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 permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-2.
BONDED MOTORS, 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 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 0-12.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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.
[ ] 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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BONDED MOTORS, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 27, 1998
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Bonded
Motors, Inc., a California corporation (the "Company"), will be held on Monday,
April 27, 1998 at 1:30 p.m., local time, at the Renaissance Los Angeles
Hotel-Airport, located at 9620 Airport Boulevard, Los Angeles, California for
the following purposes:
1. To elect the following nominees to serve as directors for the ensuing
year and until their successors are elected: Aaron Landon, Richard Funk, Paul
Sullivan, Buddy Mercer, Edward T. Bradford, Cornelius P. McCarthy III and
John F. Creamer;
2. To approve an increase in the number of shares of Common Stock issuable
under the Company's 1996 Incentive Stock Plan from 400,000 to 600,000 shares;
3. To ratify the appointment of KPMG Peat Marwick LLP as independent
auditors for the Company for the fiscal year ending December 31, 1998; and
4. To transact such other business as may properly come before the Annual
Meeting or any adjournments thereof.
The foregoing items of business are more fully described in the Proxy Statement
accompanying this Notice.
Only shareholders of record at the close of business on March 24, 1998 are
entitled to notice of and to vote at the Annual Meeting and any adjournment
thereof.
All shareholders are cordially invited to attend the Annual Meeting in person.
However, to ensure your representation at the Annual Meeting, you are urged to
mark, sign, date and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. You may revoke your proxy
at any time before it has been voted, and if you attend the meeting you may
vote in person even if you have previously returned your proxy card. Your
prompt cooperation will be greatly appreciated.
BY ORDER OF THE BOARD OF DIRECTORS
Aaron Landon
Chief Executive Officer
Los Angeles, California
April 3, 1998
BONDED MOTORS, INC.
7522 South Maie Avenue
Los Angeles, CA 90001
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Bonded Motors, Inc., a California
corporation (the "Company"), for use at the Company's Annual Meeting of
Shareholders (the "Annual Meeting"). The information set forth herein is
furnished by the Company and is being sent to the Company's stockholders on
or about April 3, 1998.
Date, Time and Place of Annual Meeting
The Annual Meeting will be held at the Renaissance Los Angeles
Hotel-Airport, located at 9620 Airport Boulevard, Los Angeles, CA 90045 on
April 27, 1998 at 1:30 P.M. local time.
Purpose
The purpose of the Annual Meeting is to vote upon proposals: (i) to elect
seven directors to serve until their successors are duly elected; (ii) to
approve the increase in the number of shares issuable under the 1996
Incentive Stock Plan from 400,000 to 600,000 shares; (iii) to ratify the
appointment of KPMG Peat Marwick LLP as independent auditors for the
Company for the fiscal year ending December 31, 1998; and (iv) to transact
such other business as may properly come before the meeting or any adjournments
thereof.
Record Date and Outstanding Shares
Stockholders of record of Common Stock at the close of business on
March 24, 1998 (the "Record Date") are entitled to notice of and to vote at the
Annual Meeting. As of the Record Date there were 3,040,040 shares of Common
Stock issued and outstanding held by approximately 880 shareholders of record.
See "Security Ownership of Certain Beneficial Owners and Management." The only
person or entity known by the Company to be the beneficial owner of more than
5% of the Company's Common Stock are Kennedy Capital Management, Inc., which
owned approximately 8% of the Company's Common Stock and Heartland Advisors,
Inc., which owned approximately 7% of the Company's Common Stock.
Each holder of Common Stock is entitled to one vote for each share of
Common Stock held by such holder.
Voting of Proxies
Each holder of Common Stock has one vote for each share of Common Stock
held. Each shareholder voting in the election of directors may cumulate his
or her votes, giving one candidate a number of votes equal to the number of
directors to be elected (seven) multiplied by the number of votes to which
the shareholder's shares are entitled, or distributing the shareholder's votes
on the same principle among as many candidates. However, no shareholder shall
be entitled to cumulate votes unless the candidate's name has been placed in
nomination prior to the voting and the shareholder, or any other shareholder,
has given notice at the Annual Meeting prior to the voting of the intention
to cumulate the shareholder's votes. On all other matters, each share of
Common Stock has one vote.
All shares of Common Stock that are entitled to vote and are represented
at the Annual Meeting by properly executed proxies received prior to or at the
Annual Meeting and not duly and timely revoked will be voted at the Annual
Meeting in accordance with the instructions indicated on such proxy. If no
such instructions are indicated, such proxies will be voted (i) FOR the
election of each of the Company's nominees as a director; and (ii) FOR approval
of an increase in the number of shares of Common Stock issuable under the
1996 Incentive Stock Plan from 400,000 to 600,000 shares; and (iii) FOR
ratification of the appointment of KPMG Peat Marwick LLP as the Company's
independent auditors.
If any other matters are properly presented for consideration at the
Annual Meeting (or any adjournments or postponements thereof) including,
among other things, consideration of a motion to adjourn or postpone the
Annual Meeting to another time and/or place (including, without limitation,
for the purpose of soliciting additional proxies), the persons named in the
enclosed forms of proxy and voting thereunder will have the discretion to
vote on such matters in accordance with their best judgment. No business
other than that set forth in the accompanying Notice of Annual Meeting of
Shareholders is expected to come before the Annual Meeting. Should any other
matter requiring a vote of shareholders properly arise, the persons named in
the enclosed forms of proxy will vote such proxy in accordance with their best
judgment on such matter.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of the Company, at or before the taking of the vote at the
Annual Meeting, a written notice of revocation bearing a later date than the
proxy; (ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of the Company, before the taking of the vote at
the Annual Meeting; or (iii) attending the Annual Meeting and voting in person
(although attendance at the Annual Meeting will not in and of itself constitute
a revocation of a proxy). Any written notice of revocation or subsequent proxy
should be sent to Bonded Motors, Inc., at 7522 South Maie Avenue, Los Angeles,
CA 90001, Attention: Secretary or hand-delivered to the Secretary of the
Company, in each case at or before the taking of the vote at the Annual
Meeting.
Quorum; Abstentions; Broker Non-Votes
The required quorum for the transaction of business at the Annual Meeting
is a majority of the shares of Common Stock issued and outstanding on the
Record Date represented in person or by proxy. The Company intends to include
abstentions as present or represented for purposes of establishing a quorum
for the transaction of business and to include abstentions in the total number
of votes represented and voting with respect to a proposal (other than
election of directors). Accordingly, abstentions will have the same effect
as a vote against a proposal.
The Company intends to include broker non-votes as present or represented
for purposes of establishing a quorum for the transaction of business but to
exclude broker non-votes from the calculation of shares represented and voting
with respect to any proposal for which the broker has expressly not voted.
Accordingly, a broker non-vote will not affect the outcome of the voting on
a proposal.
2
Solicitation of Proxies; Expenses
The cost of this solicitation of the Company's stockholders will be borne
by the Company. The Company may reimburse brokerage firms and other persons
representing beneficial owners of shares for their expenses in forwarding
solicitation material to such beneficial owner. Proxies also may be solicited
by certain directors, officers and employees of the Company personally or by
telephone, telecopy or other means of communication. Such persons will not
receive additional compensation.
Proposal No. 1
Election of Directors
A Board of seven directors is to be elected at the Annual Meeting. Unless
otherwise instructed, the proxy holders will vote all proxies for the seven
nominees named below. If any nominee is unable or declines to serve as a
director at the time of the Annual Meeting, the proxies will be voted for any
nominee who shall be designated by the present Board of Directors to fill the
vacancy. It is not expected that any nominee will be unable or will decline
to serve as a director. In the event that additional persons are nominated
for election as directors, the proxy holders intend to vote all proxies
received by them in such a manner in accordance with cumulative voting as
will assure the election of as many of the nominees listed below as possible,
and, in such event, the specific nominees for whom the proxy holders will
vote will be determined by the proxy holders. The term of office of each
person elected as a director will continue until the Company's next Annual
Meeting of Stockholders.
The nominees for the Board of Directors and their ages as of March 24,
1998 are set forth below.
Name of Nominee Age Principal Occupation
- --------------- --- ---------------------
Aaron Landon 56 Chairman and Chief Executive Officer
Richard Funk 61 President and Director
Paul Sullivan 54 Vice President of Finance and Administration,
Chief Financial Officer and Director
Buddy Mercer 54 Vice President of Operations, Chief Operating
Officer and Director
Edward T. Bradford 55 Investment Adviser
Cornelius P. McCarthy III 38 Investment Banker
John F. Creamer 67 Consultant
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Mr. Landon, the founder of the Company, has served as Chairman, and Chief
Executive Officer since 1971.
Mr. Funk has served as the Company's President since November 3, 1997
and a director of the Company since its initial public offering in April 1996.
Since January 1993, he has served as a consultant to automobile engine
remanufacturing companies. Prior to 1993, Mr. Funk was the General Manager
of Tam Engineering Corp., a large engine remanufacturer.
Mr. Sullivan has served as the Company's Vice President of Finance and
Administration since February 1994 and as Chief Financial Officer since
January 1994. He also served as the Company's Controller from February 1989
to February 1994.
3
Mr. Mercer has served as the Vice President of Operations and Chief
Operating Officer of the Company since January 1994. He served as the
Company's General Manager, responsible for overseeing all operations and sales,
from January 1992 to January 1994. Mr. Mercer also served as the Company's
Sales Manager from 1982 to January 1992.
Mr. Bradford became a director of the Company on March 10, 1997. Since
March 1984, he has been a principal of Bradford & Marzec, Inc., an investment
management firm in Los Angeles.
Mr. McCarthy has served as a director of the Company since its initial
public offering in April 1996. Since December 1996, he has been a Senior
Vice President of Corporate Finance at Pennsylvania Merchant Group, an
investment banking firm. From December 1993 to December 1996, he was a
Managing Director Corporate Finance of Laidlaw & Co., an investment banking
firm. From December 1992 to December 1993, Mr. McCarthy was President and
proprietor of McCarthy & Company, a financial consulting firm. From June
1988 to December 1992, Mr. McCarthy was a Vice President of Kemper Securities,
Inc.
Mr. John F. Creamer became a director of the Company on September 2, 1997.
He is founder and president of Distribution Marketing Services Inc., a
consulting firm that specializes in the automotive aftermarket, including
merger and acquisition activity and executive placement in the industry.
There are no family relationships between any of the directors or the
Executive officers of the Company.
Recommendation
The Board of Directors recommends that shareholders vote FOR each of the
Company's nominees for director.
Vote Required
The seven nominees receiving the highest number of affirmative votes of
the shares entitled to be voted for them shall be elected as directors.
Votes withheld from any director are counted for purposes of determining the
presence or absence of a quorum but have no other legal effect.
Board Meetings and Committees
The Board of Directors of the Company held a total of two meetings during
the fiscal year ended December 31, 1997. All directors attended all meetings.
The Board has established an Audit Committee and Compensation Committee.
The Audit Committee consists of Messrs. Bradford, McCarthy, and Creamer. The
Audit Committee reviews the Company's auditing procedures and examines other
methods of financial and compliance controls as appropriate. The Audit
Committee held two meetings in 1997. The Compensation Committee consists of
Messrs. Bradford, McCarthy, and Creamer. The Compensation Committee has the
authority to fix salaries and bonuses of the Company's officers, approve
compensation plans for other employees and, except as otherwise provided by
the Board, administer the Company's stock option plans. The Compensation
Committee held two meetings in 1997.
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Compensation of Directors
During 1997, the Company granted to each director of the Company who was
not an employee of the Company options to purchase 1,500 shares of Common
Stock, exercisable at the fair market value at the date of grant, pursuant
to the Company's Non-Employee Directors' Stock Option Plan ("Directors' Plan").
Outside Directors Bradford, McCarthy and Creamer were paid $750 each for each
meeting of the Board of Directors attended and for each committee meeting
attended, in addition to out-of-pocket expenses associated such meeting.
Additionally, John F. Creamer is paid $2,000 monthly (plus out-of-pocket
expenses) to serve as industry consultant to the Company. All directors are
eligible to participate in the Company's 1996 Incentive Stock Plan, as
amended ("1996 Plan"). Employee directors receive no additional cash
compensation for service as directors.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Based solely on its review of Forms 3, 4 and 5 received by the Company,
or written representations from certain reporting persons that no Forms 5
were required for such persons, the Company believes that, during the fiscal
year ended December 31, 1997, all filing requirements under Section 16(a) of
the Securities Exchange Act of 1934 applicable to officers, directors and 10%
shareholders were satisfied.
Executive Officers
The executive officers of the Company, their ages as of March 24, 1998 and
their positions are set forth below.
Name Age Position
- ---- --- --------
Aaron Landon 56 Chairman and Chief Executive Officer
Richard Funk 61 President and Director
Paul Sullivan 54 Vice President of Finance and Administration, Chief
Financial Officer and Director
Buddy Mercer 54 Vice President of Operations, Chief Operating Officer and
Director
Executive Compensation
The following table sets forth certain information regarding compensation
paid by the Company in year ended December 31, 1997 to the Company's executive
officers.
5
Summary Compensation Table
Annual Compensation
--------------------------------------
Other Annual
Name and Principal Position Year Salary($) Bonus($) Compensation($)
- --------------------------- ---- --------- -------- ---------------
Aaron Landon,
Chief Executive Officer 1997 177,000 -- --
1996 156,000 -- --
Richard Funk
President 1997 21,250 -- 2,400(1)
1996 N/A -- --
Paul Sullivan,
Vice President of Finance
and Administration 1997 110,250 -- 4,192(2)
1996 84,000 -- 7,974(2)
Buddy Mercer,
Vice President of Operations 1997 114,000 -- 3,744(3)
1996 114,000 30,000 --
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(1) Consists of $1,300 for housing allowance, $500 for auto allowance and
$600 for health insurance premium paid for Mr. Funk
(2) Consists of life and health insurance premiums paid for Mr. Sullivan
(3) Consists of life and health insurance premiums paid for Mr. Mercer
The following table sets forth each grant of stock options made during the
year ended December 31, 1997 to the Company's executive officers.
Option Grants in Last Fiscal Year
Individual Grants
-----------------
Percentage of
Number of Options
Securities Granted to
Underlying Employee in Exercise or
Options Fiscal Year Base Price Expiration
Name Granted(#) (%) ($/sh) Date
- ---- --------------------------------------------------------
Richard Funk 100,000 54% $ 8.625 11/3/2002
Paul Sullivan 30,000 16% $ 8.75 2/11/2002
Buddy Mercer 20,000 11% $10.00 6/26/2002
6
The following table provides information with respect to exercise of
options during the year ended December 31, 1997 and unexercised options held
as of December 31, 1997.
Aggregated Option Exercises in Last Fiscal Year and Option Values
Number of Value of unexercised
Shares unexercised options in-the-money options
Acquired on Value at December 31, 1997 at December 31, 1997
Name Exercise(#) Realized($) Exercisable/Unexercisable(#) Exercisable/Unexercisable($)
- ---- ----------- ----------- ---------------------------- ----------------------------
Aaron Landon -- -- 68,750/ 68,750 168,438/168,438
Richard Funk -- -- 0/100,000 0/0
Paul Sullivan 15,000 54,375 0/ 45,000 0/ 45,000
Buddy Mercer -- -- 0/ 20,000 0/0
Employment Agreements
In January 1996, the Company entered into separate employment agreements
with each of Aaron Landon, Buddy Mercer and Paul Sullivan. The term of
employment is three years, and the agreements provide for an annual salary
base of $156,000, $114,000 and $84,000 to Messrs. Landon, Mercer and Sullivan,
respectively. The Company has the right to retain the employee as a consultant
for a period of two years after the end of his employment. The Company's
Board of Directors also may grant bonuses or increase the base salary payable
to any executive. In addition to his cash compensation, Mr. Landon receives
an automobile allowance. Messrs. Landon, Mercer and Sullivan each receives
additional benefits, including those generally provided to other employees of
the Company.
November 1997 the Company entered into an employment agreement with
Richard Funk. The agreement provides for an annual salary base of $170,000
to Richard Funk. In addition to his cash compensation, Mr. Funk receives
housing, automobile, and medical insurance allowance.
Certain Transactions
As of March 1, 1996, the Company repaid in full borrowings by the Company
from Aaron Landon using proceeds from its new credit facility. At December
31, 1995, the Company was indebted to Aaron Landon in the principal amount of
approximately $918,000 pursuant to the terms of an installment note dated July
15, 1995, due on demand. Interest on the principal amount of the indebtedness
was at rates per annum between 3.25% above the Federal Home Loan Board Index
and 10%. The Company was required to make monthly principal and interest
payments of at least $6,000. The note evidenced amounts borrowed by the
Company for working capital purposes.
The Company leases its principal production facility from The Landon Family
Trust. The term of the lease is 25 years and terminates on January 31, 2015.
The lease provides for a monthly rental of $8,000 and monthly rent increases
at five-year intervals based on increases in the Consumer Price Index. The
lease also provides for indemnification of the lessor arising from claims
caused by, among other things, any hazardous substance whether caused by the
Company's use of the premises or by a prior use of the premises.
The Company believes that the terms of the lease are at least as favorable
to the Company as those which could be otherwise obtained in a transaction
between the Company and an unrelated third party.
7
The Company purchases cores from a relative of Aaron Landon. Total
purchases were $462,000 in the years ended December 31, 1996. No amounts were
outstanding in relation to these purchases by the Company at December 31, 1996.
No such purchases were made during 1997.
In March 1994, the Company granted to each of Paul Sullivan and Buddy
Mercer an option to purchase up to 100,000 shares of the Common Stock at an
exercise price of $1 per share, the then fair market value as determined by
the Board of Directors. The options were exercised in full in December 1995
through the issuance of notes in favor of the Company, which are secured by
certain collateral. The notes bear interest at 8% per annum and mature on
December 7, 2002. During 1997, Buddy Mercer repaid his note of $100,000.
In 1990, Louis Landon, Aaron Landon's father, provided to the Company a
non-interest bearing loan, payable on demand, in the amount of $100,000.
Upon Louis Landon's death, the note became the property of his estate and the
loan is outstanding. Aaron Landon is the sole executor of the estate.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the
beneficial ownership of shares of Common Stock as of March 24, 1998 for (i)
each director and director nominee of the Company; (ii) each executive
officer; (iii) each person known to the Company to be the beneficial owner of
more than 5% of the outstanding shares; and (iv) all directors and executive
officers as a group. Except pursuant to applicable community property laws
or as otherwise indicated, each shareholder has sole voting and investment
power with respect to the shares beneficially owned.
Beneficial Owner (1) Number of Shares Percentage of Total
- -------------------- ---------------- -------------------
Percentage of Total
- -------------------
Aaron Landon(1) 1,320,020 43.4%
Richard Funk - *
Paul Sullivan 87,020 2.9%
Buddy Mercer 50,020 1.6%
Edward T. Bradford - *
Cornelius P. McCarthy III - *
John F. Creamer - *
Kennedy Capital Management 227,400 7.5%
10829 Olive Blvd.
St. Louis, MO 63141
Heartland Advisor 200,000 6.6%
790 North Milwaukee Street
Milwaukee, WI 53202
All directors and executive officers
as a group (7 persons) 1,457,060 47.9%
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*Represents less than 1% of the total number of shares of Common Stock
outstanding.
(1) Consists of 1,320,020 shares held by The Landon Family Trust, The Landon
Family Foundation, The Aaron P. Landon Annuity Trust and The Maude M. Landon
Annuity Trust. Aaron Landon and Maude Landon, his wife, are trustees and/or
co-trustees of the trusts.
8
Proposal No. 2
Amendment to the 1996 Incentive Stock Plan
to Increase the Number of Shares of Common Stock Issuable
from 400,000 Shares to 600,000 Shares
The Company's 1996 Incentive Stock Plan (the "1996 Plan") was adopted by
the Board of Directors and approved by the shareholders in February 1996. The
1996 Plan provided for the issuance of up to a total of 400,000 shares of
Common Stock. In September 1997, the Board of Directors approved an amendment
to the 1996 Plan to increase the number of shares of Common Stock issuable
under the plan to 600,000 shares. As of December 31, 1997, there were
outstanding options to purchase a total of 400,400 shares of Common Stock
issued under the 1996 Plan. The amendment also included other changes to
conform the 1996 Plan to recent revisions in rule 16b-3 under the Securities
Exchange Act of 1934, as amended ("Exchange Act").
At the Annual Meeting, the shareholders are being requested to ratify and
approve the amendment to the 1996 Plan to increase the number of shares
available for issuance under the 1996 Plan by 200,000 shares. The Board
believes the 1996 Plan is a valuable incentive for the continued service
of its key personnel, officers and directors of the Company and recommends
approval of the Proposal.
Description of the 1996 Plan, as Amended
The following is a summary of certain provisions of the 1996 Plan, which
is qualified by reference to the complete text of the Plan set forth in
Appendix A to this proxy statement.
Purpose. The purpose of the 1996 Plan is to retain directors, executives
and selected employees and consultants and reward them for making major
contributions to the success of the Company.
Administration, The 1996 Plan is administered by the Board of Directors
and/or an executive compensation committee of the Board (the "Committee"). The
Committee must be composed of not less than two members of the Board of
Directors, each of whom is a "Non-Employee Director," as defined in Rule
16b-3 promulgated under the Exchange Act. The Committee has sole discretion
and authority, consistent with the provisions of the 1996 Plan, to grant
"incentive stock options" ("ISOs"), as defined by Section 422 of the United
States Internal Revenue Code of 1986, as amended, non-statutory stock options
("NSOs"), stock awards or restricted stock purchase offers. The Committee also
has sole discretion and authority to determine in good faith the fair market
value of the shares, select the eligible participants to whom securities will
be granted under the 1996 Plan, construe and interpret the 1996 Plan,
promulgate, amend and rescind rules and regulations for the administration
thereof, and make such other determinations that are necessary and advisable
for the 1996 Plan's administration.
Exercise Price of Options. The exercise price of ISOs to be granted under
the 1996 Plan will be not less than the fair market value of a share of
Common Stock on the date the option is granted (110% of fair market value
with respect to ISO optionees who own at least 10% of the outstanding Common
Stock).' As respects NSOs, the exercise price shall be determined by the
Committee and may be no less than 85% of the fair market value of a share of
Common Stock on the date the option is granted (I 10% of fair market value
with respect to NSO optionees who own at least 10% of the outstanding Common
Stock).
9
Term of Options. The Committee has the authority to determine the time
or times at which options granted under the 1996 Plan become exercisable, but
options expire not later than ten years from the date of grant (five years
with respect to optionees who own at least 10% of the outstanding Common
Stock). Options are nontransferable, other than by will and the laws of
descent, and generally may be exercised only by an employee while employed
by the Company or within three months after termination of employment or
between six months and one year in the event of termination by reason of
death or disability.
Non-Employee Directors' Stock Option Plan
The Company also adopted in 1996 the Non-Employee Directors' Stock Option
Plan ("Directors' Plan"), which provides for the issuance of options to be
automatically granted to directors of the Company who are not employees of the
Company. Under the Directors' Plan each non-employee director receives annually
an option to purchase 1,500 shares of Common Stock. Each director serving at
the Directors' Plan inception received an option to purchase 5,000 shares of
Common Stock. The exercise price of options granted under the Directors' Plan
will be not less than the fair market value of a share of Common Stock on the
date the option is granted. An aggregate of 50,000 shares of Common Stock,
subject to adjustment under certain circumstances, are reserved for issuance
under the Directors' Plan. The amendment to the 1996 Plan will not affect the
Directors' Plan.
Recommendation
The Board of Directors recommends that shareholders vote "FOR"
ratification and approval of the amendment to the 1996 Plan.
Vote Required
Affirmative votes constituting a majority of the shares represented and
voting at the Annual Meeting will be required to ratify and approve the
proposed amendment to the 1996 Plan.
Proposal No. 3
Ratification of Appointment
of Independent Auditors
The Board has selected KPMG Peat Marwick LLP to audit the financial
statements of the Company for the fiscal year ending December 31, 1998 and
recommends that the stockholders vote "FOR" ratification of such selection.
The affirmative vote of the holders of a majority of the shares represented
and voting at the Annual Meeting is required to ratify the Board's selection.
Representatives of KPMG Peat Marwick LLP are expected to be present at the
Annual Meeting with the opportunity to make a statement if they desire to do
so, and are to be available to respond to appropriate questions.
Other Matters
The Company knows of no other matters to be submitted to the meeting. If
any other matters properly come before the meeting, it is the intention of
the persons named in the accompanying form of proxy to vote the shares they
represent as the Board may recommend.
10
Deadline for Receipt of Stockholder Proposals
For 1999 Annual Meeting
Proposals that are intended to be presented by stockholders at the 1999
Annual Meeting of Stockholders must be received by the Company not later than
November 30, 1998, in order that they may be considered for inclusion in the
proxy statement and form of proxy related to that meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Aaron Landon
Chief Executive Officer
11
PROXY
BONDED MOTORS, INC.
Proxy for 1998 Annual Meeting of Shareholders
April 27, 1998
THE PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Bonded Motors, Inc. (the "Company") hereby
acknowledges receipt of the Notice of Annual Meeting of Shareholders and
Proxy Statement for the 1998 Annual Meeting of Shareholders of the Company
to be held on Monday, April 27, 1998 at 1:30 p.m., local time, at the
Renaissance Los Angeles Hotel-Airport, 9620 Airport Boulevard, Los Angeles,
California, and hereby revokes all previous proxies and appoints Buddy Mercer,
Paul Sullivan, Richard Funk and Aaron Landon, or either of them, with full
power of substitution, Proxies and Attorneys-in-Fact, on behalf and in the
name of the undersigned, to vote and otherwise represent all of the shares
registered in the name of the undersigned at said Annual Meeting, or any
adjournment thereof, with the same effect as if the undersigned were present
and voting such shares, on the matters and in the manner specified on the
reverse side.
1. Election of Directors:
[_] FOR all the nominees listed below (except as indicated).
[_] WITHHOLD authority to vote for all nominees listed below.
If you wish to withhold authority to vote for any individual nominee, strike
a line through that nominee's name in the list below:
AARON LANDON, RICHARD FUNK, PAUL SULLIVAN, BUDDY MERCER, EDWARD T. BRADFORD,
CORNELIUS P. McCARTHY III , JOHN F. CREAMER
2. Proposal to increase the number of shares of Common Stock issuable under
the 1996 Incentive Stock Plan from 400,000 to 600,000 shares.
FOR AGAINST ABSTAIN
[_] [_] [_]
3. Proposal to ratify the appointment of KPMG Peat Marwick LLP as the
independent auditors of the Company for the fiscal year ending December 31,
1998.
FOR AGAINST ABSTAIN
[_] [_] [_]
(Continued and to be signed on reverse side)
In their discretion, the Proxies are entitled to vote upon such other matters
as may properly come before the Annual Meeting or any adjournments thereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE. IF NO SPECIFICATION IS MADE, THE SHARES REPRESENTED BY
THIS PROXY WILL BE VOTED FOR THE ABOVE NOMINEES AND PROPOSALS, AND FOR SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING AS THE PROXYHOLDERS
DEEM ADVISABLE.
I plan to attend the meeting. [_]
Dated ,1998
-------------------------
Signature:
------------------------------
Signature:
------------------------------
(This proxy should be marked, dated and signed by each shareholder exactly as
such stockholder's name appears hereon, and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate. A
corporation is requested to sign its name by its President or other
authorized officer, with the office held designated. If shares are held by
joint tenants or as community property, both holders should sign.)
TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, PLEASE MARK, SIGN AND
DATE THIS PROXY AND RETURN IT AS PROMPTLY AS POSSIBLE.
APPENDIX A
BONDED MOTORS, INC.
1996 INCENTIVE STOCK PLAN
(As Amended September 2, 1997)
1.Objectives.
The BONDED MOTORS, INC. 1996 Incentive Stock Plan (the "Plan") is
designed to retain directors, executives and selected employees and
consultants and reward them for making major contributions to the success of
the Company. These objectives are accomplished by making long-term incentive
awards under the Plan thereby providing Participants with a proprietary
interest in the growth and performance of the Company.
2.Definitions.
(a)"Board" - The Board of Directors of the Company.
(b)"California Securities Rules" - Chapter 3, Subchapter 2, Subarticle
4 of Article 4 of Title 10 of the Corporate Securities Rules of the
Commissioner of Corporations of the state of California.
(c)"Code" - The Internal Revenue Code of 1986, as amended from time
to time.
(d)"Committee" - The Executive Compensation Committee of the Company's
Board, or such other committee of the Board that is designated by the Board to
administer the Plan, composed of not less than two members of the Board all of
whom are Non-Employee Directors, as contemplated by Rule 16b-3 ("Rule 16b-3")
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The foregoing requirement for disinterested administration
shall not apply prior to the date of the first registration of any of the
securities of the Company under the Exchange Act.
(e)"Company" - BONDED MOTORS, INC. and its subsidiaries including
subsidiaries of subsidiaries.
(f)"Exchange Act" - The Securities Exchange Act of 1934, as amended
from time to time.
(g)"Fair Market Value" - The fair market value of the Company's issued
and outstanding Stock as determined in good faith by the Board or Committee.
(h)"Grant" - The grant of any form of stock option, stock award, or
stock purchase offer, whether granted singly, in combination or in tandem, to
a Participant pursuant to such terms, conditions and limitations as the
Committee may establish in order to fulfill the objectives of the Plan.
(i)"Grant Agreement" - An agreement between the Company and a
Participant that sets forth the terms, conditions and limitations applicable
to a Grant.
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(j)"Option" - Either an Incentive Stock Option, in accordance with
Section 422 of Code, or a Nonstatutory Option, to purchase the Company's Stock
that may be awarded to a Participant under the Plan. A Participant who
receives an award of an Option shall be referred to as an "Optionee."
(k)"Participant" - A director, officer, employee or consultant of the
Company to whom an Award has been made under the Plan.
(l)"Restricted Stock Purchase Offer" - A Grant of the right to purchase
a specified number of shares of Stock pursuant to a written agreement issued
under the Plan.
(m)"Securities Act" - The Securities Act of 1933, as amended from time
to time.
(n)"Stock" - Authorized and issued or unissued shares of common stock
of the Company.
(o)"Stock Award" - A Grant made under the Plan in stock or denominated
in units of stock for which the Participant is not obligated to pay additional
consideration.
3.Administration
The Plan shall be administered by the Board, provided however, that the
Board may delegate such administration to the Committee. Subject to the
provisions of the Plan, the Board and/or the Committee shall have authority to
(a) grant, in its discretion, Incentive Stock Options in accordance with
Section 422 of the Code, or Nonstatutory Options, Stock Awards or Restricted
Stock Purchase Offers; (b) determine in good faith the fair market value of
the Stock covered by any Grant; (c) determine which eligible persons shall
receive Grants and the number of shares, restrictions, terms and conditions
to be included in such Grants; (d) construe and interpret the Plan; (e)
promulgate, amend and rescind rules and regulations relating to its
administration, and correct defects, omissions and inconsistencies in the
Plan or any Grant; (f) consistent with the Plan and with the consent of the
Participant, as appropriate, amend any outstanding Grant or amend the exercise
date or dates thereof; (g) determine the duration and purpose of leaves of
absence which may be granted to Participants without constituting termination
of their employment for the purpose of the Plan or any Grant; and (h) make
all other determinations necessary or advisable for the Plan's administration.
The interpretation and construction by the Board of any provisions of the Plan
or selection of Participants shall be conclusive and final. No member of the
Board or the Committee shall be liable for any action or determination made in
good faith with respect to the Plan or any Grant made thereunder.
4.Eligibility
(a)General: The persons who shall be eligible to receive Grants shall
be directors, officers, employees or consultants to the Company. The term
consultant shall mean any person, other than an employee, who is engaged by
the Company to render services and is compensated for such services. An
Optionee may hold more than one Option. Any issuance of a Grant to an officer
or director of the Company subsequent to the first registration of any of the
securities of the Company under the Exchange Act shall comply with the
requirements of Rule 16b-3.
(b)Incentive Stock Options: Incentive Stock Options may only be issued
to employees of the Company. Incentive Stock Options may be granted to
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officers, whether or not they are directors, provided they are also employees
of the Company. Payment of a director's fee shall not be sufficient to
constitute employment by the Company.
The Company shall not grant an Incentive Stock Option under the Plan to
any employee if such Grant would result in such employee holding the right to
exercise for the first time in any one calendar year, under all Incentive
Stock Options granted under the Plan or any other plan maintained by the
Company, with respect to shares of Stock having an aggregate fair market
value, determined as of the date of the Option is granted, in excess of
$100,000. Should it be determined that an Incentive Stock Option granted
under the Plan exceeds such maximum for any reason other than a failure in
good faith to value the Stock subject to such option, the excess portion of
such option shall be considered a Nonstatutory Option. To the extent the
employee holds two (2) or more such Options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such Option as Incentive Stock Options under the Federal
tax laws shall be applied on the basis of the order in which such Options are
granted. If, for any reason, an entire Option does not qualify as an
Incentive Stock Option by reason of exceeding such maximum, such Option
shall be considered a Nonstatutory Option.
(c)Nonstatutory Option: The provisions of the foregoing Section 4(b)
shall not apply to any Option designated as a "Nonstatutory Option" or which
sets forth the intention of the parties that the Option be a Nonstatutory
Option.
(d)Stock Awards and Restricted Stock Purchase Offers: The provisions of
this Section 4 shall not apply to any Stock Award or Restricted Stock Purchase
Offer under the Plan.
5.Stock
(a)Authorized Stock: Stock subject to Grants may be either unissued or
reacquired common stock.
(b)Number of Shares: Subject to adjustment as provided in Section 6(i)
of the Plan, the total number of shares of Stock which may be purchased or
granted directly by Options, Stock Awards or Restricted Stock Purchase Offers,
or purchased indirectly through exercise of Options granted under the Plan
shall not exceed 600,000. If any Grant shall for any reason terminate or
expire, any shares allocated thereto but remaining unpurchased upon such
expiration or termination shall again be available for Grants with respect
thereto under the Plan as though no Grant had previously occurred with
respect to such shares. Any shares of Stock issued pursuant to a Grant and
repurchased pursuant to the terms thereof shall be available for future Grants
as though not previously covered by a Grant.
(c)Reservation of Shares: The Company shall reserve and keep available
at all times during the term of the Plan such number of shares as shall be
sufficient to satisfy the requirements of the Plan. If, after reasonable
efforts, which efforts shall not include the registration of the Plan or
Grants under the Securities Act, the Company is unable to obtain authority
from any applicable regulatory body, which authorization is deemed necessary
by legal counsel for the Company for the lawful issuance of shares hereunder,
the Company shall be relieved of any liability with respect to its failure to
issue and sell the shares for which such requisite authority was so deemed
necessary unless and until such authority is obtained.
(d)Application of Funds
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The proceeds received by the Company from the sale of common stock
pursuant to the exercise of Options or rights under Stock Purchase Agreements
will be used for general corporate purposes.
(e)No Obligation to Exercise
The issuance of a Grant shall impose no obligation upon the Participant
to exercise any rights under such Grant.
6.Terms and Conditions of Options
Options granted hereunder shall be evidenced by agreements between the
Company and the respective Optionees, in such form and substance as the Board
or Committee shall from time to time approve. The form of Incentive Stock
Option Agreement attached hereto as Exhibit "A" and the three forms of a
Nonstatutory Stock Option Agreement for employees, for directors and for
consultants, attached hereto as Exhibits "B-1," "B-2" and "B-3," respectively,
shall be deemed to be approved by the Board. Option agreements need not be
identical, and in each case may include such provisions as the Board or
Committee may determine, but all such agreements shall be subject to and
limited by the following terms and conditions:
(a)Number of Shares: Each Option shall state the number of shares to
which it pertains.
(b)Exercise Price: Each Option shall state the exercise price, which
shall be determined as follows:
(i)Any Option granted to a person who at the time the Option is
granted owns (or is deemed to own pursuant to Section 424(d) of the Code)
stock possessing more than ten percent (10%) of the total combined voting
power or value of all classes of stock of the Company, ("Ten Percent Holder")
shall have an exercise price of no less than 110% of the Fair Market Value of
the Stock as of the date of grant; and
(ii)Incentive Stock Options granted to a person who at the time the
Option is granted is not a Ten Percent Holder shall have an exercise price
of no less than 100% of the Fair Market Value of the common stock as of the
date of grant.
(iii)Nonstatutory Options granted to a person who at the time the
Option is granted is not a Ten Percent Holder shall have an exercise price
of no less than 85% of the Fair Market Value of the Stock as of the date of
grant.
For the purposes of this Section 6(b), the Fair Market Value shall be
as determined by the Board in good faith, which determination shall be
conclusive and binding; provided however, that if there is a public market
for such Stock, the Fair Market Value per share shall be the average of the
bid and asked prices (or the closing price if such stock is listed on the
NASDAQ National Market System or Small Cap Issue Market) on the date of grant
of the Option, or if listed on a stock exchange, the closing price on such
exchange on such date of grant.
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(c)Medium and Time of Payment: The exercise price shall become
immediately due upon exercise of the Option and shall be paid in cash or
check made payable to the Company. Should the Company's outstanding Stock
be registered under Section 12(g) of the Exchange Act at the time the Option
is exercised, then the exercise price may also be paid as follows:
(i)in shares of the Company's Stock held by the Optionee for the
requisite period necessary to avoid a charge to the Company's earnings for
financial reporting purposes and valued at Fair Market Value on the exercise
date, or
(ii)through a special sale and remittance procedure pursuant to which
the Optionee shall concurrently provide irrevocable written instructions (a)
to a Company designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Company, out of the sale proceeds available
on the settlement date, sufficient funds to cover the aggregate exercise price
payable for the purchased shares plus all applicable Federal, state and local
income and employment taxes required to be withheld by the Company by reason
of such purchase and (b) to the Company to deliver the certificates for the
purchased shares directly to such brokerage firm in order to complete the sale
transaction.
At the discretion of the Board, exercisable either at the time of Option
grant or of Option exercise, the exercise price may also be paid (i) by
Optionee's delivery of a promissory note in form and substance satisfactory
to the Company and permissible under the California Securities Rules and
bearing interest at a rate determined by the Board in its sole discretion,
but in no event less than the minimum rate of interest required to avoid the
imputation of compensation income to the Optionee under the Federal tax laws,
or (ii) in such other form of consideration permitted by the California
Corporations Code as may be acceptable to the Board.
(d)Term and Exercise of Options: Any Option granted to an employee of
the Company shall become exercisable over a period of no longer than five (5)
years, and no less than twenty percent (20%) of the shares covered thereby
shall become exercisable annually. No Option shall be exercisable, in whole
or in part, prior to one (1) year from the date it is granted unless the
Board shall specifically determine otherwise, as provided herein. In no event
shall any Option be exercisable after the expiration of ten (10) years from
the date it is granted, and no Incentive Stock Option granted to a Ten Percent
Holder shall, by its terms, be exercisable after the expiration of five (5)
years from the date of the Option. Unless otherwise specified by the Board
or the Committee in the resolution authorizing such option, the date of grant
of an Option shall be deemed to be the date upon which the Board or the
Committee authorizes the granting of such Option.
Each Option shall be exercisable to the nearest whole share, in
installments or otherwise, as the respective Option agreements may provide.
During the lifetime of an Optionee, the Option shall be exercisable only by
the Optionee and shall not be assignable or transferable by the Optionee, and
no other person shall acquire any rights therein. To the extent not exercised,
installments (if more than one) shall accumulate, but shall be exercisable, in
whole or in part, only during the period for exercise as stated in the Option
agreement, whether or not other installments are then exercisable.
(e)Termination of Status as Employee, Consultant or Director: If
Optionee's status as an employee shall terminate for any reason other than
Optionee's disability or death, then the Optionee (or if the Optionee shall
die after such termination, but prior to exercise, Optionee's personal
representative or the person entitled to succeed to the Option) shall have
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the right to exercise the portions of any of Optionee's Incentive Stock
Options which were exercisable as of the date of such termination, in whole
or in part, not less than 30 days nor more than three (3) months after such
termination (or, in the event of "termination for cause" as that term is
defined in Section 2922 of the California Labor Code and case law related
thereto, or by the terms of the Plan or the Option Agreement or an employment
agreement, the Option shall automatically terminate as of the termination of
employment as to all shares covered by the Option).
With respect to Nonstatutory Options granted to employees, directors or
consultants, the Board may specify such period for exercise, not less than 30
days (except that in the case of "termination for cause" or termination of a
director pursuant to Section 302 or 304 of the California Corporations Code,
the Option shall automatically terminate as of the termination of employment
or services as to shares covered by the Option), following termination of
employment or services as the Board deems reasonable and appropriate. The
Option may be exercised only with respect to installments that the Optionee
could have exercised at the date of termination of employment or services.
Nothing contained herein or in any Option granted pursuant hereto shall be
construed to affect or restrict in any way the right of the Company to
terminate the employment or services of an Optionee with or without cause.
(f)Disability of Optionee: If an Optionee is disabled (within the
meaning of Section 22(e)(3) of the Code) at the time of termination, the
three (3) month period set forth in Section 6(e) shall be a period, as
determined by the Board and set forth in the Option, of not less than six
months nor more than one year after such termination.
(g)Death of Optionee: If an Optionee dies while employed by, engaged
as a consultant to, or serving as a Director of the Company, the portion of
such Optionee's Option which was exercisable at the date of death may be
exercised, in whole or in part, by the estate of the decedent or by a person
succeeding to the right to exercise such Option at any time within (i) a
period, as determined by the Board and set forth in the Option, of not less
than six (6) months nor more than one (1) year after Optionee's death, which
period shall not be more, in the case of a Nonstatutory Option, than the
period for exercise following termination of employment or services, or (ii)
during the remaining term of the Option, whichever is the lesser. The Option
may be so exercised only with respect to installments exercisable at the time
of Optionee's death and not previously exercised by the Optionee.
(h)Nontransferability of Option: No Option shall be transferable by the
Optionee, except by will or by the laws of descent and distribution.
(i)Recapitalization: Subject to any required action of shareholders,
the number of shares of Stock covered by each outstanding Option, and the
Exercise price per share thereof set forth in each such Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Stock of the Company resulting from a subdivision or consolidation
of shares or the payment of a stock dividend, or any other increase or
decrease in the number of such shares affected without receipt of
consideration by the Company; provided, however, the conversion of any
convertible securities of the Company shall not be deemed to have been
"effected" without receipt of consideration by the Company.
In the event of a proposed dissolution or liquidation of the Company,
a merger or consolidation in which the Company is not the surviving entity,
or a sale of all or substantially all of the assets or capital stock of the
Company (collectively, a "Reorganization"), unless otherwise provided by the
Board, this Option shall terminate immediately prior to such date as is
determined by the Board, which date shall be no later than the consummation of
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such Reorganization. In such event, if the entity which shall be the
surviving entity does not tender to Optionee an offer, for which it has no
obligation to do so, to substitute for any unexercised Option a stock option
or capital stock of such surviving of such surviving entity, as applicable,
which on an equitable basis shall provide the Optionee with substantially the
same economic benefit as such unexercised Option, then the Board may grant to
such Optionee, in its sole and absolute discretion and without obligation, the
right for a period commencing thirty (30) days prior to and ending immediately
prior to the date determined by the Board pursuant hereto for termination of
the Option or during the remaining term of the Option, whichever is the lesser,
to exercise any unexpired Option or Options without regard to the installment
provisions of Paragraph 6(d) of the Plan; provided, that any such right granted
shall be granted to all Optionees not receiving an offer to receive substitute
options on a consistent basis, and provided further, that any such exercise
shall be subject to the consummation of such Reorganization.
Subject to any required action of shareholders, if the Company shall be
the surviving entity in any merger or consolidation, each outstanding Option
thereafter shall pertain to and apply to the securities to which a holder of
shares of common stock equal to the shares subject to the Option would have
been entitled by reason of such merger or consolidation.
In the event of a change in the common stock of the Company as presently
constituted, which is limited to a change of all of its authorized shares
without par value into the same number of shares with a par value, the shares
resulting from any such change shall be deemed to be the Stock within the
meaning of the Plan.
To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive. Except
as expressly provided in this Section 6(i), the Optionee shall have no rights
by reason of any subdivision or consolidation of shares of stock of any class
or the payment of any stock dividend or any other increase or decrease in the
number of shares of stock of any class, and the number or price of shares of
Stock subject to any Option shall not be affected by, and no adjustment shall
be made by reason of, any dissolution, liquidation, merger, consolidation or
sale of assets or capital stock, or any issue by the Company of shares of
stock of any class or securities convertible into shares of stock of any class.
The grant of an Option pursuant to the Plan shall not affect in any way
the right or power of the Company to make any adjustments, reclassifications,
reorganizations or changes in its capital or business structure or to merge,
consolidate, dissolve, or liquidate or to sell or transfer all or any part of
its business or assets.
(j)Rights as a Shareholder: An Optionee shall have no rights as a
shareholder with respect to any shares covered by an Option until the
effective date of the issuance of the shares following exercise of such
Option by Optionee. No adjustment shall be made for dividends (ordinary
or extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to the
date such stock certificate is issued, except as expressly provided in
Section 6(i) hereof.
(k)Modification, Acceleration, Extension, and Renewal of Options:
Subject to the terms and conditions and within the limitations of the Plan,
the Board may modify an Option, or, once an Option is exercisable, accelerate
the rate at which it may be exercised, and may extend or renew outstanding
Options granted under the Plan or accept the surrender of outstanding Options
(to the extent not theretofore exercised) and authorize the granting of new
Options in substitution for such Options, provided such action is permissible
under Section 422 of the Code and the California Securities Rules.
Notwithstanding the provisions of this Section 6(k), however, no modification
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of an Option shall, without the consent of the Optionee, alter to the
Optionee's detriment or impair any rights or obligations under any Option
theretofore granted under the Plan.
(l)Exercise Before Exercise Date: At the discretion of the Board,
the Option may, but need not, include a provision whereby the Optionee may
elect to exercise all or any portion of the Option prior to the stated
exercise date of the Option or any installment thereof. Any shares so
purchased prior to the stated exercise date shall be subject to repurchase
by the Company upon termination of Optionee's employment as contemplated by
Section 6(n) hereof prior to the exercise date stated in the Option and such
other restrictions and conditions as the Board or Committee may deem advisable.
(m)Other Provisions: The Option agreements authorized under the Plan
shall contain such other provisions, including, without limitation,
restrictions upon the exercise of the Options, as the Board or the Committee
shall deem advisable. Shares shall not be issued pursuant to the exercise of
an Option, if the exercise of such Option or the issuance of shares thereunder
would violate, in the opinion of legal counsel for the Company, the provisions
of any applicable law or the rules or regulations of any applicable
governmental or administrative agency or body, such as the Code, the Securities
Act, the Exchange Act, the California Securities Rules, California Corporations
Code, and the rules promulgated under the foregoing or the rules and
regulations of any exchange upon which the shares of the Company are listed.
Without limiting the generality of the foregoing, the exercise of each Option
shall be subject to the condition that if at any time the Company shall
determine that (i) the satisfaction of withholding tax or other similar
liabilities, or (ii) the listing, registration or qualification of any
shares covered by such exercise upon any securities exchange or under any
state or federal law, or (iii) the consent or approval of any regulatory
body, or (iv) the perfection of any exemption from any such withholding,
listing, registration, qualification, consent or approval is necessary or
desirable in connection with such exercise or the issuance of shares
thereunder, then in any such event, such exercise shall not be effective
unless such withholding, listing registration, qualification, consent,
approval or exemption shall have been effected, obtained or perfected
free of any conditions not acceptable to the Corporation.
(n)Repurchase Agreement: The Board may, in its discretion, require
as a condition to the grant of an Option hereunder, that an Optionee execute
an agreement with the Company, in form and substance satisfactory to the Board
in its discretion ("Repurchase Agreement"), (i) restricting the Optionee's
right to transfer shares purchased under such Option without first offering
such shares to the Company or another shareholder of the Company upon the same
terms and conditions as provided therein; and (ii) providing that upon
termination of Optionee's employment with the Company, for any reason, the
Company (or another shareholder of the Company, as provided in the Repurchase
Agreement) shall have the right at its discretion (or the discretion of such
other shareholders) to purchase and/or redeem all such shares owned by the
Optionee on the date of termination of his or her employment at a price equal
to (A) the fair value of such shares as of such date of termination, or (B)
if such repurchase right lapses at 20% of the number of shares per year, the
original purchase price of such shares, and upon terms of payment permissible
under the California Securities Rules; provided that in the case of Options
or Stock Awards granted to officers, directors, consultants or affiliates of
the Company, such repurchase provisions may be subject to additional or
greater restrictions as determined by the Board or Committee.
7.Stock Awards and Restricted Stock Purchase Offers
(a)Types of Grants.
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(i)Stock Award . All or part of any Stock Award under the Plan may
be subject to conditions established by the Board or the Committee, and set
forth in the Stock Award Agreement, which may include, but are not limited
to, continuous service with the Company, achievement of specific business
objectives, increases in specified indices, attaining growth rates and other
comparable measurements of Company performance. Such Awards may be based on
Fair Market Value or other specified valuation. All Stock Awards will be
made pursuant to the execution of a Stock Award Agreement substantially in
the form attached hereto as Exhibit "C".
(ii)Restricted Stock Purchase Offers. A Grant of a Restricted Stock
Purchase Offer under the Plan shall be subject to such (i) vesting
contingencies related to the Participant's continued association with
the Company for a specified time and (ii) other specified conditions as
the Board or Committee shall determine, in their sole discretion, consistent
with the provisions of the Plan. All Restricted Stock Purchase Offers shall
be made pursuant to a Restricted Stock Purchase Offer substantially in the
form attached hereto as Exhibit "D".
(b)Conditions and Restrictions. Shares of Stock which Participants
may receive as a Stock Award under a Stock Award Agreement or Restricted
Stock Purchase Offer under a Restricted Stock Purchase Offer may include
such restrictions as the Board or Committee, as applicable, shall determine,
including restrictions on transfer, repurchase rights, right of first refusal,
and forfeiture provisions. When transfer of Stock is so restricted or subject
to forfeiture provisions it is referred to as "Restricted Stock". Further,
with Board or Committee approval, Stock Awards or Restricted Stock Purchase
Offers may be deferred, either in the form of installments or a future lump
sum distribution. The Board or Committee may permit selected Participants to
elect to defer distributions of Stock Awards or Restricted Stock Purchase
Offers in accordance with procedures established by the Board or Committee to
assure that such deferrals comply with applicable requirements of the Code
including, at the choice of Participants, the capability to make further
deferrals for distribution after retirement. Any deferred distribution,
whether elected by the Participant or specified by the Stock Award Agreement,
Restricted Stock Purchase Offers or by the Board or Committee, may require
the payment be forfeited in accordance with the provisions of Section 7(c).
Dividends or dividend equivalent rights may be extended to and made part of
any Stock Award or Restricted Stock Purchase Offers denominated in Stock or
units of Stock, subject to such terms, conditions and restrictions as the
Board or Committee may establish.
(c)Cancellation and Rescission of Grants. Unless the Stock Award
Agreement or Restricted Stock Purchase Offer specifies otherwise, the Board
or Committee, as applicable, may cancel any unexpired, unpaid, or deferred
Grants at any time if the Participant is not in compliance with all other
applicable provisions of the Stock Award Agreement or Restricted Stock
Purchase Offer, the Plan and with the following conditions:
(i)A Participant shall not render services for any organization or
engage directly or indirectly in any business which, in the judgment of the
chief executive officer of the Company or other senior officer designated by
the Board or Committee, is or becomes competitive with the Company, or which
organization or business, or the rendering of services to such organization
or business, is or becomes otherwise prejudicial to or in conflict with the
interests of the Company. For Participants whose employment has terminated,
the judgment of the chief executive officer shall be based on the
Participant's position and responsibilities while employed by the Company,
the Participant's post-employment responsibilities and position with the
other organization or business, the extent of past, current and potential
competition or conflict between the Company and the other organization or
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business, the effect on the Company's customers, suppliers and competitors
and such other considerations as are deemed relevant given the applicable
facts and circumstances. A Participant who has retired shall be free,
however, to purchase as an investment or otherwise, stock or other securities
of such organization or business so long as they are listed upon a recognized
securities exchange or traded over-the-counter, and such investment does not
represent a substantial investment to the Participant or a greater than 10
percent equity interest in the organization or business.
(ii)A Participant shall not, without prior written authorization
from the Company, disclose to anyone outside the Company, or use in other
than the Company's business, any confidential information or material, as
defined in the Company's Proprietary Information and Invention Agreement or
similar agreement regarding confidential information and intellectual
property, relating to the business of the Company, acquired by the Participant
either during or after employment with the Company.
(iii)A Participant, pursuant to the Company's Proprietary Information
and Invention Agreement, shall disclose promptly and assign to the Company all
right, title and interest in any invention or idea, patentable or not, made or
conceived by the Participant during employment by the Company, relating in any
manner to the actual or anticipated business, research or development work of
the Company and shall do anything reasonably necessary to enable the Company
to secure a patent where appropriate in the United States and in foreign
countries.
(iv)Upon exercise, payment or delivery pursuant to a Grant, the
Participant shall certify on a form acceptable to the Committee that he or she
is in compliance with the terms and conditions of the Plan. Failure to comply
with all of the provisions of this Section 7(c) prior to, or during the six
months after, any exercise, payment or delivery pursuant to a Grant shall
cause such exercise, payment or delivery to be rescinded. The Company shall
notify the Participant in writing of any such rescission within two years
after such exercise, payment or delivery. Within ten days after receiving
such a notice from the Company, the Participant shall pay to the Company the
amount of any gain realized or payment received as a result of the rescinded
exercise, payment or delivery pursuant to a Grant. Such payment shall be made
either in cash or by returning to the Company the number of shares of Stock
that the Participant received in connection with the rescinded exercise,
payment or delivery.
(d)Nonassignability.
(i)Except pursuant to Section 7(e)(iii) and except as set forth in
Section 7(d)(ii), no Grant or any other benefit under the Plan shall be
assignable or transferable, or payable to or exercisable by, anyone other
than the Participant to whom it was granted.
(ii)Where a Participant terminates employment and retains a Grant
pursuant to Section 7(e)(ii) in order to assume a position with a governmental,
charitable or educational institution, the Board or Committee, in its
discretion and to the extent permitted by law, may authorize a third party
(including but not limited to the trustee of a "blind" trust), acceptable
to the applicable governmental or institutional authorities, the Participant
and the Board or Committee, to act on behalf of the Participant with regard
to such Awards.
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(e)Termination of Employment. If the employment or service to the
Company of a Participant terminates, other than pursuant to any of the
following provisions under this Section 7(e), all unexercised, deferred
and unpaid Stock Awards or Restricted Stock Purchase Offers shall be
cancelled immediately, unless the Stock Award Agreement or Restricted
Stock Purchase Offer provides otherwise:
(i)Retirement under a Company Retirement Plan. When a Participant's
employment terminates as a result of retirement in accordance with the terms
of a Company retirement plan, the Board or Committee may permit Stock Awards
or Restricted Stock Purchase Offers to continue in effect beyond the date of
retirement in accordance with the applicable Grant Agreement and the
exercisability and vesting of any such Grants may be accelerated.
(ii)Resignation in the Best Interests of the Company. When a
Participant resigns from the Company and, in the judgment of the Board or
Committee, the acceleration and/or continuation of outstanding Stock Awards
or Restricted Stock Purchase Offers would be in the best interests of the
Company, the Board or Committee may (i) authorize, where appropriate, the
acceleration and/or continuation of all or any part of Grants issued prior
to such termination and (ii) permit the exercise, vesting and payment of
such Grants for such period as may be set forth in the applicable Grant
Agreement, subject to earlier cancellation pursuant to Section 10 or at
such time as the Board or Committee shall deem the continuation of all
or any part of the Participant's Grants are not in the Company's best interest.
(iii)Death or Disability of a Participant.
(1)In the event of a Participant's death, the Participant's
estate or beneficiaries shall have a period up to the expiration date
specified in the Grant Agreement within which to receive or exercise any
outstanding Grant held by the Participant under such terms as may be
specified in the applicable Grant Agreement. Rights to any such outstanding
Grants shall pass by will or the laws of descent and distribution in the
following order: (a) to beneficiaries so designated by the Participant;
if none, then (b) to a legal representative of the Participant; if none,
then (c) to the persons entitled thereto as determined by a court of
competent jurisdiction. Grants so passing shall be made at such times
and in such manner as if the Participant were living.
(2)In the event a Participant is deemed by the Board or
Committee, to be unable to perform his or her usual duties by reason of
mental disorder or medical condition which does not result from facts which
would be grounds for termination for cause, Grants and rights to any such
Grants may be paid to or exercised by the Participant, if legally competent,
or a committee or other legally designated guardian or representative if the
Participant is legally incompetent by virtue of such disability.
(3)After the death or disability of a Participant, the Board or
Committee may in its sole discretion at any time (1) terminate restrictions
in Grant Agreements; (2) accelerate any or all installments and rights; and
(3) instruct the Company to pay the total of any accelerated payments in a
lump sum to the Participant, the Participant's estate, beneficiaries or
representative - notwithstanding that, in the absence of such termination
of restrictions or acceleration of payments, any or all of the payments
due under the Grant might ultimately have become payable to other
beneficiaries.
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(4)In the event of uncertainty as to interpretation of or
controversies concerning this Section 7, the determinations of the Board or
Committee, as applicable, shall be binding and conclusive.
8.Investment Intent
All Grants under the Plan are intended to be exempt from registration
under the Securities Act provided by Rule 701 thereunder. Unless and until
the granting of Options or sale and issuance of Stock subject to the Plan
are registered under the Securities Act or shall be exempt pursuant to the
rules promulgated thereunder, each Grant under the Plan shall provide that
the purchases or other acquisitions of Stock thereunder shall be for
investment purposes and not with a view to, or for resale in connection
with, any distribution thereof. Further, unless the issuance and sale of
the Stock have been registered under the Securities Act, each Grant shall
provide that no shares shall be purchased upon the exercise of the rights
under such Grant unless and until (i) all then applicable requirements of
state and federal laws and regulatory agencies shall have been fully complied
with to the satisfaction of the Company and its counsel, and (ii) if requested
to do so by the Company, the person exercising the rights under the Grant shall
(i) give written assurances as to knowledge and experience of such person (or a
representative employed by such person) in financial and business matters and
the ability of such person (or representative) to evaluate the merits and risks
of exercising the Option, and (ii) execute and deliver to the Company a letter
of investment intent and/or such other form related to applicable exemptions
from registration, all in such form and substance as the Company may require.
If shares are issued upon exercise of any rights under a Grant without
registration under the Securities Act, subsequent registration of such
shares shall relieve the purchaser thereof of any investment restrictions
or representations made upon the exercise of such rights.
9.Amendment, Modification, Suspension or Discontinuance of the Plan.
The Board may, insofar as permitted by law, from time to time, with
respect to any shares at the time not subject to outstanding Grants, suspend
or terminate the Plan or revise or amend it in any respect whatsoever, except
that without the approval of the shareholders of the Company, no such revision
or amendment shall (i) increase the number of shares subject to the Plan, (ii)
decrease the price at which Grants may be granted, (iii) materially increase
the benefits to Participants, or (iv) change the class of persons eligible to
receive Grants under the Plan; provided, however, no such action shall alter
or impair the rights and obligations under any Option, or Stock Award, or
Restricted Stock Purchase Offer outstanding as of the date thereof without
the written consent of the Participant thereunder. No Grant may be issued
while the Plan is suspended or after it is terminated, but the rights and
obligations under any Grant issued while the Plan is in effect shall not be
impaired by suspension or termination of the Plan.
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In the event of any change in the outstanding Stock by reason of a
stock split, stock dividend, combination or reclassification of shares,
recapitalization, merger, or similar event, the Board or the Committee may
adjust proportionally (a) the number of shares of Stock (i) reserved under
the Plan, (ii) available for Incentive Stock Options and Nonstatutory Options
and (iii) covered by outstanding Stock Awards or Restricted Stock Purchase
Offers; (b) the Stock prices related to outstanding Grants; and (c) the
appropriate Fair Market Value and other price determinations for such Grants.
In the event of any other change affecting the Stock or any distribution
(other than normal cash dividends) to holders of Stock, such adjustments as
may be deemed equitable by the Committee, including adjustments to avoid
fractional shares, shall be made to give proper effect to such event. In
the event of a corporate merger, consolidation, acquisition of property or
stock, separation, reorganization or liquidation, the Committee shall be
authorized to issue or assume stock options, whether or not in a transaction
to which Section 424(a) of the Code applies, and other Grants by means of
substitution of new Grant Agreements for previously issued Grants or an
assumption of previously issued Grants.
10.Tax Withholding.
The Company shall have the right to deduct applicable taxes from any
Grant payment and withhold, at the time of delivery or exercise of Options,
Stock Awards or Restricted Stock Purchase Offers or vesting of shares under
such Grants, an appropriate number of shares for payment of taxes required by
law or to take such other action as may be necessary in the opinion of the
Company to satisfy all obligations for withholding of such taxes. If Stock
is used to satisfy tax withholding, such stock shall be valued based on the
Fair Market Value when the tax withholding is required to be made.
11.Availability of Information.
During the term of the Plan and any additional period during which a
Grant granted pursuant to the Plan shall be exercisable, the Company shall
make available, not later than one hundred and twenty (120) days following
the close of each of its fiscal years, such financial and other information
regarding the Company as is required by the bylaws of the Company and
applicable law to be furnished in an annual report to the shareholders of
the Company.
12.Notice.
Any written notice to the Company required by any of the provisions of
the Plan shall be addressed to the chief personnel officer or to the chief
executive officer of the Company, and shall become effective when it is
received by the office of the chief personnel officer or the chief executive
officer.
13.Unfunded Plan.
Insofar as it provides for Grants, the Plan shall be unfunded.
Although bookkeeping accounts may be established with respect to Participants
who are entitled to Grants or rights thereto under the Plan, any such accounts
shall be used merely as a bookkeeping convenience. The Company shall not be
required to segregate any assets that may at any time be represented by Grants
or rights thereto, nor shall the Plan be construed as providing for such
segregation, nor shall the Company nor the Board nor the Committee be
deemed to be a trustee of any Grants or rights thereto to be granted under
the Plan. Any liability of the Company to any Participant with respect to
a grant of Stock or rights thereto under the Plan shall be based solely upon
any contractual obligations that may be created by the Plan and any Grant
Agreement; no such obligation of the Company shall be deemed to be secured
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by any pledge or other encumbrance on any property of the Company. Neither
the Company nor the Board nor the Committee shall be required to give any
security or bond for the performance of any obligation that may be created
by the Plan.
14.Indemnification of Board
In addition to such other rights or indemnifications as they may have
as directors or otherwise, and to the extent allowed by applicable law, the
members of the Board and the Committee shall be indemnified by the Company
against the reasonable expenses, including attorneys' fees, actually and
necessarily incurred in connection with the defense of any claim, action,
suit or proceeding, or in connection with any appeal thereof, to which they
or any of them may be a party by reason of any action taken, or failure to
act, under or in connection with the Plan or any Grant granted thereunder,
and against all amounts paid by them in settlement thereof (provided such
settlement is approved by independent legal counsel selected by the Company)
or paid by them in satisfaction of a judgment in any such claim, action, suit
or proceeding, except in any case in relation to matters as to which it shall
be adjudged in such claim, action, suit or proceeding that such Board or
Committee member is liable for negligence or misconduct in the performance
of his or her duties; provided that within sixty (60) days after institution
of any such action, suit or Board proceeding the member involved shall offer
the Company, in writing, the opportunity, at its own expense, to handle and
defend the same.
15.Governing Law.
The Plan and all determinations made and actions taken pursuant hereto,
to the extent not otherwise governed by the Code or the securities laws of the
United States, shall be governed by the law of the State of California and
construed accordingly.
16.Effective and Termination Dates.
The Plan shall become effective on the date it is approved by the
holders of a majority of the shares of Stock then outstanding. The Plan
shall terminate ten years later, subject to earlier termination by the Board
pursuant to Section 9.
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The foregoing 1996 Incentive Stock Plan (consisting of 18 pages,
including this page) was duly adopted and approved by the Board of Directors
on February 5, 1996 and approved by the shareholders of the Corporation
effective February 5, 1996, and amended on September 2, 1997.
/S/BUDDY MERCER
---------------------------
Buddy Mercer, Secretary
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