised during the first six months following
the Date of Grant of the SAR, unless, in either case, prior to the expiration of
such six-month period, the holder of the SAR ceases to be an employee of the
Company or any Parent or Subsidiary by reason of such holder's Special
Terminating Events.
(vi) Notwithstanding the provisions of this Section 7.2 or the
related SAR Agreement to the contrary, any Grantee who at the date of the
exercise of the SAR or any portion thereof is a Section 16(b) Person, may only
make a Cash Election (as defined below) and related exercise during the period
beginning on the third business day following the date of release for
publication of the quarterly or annual summary statements of sales and earnings
of the Company and ending on the twelfth business day following such date (the
"Window Period"). Additionally, no Section 16(b) Person shall have the right to
make any Cash Election unless the Company has been subject to the reporting
requirements of Section 13(a) of the Exchange Act for at least a year prior to
the transaction and has filed all reports and statements required to be filed
pursuant to that Section for that year.
(vii) Notwithstanding the provisions of this Section 7.2, the
Administrator shall have sole discretion to approve or disapprove a
Participant's election to receive any amounts payable in cash or cash
equivalents in whole or in part ("Cash Election") upon the exercise of a SAR.
Such approval or disapproval may be given at any time after the election to
which it relates and until approval is given, no amounts will be due or payable
to such Participant. If the Administrator shall disapprove a Cash Election, the
exercise of the SAR with
-7-
respect to which the Cash Election was made shall be of no effect, but without
prejudice to the right of the holder to exercise such SAR in the future in
accordance with its terms.
(viii) Notwithstanding the foregoing, in the case of a SAR
granted in tandem with an Incentive Stock Option, the holder may not receive an
amount in excess of such amount as will enable the Stock Option to qualify as an
Incentive Stock Option.
(d) Securities Laws. The Company intends that this Section 7.2
---------------
shall comply with the requirements of the Rule during the term of the Plan.
Should any provision of Section 7.2 not be necessary to comply with the
requirements of the Rule or should any additional provisions be necessary for
Section 7.2 to comply with the requirements of the Rule, the Board may amend the
Plan to add to or modify the provisions of the Plan accordingly.
(e) Limitations on Amounts Payable. Notwithstanding Section
------------------------------
7.2(c)(iii), the Administrator may place a limitation on the amount payable in
cash, Stock or both upon exercise of a SAR. Any such limitation must be
determined as of the Date of Grant, and noted on the instrument evidencing the
Participant's SAR granted hereunder.
ARTICLE 8
Mandatory Grants to Committee Members
Section 8.1 Mandatory Grants to Committee Members. Notwithstanding any
-------------------------------------
other provision of this Plan, the grant of Stock Options to members of the
Committee shall be subject to the following limitations of this Article 8.
(a) Upon the initial election or appointment of a member of the
Committee by the Board, the Committee shall grant to such member, at the first
meeting of the Committee following the date of such election or appointment, a
ten year Non-Statutory Stock Option to purchase 5,000 shares of Stock.
(b) The Committee shall grant to each member, effective as of each
anniversary of the election or appointment of such member to the Committee, a
ten year Non-Statutory Stock Option to purchase 5,000 shares of Stock.
(c) All Stock Options granted to members of the Committee under this
Article 8 shall be exercisable at an Exercise Price equal to 100% of the Fair
Market Value of a share of Stock on the Date of Grant.
(d) All Stock Options granted to members of the Committee under this
Article 8 will vest or become exercisable as follows: 33% of the Stock Options
(rounded up to the nearest whole share) shall vest on the first anniversary of
the Date of Grant of the Stock Options, and 33% of the Stock Options (rounded up
to the nearest whole share) shall vest on the second anniversary of the Date of
Grant of the Stock Options, and the remaining Sock Options shall vest on the
third anniversary of the Date of Grant of the Stock Options.
(e) Unless otherwise provided in the Plan, all provisions regarding
the terms of Non-Statutory Stock Options, other than those pertaining to the
Date of Grant, the number of shares covered by such grant, term and Exercise
Price shall be applicable to the Stock Options granted to members of the
Committee under this Article 8.
Section 8.2 Prohibition of Other Grants to Committee Members.
------------------------------------------------
Notwithstanding any other provisions in this Plan, the mandatory grants
described in this Article 8 shall constitute the only grants under the Plan
permitted to be made to members of the Committee.
-8-
Section 8.3 Prohibition Against Certain Amendments. Notwithstanding any
--------------------------------------
other provisions of this Plan, the provisions of this Article 8 shall not be
amended more than once every six months, other than to comport with changes in
the Code, the Employee Retirement Income Security Act, or the rules thereunder.
ARTICLE 9
Adjustments
Section 9.1 Effect of Certain Changes.
-------------------------
(a) Stock Dividends, Splits, Etc. If there is any change in the
----------------------------
number of outstanding shares of Stock through the declaration of Stock dividends
or through a recapitalization resulting in Stock splits, or combinations or
exchanges of the outstanding shares, however, not including a change resulting
from the conversion of the Company's Class B Common Stock, par value $.001 per
share, for shares of Stock, (i) the number of shares of Stock available for
Rights, (ii) the number of shares covered by outstanding Rights, (iii) the
number of shares set forth under Section 11.1(a) and (iv) the Exercise Price or
Initial Value of any Stock Option or SAR, in effect prior to such change, shall
be proportionately adjusted by the Administrator to reflect any increase or
decrease in the number of issued shares of Stock; provided, however, that any
fractional shares resulting from the adjustment shall be eliminated.
(b) Liquidating Event. In the event of the proposed dissolution or
-----------------
liquidation of the Company, or in the event of any corporate separation or
division, including, but not limited to, a split-up, split-off or spin-off
(each, a "Liquidating Event"), the Administrator may provide that the holder of
any Rights then exercisable shall have the right to exercise such Rights (at the
price provided in the agreement evidencing the Rights) subsequent to the
Liquidating Event, and for the balance of its term, solely for the kind and
amount of shares of Stock and other securities, property, cash or any
combination thereof receivable upon such Liquidating Event by a holder of the
number of shares of Stock for or with respect to which such Rights might have
been exercised immediately prior to such Liquidating Event; or the Administrator
may provide, in the alternative, that each Right granted under the Plan shall
terminate as of a date to be fixed by the Board; provided, however, that not
less than 30 days written notice of the date so fixed shall be given to each
Rights holder and if such notice is given, each Rights holder shall have the
right, during the period of 30 days preceding such termination, to exercise his
or her Rights as to all or any part of the shares of Stock covered thereby,
without regard to any installment or vesting provisions in his or her Rights
agreement, on the condition, however, that the Liquidating Event actually
occurs; and if the Liquidating Event actually occurs, such exercise shall be
deemed effective (and, if applicable, the Rights holder shall be deemed a
shareholder with respect to the Rights exercised) immediately preceding the
occurrence of the Liquidating Event (or the date of record for shareholders
entitled to share in such Liquidating Event, if a record date is set).
(c) Merger or Consolidation. In the case of any capital
-----------------------
reorganization, any reclassification of the Stock (other than a change in par
value or recapitalization described in Section 9.1(a) of the Plan), or the
consolidation of the Company with, or a sale of substantially all of the assets
of the Company to (which sale is followed by a liquidation or dissolution of the
Company), or merger of the Company with another person (a "Reorganization
Event"), the Administrator shall be obligated to determine, in its sole and
absolute discretion, whether the Reorganization Event shall constitute a
"Liquidity Event," and to deliver to the Rights holders at least 15 days prior
to such Reorganization Event (or at least 15 days prior to the date of record
for shareholders entitled to share in the securities or property distributed in
the Reorganization Event, if a record date is set) a notice which shall (i)
indicate whether the Reorganization Event shall be considered a Liquidity Event
and (ii) advise the Rights holder of his or her rights pursuant to the agreement
evidencing such Rights. If the Reorganization Event is determined to be a
Liquidity Event, (i) the Surviving Corporation may, but shall not be obligated
to, tender stock options or stock appreciation rights to the Rights holder with
respect to the Surviving Corporation, and such new options and rights shall
contain terms and provisions that substantially preserve the rights and benefits
of the applicable Rights then outstanding under the Plan, or (ii) in the event
that no stock options or stock appreciation rights have been tendered by the
Surviving Corporation pursuant to the terms of item (i) immediately above, the
Rights holder shall have the right, exercisable during a 10 day period ending on
the fifth day prior to the Reorganization Event (or ending on the
-9-
fifth day prior to the date of record for shareholders entitled to share in the
securities or property distributed in the Reorganization Event, if a record date
is set), to exercise his or her rights as to all or any part of the shares of
Stock covered thereby, without regard to any installment or vesting provisions
in his or her Rights agreement, on the condition, however, that the
Reorganization Event is actually effected; and if the Reorganization Event is
actually effected, such exercise shall be deemed effective (and, if applicable,
the Rights holder shall be deemed a shareholder with respect to the Rights
exercised) immediately preceding the effective time of the Reorganization Event
(or on the date of record for shareholders entitled to share in the securities
or property distributed in the Reorganization Event, if a record date is set).
If the Reorganization Event is not determined to be a Liquidity Event, the
Rights holder shall thereafter be entitled upon exercise of the Rights to
purchase the kind and number of shares of stock or other securities or property
of the Surviving Corporation receivable upon such event by a holder of the
number of shares of the Stock which the Rights would have entitled the Rights
holder to purchase from the Company if the Reorganization Event had not
occurred, and in any such case, appropriate adjustment shall be made in the
application of the provisions set forth in this Plan with respect to the Rights
holder's rights and interests thereafter, to the end that the provisions set
forth in the agreement applicable to such Rights (including the specified
changes and other adjustments to the Exercise Price) shall thereafter be
applicable in relation to any shares or other property thereafter purchasable
upon exercise of the Rights.
(d) Where Company Survives. Section 9.1(c) shall not apply to a
----------------------
merger or consolidation in which the Company is the Surviving Corporation,
unless shares of Stock are converted into or exchanged for securities other than
publicly-traded common stock, cash (excluding cash in payment for actual shares)
or any other thing of value. Notwithstanding the preceding sentence, in case of
any consolidation or merger of another corporation into the Company in which the
Company is the Surviving Corporation and in which there is a reclassification or
change (including a change to the right to receive an amount of money payable by
cash or cash equivalents or other property) of the shares of Stock (other than a
change in par value, or from par value to no par value, or as a result of a
subdivision or combination, but including any change in such shares into two or
more classes or series of shares), the Administrator may provide that the holder
of each of the Rights then exercisable shall have the right to exercise such
Rights solely for the kind and amount of shares of Stock and other securities
(including those of any new direct or indirect Parent of the Company), property,
cash or any combination thereof receivable upon such reclassification, change,
consolidation or merger by the holder of the number of shares of Stock for which
such Rights might have been exercised.
(e) Surviving Corporation Defined. The determination as to which
-----------------------------
party to a merger or consolidation is the "Surviving Corporation" shall be made
on the basis of the relative equity interests of the shareholders in the
corporation existing after the merger or consolidation, as follows: if
immediately following any merger or consolidation the holders of outstanding
voting securities of the Company immediately prior to the merger or
consolidation own equity securities possessing more than 50% of the voting power
of the corporation existing following the merger or consolidation, then for
purposes of this Plan, the Company shall be the Surviving Corporation. In all
other cases, the Company shall not be the Surviving Corporation. In making the
determination of ownership by the shareholders of a corporation immediately
after the merger or consolidation, of equity securities pursuant to this Section
9.1(e), equity securities which the shareholders owned immediately before the
merger or consolidation as shareholders of another party to the transaction
shall be disregarded. Further, for purposes of this Section 9.1(e) only,
outstanding voting securities of a corporation shall be calculated by assuming
the conversion of all equity securities convertible (immediately or at some
future time) into shares entitled to vote.
(f) Par Value Changes. In the event of a change in the Stock of
-----------------
the Company as presently constituted which is limited to a change of all of its
authorized shares with par value, into the same number of shares without par
value, or any subsequent change in the par value, the shares resulting from any
such change shall be "Stock" within the meaning of the Plan.
Section 9.2 Decision of Administrator Final. To the extent that the
-------------------------------
foregoing adjustments relate to stock or securities of the Company, such
adjustments shall be made by the Administrator, whose determination in that
respect shall be final, binding and conclusive; provided, however, that each
Incentive Stock Option granted
-10-
pursuant to the Plan shall not be adjusted without the prior consent of the
holder thereof in a manner that causes such Stock Option to fail to continue to
qualify as an Incentive Stock Option.
Section 9.3 No Other Rights. Except as expressly provided in this
---------------
Article 9, no Rights holder shall have any rights by reason of any subdivision
or consolidation of shares of Stock or the payment of any dividend or any other
increase or decrease in the number of shares of Stock of any class or by reason
of any Liquidating Event, merger, or consolidation of assets or stock of another
corporation, or any other issue by the Company of shares of stock of any class,
or securities convertible into shares of stock of any class; and except as
provided in this Article 9, none of the foregoing events shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Stock subject to Rights. The grant of Rights pursuant to the Plan
shall not affect in any way the right or power of the Company to make
adjustments, reclassification, reorganizations or changes of its capital or
business structures or to merge or to consolidate or to dissolve, liquidate or
sell, or transfer all or part of its business or assets.
Section 9.4 No Rights as Shareholder. Except as specifically provided
------------------------
in this Article 9, a Rights holder or a transferee of Rights shall have no
rights as a shareholder with respect to any shares covered by the Rights until
the date of the issuance of a Stock certificate to him or her for such shares,
and no adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property) or distributions of other rights
for which the record date is prior to the date such Stock certificate is issued,
except as provided in Section 9.1.
ARTICLE 10
Amendment and Termination
The Board may amend, alter or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would impair the rights of a
Participant under any Rights theretofore granted without such Participant's
consent, or which without the approval of the shareholders would:
(a) except as provided in Article 9, materially increase the total
number of shares of Stock reserved for the purposes of the Plan;
(b) materially increase the benefits accruing to Participants or
Eligible Persons under the Plan; or
(c) materially modify the requirements for eligibility under the Plan.
The Administrator may amend the terms of any award theretofore granted,
prospectively or retroactively, but, subject to Article 3, no such amendment
shall impair the rights of any holder without his or her consent.
ARTICLE 11
General Provisions
Section 11.1 General Restrictions.
--------------------
(a) Limitation on Granting of Rights. Subject to adjustment as
--------------------------------
provided in Article 9, no Participant shall be granted Rights with respect to
more than 100,000 shares of Stock during any one year period.
(b) No View to Distribute. The Administrator may require each
---------------------
person acquiring shares of Stock pursuant to the Plan to represent to and agree
with the Company in writing that such person is acquiring the shares without a
view towards distribution thereof. The certificates for such shares may include
any legend which the Administrator deems appropriate to reflect any restrictions
on transfer.
(c) Legends. All certificates for shares of Stock delivered under
-------
the Plan shall be subject to such stop transfer orders and other restrictions as
the Administrator may deem advisable under the rules, regulations
-11-
and other requirements of the SEC, any stock exchange upon which the Stock is
then listed and any applicable federal or state securities laws, and the
Administrator may cause a legend or legends to be put on any such certificates
to make appropriate reference to such restrictions.
Section 11.2 Other Compensation Arrangements. Nothing contained in this
-------------------------------
Plan shall prevent the Board from adopting other or additional compensation
arrangements, subject to shareholder approval if such approval is required; and
such arrangements may be either generally applicable or applicable only in
specific cases.
Section 11.3 Disqualifying Dispositions; Withholding Taxes.
---------------------------------------------
(a) Disqualifying Disposition. The Stock Option Agreements shall
-------------------------
require Optionees who make a "disposition" (as defined in the Code) of all or
any of the Stock acquired through the exercise of Stock Options within two years
from the date of grant of the Stock Option, or within one year after the
issuance of Stock relating thereto, to immediately advise the Company in writing
as to the occurrence of the sale and the price realized upon the sale of such
Stock; and each Optionee shall agree that he or she shall maintain all such
Stock in his or her name so long as he or she maintains beneficial ownership of
such Stock.
(b) Withholding Required. Each Participant shall, no later than the
--------------------
date as of which the value derived from Rights first becomes includable in the
gross income of the Participant for income tax purposes, pay to the Company, or
make arrangements satisfactory to the Administrator regarding payment of, any
federal, state or local taxes of any kind required by law to be withheld with
respect to the Rights or their exercise. The obligations of the Company under
the Plan shall be conditioned upon such payment or arrangements and the
Participant shall, to the extent permitted by law, have the right to request
that the Company deduct any such taxes from any payment of any kind otherwise
due to the Participant.
(c) Withholding Right. The Administrator may, in its discretion,
-----------------
grant to a Rights holder the right (a "Withholding Right") to elect to make such
payment by irrevocably requiring the Company to withhold from shares issuable
upon exercise of the Rights that number of full shares of Stock having a Fair
Market Value on the Tax Date (as defined below) equal to the amount (or portion
of the amount) required to be withheld. The Withholding Right may be granted
with respect to all or any portion of the Rights.
(d) Exercise of Withholding Right. To exercise a Withholding Right,
-----------------------------
the Rights holder must follow the election procedures set forth below, together
with such additional procedures and conditions as may be set forth in the
related Rights agreement or otherwise adopted by the Administrator.
(i) The Rights holder must deliver to the Company his or her
written notice of election (the "Election") to have the Withholding Right
apply to all (or a designated portion) of his or her Rights prior to the
date of exercise of the Right to which it relates.
(ii) Unless disapproved by the Administrator as provided in
Subsection (iii) below, the Election once made will be irrevocable.
(iii) No Election is valid unless the Administrator consents to
the Election; the Administrator has the right and power, in its sole
discretion, with or without cause or reason therefor, to consent to the
Election, to refuse to consent to the Election, or to disapprove the
Election; and if the Administrator has not consented to the Election on or
prior to the date that the amount of tax to be withheld is, under
applicable federal income tax laws, fixed and determined by the Company
(the "Tax Date"), the Election will be deemed approved.
(iv) If the Rights holder on the date of delivery of the
Election to the Company is a Section 16(b) Person, the following additional
provisions will apply:
(A) the Election cannot be made during the six calendar
month period commencing with the date of the grant of the
Withholding Right (even if the Rights to which
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such Withholding Right relates have been granted prior to such
date); provided, that this Subsection (A) is not applicable to any
Rights holder at any time subsequent to the death, Disability or
Retirement of the Rights holder;
(B) the Election (and the exercise of the related Right) can
only be made during the Window Period; and
(C) notwithstanding any other provision of this Section
11.3, no Section 16(b) Person shall have the right to make any
Election unless the Company has been subject to the reporting
requirements of Section 13(a) of the Exchange Act for at least a
year prior to the transaction and has filed all reports and
statements required to be filed pursuant to that Section for that
year.
(e) Effect. If the Administrator consents to an Election of a
------
Withholding Right:
(i) upon the exercise of the Rights (or any portion thereof) to
which the Withholding Right relates, the Company will withhold from the
shares otherwise issuable that number of full shares of Stock having an
actual Fair Market Value equal to the amount (or portion of the amount, as
applicable) required to be withheld under applicable federal and/or state
income tax laws as a result of the exercise; and
(ii) if the Rights holder is then a Section 16(b) Person who has
made an Election, the related Rights may not be exercised, nor may any
shares of Stock issued pursuant thereto be sold, exchanged or otherwise
transferred, unless such exercise, or such transaction, complies with an
exemption from Section 16(b) provided under Rule 16b-3.
Section 11.4 Indemnification. In addition to such other rights of
---------------
indemnification as they may have as Directors or members of the Committee, and
to the extent allowed by applicable law, the Administrators shall be indemnified
by the Company against the reasonable expenses, including attorney's fees,
actually incurred in connection with any action, suit or proceeding or in
connection with any appeal therein, to which they or any one of them may be
party by reason of any action taken or failure to act under or in connection
with the Plan or any option granted under the Plan, and against all amounts paid
by them in settlement thereof (provided that the settlement has been approved by
the Company, which approval shall not be unreasonably withheld) or paid by them
in satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such Administrator did not act in good faith and in a manner
which such person reasonably believed to be in the best interests of the
Company, and in the case of a criminal proceeding, had no reason to believe that
the conduct complained of was unlawful; provided, however, that within 60 days
after institution of any such action, suit or proceeding, such Administrator
shall, in writing, offer the Company the opportunity at its own expense to
handle and defend such action, suit or proceeding.
Section 11.5 Loans. The Company may make loans to Optionees (other than
-----
Directors who are not also employees or officers of the Company) as the
Administrator, in its discretion, may determine in connection with the exercise
of outstanding Stock Options granted under the Plan. Such loans shall (i) be
evidenced by promissory notes entered into by the holders in favor of the
Company; (ii) be subject to the terms and conditions set forth in this Section
11.5 and such other terms and conditions, not inconsistent with the Plan, as the
Administrator shall determine; and (iii) bear interest, if any, at such rate as
the Administrator shall determine. In no event may the principal amount of any
such loan exceed the Exercise Price less the par value, if any, of the shares of
Stock covered by the Stock Option, or portion thereof, exercised by the
Optionee. The initial term of the loan, the schedule of payments of principal
and interest under the loan, the extent to which the loan is to be with or
without recourse against the holder with respect to principal and applicable
interest and the conditions upon which the loan will become payable in the event
of the holder's termination of employment shall be determined by the
Administrator; provided, however, that the term of the loan, including
extensions, shall not exceed 10 years. Unless the Administrator determines
otherwise, when a loan shall have been made, shares of Stock having a Fair
Market
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Value at least equal to the principal amount of the loan shall be pledged
by the holder to the Company as security for payment of the unpaid balance of
the loan and such pledge shall be evidenced by a security agreement, the terms
of which shall be determined by the Administrator, in its discretion; provided,
however, that each loan shall comply with all applicable laws, regulations and
rules of the Board of Governors of the Federal Reserve System and any other
governmental agency having jurisdiction.
Section 11.6 Special Terminating Events. If a Special Terminating Event
--------------------------
occurs, all Rights theretofore granted to such Rights holder may, unless earlier
terminated in accordance with their terms, be exercised by the Rights holder or
by his or her estate or by a person who acquired the right to exercise such
Rights by bequest or inheritance or otherwise by reason of the death or
Disability of the Rights holder, at any time within one year after the date of
the Special Terminating Event.
Section 11.7 Termination of Employment. Except as provided in Section
-------------------------
11.6 or this Section 11.7, Rights may not be exercised unless the Rights holder
is then a Director, or in the employ of the Company or any Parent or Subsidiary,
or rendering services as a consultant to the Company or any Parent or
Subsidiary, and unless he or she has remained continuously so employed or
engaged since the Date of Grant. If the employment or services of a Rights
holder shall terminate (other than by reason of a Special Terminating Event),
all Rights previously granted to the Rights holder which are exercisable at the
time of such termination may be exercised for the period ending 90 days after
such termination, unless otherwise provided in the Stock Option Agreement or SAR
Agreement; provided, however, that if the employment or services of a Rights
holder is terminated "for cause," such Rights may be exercised for the period
ending 30 days after such termination; provided, further, that no Rights may be
exercised following the date of their expiration. Nothing in the Plan or in any
Rights granted pursuant to the Plan shall confer upon an employee any right to
continue in the employ of the Company or any Parent or Subsidiary or interfere
in any way with the right of the Company or any Parent or Subsidiary to
terminate such employment at any time.
Section 11.8 Non-Transferability of Rights. Each Stock Option Agreement
-----------------------------
and SAR Agreement shall provide that the Rights granted under the Plan shall not
be transferable otherwise than by will or by the laws of descent and
distribution, and the Rights may be exercised, during the lifetime of the Rights
holder, only by the Rights holder or by his or her guardian or legal
representative.
Section 11.9 Regulatory Matters. Each Stock Option Agreement and SAR
------------------
Agreement shall provide that no shares shall be purchased or sold thereunder
unless and until (i) any then applicable requirements of state or federal laws
and regulatory agencies shall have been fully complied with to the satisfaction
of the Company and its counsel; and (ii) if required to do so by the Company,
the Optionee or Grantee shall have executed and delivered to the Company a
letter of investment intent in such form and containing such provisions as the
Administrator may require.
Section 11.10 Recapitalizations. Each Stock Option Agreement and Stock
-----------------
Purchase Agreement shall contain provisions required to reflect the provisions
of Article 9.
Section 11.11 Delivery. Upon exercise of Rights granted under this Plan,
--------
the Company shall issue Stock or pay any amounts due within a reasonable period
of time thereafter. Subject to any statutory obligations the Company may
otherwise have, for purposes of this Plan, 30 days shall be considered a
reasonable period of time.
Section 11.12 Rule 16b-3. With respect to persons subject to Section 16
----------
of the Exchange Act, transactions under this Plan are intended to comply with
all applicable conditions of Rule 16b-3 or its successors under the Exchange
Act. To the extent any provision of the Plan or action by the Administrator
fails to so comply, it shall be deemed null and void, to the extent permitted by
law and deemed advisable by the Administrator.
Section 11.13 Other Provisions. The Stock Option Agreements and SAR
----------------
Agreements authorized under the Plan may contain such other provisions not
inconsistent with this Plan, including, without limitation, restrictions upon
the exercise of the Rights, as the Administrator may deem advisable.
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ARTICLE 12
Effective Date of Plan
The Plan shall become effective on the date on which the Plan is adopted by
the Board, subject to approval by the Company's shareholders, which approval
must be obtained within one year from the date the Plan is adopted by the Board.
ARTICLE 13
Term of Plan
No Rights shall be granted pursuant to the Plan on or after March 31, 2005,
but Rights theretofore granted may extend beyond that date.
ARTICLE 14
Information to Rights Holders
The Company will cause a report to be sent to each Rights holder not later
than 120 days after the end of each fiscal year. Such report shall consist of
the financial statements of the Company for such fiscal year and shall include
such other information as is provided by the Company to its shareholders.
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Appendix 1
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AUDIT COMMITTEE CHARTER
OF
TAITRON COMPONENTS INCORPORATED
Organization
- ------------
This charter (the "Charter") governs the operations of the audit committee
(the "Audit Committee") of Tatiron Components Incorporated (the "Company").
The Audit Committee shall review and reassess the Charter at least annually and
will amend the charter, if appropriate, with the approval of the Company's board
of directors (the "Board"). The Committee shall be appointed by the Board and
shall be comprised of at least three directors, each of whom must be independent
of management and the Company. Each member of the Audit Committee shall be
considered independent if they have no relationship that may interfere with the
exercise of their independence from management and the Company. The Board will
also select a chairman for the Audit Committee. All Audit Committee members
shall be financially literate and experienced in reading and understanding
financial statements, including the Company's balance sheet, income statement
and statement of cash flow (or will become able to do so within a reasonable
period of time after his or her appointment to the Audit Committee). At least
one member of the Company's Audit Committee shall have past employment
experience in finance or accounting or have a professional certification in
accounting or other comparable experience.
Statement of Policy
- -------------------
The Audit Committee shall provide assistance to the Board in fulfilling
their oversight responsibility to the shareholders, potential shareholders, the
investment community, and others relating to the Company's financial statements
and the financial reporting process, the systems of internal accounting and
financial controls, the internal audit function, the annual independent audit of
the Company's financial statements and the legal compliance and ethics programs
as established by management and the Board. In so doing, it is the
responsibility of the Audit Committee to maintain free and open communication
between the Audit Committee, the independent auditors, the internal auditors and
the management of the Company. In discharging its oversight role, the Audit
Committee is empowered to investigate any matter brought to its attention with
full access to all books, records, facilities and personnel of the Company and
the power to retain outside counsel, or the other experts for this purpose.
Responsibilities and Processes
The primary responsibility of the Audit Committee is to oversee the
Company's financial reporting process on behalf of the Board and report the
results of their activities to the Board. Management is responsible for
preparing the Company's financial statements, and the independent auditors are
responsible for auditing those financial statements. The Audit Committee in
carrying out its responsibilities believes its policies and procedures should
remain flexible in order to best react to changing conditions and circumstances.
The Audit Committee should take the appropriate actions to set the overall
corporate "tone" for quality financial reporting, sound business risk practices
and ethical behavior.
The following shall be the principal recurring processes of the Audit
Committee in carrying out its oversight responsibilities. The processes are set
forth as a guide with the understanding that the Audit Committee may supplement
them as appropriate.
. The Audit Committee shall have a clear understanding with management and
the independent auditors that the independent auditors are
ultimately accountable to the Board and the Audit Committee, as
representatives of the Company's shareholders. The Audit
Committee shall have the ultimate authority and responsibility
to evaluate and, where appropriate, replace the independent
auditors. The Audit Committee shall discuss with the auditors
their independence from management and the Company and the
matters included in the written disclosures required by the
Independence Standards Board. Annually, the Committee shall
review and recommend to the board the selection of the Company's
independent auditors.
1
. The Audit Committee shall discuss with the internal auditors and the
independent auditors the overall scope and plans for their
respective audits including the adequacy of staffing and
compensation. In addition, the Audit Committee shall discuss
with management, the internal auditors and the independent
auditors the adequacy and effectiveness of the accounting and
financial controls, including the Company's system to monitor
and manage business risk and legal and ethical compliance
programs. Furthermore, the Audit Committee shall meet separately
with the internal auditors and the independent auditors, with
and without management present, to discuss the results of their
examinations.
. The Audit Committee shall review the interim financial statements with
management and the independent auditors prior to the filing of
the Company's quarterly report on Form 10-Q. In addition, the
Audit Committee shall discuss the results of the quarterly
review and any other matters required to be communicated to the
Audit Committee by the independent auditors under generally
accepted auditing standards. The chair of the Audit Committee
may represent the entire Audit Committee for the purposes of
this review.
. The Audit Committee shall review with management and the independent
auditors the financial statements to be included in the
Company's Annual Report on Form 10-K (or the annual report to
shareholders if distributed prior to the filing of Form 10-K),
including their judgment about the quality, not just
acceptability, of accounting principles, the reasonableness of
significant judgments and the clarity of the disclosures in the
financial statements. Moreover, the Audit Committee shall
discuss the results of the annual audit and any other matters
required to be communicated to the Audit Committee by the
independent auditors under generally accepted auditing
standards.
2