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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
Commission file number 1-5318
KENNAMETAL INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-0900168
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
ROUTE 981 AT WESTMORELAND COUNTY AIRPORT
P.O. BOX 231
LATROBE, PENNSYLVANIA 15650
(Address of registrant's principal executive offices)
Registrant's telephone number, including area code: (412) 539-5000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
TITLE OF EACH CLASS OUTSTANDING AT OCTOBER 31, 1996
- ---------------------------------------- -------------------------------
Capital Stock, par value $1.25 per share 26,747,827
KENNAMETAL INC.
FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 1996
TABLE OF CONTENTS
Item No.
- --------
PART I. FINANCIAL INFORMATION
1. Financial Statements:
Condensed Consolidated Balance Sheets (Unaudited)
September 30, 1996 and June 30, 1996
Condensed Consolidated Statements of Income (Unaudited)
Three months ended September 30, 1996 and 1995
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three months ended September 30, 1996 and 1995
Notes to Condensed Consolidated Financial Statements
(Unaudited)
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
1. Legal Proceedings
4. Submission of Matters to a Vote of Security Holders
6. Exhibits and Reports on Form 8-K
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KENNAMETAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- -------------------------------------------------
(in thousands) September 30, June 30,
1996 1996
ASSETS -------- --------
Current Assets:
Cash and equivalents $ 23,427 $ 17,090
Accounts receivable, less allowance for
doubtful accounts of $9,811 and $9,296 184,511 189,820
Inventories 213,418 204,934
Deferred income taxes 24,924 24,620
-------- --------
Total current assets 446,280 436,464
-------- --------
Property, Plant and Equipment:
Land and buildings 157,888 156,064
Machinery and equipment 437,112 415,443
Less accumulated depreciation (318,261) (304,400)
-------- --------
Net property, plant and equipment 276,739 267,107
-------- --------
Other Assets:
Investments in affiliated companies 10,361 8,742
Intangible assets, less accumulated
amortization of $21,379 and $20,795 43,363 33,756
Deferred income taxes 41,172 41,757
Other 13,016 11,665
-------- --------
Total other assets 107,912 95,920
-------- --------
Total assets $830,931 $799,491
======== ========
LIABILITIES
Current Liabilities:
Current maturities of term debt and capital leases $ 17,773 $ 17,543
Notes payable to banks 56,418 57,549
Accounts payable 58,033 64,663
Accrued vacation pay 20,344 19,228
Other 79,325 59,830
-------- --------
Total current liabilities 231,893 218,813
-------- --------
Term Debt and Capital Leases, Less Current Maturities 56,389 56,059
Deferred Income Taxes 20,685 20,611
Other Liabilities 55,708 52,559
-------- --------
Total liabilities 364,675 348,042
-------- --------
Minority Interest in Consolidated Subsidiaries 13,048 12,500
-------- --------
SHAREHOLDERS' EQUITY
Shareholders' Equity:
Preferred stock, 5,000 shares authorized; none issued - -
Capital stock, $1.25 par value; 70,000 shares
authorized; 29,370 shares issued 36,712 36,712
Additional paid-in capital 88,085 87,417
Retained earnings 362,788 351,594
Treasury shares, at cost; 2,622 and 2,667 shares held (35,171) (35,734)
Cumulative translation adjustments 794 (1,040)
-------- --------
Total shareholders' equity 453,208 438,949
-------- --------
Total liabilities and shareholders' equity $830,931 $799,491
======== ========
See accompanying notes to condensed consolidated financial statements.
KENNAMETAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
- -------------------------------------------------------
(in thousands, except per share data)
Three Months Ended
September 30,
--------------------
1996 1995
OPERATIONS: -------- --------
Net sales $275,203 $254,903
Cost of goods sold 160,493 148,461
-------- --------
Gross profit 114,710 106,442
Research and development expenses 5,739 4,964
Selling, marketing and distribution expenses 63,019 59,375
General and administrative expenses 18,206 15,692
Amortization of intangibles 546 384
-------- --------
Operating Income 27,200 26,027
Interest expense 2,642 2,939
Other income (expense) 445 (249)
-------- --------
Income before taxes 25,003 22,839
Provision for income taxes 9,800 9,200
-------- --------
Net income $ 15,203 $ 13,639
======== ========
PER SHARE DATA:
Earnings per share $ 0.57 $ 0.51
======== ========
Dividends per share $ 0.15 $ 0.15
======== ========
Weighted average shares outstanding 26,729 26,597
======== ========
See accompanying notes to condensed consolidated financial statements.
KENNAMETAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- -----------------------------------------------------------
(in thousands)
Three Months Ended
September 30,
-----------------------
1996 1995
OPERATING ACTIVITIES: ------- -------
Net income $15,203 $13,639
Adjustments for noncash items:
Depreciation and amortization 9,948 9,767
Other 2,335 2,970
Changes in certain assets and liabilities, net of
effects of acquisitions:
Accounts receivable 9,647 2,537
Inventories (2,551) (13,046)
Accounts payable and accrued liabilities 2,702 (4,848)
Other (344) 3,868
------- -------
Net cash flow from operating activities 36,940 14,887
------- -------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (14,615) (18,030)
Disposals of property, plant and equipment 16 1,008
Acquisitions, net of cash (14,102) -
Other 1,938 (418)
------- -------
Net cash flow used for investing activities (26,763) (17,440)
------- -------
FINANCING ACTIVITIES:
Increase (decrease) in short-term debt (1,406) 8,498
Increase in term debt 403 1,041
Reduction in term debt (312) (1,879)
Dividend reinvestment and employee stock plans 1,230 819
Cash dividends paid to shareholders (4,009) (3,987)
------ ------
Net cash flow from (used for) financing activities (4,094) 4,492
------ ------
Effect of exchange rate changes on cash 254 (130)
------ ------
CASH AND EQUIVALENTS:
Net increase in cash and equivalents 6,337 1,809
Cash and equivalents, beginning 17,090 10,827
------- -------
Cash and equivalents, ending $23,427 $12,636
======= =======
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 1,288 $ 1,654
Income taxes paid 3,994 4,995
See accompanying notes to condensed consolidated financial statements.
KENNAMETAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------------
1. The condensed consolidated financial statements should be read in
conjunction with the Notes to Consolidated Financial Statements included
in the Company's 1996 Annual Report. The condensed consolidated balance
sheet as of June 30, 1996 has been derived from the audited balance sheet
included in the Company's 1996 Annual Report. These interim statements
are unaudited; however, management believes that all adjustments necessary
for a fair presentation have been made and all adjustments are normal,
recurring adjustments. The results for the three months ended
September 30, 1996 are not necessarily indicative of the results to be
expected for the full fiscal year.
2. Inventories are stated at lower of cost or market. Cost is determined
using the last-in, first-out (LIFO) method for a significant portion of
domestic inventories and the first-in, first-out (FIFO) method or average
cost for other inventories. The Company used the LIFO method of valuing
its inventories for approximately 55 percent of total inventories at
September 30, 1996. Because inventory valuations under the LIFO method
are based on an annual determination of quantities and costs as of June 30
of each year, the interim LIFO valuations are based on management's
projections of expected year-end inventory levels and costs. Therefore,
the interim financial results are subject to any final year-end LIFO
inventory adjustments.
3. The major classes of inventory as of the balance sheet dates were as
follows (in thousands):
September 30, June 30,
1996 1996
-------- --------
Finished goods $172,899 $169,108
Work in process and powder blends 58,125 59,326
Raw materials and supplies 21,861 16,514
-------- --------
Inventory at current cost 252,885 244,948
Less LIFO valuation (39,467) (40,014)
-------- --------
Total inventories $213,418 $204,934
======== ========
4. The Company has been involved in various environmental cleanup and
remediation activities at several of its manufacturing facilities. In
addition, the Company has been named as a potentially responsible party at
four Superfund sites in the United States. However, it is management's
opinion, based on its evaluations and discussions with outside counsel and
independent consultants, that the ultimate resolution of these
environmental matters will not have a material adverse effect on the
results of operations, financial position or cash flows of the Company.
The Company maintains a Corporate Environmental, Health and Safety (EH&S)
Department to facilitate compliance with environmental regulations and to
monitor and oversee remediation activities. In addition, the Company has
established an EH&S administrator at each of its domestic manufacturing
facilities. The Company's financial management team periodically meets
with members of the Corporate EH&S Department and the Corporate Legal
Department to review and evaluate the status of environmental projects and
contingencies. On a quarterly and annual basis, management establishes or
adjusts financial provisions and reserves for environmental contingencies
in accordance with Statement of Financial Accounting Standards (SFAS)
No. 5, "Accounting for Contingencies."
5. Effective July 1, 1996, the company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." The
adoption of SFAS No. 121 did not have an impact on the financial
statements, as the statement is consistent with existing company policy.
6. During the quarter and on October 1, 1996, the company acquired three
companies, with annual sales totaling approximately $22 million, for a
total consideration of approximately $19 million. The acquisitions have
been accounted for using the purchase method of accounting. The
consolidated financial statements include the operating results of each
business from the date of acquisition. Pro forma results of operations
have not been presented because the effects of these acquisitions were not
significant.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
There were no material changes in financial position, liquidity or capital
resources between June 30, 1996 and September 30, 1996. The ratio of current
assets to current liabilities was 1.9 as of September 30, 1996 and 2.0 as of
June 30, 1996. The debt to capital ratio (i.e., total debt divided by the sum
of total debt and shareholders' equity) was 22 percent as of September 30,
1996, and 23 percent as of June 30, 1996.
Capital expenditures are estimated to be $70-$80 million in fiscal year 1997.
Expenditures will be used primarily to construct a new corporate headquarters
and a manufacturing facility in China, to acquire additional client-server
information systems and to upgrade machinery and equipment. Capital
expenditures are being financed with cash from operations and borrowings under
existing revolving credit agreements with banks.
RESULTS OF OPERATIONS
SALES AND EARNINGS
- ------------------
During the quarter ended September 30, 1996, consolidated sales were $275
million, up 8 percent from $255 million in the same quarter last year. Net
income was $15.2 million, or $0.57 per share, as compared with net income of
$13.6 million, or $0.51 per share in the same quarter last year.
For the quarter ended September 30, 1996, sales increased in all markets with
the exception of the Europe Metalworking market. The Industrial Supply market
accounted for the largest sales gain as a result of increased mail order sales
through J&L Industrial Supply as well as additional Full Service Supply
programs. Earnings benefited from productivity improvements related to the
Focused Factory initiative and modest price increases. This was offset by a
less favorable sales mix and slightly lower production levels.
The following table presents the Company's sales by market and geographic area
(in thousands):
Three Months Ended
September 30,
------------------------------
1996 1995 % Change
By Market: -------- -------- --------
Metalworking:
North America $ 90,907 $ 87,560 4%
Europe 60,694 65,383 (7)
Asia-Pacific 10,400 7,994 30
Industrial Supply 73,278 56,251 30
Mining and Construction 39,924 37,715 6
-------- -------- ---
Net sales $275,203 $254,903 8%
======== ======== ===
By Geographic Area:
Within the United States $177,500 $154,940 15%
International 97,703 99,963 (2)
-------- -------- ---
Net sales $275,203 $254,903 8%
======== ======== ===
METALWORKING MARKETS
- --------------------
During the September 1996 quarter, sales in the North America Metalworking
market increased 4 percent from the previous year. Direct sales of domestic
metalcutting inserts and toolholding devices increased 2 percent due to
slightly improved economic conditions in the United States and due to
additional emphasis of milling and drilling products. Sales of metalworking
products increased 14 percent in Canada.
Sales in the Europe Metalworking market decreased 7 percent. Demand for
metalworking products continues to be slow due to weak economic conditions in
Europe, primarily in Germany. Sales in the United Kingdom and France posted
modest gains. Excluding the impact of unfavorable foreign currency
translation effects, sales in the Europe Metalworking market decreased 3
percent.
In the Asia-Pacific Metalworking market, sales rose 6 percent, excluding the
consolidation of a majority-owned subsidiary in China, as sales were impacted
by soft economic conditions in the Asian region and Korea. Excluding
unfavorable foreign currency translation effects, sales in the Asia-Pacific
Metalworking market increased 11 percent.
INDUSTRIAL SUPPLY MARKET
- ------------------------
During the September 1996 quarter, sales in the Industrial Supply market
increased 30 percent as a result of increased sales through mail order and
Full Service Supply programs. The increase in sales was driven by the ongoing
geographic expansion program at J&L Industrial Supply, new and existing Full
Service Supply programs with large customers and innovative marketing
programs. During the September quarter, J&L opened a new location in Dallas,
Texas, and three additional J&L locations are scheduled to open by the end of
calendar 1996.
MINING AND CONSTRUCTION MARKET
- ------------------------------
During the September 1996 quarter, sales in the Mining and Construction market
increased 6 percent from the previous year as a result of increased domestic
demand for mining and highway construction tools. International sales of
highway construction tools decreased as a result of weak economic conditions
in Europe.
GROSS PROFIT MARGIN
- -------------------
As a percentage of sales, gross profit margin for the September 1996 quarter
was 41.7 percent as compared with 41.8 percent in the prior year. The gross
profit margin benefited from productivity improvements related to the Focused
Factory initiative and modest price increases. These benefits were offset by
a less favorable sales mix and slightly lower production levels.
OPERATING EXPENSES
- ------------------
For the quarter ended September 30, 1996, operating expenses as a percentage
of sales were 31.6 percent compared to 31.4 percent last year. Operating
expenses increased 9 percent primarily because of costs related to
implementation of new SAP client-server information systems, costs necessary
to support the higher sales levels, costs necessary to support Full Service
Supply programs, marketing and branch expansion at J&L, and higher costs
related to acquisitions.
INCOME TAXES
- ------------
The effective tax rate for the September 1996 quarter was 39.2 percent
compared to an effective tax rate of 40.3 percent in the prior year. The
reduction in the effective tax rate resulted from certain tax benefits derived
from international operations.
ACQUISITIONS
- ------------
During the quarter and on October 1, 1996, the company acquired three
companies, with annual sales totaling approximately $22 million, for a total
consideration of approximately $19 million. The acquisitions have been
accounted for using the purchase method of accounting. The consolidated
financial statements will include the operating results of each business from
the date of acquisition. Pro forma results of operations have not been
presented because the effects of these acquisitions were not significant.
OUTLOOK
- -------
In looking to the second quarter ending December 31, 1996, management expects
consolidated sales to increase over the second quarter of a year ago. Sales
in the North America Metalworking market should benefit from slowly improving
economic condition in the United States. Sales in the Europe Metalworking
market, which are principally driven by the German market, are not expected to
improve in the next quarter. Sales demand in the Asia-Pacific Metalworking
market is expected to slow.
Sales in the Industrial Supply market should continue to grow and benefit from
expansion of locations, increased catalog sales and new Full Service Supply
programs. Sales in the Mining and Construction market should increase from
domestic demand.
This Form 10-Q, including the prior two paragraphs, contains "forward-looking
statements" as defined in Section 21E of the Securities Exchange Act of 1934.
Actual results can differ from those in the forward-looking statements to the
extent that the anticipated economic conditions in the United States and
Europe are not sustained.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- --------------------------
The information set forth in Note 4 to the condensed consolidated financial
statements, contained in Part I, Item 1 of this Form 10-Q, is incorporated by
reference herein and supplements the information previously reported in Part
I, Item 3 of the Company's Form 10-K for the year ended June 30, 1996, which
is also incorporated by reference herein.
It is management's opinion, based on its evaluation and discussions with
outside counsel, that the Company has viable defenses to these cases and that,
in any event, the ultimate resolutions of these matters will not have a
materially adverse effect on the results of operations, financial position or
cash flows of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
At the Annual Meeting of Stockholders on October 28, 1996, the stockholders of
the Company voted on the election of directors and independent public
accountants, and for the approval of a new Stock Option and Incentive Plan.
The following is the number of shares voted in favor of and against each
matter, and the number of shares having authority to vote on each matter but
withheld.
1. With respect to the votes cast for directors whose terms expire in 1999.
For Withheld Broker Non-Vote
---------- -------- ---------------
Peter B. Bartlett 21,921,616 352,357 0
Warren H. Hollinshead 21,922,297 351,676 0
Robert L. McGeehan 21,922,216 351,757 0
The following other directors' terms of office continued after the
meeting: Richard C. Alberding, A. Peter Held, Quentin C. McKenna,
Aloysius T. McLaughlin, Jr., William R Newlin and Larry Yost.
2. With respect to the approval of the new Stock Option and Incentive Plan
of 1996.
For Against Abstained Broker Non-Vote
---------- ------- --------- ---------------
Approval of Stock Option
and Incentive Plan of 1996 18,998,102 891,258 94,537 2,290,076
3. With respect to the election of the firm of Arthur Andersen LLP,
independent public accountants, to audit the financial statements of the
Company and its subsidiary companies for the fiscal year ending
June 30, 1997.
For Against Abstained Broker Non-Vote
---------- ------- --------- ---------------
Arthur Andersen LLP 22,191,369 37,683 44,921 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits
(10.14) Stock Option and Incentive Plan of 1996
(27) Financial Data Schedule for three months ended
September 30, 1996, submitted to the Securities and
Exchange Commission in electronic format
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KENNAMETAL INC.
Date: November 13, 1996 By: /S/ RICHARD J. ORWIG
-------------------------
Richard J. Orwig
Vice President
Chief Financial and Administrative Officer
EXHIBIT 10.14
Kennametal Inc.
STOCK OPTION AND INCENTIVE PLAN OF 1996
SECTION 1. ESTABLISHMENT. There is hereby established the Kennametal
Inc. Stock Option and Incentive Plan of 1996 (hereinafter called the "Plan")
pursuant to which directors, officers and employees of Kennametal Inc.
(hereinafter called the "Company") and its subsidiaries who are mainly
responsible for its continued growth and development and future financial
success may be granted options to purchase shares of Capital Stock of the
Company (as defined in Section 5 below) and/or may receive awards of shares of
Capital Stock in order to secure to the Company the advantage of the incentive
and sense of proprietorship inherent in stock ownership by such persons, to
reward such persons for services previously performed and/or as an added
inducement to continue to provide service to the Company.
SECTION 2. DURATION. Options and share awards under this Plan may be
granted only within the ten-year period beginning on the date on which the
Plan is adopted by the stockholders. Any options or share awards outstanding
after the expiration of such ten-year period may be exercised within the
periods prescribed by Section 7.
SECTION 3. ADMINISTRATION. The Plan shall be administered by the full
Board of Directors or a committee constituted so as to permit transactions
under the Plan to comply with Rule 16b-3 (or any successor rule) promulgated
under the Securities Exchange Act of 1934, as amended (the "Plan
Administrator"). Subject to the provisions of the Plan, the Plan Administrator
is authorized to adopt such rules and regulations and to take such action in
the administration of the Plan as it shall deem proper.
SECTION 4. ELIGIBILITY. Directors, officers and employees of the
Company and its subsidiaries who, in the opinion of the Plan Administrator,
are mainly responsible for the continued growth and development and future
financial success of the business shall be eligible to participate in the
Plan. The Plan Administrator shall, in its sole discretion, from time to
time, select from such eligible persons those to whom options shall be granted
or shares awarded and determine the number of shares to be included in such
option or award; provided, however, that no option may be granted in
substitution for an outstanding option except as provided in Section 12(d).
No participant shall have any right to receive an option or share award,
except as the Plan Administrator in its discretion shall determine. The term
"subsidiary," where used in the Plan or in any stock option agreement entered
into under the Plan, means a "subsidiary corporation" as defined in
Section 425 of the Internal Revenue Code of 1986, as it may be amended from
time to time (the "Code").
SECTION 5. SHARES SUBJECT TO THE PLAN. The total number of shares of
stock which may be issued pursuant to the Plan shall be 1,500,000 shares of
capital stock, par value $1.25 per share, of the Company (the "Capital Stock")
provided, however, that: (i) the number of shares of Capital Stock to be
issued pursuant to the Plan is subject to adjustment as provided in
Section 12; and (ii) to the extent that options granted under the Plan shall
expire or terminate without being exercised or shares awarded under the Plan
shall be forfeited, such shares shall remain available for purposes of the
Plan. Capital Stock to be issued under the Plan may be either authorized and
unissued shares or shares held in treasury by the Company.
Section 6. TYPES OF OPTIONS. Options granted pursuant to the Plan may
be either options which are incentive stock options under Section 422 of the
Code (hereinafter called "Incentive Stock Options") or other options
(hereinafter called "Nonstatutory Stock Options"). Incentive Stock Options
and Nonstatutory Stock Options shall be granted separately hereunder. The
Plan Administrator, in its discretion, shall determine whether and to what
extent options granted under the Plan shall be Incentive Stock Options or
Nonstatutory Stock Options. The provisions of the Plan and any stock option
agreement pursuant to which Incentive Stock Options shall be issued shall be
construed in a manner consistent with Section 422 of the Code and rules and
regulations promulgated or proposed thereunder.
SECTION 7. TERMS OF OPTIONS. Each option granted under the Plan shall
be evidenced by a stock option agreement between the Company and the person to
whom such option is granted and shall be subject to the following terms and
conditions:
(a) Subject to adjustment as provided in Section 12 of this Plan,
the price at which each share covered by an option may be purchased shall be
determined in each case by the Plan Administrator; provided, however, that
such price shall not be less than the fair market value thereof at the time
the option is granted. If an optionee owns (or is deemed to own under
applicable provisions of the Code and rules and regulations promulgated
thereunder) more than ten percent (10%) of the combined voting power of all
classes of the stock of the Company (or any parent or subsidiary corporation
of the Company) and an option granted to such optionee is intended to qualify
as an Incentive Stock Option, the option price shall be no less than 110% of
the fair market value of the shares covered by the option on the date the
option is granted.
(b) The aggregate fair market value of shares of Capital Stock
with respect to which Incentive Stock Options are first exercisable by the
optionee in any calendar year (under all Plans of the Company and its
subsidiaries) shall not exceed the limitations, if any, imposed by
Section 422(d) of the Code (or any successor provision). If any option
designated as an Incentive Stock Option, either alone or in conjunction with
any other option or options, exceeds the foregoing limitation, the portion of
such option in excess of such limitation shall automatically be reclassified
(in whole share increments and without fractional share portions) as a
Nonstatutory Stock Option, with later granted options being so reclassified
first.
(c) During the lifetime of the optionee the option may be
exercised only by the optionee. The option shall not be transferable by the
optionee otherwise than by will or by the laws of descent and distribution or,
if in compliance with Rule 16b-3 (or any successor rule), pursuant to a
domestic relations order. After the death of the optionee, the option may be
transferred to the Company upon such terms and conditions, if any, as the Plan
Administrator and the personal representative or other person entitled to the
option may agree within the period specified in subsection 7(d)(iii) hereof.
(d) An option may be exercised in whole at any time, or in part
from time to time, within such period or periods (not to exceed ten years from
the granting of the option in the case of an Incentive Stock Option) as may be
determined by the Plan Administrator and set forth in the stock option
agreement (such period or periods being hereinafter referred to as the "option
period"), provided that:
(i) If the optionee who is an employee of the Company or any
of its subsidiaries shall cease to be employed by the Company or any of its
subsidiaries, the option may be exercised only within three months after the
termination of employment and within the option period or, if such termination
was due to disability or retirement (as hereinafter defined), within one year
after termination of employment and within the option period, unless such
termination of employment shall be for cause or in violation of an agreement
by the optionee to remain in the employ of the Company or one of its
subsidiaries, in which case the option shall forthwith terminate; provided,
however, that the Plan Administrator may in its sole discretion extend the
option period of any option for up to three years from the date of termination
of employment regardless of the original option period. For purposes of the
Plan, retirement shall mean the termination of employment with the Company at
a time when the participant in the Plan is eligible to receive immediately
payable retirement benefits under the Company's then existing retirement plan
or under any other retirement plan that is maintained by a Company subsidiary.
(ii) If the optionee who is a director of the Company or any
of its subsidiaries shall cease to serve as a director of the Company or any
of its subsidiaries, the option may be exercised only within three months
after the cessation of service and within the option period or, if such
cessation was due to disability, within one year after cessation of service
and within the option period, unless such cessation of service as a director
was the result of removal for cause, in which case the option shall forthwith
terminate; provided, however, that the Plan Administrator may in its sole
discretion extend the option period of any option for up to three years from
the date of cessation of service regardless of the original option period.
(iii) If the optionee shall die, the option may be exercised
only within 450 calendar days after the optionee's death and within the option
period and only by the optionee's personal representative or persons entitled
thereto under the optionee's will or the laws of descent and distribution;
(iv) The option may not be exercised for more shares
(subject to adjustment as provided in Section 12) after the termination of the
optionee's employment, cessation of service as a director or the optionee's
death (as the case may be) than the optionee was entitled to purchase
thereunder at the time of the termination of the optionee's employment or the
optionee's death;
(v) If an optionee owns (or is deemed to own under
applicable provisions of the Code and rules and regulations promulgated
thereunder) more than 10% of the combined voting power of all classes of stock
of the Company (or any parent or subsidiary corporation of the Company) and an
option granted to such optionee is intended to qualify as an Incentive Stock
Option, the option by its terms may not be exercisable after the expiration of
five years from the date such option is granted; and
(vi) No option granted to an optionee subject to
Section 16(b) may be exercised during the six-month period beginning on the
date of grant.
(e) The option price of each share purchased pursuant to an
option shall be paid in full at the time of each exercise (the "Payment Date")
of the option (i) in cash; (ii) by delivering to the Company a notice of
exercise with an irrevocable direction to a registered broker-dealer under the
Securities Exchange Act of 1934, as amended, to sell a sufficient portion of
the shares and deliver the sale proceeds directly to the Company to pay the
exercise price; (iii) in the discretion of the Plan Administrator, through the
delivery to the Company of previously owned shares of Capital Stock having an
aggregate fair market value equal to the option price of the shares being
purchased pursuant to the exercise of the option; provided, however, that
shares of Capital Stock delivered in payment of the option price must have
been held by the participant for at least six (6) months in order to be
utilized to pay the option price; (iv) through an election pursuant to
Section 8 hereof to have shares of Capital Stock otherwise issuable to the
optionee withheld to pay the exercise price of such option; or (v) in the
discretion of the Plan Administrator, through any combination of the payment
procedures set forth in subsections (i)-(iv) of this Section 7(e).
(f) The Plan Administrator, in its discretion, may authorize
"stock retention options" which provide, upon the exercise of an option
granted under this Plan, the Stock Option Plan of 1982, the Stock Option and
Incentive Plan of 1988 or the Stock Option and Incentive Plan of 1992 (a
"prior option") using previously owned shares, for the automatic issuance of a
new option under this Plan with an exercise price equal to the current fair
market value and for up to the number of shares equal to the number of
previously owned shares delivered in payment of the exercise price of the
prior option. Such stock retention option shall have the same option period
as the prior option.
(g) In consideration for the granting of each option, the
optionee shall agree to remain in the employment of the Company or one of its
subsidiaries, at the pleasure of the Company or such subsidiary, for at least
one year from the date of the granting of such option or until the first day
of the month coinciding with or next following the optionee's sixty-fifth
birthday, whichever may be earlier. Nothing contained in the Plan nor in any
stock option agreement shall confer upon any optionee any right with respect
to the continuance of employment by the Company or any of its subsidiaries nor
interfere in any way with the right of the Company or any subsidiary to
terminate his employment or change his compensation at any time.
(h) The Plan Administrator may include such other terms and
conditions not inconsistent with the foregoing as the Plan Administrator shall
approve. Without limiting the generality of the foregoing sentence, the Plan
Administrator shall be authorized to determine that options shall be
exercisable in one or more installments during the term of the option and the
right to exercise may be cumulative as determined by the Plan Administrator.
SECTION 8. SHARE WITHHOLDING.
(a) An optionee may, in the discretion of the Plan Administrator,
elect to pay the exercise price of an option, in whole or in part, by
requesting that the Company withhold shares of stock otherwise issuable to the
optionee having a fair market value equal to the portion of the exercise price
of the option being paid pursuant to such election (a "Share Withholding
Election").
(b) A Share Withholding Election must be in writing and must be
delivered to the Company no later than with the delivery of the notice of
exercise of the option.
SECTION 9. SHARE AWARDS.
(a) The Plan Administrator may, from time to time, subject to the
provisions of the Plan, award shares to participants; provided, however, that
the maximum number of shares of Capital Stock that may take the form of share
awards is 75,000.
(b) The award of shares shall be evidenced by a share award
agreement executed by the Company and the grantee setting forth the number of
shares of Capital Stock awarded, the vesting period, the vesting schedule or
criteria and such other terms and conditions as the Plan Administrator may
determine.
(c) The grantee of a share award shall receive shares of Capital
Stock without payment to the Company immediately upon grant; provided,
however, that the grantee's ownership of such shares shall be subject to the
following terms and conditions:
(i) Any single award of shares to a participant in an amount
greater than 100 shares shall vest in installments upon achievement by the
Company or grantee of specified performance goals as determined by the Plan
Administrator and as provided in the share award agreement;
(ii) If the grantee or the Company, as the case may be,
fails to achieve the designated goals or the grantee ceases to be employed by
the Company for any reason (including death, permanent disability or
retirement) prior to the expiration of the vesting period, the grantee shall
forfeit all shares so awarded which have not then vested;
(iii) A grantee who has received a share award pursuant to
the Plan shall have all rights of a stockholder in such Capital Stock,
including but not limited to the right to vote and receive dividends with
respect thereto; provided, however, that shares awarded pursuant to the Plan
which have not vested may not be sold or otherwise transferred by the grantee
and stock certificates representing such shares shall bear a restrictive
legend to that effect; and
(iv) No share award (or portion thereof) granted to a person
subject to Section 16(b) shall vest within the six-month period beginning on
the date of grant of such share award.
SECTION 10. LIMITATION ON OPTIONS AND AWARDS. The aggregate number of
shares covered by any options or share awards to one person shall not exceed
fifteen percent (15%) of the aggregate number of shares subject to the Plan as
provided in Section 5 hereof.
SECTION 11. TAX WITHHOLDING.
(a) Whenever shares are to be issued under the Plan, the Company
shall have the right to require the grantee to remit to the Company an amount
sufficient to satisfy federal, state and local tax withholding requirements
prior to the delivery of any certificate for such shares; provided, however,
that in the case of a grantee who receives an award of shares under the Plan
which is not fully vested, the grantee shall remit such amount on the first
business day following the Tax Date. The "Tax Date" for purposes of this
Section 11 shall be the date on which the amount of tax to be withheld is
determined. If an optionee makes a disposition of shares acquired upon the
exercise of an Incentive Stock Option within either two years after the option
was granted or one year after the receipt of stock by the optionee, the
optionee shall promptly notify the Company and the Company shall have the
right to require the optionee to pay to the Company an amount sufficient to
satisfy federal, state and local tax withholding requirements.
(b) A grantee who is obligated to pay the Company an amount
required to be withheld under applicable tax withholding requirements may pay
such amount (i) in cash; (ii) in the discretion of the Plan Administrator,
through the delivery to the Company of previously owned shares of Capital
Stock having an aggregate fair market value on the Tax Date equal to the tax
obligation provided that the previously owned shares delivered in satisfaction
of the withholding obligations must have been held by the participant for at
least six (6) months; or (iii) in the discretion of the Plan Administrator,
through a combination of the procedures set forth in subsections (i) an (ii)
of this Section 11(b).
(c) A grantee who is obligated to pay to the Company an amount
required to be withheld under applicable tax withholding requirements in
connection with either the exercise of a Nonstatutory Stock Option or a share
award under the Plan may, in the discretion of the Plan Administrator, elect
to satisfy this withholding obligation, in whole or in part, by requesting
that the Company withhold shares of stock otherwise issuable to the grantee
having a fair market value on the Tax Date equal to the amount of the tax
required to be withheld; provided, however, that shares may be withheld by the
Company only if such withheld shares have vested. Any fractional amount shall
be paid to the Company by the optionee in cash or shall be withheld from the
optionee's next regular paycheck.
(d) An election by a grantee to have shares of stock withheld to
satisfy federal, state and local tax withholding requirements pursuant to
Section 11(c) (a "Tax Withholding Election") must be in writing and delivered
to the Company prior to the Tax Date.
SECTION 12. ADJUSTMENT OF NUMBER AND PRICE OF SHARES.
(a) In the event that a dividend shall be declared upon the
Capital Stock of the Company payable in shares of said stock, the number of
shares of Capital Stock covered by each outstanding option and the number of
shares which may be issued pursuant to the Plan but are not yet covered by
outstanding options shall be adjusted by adding thereto the number of shares
of Capital Stock which would have been distributable thereon if such shares
had been outstanding on the date fixed for determining the stockholders
entitled to receive such stock dividend.
(b) In the event that the outstanding shares of Capital Stock of
the Company shall be changed into or exchanged for a different number or kind
of shares of stock or other securities of the Company or of another
corporation, whether through reorganization, recapitalization, stock split-up,
combination of shares, merger or consolidation, then there shall be
substituted for the shares of Capital Stock covered by each outstanding
option, and the shares which may be issued pursuant to the Plan but are not
yet covered by outstanding options, the number and kind of shares of stock or
other securities which would have been substituted therefor if such shares had
been outstanding on the date fixed for determining the stockholders entitled
to receive such changed or substituted stock or other securities.
(c) In the event there shall be any change, other than specified
in this Section 12, in the number or kind of outstanding shares of Capital
Stock of the Company or of any stock or other securities into which such
Capital Stock shall be changed or for which it shall have been exchanged,
then, if the Board of Directors shall determine, in its discretion, that such
change equitably requires an adjustment in the number or kind of shares
covered by outstanding options and the shares which may be issued pursuant to
the Plan but are not yet covered by outstanding options, such adjustment shall
be made by the Board of Directors and shall be effective and binding for all
purposes of the Plan and on each outstanding stock option agreement.
(d) In the event that, by reason of a corporate merger,
consolidation, acquisition of property or stock, separation, reorganization or
liquidation, the Board of Directors shall authorize the issuance or assumption
of a stock option or stock options in a transaction to which Section 424(a) of
the Code applies, then, notwithstanding any other provision of the Plan, the
Plan Administrator may grant an option or options upon such terms and
conditions as it may deem appropriate for the purpose of assumption of the old
option, or substitution of a new option for the old option, in conformity with
the provisions of Code Section 424(a) and the rules and regulations
thereunder, as they may be amended from time to time.
(e) No adjustment or substitution provided for in this Section 12
shall require the Company to issue or to sell a fractional share under any
stock option agreement or share award agreement and the total adjustment or
substitution with respect to each stock option and share award agreement shall
be limited accordingly.
(f) In the case of any adjustment or substitution provided for in
this Section 12, the option price per share in each stock option agreement
shall be equitably adjusted by the Board of Directors to reflect the greater
or lesser number of shares of stock or other securities into which the stock
covered by the option may have been changed or which may have been substituted
therefor.
SECTION 13. FAIR MARKET VALUE. In any determination of fair market
value hereunder, fair market value shall be deemed to be the mean between the
highest and lowest sales prices for the Capital Stock of the Company as
reported in the New York Stock Exchange -- Composite Transactions reporting
system for the date in question, or if no sales were made on that date, on the
next preceding date on which sales were made.
SECTION 14. CHANGE IN CONTROL.
(a) In the event of a Change in Control of the Company, as
hereinafter defined, the following provisions shall apply to options and share
awards previously awarded under the Plan, notwithstanding any provision herein
or in any agreement to the contrary:
(i) All options which provide for exercise in one or more
installments shall become immediately exercisable in full;
(ii) If any optionee shall cease to be employed by the
Company or any of its subsidiaries within one (1) year following a Change in
Control, then the option may in all events be exercised for a period of three
months after such termination of employment and within the option period; and
(iii) All awards of shares under the Plan which have not
previously vested shall become vested.
(b) The term "Change in Control" shall mean a change in control
of the Company of a nature that would be required to be reported in response
to Item 6(e) of Schedule 14A promulgated under the Exchange Act as in effect
on the date thereof or, if Item 6(e) is no longer in effect, any regulations
issued by the Securities and Exchange Commission pursuant to the Exchange Act
which serve similar purposes; provided that, without limitation, such a Change
in Control shall be deemed to have occurred if: (i) the Company shall be
merged or consolidated with another corporation or entity, other than a
corporation or entity which is an "affiliate" of the Company (as such term is
defined in Rule 144(a) promulgated under the Securities Act of 1933), or
(ii) the Company shall sell all or substantially all of its operating
properties and assets to another person, group of associated persons or
corporation, excluding affiliates of the Company, if any, or (iii) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Exchange
Act) is or becomes a beneficial owner, directly or indirectly, of securities
of the Company representing 25% or more of the combined voting power of the
Company's then outstanding securities coupled with or followed by the election
as directors of the Company of persons who were not directors at the time of
such acquisition if such person shall elect a majority of the Board of
Directors of the Company.
SECTION 15. AMENDMENT AND DISCONTINUANCE. The Board of Directors may
alter, amend, suspend or discontinue the Plan, provided that no such action
shall deprive any person without such person's consent of any rights
theretofore granted pursuant hereto.
SECTION 16. COMPLIANCE WITH GOVERNMENTAL REGULATIONS. Notwithstanding
any provision of the Plan or the terms of any agreement entered into pursuant
to the Plan, the Company shall not be required to issue any shares hereunder
prior to registration of the shares subject to the Plan under the Securities
Act of 1933 or the Exchange Act, if such registration shall be necessary, or
before compliance by the Company or any participant with any other provisions
of either of those acts or of regulations or rulings of the Securities and
Exchange Commission thereunder, or before compliance with other federal and
state laws and regulations and rulings thereunder, including the rules of the
New York Stock Exchange, Inc. The Company shall use its best efforts to
effect such registrations and to comply with such laws, regulations and
rulings forthwith upon advice by its counsel that any such registration or
compliance is necessary.
SECTION 17. COMPLIANCE WITH SECTION 16. 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 successor
rule). To the extent that any grant of an option or share award fails to so
comply, it shall be deemed null and void to the extent permitted by law and to
the extent deemed advisable by the Plan Administrator.
SECTION 18. PARTICIPATION BY FOREIGN NATIONALS. The Plan Administrator
may, in order to fulfill the purposes of the Plan and without amending the
Plan, modify grants to foreign nationals or United States citizens employed
abroad in order to recognize differences in local law, tax policy or custom.
SECTION 19. EFFECTIVE DATE OF PLAN. The Plan shall become effective
upon approval and adoption of the Plan by the affirmative vote of holders of a
majority of the outstanding shares of Capital Stock of the Company present and
voting at the 1996 Annual Meeting of Stockholders.