SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934. For the quarterly period ended June 30, 1998.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from _________ to
_________.
Commission File Number
0-26992
CARDIOVASCULAR DIAGNOSTICS, INC.
(Exact Name of Registrant as Specified in its Charter)
North Carolina 56-1493744
(State or other jurisdiction of (IRS Employer Identification Number)
Incorporation or organization)
5301 Departure Drive
Raleigh, North Carolina 27616
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, Including Area Code 919-954-9871
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 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.
Class Outstanding as of August 5, 1998
Common Stock, par value $.001 6,805,079
<PAGE>
CARDIOVASCULAR DIAGNOSTICS, INC.
INDEX TO FORM 10-Q
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1998
(unaudited) and December 31, 1997 3
Consolidated Statements of Operations and Comprehensive Loss
for the Three Months and Six Months ended June 30, 1998
and 1997 (unaudited) 4
Consolidated Statements of Cash Flows for the Six Months
ended June 30, 1998 and 1997 (unaudited) 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION 10
Item 4. Submission of Matters to a Vote of Security
Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES 11
INDEX TO EXHIBITS 12
<PAGE>
CARDIOVASCULAR DIAGNOSTICS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
<S> <C>
JUNE 30, DECEMBER 31,
1998 1997
---------- ----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $3,800 $5,885
Accounts receivable 1,724 1,888
Inventories 2,604 2,998
Other current assets 394 217
---------- ----------
Total current assets 8,522 10,988
Property and equipment, net 4,862 4,938
Intangible assets, net 1,488 1,568
Other assets, net 152 191
---------- ----------
Total assets $15,024 $17,685
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $391 $1,138
Accrued expenses 159 464
Current portion of long term debt 624 539
---------- ----------
Total current liabilities 1,174 2,141
Long term debt and capital lease obligations, less current portion 2,030 2,351
---------- ----------
Total liabilities 3,204 4,492
---------- ----------
Shareholders' equity:
Preferred stock, $.001 par value; authorized 1,000,000 shares-
no shares issued or outstanding at June 30, 1998 and
December 31, 1997
Common stock, $.001 par value; authorized 10,000,000 shares;
6,805,079 and 6,750,518 issued and outstanding at
June 30, 1998 and December 31, 1997, respectively. 7 7
Additional paid-in capital 33,973 33,827
Accumulated deficit (22,143) (20,619)
Unearned compensation (17) (22)
---------- ----------
Total shareholders' equity 11,820 13,193
---------- ----------
Total liabilities and shareholders' equity $15,024 $17,685
========== ==========
</TABLE>
Commitments and contingencies
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
CARDIOVASCULAR DIAGNOSTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)
(In thousands, except share data)
<TABLE>
<CAPTION>
<S> <C>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
--------- --------- --------- -----------
Net sales $2,192 $1,759 $4,596 $4,043
Cost of goods sold 1,504 1,427 3,149 2,950
--------- --------- --------- -----------
Gross profit 688 332 1,447 1,093
--------- --------- --------- -----------
Operating expenses:
General and administrative 844 1,006 1,608 1,765
Sales and marketing 176 328 404 623
Research and development 636 646 1,267 1,171
--------- --------- --------- -----------
Total operating expenses 1,656 1,980 3,279 3,559
--------- --------- --------- -----------
Operating loss (968) (1,648) (1,832) (2,466)
--------- --------- --------- -----------
Other income(expense):
Interest expense (104) - (180) (1)
Interest income 48 101 113 208
Grant/royalty income 45 138 52 138
Development income - 475 375 725
--------- --------- --------- -----------
Total other income (expense) (11) 714 360 1,070
--------- --------- --------- -----------
Net loss before taxes (979) (934) (1,472) (1,396)
Provision for income taxes (26) (14) (52) (29)
--------- --------- --------- -----------
Net loss ($1,005) ($948) ($1,524) ($1,425)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments - 56 - (52)
--------- --------- --------- -----------
Comprehensive loss ($1,005) ($892) ($1,524) ($1,477)
========= ========= ========= ===========
Basic and diluted net loss per common share ($0.15) ($0.14) ($0.23) ($0.21)
========= ========= ========= ===========
Average weighted shares outstanding 6,800,332 6,729,722 6,782,388 6,722,151
========= ========= ========= ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
CARDIOVASCULAR DIAGNOSTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
<S> <C>
Six Months Ended
-------------------------------------
June 30, June 30,
1998 1997
------------- -------------
Cash flows from operating activities:
Net loss ($1,524) ($1,425)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 442 316
Amortization 146 93
Stock based compensation: general and administrative 76 -
Change in assets and liabilities:
Receivables 164 (1,099)
Inventories 394 (294)
Other assets (170) 139
Accounts payable and accrued expenses (1,052) (43)
------------- -------------
Net cash used in operating activities (1,524) (2,313)
------------- -------------
Cash flows from investing activities:
Payments for purchase of property and equipment (366) (479)
Costs incurred to obtain patents (29) (10)
Purchase of investments - (5,531)
Proceeds from maturities of investments - 7,750
------------- -------------
Net cash (used in) provided by investing activities (395) 1,730
------------- -------------
Cash flows from financing activities:
Principal payments on long-term debt and capital lease
obligations (236) (26)
Net proceeds from issuance of stock 70 40
------------- -------------
Net cash (used in) provided by financing activities (166) 14
------------- -------------
Effect of exchange rates on cash 0 (52)
Net decrease in cash and cash equivalents (2,085) (621)
Cash and cash equivalents at beginning of period 5,885 2,716
------------- -------------
Cash and cash equivalents at end of period $3,800 $2,095
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
CARDIOVASCULAR DIAGNOSTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Organization and Basis of Presentation
Cardiovascular Diagnostics, Inc. (the "Company" or "CVDI") develops,
manufactures and markets rapid turnaround, point-of-care diagnostic tests to
assess blood clot formation and dissolution. These tests are based on the
Company's proprietary, dry chemistry Thrombolytic Assessment System ("TAS"). The
Company's wholly-owned subsidiary, Coeur Laboratories ("Coeur"), manufactures
and sells disposable power injection syringes and manifolds. The consolidated
financial statements include the accounts of the Company and the wholly-owned
subsidiary. All intercompany activity has been eliminated. The consolidated
financial statements included herein as of any date other than December 31 have
been prepared by the Company without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Financial information as
of December 31 has been derived from the audited financial statements of the
Company, but does not include all disclosures required by generally accepted
accounting principles. In the opinion of management, the accompanying unaudited
consolidated financial statements include all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the consolidated
financial position, results of operations and cash flows of the Company. For
further information regarding the Company's accounting policies, refer to the
Consolidated Financial Statements and related notes included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997. Results for the
interim period are not necessarily indicative of the results for any other
interim period or for the full fiscal year.
Note 2. Income Taxes Paid
No federal income tax provision or benefit has been provided for income tax
purposes, as the Company has not realized net income for the quarter ended June
30, 1998 and has net operating loss carryforwards to offset any net income when
realized. Income tax expense recognized represents management's estimate of
Coeur's state income tax expense for the quarter ended June 30, 1998.
Note 3. Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less at the date of purchase to be cash equivalents.
Note 4. Inventory
Inventories consisted of the following:
June 30, 1998 December 31, 1997
------------- -----------------
Raw materials $2,109,067 $2,122,058
Finished goods 494,731 875,994
---------- ----------
$2,603,798 $2,998,052
========== ==========
Note 5. Loss Per Common Share
On December 31, 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share" ("EPS"). In accordance with
SFAS No. 128, the Company is required to present both basic and diluted EPS on
the face of the Statement of Operations and Comprehensive Loss. Basic EPS
excludes dilution and is computed by dividing income (loss) available to
6
<PAGE>
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted EPS is the same as basic EPS because, for loss periods,
potential common shares (such as options) are not included in computing diluted
EPS since the effect would be antidilutive.
Note 6. New Accounting Pronouncements
The Company has adopted SFAS No. 130 "Reporting Comprehensive Income" beginning
January 1, 1998. SFAS No. 130 requires the Company to display an amount
representing total comprehensive income (loss) for all periods presented. The
Company has elected to display this information in a Statement of Operations and
Comprehensive Loss. All prior period data has been restated to conform to the
provisions of this statement.
The Company will adopt SFAS No. 131 "Disclosures about Segments of an Enterprise
and Related Information" beginning in 1998. SFAS No. 131 requires the Company to
report selected information about operating segments beginning as of December
31, 1998. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. The Company does not believe
the adoption of the new pronouncement will have a significant impact on the
consolidated financial statements.
Note 7. Legal Proceedings
As reported in its filings on Form 10-K for the period ended December 31, 1997,
in March 1997, the Company filed suit in the U. S. District Court, Eastern
District of North Carolina, against Boehringer Mannheim Corporation ("BMC")
located in Indiana. The suit charged BMC with misappropriation of CVDI's trade
secrets by improper disclosure, breach of contract, breach of fiduciary duty,
unfair and deceptive trade practices, and constructive fraud. In addition, CVDI
requested a declaratory judgment that neither the products nor activities of
CVDI infringe U.S. Patents purportedly owned by BMC. On April 9, 1997 BMC
answered the claims made by CVDI and submitted a counterclaim against CVDI. Each
party filed a motion for judgment on the pleading with respect to all claims
asserted by the other party. On November 10, 1997, the Court issued a Judgement
and Order granting CVDI's motion for judgment on the pleadings, holding that
CVDI has a license, until June 21, 1999, or until the last of the patents
expire, to the patents at issue. It dismissed all other claims of the parties.
Both parties have appealed and are awaiting the Court's decision. It is
management's opinion that the disposition of this matter will not have a
material adverse impact on the consolidated financial position, results of
operations or liquidity of the Company.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Introduction
This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements. The actual results might differ
materially from those projected in the forward-looking statements due to any
number of factors, including those set forth below under "--Factors thay May
Affect Future Results". Additional information concerning factors that could
cause actual results to materially differ from those in the forward-looking
statements is contained in the Company's other SEC filings, copies of which are
available upon request from the Company.
The following discussion should be read in conjunction with the unaudited
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
report. Unless the context indicates otherwise, all references to the Company
include Cardiovascular Diagnostics, Inc. ("CVDI") and its subsidiary, Coeur
Laboratories, Inc.("Coeur").
The Company develops, markets and manufactures a Thrombolytic Assessment System
("TAS"), consisting of a compact, portable analyzer and disposable test cards
which are inserted into the analyzer to perform a variety of hemostasis tests.
Coeur currently manufactures and sells a line of disposable syringes used in
angiography injectors, as well as a line of angiographic procedure kit manifolds
(collectively, "Imaging Products").
Results of Operations
THREE MONTHS ENDED JUNE 30, 1998 VS JUNE 30, 1997
Net sales for the quarter ended June 30, 1998 were $2,192,000, an increase of
$433,000 compared to the same period in 1997. The increase was due to higher
volumes of test cards, including sales to Knoll AG as part of the large order
received from Knoll in the first quarter, and increased volume of syringes. Cost
of goods sold of $1,504,000 represented an increase of $77,000 from the
comparable period in 1997. The resulting 31% gross profit for the second quarter
of 1998 was an improvement from the 19% gross profit percentage for the
corresponding period in 1997 and was mainly due to the increased volumes,
changes in the product mix and operating improvements which led to greater
manufacturing efficiencies.
Total operating expenses for the quarter ended June 30, 1998 were $1,656,000, a
$324,000 decrease from the second quarter of 1997. General and administrative
and sales and marketing expenses decreased due to lower litigation expenses,
fewer personnel in 1998 and reduced travel costs associated with fewer sales and
marketing personnel. Research and development expenses for the quarter ended
June 30, 1998 were $636,000, slightly lower than for the quarter ended
June 30, 1997.
Interest expense for the quarter ended June 30, 1998 was $104,000 compared to $0
in the prior year period. The increase was related to long-term debt obtained by
the Company in December 1997. Interest income decreased $53,000 for the quarter
ended June 30, 1998 compared to the same period in 1997 due to decreased
investments as funds were used to support operations.
As anticipated, no development income was recorded during the quarter ended
June 30, 1998 because the Company did not achieve milestones included in current
collaborative agreements and did not enter into any new collaborative agreements
during the quarter. Development income of $475,000 was recorded in the quarter
ended June 30, 1997 resulting from two new collaborations entered into by the
Company during that quarter and the achievement of a milestone related to
another collaboration entered into earlier in 1997.
For the three months ended June 30, 1997, other comprehensive income (loss),
net, consists of foreign currency translation adjustments related to a foreign
subsidiary. Operations of the subsidiary were ceased during the year ended
December 31, 1997.
8
<PAGE>
SIX MONTHS ENDED JUNE 30, 1998 VS JUNE 30, 1997
Net sales for the six months ended June 30, 1998 were $4,596,000, an increase of
14% compared to the same period of 1997. The increase was principally due to
increases in the volume of Imaging Products as TAS product sales were
essentially unchanged. Cost of goods sold increased 7%, and the 1998
year-to-date gross profit of 32% was an improvement from the 27% in the prior
year due to higher volumes, manufacturing efficiencies and material cost
savings.
Total operating expenses of $3,279,000 represents a decrease of $280,000 or 8%
compared to the same period in 1997. General and administrative expenses
declined due to lower litigation expenses and fewer personnel. Sales and
marketing expenses also declined due to fewer personnel and due to the
elimination of a sales office in Germany in late 1997. Fewer personnel also led
to decreased travel costs compared to the same period in 1997. Research and
development expenses increased 8% compared to the same period in 1997 due to
higher cost of supplies, personnel and validation processes related to on-going
development projects as well as for projects for which 510(k)'s were submitted
early in 1998.
Interest expense for the period ended June 30, 1998 was $180,000, compared to
$1,000 in the prior year period. The increase was due to long-term debt obtained
by the Company in December 1997. Interest income decreased $95,000 compared to
the same period in 1997 due to decreased investments as funds were used to
support operations.
The Company recorded development income of $375,000 for the six months ended
June 30, 1998. This compares to $725,000 of development income recorded in the
period ended June 30, 1997. Development income in 1997 resulted from entering
three new collaborations with pharmaceutical companies. The development income
in 1998 resulted from the achievement of milestones related to these
collaborations.
For the six months ended June 30, 1997, other comprehensive income (loss), net,
consists of foreign currency translation adjustments related to a foreign
subsidiary. Operations of the subsidiary were ceased during the year ended
December 31, 1997.
Liquidity and Capital Resources
From December 31, 1997 to June 30, 1998, cash and cash equivalents decreased
$2,085,000. This decrease was mainly due to the utilization of cash for
operations, capital expenditures of $366,000 and repayment of long-term debt of
$236,000.
The Company expects to incur additional operating losses during 1998. The
Company's working capital requirements will depend on many factors, including
the volume of subsequent orders of TAS products from the distributors. In
addition, the Company expects to incur costs associated with clinical trials for
new test cards. The Company may acquire other products, technologies or
businesses that complement the Company's existing and planned products, although
the Company currently has no understanding, commitment or agreement with respect
to any such acquisitions.
Management believes that its existing capital resources and the cash flows from
operations will be adequate to satisfy its planned capital requirements through
1998.
Year 2000
Computers, software and microprocessors that use only two digits to identify a
year in a date field may be unable to process accurately certain date-based
information at or after the year 2000. This is commonly referred to as the "Year
2000 issue". The Company is addressing the issue in several ways. First, the
Company has established a team to monitor product compliance and believes that
all Company products are Year 2000 compliant. Secondly, the Company is in the
process of seeking Year 2000 compliance certification from its major suppliers
and vendors related to their products and internal business applications.
Finally, the Company has established a team to coordinate Year 2000 compliance
related to internal systems. Many of the Company's systems use vendor provided
software and Year 2000 compliance will be achieved through vendor provided
upgrades. For other internal systems, testing will be completed internally to
ensure Year 2000 compliance. The Company does not believe that the cost of its
Year 2000 compliance program will be material to its financial condition or
results of operations or its business will be adversely affected by the Year
2000 issue. However, the Company continues to bear risk related to the Year 2000
and could be adversely affected if significant customers or suppliers fail to
address the issue or if vendor upgrades are not provided to the Company as
required.
Factors The May Affect Future Results
A number of uncertainties exist that may affect the Company's future operating
results and stock price, including managed care, FDA regulations, and other
regulatory guidelines affecting the Company. The market price of the common
stock could be subject to significant fluctuations in response to variations in
the Company's quarterly operating results, as well as other factors which may be
unrelated to the Company's performance. The stock market in recent years has
experienced extreme price and volume fluctuations that often have been unrelated
or disproportionate to the operating performance of or announcements concerning
public companies. Such broad fluctuations may adversely affect the market price
of the Company's common stock. Securities of issuers having
9
<PAGE>
relative limited capitalization or securities recently issued in an initial
public offering are particularly susceptible to volatility based on short-term
trading strategies of certain investors.
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of the Company was held on May 7, 1998. The
following is a description of the matters voted upon at the meeting and the
number of affirmative votes and negative votes cast with respect to each matter.
(a) The following persons were elected to the Company's Board of Directors.
The votes for, against (withheld) and abstentions were as follows:
Nominee Votes For Votes Withheld Votes Abstained
------- --------- -------------- ---------------
John P. Funkhouser 5,367,308 0 13,775
William A. Hawkins 5,367,308 0 13,775
John K. Pirotte 5,367,308 0 13,775
Stephen R. Puckett 5,367,308 0 13,775
Philip R. Tracy 5,367,308 0 13,775
(b) The shareholders ratified the appointment of Coopers & Lybrand L.L.P as
the independent auditors of the Company for the year ending December 31,
1998 with 5,380,708 shares voting for and 375 shares abstained.
Item 5. Other Information
Pursuant to recently amended Rule 14a-4 promulgated under the Securities
Exchange Act of 1934, as amended, a shareholder seeking to have a proposal
considered at the 1999 Annual Meeting, but not seeking to have such proposal
included in the Company's proxy statement, must notify the Company of such
proposal in writing received at the Company's principal executive office no
later than March 1, 1999, then the persons appointed as proxies may exercise
their discretionary voting authority if the proposal is considered at the 1999
Annual Meeting, notwithstanding that shareholders have not been advised of the
proposal in the proxy statement for the 1999 Annual Meeting. Any proposals
submitted by shareholders must comply in all respects with the rules and
regulations of the Securities and Exchange Commission and the provisions of the
Company's Articles of Incorporation and Bylaws and of North Carolina law.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
10.8 1994 Stock Plan, as amended
10.9 1995 Stock Plan, as amended
(b) No reports on Form 8-K were filed during the period.
10
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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.
CARDIOVASCULAR DIAGNOSTICS, INC.
Date: August 12, 1998 By: /s/ Paul Storey
-----------------------
Paul Storey
Treasurer
(Principal Financial and Accounting Officer)
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INDEX TO EXHIBITS
Exhibit Description
- - ------- -----------
27.1 Financial Data Schedule
10.8 1994 Stock Plan, as amended
10.9 1995 Stock Plan, as amended
12
CARDIOVASCULAR DIAGNOSTICS, INC.
1994 STOCK PLAN
(AS AMENDED BY THE BOARD OF DIRECTORS THROUGH MAY 7, 1998)
1. Purpose. This 1994 Stock Plan (the "Plan") is intended to
provide incentives:
(a) to employees of Cardiovascular Diagnostics, Inc. (the
"Company"), or its parent (if any) or any of its present or future subsidiaries
(collectively, "Related Corporations"), by providing them with opportunities to
purchase Common Stock (as defined below) of the Company pursuant to options
granted hereunder that qualify as "incentive stock options" ("ISOs") under
Section 422 of the Internal Revenue Code of 1986, as amended, or any successor
statute (the "Code");
(b) to employees and consultants of the Company and Related
Corporations by providing them with opportunities to purchase Common Stock (as
defined below) of the Company pursuant to options granted hereunder that do not
qualify as ISOs (nonstatutory stock options, or "NSOs");
(c) to employees and consultants of the Company and Related
Corporations by providing them with bonus awards of Common Stock (as defined
below) of the Company ("Stock Bonuses"); and
(d) to employees and consultants of the Company and Related
Corporations by providing them with opportunities to make direct purchases of
Common Stock (as defined below) of the Company ("Purchase Rights").
Both ISOs and NSOs are referred to hereafter individually as "Options,"
and Options, Stock Bonuses and Purchase Rights are referred to hereafter
collectively as "Stock Rights." As used herein, the terms "parent" and
"subsidiary" mean "parent corporation" and "subsidiary corporation,"
respectively, as those terms are defined in Section 424 of the Code.
2. Administration of the Plan.
(a) Procedure. The Plan shall be administered by
(A) the Board or (B) a committee designated by the Board, which committee shall
be constituted in such a manner as to satisfy the legal requirements relating to
the administration of incentive stock option plans, if any, of applicable state
and federal corporate and securities laws, of the Code and of any applicable
stock exchange or market (collectively, the "APPLICABLE LAWS"). Once appointed,
such Committee shall continue to serve in its designated capacity until
otherwise directed by the Board. From time to time the Board may increase the
size of the Committee and appoint additional members thereof, remove members
(with or without cause) and appoint new members in substitution therefor, fill
vacancies, however caused, and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by the
Applicable Laws.
(b) Subject to ratification of the grant or authorization of each
Stock Right by the Board (if so required by applicable law), and subject to the
terms of the Plan, the Committee, if so appointed, shall have the authority to:
<PAGE>
(i) determine the employees of the Company and Related
Corporations (from among the class of employees eligible under Section 3 to
receive ISOs) to whom ISOs may be granted, and to determine (from among the
class of individuals and entities eligible under Section 3 to receive NSOs,
Stock Bonuses and Purchase Rights) to whom NSOs, Stock Bonuses and Purchase
Rights may be granted;
(ii) determine the time or times at which Options, Stock Bonuses
or Purchase Rights may be granted;
(iii) determine the option price of shares subject to each Option,
which price shall not be less than the minimum price specified in Section 6, and
the purchase price of shares subject to each Purchase Right;
(iv) determine whether each Option granted shall be an ISO or
NSO;
(v) determine (subject to Section 7) the time or times when each
Option shall become exercisable and the duration of the exercise period;
(vi) determine whether restrictions such as repurchase options
are to be imposed on shares subject to Options, Stock Bonuses and Purchase
Rights and the nature of such restrictions, if any; and
(vii) interpret the Plan and prescribe and rescind rules and
regulations relating to it.
If the Committee determines to issue a NSO, it shall take whatever
actions it deems necessary, under Section 422 of the Code and the regulations
promulgated thereunder, to ensure that such Option is not treated as an ISO. The
interpretation and construction by the Committee of any provisions of the Plan
or of any Stock Right granted under it shall be final unless otherwise
determined by the Board. The Committee may from time to time adopt such rules
and regulations for carrying out the Plan as it may deem best. 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 Stock Right granted under it.
(c) The Committee may select one of its members as its chairman, and
shall hold meetings at such time and places as it may determine. Acts by a
majority of the Committee, or acts reduced to or approved in writing by a
majority of the members of the Committee, shall be the valid acts of the
Committee. All references in this Plan to the Committee shall mean the Board if
no Committee has been appointed. From time to time the Board may increase the
size of the Committee and appoint additional members thereof, remove members
(with or without cause) and appoint new members in substitution therefor, fill
vacancies however caused, or remove all members thereof and thereafter directly
administer the Plan.
3. Eligible Employees and Others. ISOs may be granted to any employee of
the Company or any Related Corporation. Those officers of the Company who are
not employees may not be granted ISOs under the Plan. NSOs, Stock Bonuses and
Purchase Rights may be granted to any director, employee or consultant of the
Company or any Related Corporation; provided, however, that no director of the
Company who is not also an employee of the Company shall be eligible to receive
any Stock Right under the Plan after the time when the Company shall have
registered its equity securities under Section 12 of the Exchange Act. Granting
of any Stock Right to any individual or entity shall neither entitle that
individual or entity to, nor disqualify him or her from, participation in any
other grant of Stock Rights.
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4. Stock. The stock subject to Stock Rights shall be authorized but
unissued shares of Common Stock of the Company, par value $.001 per share, or
such shares of the Company's capital stock into which such class of shares may
be converted pursuant to any reorganization, recapitalization, merger,
consolidation or the like (the "Common Stock"), or shares of Common Stock
reacquired by the Company in any manner. The aggregate number of shares that may
be issued pursuant to the Plan is 626,084 shares, subject to adjustment as
provided herein. Any such shares may be issued as ISOs, NSOs or Stock Bonuses,
or to persons or entities making purchases pursuant to Purchase Rights, so long
as the number of shares so issued does not exceed such aggregate number, as
adjusted. If any Option granted under the Plan shall expire or terminate for any
reason without having been exercised in full or shall cease for any reason to be
exercisable in whole or in part, or if the Company shall reacquire any shares
issued pursuant to Stock Rights, the unpurchased shares subject to such Options
and any shares so reacquired by the Company shall again be available for grants
of Stock Rights under the Plan.
5. Granting of Stock Rights. Stock Rights may be granted under the Plan at
any time after the Effective Date, as set forth in Section 16, and prior to 10
years thereafter. The date of grant of a Stock Right under the Plan will be the
date specified by the Committee at the time it grants the Stock Right; provided,
however, that such date shall not be prior to the date on which the Committee
acts. The Committee shall have the right, with the consent of the optionee, to
convert an ISO granted under the Plan to an NSO pursuant to Section 17.
6. Minimum Price; ISO Limitations.
(a) The price per share specified in the agreement relating to each
NSO, Stock Bonus or Purchase Right granted under the Plan shall be established
by the Board or the Committee, taking into account any noncash consideration to
be received by the Company from the recipient of Stock Rights.
(b) The price per share specified in the agreement relating to each
ISO granted under the Plan shall not be less than the fair market value per
share of Common Stock on the date of such grant. In the case of an ISO to be
granted to an employee owning stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any Related
Corporation, the price per share specified in the agreement relating to such ISO
shall not be less than 110% of the fair market value per share of Common Stock
on the date of the grant.
(c) In no event shall the aggregate fair market value (determined at
the time an ISO is granted) of Common Stock for which ISOs granted to any
employee are exercisable for the first time by such employee during any calendar
year (under all stock option plans of the Company and any Related Corporation)
exceed $100,000; provided that this Section shall have no force or effect to the
extent that its inclusion in the Plan is not necessary for Options issued as
ISOs to qualify as ISOs pursuant to Section 422 of the Code.
(d) If, at the time an Option is granted under the Plan, the
Company's Common Stock is publicly traded, "fair market value" shall be
determined as of the last business day for which the prices or quotes discussed
in this sentence are available prior to the time such Option is granted and
shall mean:
(i) the average as of the close of business on that date of the
high and low prices of the Common Stock on the principal national securities
exchange on which the Common Stock is traded, if the Common Stock is then traded
on a national securities exchange;
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(ii) the last reported sale price as of the close of business on
that date of the Common Stock on the Nasdaq National Market System (the
"NASDAQ/NMS"), if the Common Stock is not then traded on a national securities
exchange but is then traded on the NASDAQ/NMS; or
(iii) the closing bid price or average of bid prices last quoted
on that date by an established quotation service, if the Common Stock is not
reported on the NASDAQ/NMS.
However, if the Common Stock is not publicly traded at the
time an Option is granted under the Plan, "fair market value" shall be deemed to
be the fair value of the Common Stock as determined by the Committee after
taking into consideration all factors that it deems appropriate, including,
without limitation, recent sale and offer prices on the Common Stock in private
transactions negotiated at arm's length, but determined without regard to any
restriction other than a restriction that, by its terms, will never lapse.
7. Option Duration. Subject to earlier termination as provided in Sections
9 and 10, each Option shall expire on the date specified by the Committee, but
not more than:
(a) 10 years from the date of grant in the case of NSOs;
(b) 10 years from the date of grant in the case of ISOs generally;
and
(c) 5 years from the date of grant in the case of ISOs granted to an
employee owning stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any Related Corporation.
Subject to earlier termination as provided in Sections 9 and 10, the
term of each ISO shall be the term set forth in the original instrument granting
such ISO, except with respect to any part of such ISO that is converted into an
NSO pursuant to Section 17.
8. Exercise of Options. Subject to the provisions of Section 9 through
Section 12 of the Plan, each Option granted under the Plan shall be exercisable
as follows:
(a) the Option shall either be fully exercisable on the date of
grant or shall become exercisable thereafter in such installments as the
Committee may specify;
(b) once an installment becomes exercisable it shall remain
exercisable until expiration or termination of the Option, unless otherwise
specified by the Committee;
(c) each Option or installment may be exercised at any time or from
time to time, in whole or in part, for up to the total number of shares with
respect to which it is then exercisable; and
(d) the Committee shall have the right to accelerate the date of
exercise of any installment of any Option, provided that the Committee shall not
accelerate the exercise date of any installment of any ISO granted to any
employee (and not previously converted into an NSO pursuant to Section 17) if
such acceleration would violate the annual vesting limitation contained in
Section 422 of the Code, as described in Section 6(c).
9. Termination of Employment. If an ISO optionee ceases to be employed by
the Company and all Related Corporations other than by reason of death or
disability as defined in Section 10, unless
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otherwise specified in the instrument granting such ISO, the ISO optionee shall
have the continued right to exercise any ISO held by him or her, to the extent
of the number of shares with respect to which he or she could have exercised it
on the date of termination, until the ISO's specified expiration date; provided,
however, in the event the ISO optionee exercises any ISO after the date that is
three months following the date of termination of employment, such ISO will
automatically be converted into an NSO subject to the terms of the Plan.
Employment shall be considered as continuing uninterrupted during any bona fide
leave of absence (such as those attributable to illness, military obligations or
governmental service) provided that the period of such leave does not exceed 90
days or, if longer, any period during which such optionee's right to
reemployment with the Company is guaranteed by statute or by contract. A bona
fide leave of absence with the written approval of the Company shall not be
considered an interruption of employment under the Plan, provided that such
written approval contractually obligates the Company or any Related Corporation
to continue the employment of the optionee after the approved period of absence.
ISOs granted under the Plan shall not be affected by any change of employment
within or among the Company and Related Corporations, so long as the optionee
continues to be an employee of the Company or any Related Corporation.
NOTHING IN THE PLAN SHALL BE DEEMED TO GIVE ANY GRANTEE OF ANY STOCK RIGHT
THE RIGHT TO BE RETAINED IN EMPLOYMENT OR OTHER SERVICE BY THE COMPANY OR ANY
RELATED CORPORATION FOR ANY PERIOD OF TIME.
10. Death; Disability.
(a) If an ISO optionee ceases to be employed by the Company and all
Related Corporations by reason of death, any ISO of his or hers may be exercised
to the extent of the number of shares with respect to which he or she could have
exercised it on the date of death, by his or her estate, personal representative
or beneficiary who has acquired the ISO by will or by the laws of descent and
distribution, at any time prior to the ISO's specified expiration date, unless
otherwise specified in the instrument granting such ISO.
(b) If an ISO optionee ceases to be employed by the Company and all
Related Corporations by reason of disability, he or she shall continue to have
the right to exercise any ISO held by him or her on the date of termination
until the ISO's specified expiration date, unless otherwise specified in the
instrument granting such ISO; provided, however, in the event the optionee
exercises after the date that is one year following the date of termination,
such ISO will automatically be converted into a NSO subject to the terms of the
Plan. For the purposes of the Plan, the term "disability" shall mean "permanent
and total disability" as defined in Section 22(e)(3) of the Code.
11. Assignability. No Stock Right shall be assignable or transferable by
the grantee except with the consent of the Committee, by will or by the laws of
descent and distribution, and during the lifetime of the grantee each Stock
Right shall be exercisable only by him or her, except with the prior consent of
the Committee; provided that no such assignment shall be made in the case of an
ISO.
12. Terms and Conditions of Options. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in Sections 6 through 11 hereof and may contain such other
provisions as the Committee deems advisable that are not inconsistent with the
Plan, including restrictions (or other conditions deemed by the Committee to be
in the best interests of the Company) applicable to the exercise of Options or
to shares of Common Stock issuable upon exercise of Options. In granting any
NSO, the Committee may specify that such NSO shall be subject to the
restrictions set forth herein with respect to
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ISOs, or to such other termination and cancellation provisions as the Committee
may determine. The Committee may from time to time confer authority and
responsibility on one or more of its own members and/or one or more officers of
the Company to execute and deliver such instruments. The proper officers of the
Company are authorized and directed to take any and all action necessary or
advisable from time to time to carry out the terms of such instruments.
13. Adjustments. Upon the occurrence of any of the following events, the
rights of a recipient of a Stock Right granted hereunder shall be adjusted as
hereinafter provided, unless otherwise provided in the written agreement between
the recipient and the Company relating to such Stock Right:
(a) If the shares of Common Stock shall be subdivided or combined
into a greater or smaller number of shares or if the Company shall issue shares
of Common Stock as a stock dividend on its outstanding Common Stock, the number
of shares of Common Stock deliverable upon the exercise of outstanding Stock
Rights shall be appropriately increased or decreased proportionately, and
appropriate adjustments shall be made in the purchase price (if any) per share
to reflect such subdivision, combination or stock dividend.
(b) If the Company is to be consolidated with or acquired by another
entity in a merger, sale of all or substantially all of the Company's assets or
otherwise (an "Acquisition"), unless otherwise provided by the Committee, in its
sole discretion, all conditions to the exercisability of Options and rights of
the Company to repurchase or restrict the sale of shares of Common Stock issued
pursuant to exercise of a Stock Right shall lapse and the Committee or the board
of directors of any entity assuming the obligations of the Company hereunder
(the "Successor Board") shall, as to outstanding Options, make appropriate
provision for the continuation of such Options by substituting on an equitable
basis for the shares then subject to such Options the consideration payable with
respect to the outstanding shares of Common Stock in connection with the
Acquisition.
(c) In the event of a recapitalization or reorganization of the
Company (other than a transaction described in subsection (b) above) pursuant to
which securities of the Company or of another corporation are issued with
respect to the outstanding shares of Common Stock, an optionee upon exercising
an Option shall be entitled to receive for the purchase price paid upon such
exercise the securities he or she would have received if he or she had exercised
the Option immediately prior to such recapitalization or reorganization.
(d) Notwithstanding the foregoing, any adjustments made pursuant to
subsections (a), (b) or (c) with respect to ISOs shall be made only after the
Committee determines whether such adjustments would constitute a "modification"
of such ISOs (as that term is defined in Section 424 of the Code) or would cause
any adverse tax consequences for the holders of such ISOs. If the Committee
determines that such adjustments made with respect to ISOs would constitute a
modification of such ISOs, it may refrain from making such adjustments as to all
or some of such ISOs.
(e) In the event of the proposed dissolution or liquidation of the
Company, each Option will terminate immediately prior to the consummation of
such proposed action or at such other time and subject to such other conditions
as shall be determined by the Committee.
(f) Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares subject to Options. No
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<PAGE>
adjustments shall be made for dividends paid in cash or in property other than
Common Stock of the Company.
(g) No fractional shares shall be issued under the Plan and any
optionee who would otherwise be entitled to receive a fraction of a share upon
exercise of an Option shall receive from the Company cash in lieu of such
fractional shares in an amount equal to the fair market value of such fractional
shares, as determined in the sole discretion of the Committee.
(h) Upon the happening of any of the foregoing events described in
subsections (a), (b) or (c) above, the class and aggregate number of shares set
forth in Section 4 hereof that are subject to Stock Rights that previously have
been or subsequently may be granted under the Plan shall also be appropriately
adjusted to reflect the events described. The Committee or the Successor Board
shall determine the specific adjustments to be made under this Section 13 and,
subject to Section 2, its determination shall be conclusive.
14. Means of Exercising Stock Rights. A Stock Right (or any part or
installment thereof) shall be exercised by giving written notice to the Company
at its principal office address. Such notice shall identify the Stock Right
being exercised and specify the number of shares as to which such Stock Right is
being exercised, accompanied by full payment of the exercise price therefor
either (a) in United States dollars in cash or by check, (b) at the discretion
of the Committee, through the delivery of already-owned shares of Common Stock
having a fair market value equal as of the date of the exercise to the cash
exercise price of the Stock Right, or (c) at the discretion of the Committee, by
delivery of the grantee's personal recourse note bearing interest payable not
less than annually at no less than 100% of the lowest applicable Federal rate,
as defined in Section 1274(d) of the Code, or (d) at the discretion of the
Committee, by any combination of (a), (b) and (c). If the Committee exercises
its discretion to permit payment of the exercise price of an ISO by means of the
methods set forth in clauses (b), (c) or (d) of the preceding sentence, such
discretion shall be exercised in writing at the time of the grant of the ISO in
question. The holder of a Stock Right shall not have the rights of a shareholder
with respect to the shares covered by the Stock Right until the date of issuance
of a stock certificate for such shares. Except as expressly provided above in
Section 13 with respect to changes in capitalization and stock dividends, no
adjustment shall be made for dividends or similar rights for which the record
date is before the date such stock certificate is issued.
15. Stock Appreciation Rights; Surrender of Options. The Committee may, in
its sole and absolute discretion and subject to such terms and conditions as it
deems appropriate, accept the surrender by an optionee of an Option granted to
him under the Plan and authorize payment in consideration therefor of an amount
equal to the difference between the purchase price payable for the shares of
Common Stock under the instrument granting the Option and the fair market value
of the shares subject to the Option (determined as of the date of such surrender
of the Option). Such payment shall be made in shares of Common Stock valued at
fair market value on the date of such surrender, or in cash, or partly in such
shares of Common Stock and partly in cash as the Committee shall determine. The
surrender shall be permitted only if the Committee determines that such
surrender is consistent with the purpose set forth in Section 1, and only to the
extent that the Option is exercisable under Section 8 on the date of surrender.
In no event shall an optionee surrender his Option under this Section if the
fair market value of the shares on the date of such surrender is less than the
purchase price payable for the shares of Common Stock subject to the Option. Any
ISO surrendered pursuant to the provisions of this Section 15 shall be deemed to
have been converted into a NSO immediately prior to such surrender.
Notwithstanding the foregoing, if on the date of surrender the optionee is an
Insider, then any election to surrender an Option shall not be permitted unless
(a) such surrender shall occur after the date six (6) months from the date such
Option was granted, (b) the Insider shall have made an irrevocable election to
surrender the Option pursuant to this paragraph 15 at least
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six (6) months prior to the date the Option is surrendered or (c) the surrender
of the Option hereunder by the Insider is otherwise exempt pursuant to the
regulations promulgated under Section 16 of the Exchange Act.
16. Term and Amendment of Plan. This Plan was adopted by the Board on
February 3, 1994 (the "Effective Date"), and was approved by the shareholders of
the Company in September 1994. The Plan shall expire 10 years after the
Effective Date (except as to Stock Rights outstanding on that date). Subject to
the provisions of Section 5 above, Stock Rights may be granted under the Plan
prior to the date of shareholder approval of the Plan. The Board may terminate
or amend the Plan in any respect at any time, except that without the approval
of the shareholders obtained within 12 months before or after the Board adopts a
resolution authorizing any of the following actions,
(a) the total number of shares that may be issued under the Plan may
not be increased (except by adjustment pursuant to Section 13);
(b) the provisions of Section 3 regarding eligibility for grants of
ISOs may not be modified;
(c) the provisions of Section 6(b) regarding the exercise price at
which shares may be offered pursuant to ISOs may not be modified (except by
adjustment pursuant to Section 13); and
(d) the expiration date of the Plan may not be extended.
Except as provided in Section 13(b) and the second sentence of this
Section 16, in no event may action of the Board or shareholders alter or impair
the rights of a grantee, without his or her consent, under any Stock Right
previously granted.
17. Conversion of ISOs into NSOs; Termination of ISOs. The Committee, at
the request of any optionee, may in its discretion take such actions as may be
necessary to convert such optionee's ISOs (or any installments or portions of
installments thereof) that have not been exercised on the date of conversion
into NSOs at any time prior to the expiration of such ISOs. Such actions may
include, but not be limited to, extending the exercise period or reducing the
exercise price of the appropriate installments of such Options. At the time of
such conversion, the Committee (with the consent of the optionee) may impose
such conditions on the exercise of the resulting NSOs as the Committee in its
discretion may determine, provided that such conditions shall not be
inconsistent with the Plan. Nothing in the Plan shall be deemed to give any
optionee the right to have such optionee's ISOs converted into NSOs, and no such
conversion shall occur until and unless the Committee takes appropriate action.
The Committee, with the consent of the optionee, may also terminate any portion
of any ISO that has not been exercised at the time of such termination.
18. Application of Funds. The proceeds received by the Company from the
sale of shares pursuant to Stock Rights shall be used for general corporate
purposes.
19. Governmental Regulation. The Company's obligation to sell and deliver
shares of the Common Stock under the Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
20. Withholding of Additional Income Taxes.
(a) Upon the exercise of an NSO, or the grant of a Stock Bonus or
Purchase Right for less than the fair market value of the Common Stock, the
making of a Disqualifying Disposition (as defined
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in Section 21), the vesting of restricted Common Stock acquired on the exercise
of a Stock Right hereunder or the surrender of an Option pursuant to Section 15,
the Company, in accordance with Section 3402(a) of the Code and any applicable
state statute or regulation, may require the optionee, Stock Bonus recipient or
purchaser to pay to the Company additional withholding taxes in respect of the
amount that is considered compensation includable in such person's gross income.
With respect to (a) the exercise of an Option, (b) the grant of a Stock Bonus,
(c) the grant of a Purchase Right of Common Stock for less than its fair market
value, (d) the vesting of restricted Common Stock acquired by exercising a Stock
Right, or (e) the acceptance of a surrender of an Option, the Committee in its
discretion may condition such event on the payment by the optionee, Stock Bonus
recipient or purchaser of any such additional withholding taxes.
(b) At the sole and absolute discretion of the Committee, the holder
of Stock Rights may pay all or any part of the total estimated federal and state
income tax liability arising out of the exercise or receipt of such Stock
Rights, the making of a Disqualifying Disposition, or the vesting of restricted
Common Stock acquired on the exercise of a Stock Right hereunder (each of the
foregoing, a "Tax Event") by tendering already-owned shares of Common Stock or
(except in the case of a Disqualifying Disposition) by directing the Company to
withhold shares of Common Stock otherwise to be transferred to the holder of
such Stock Rights as a result of the exercise or receipt thereof in an amount
equal to the estimated federal and state income tax liability arising out of
such event. In such event, the holder of Stock Rights must, however, notify the
Committee of his or her desire to pay all or any part of the total estimated
federal and state income tax liability arising out of a Tax Event by tendering
already-owned shares of Common Stock or having shares of Common Stock withheld
prior to the date that the amount of federal or state income tax to be withheld
is to be determined. If the holder of Stock Rights is an Insider, an election by
an Insider to pay all or any part of the total estimated federal and state
income tax liability arising out of any Tax Event (other than a Disqualifying
Disposition) by having shares of Common Stock withheld (i) shall be made at
least six (6) months prior to the date of the Tax Event and shall be irrevocable
(except that an Insider can revoke such election upon six months' notice to the
Committee by making a written irrevocable election to revoke the prior
election); or (ii) shall be made in accordance with paragraph 15 of the Plan or
as otherwise may be permitted pursuant to the regulations promulgated under
Section 16 of the Exchange Act. For purposes of this paragraph 20, shares of
Common Stock shall be valued at their fair market value on the date that the
amount of the tax withholdings is to be determined.
21. Notice to Company of Disqualifying Disposition. Each employee who
receives an ISO must agree to notify the Company in writing immediately after
the employee makes a Disqualifying Disposition (as defined below) of any Common
Stock acquired pursuant to the exercise of an ISO. A "Disqualifying Disposition"
is any disposition (including any sale) of such Common Stock before either (a)
two years after the date the employee was granted the ISO, or (b) one year after
the date the employee acquired Common Stock by exercising the ISO. If the
employee has died before such stock is sold, these holding period requirements
do not apply and no Disqualifying Disposition can occur thereafter.
22. Governing Law; Construction. The validity and construction of the Plan
and the instruments evidencing Stock Rights shall be governed by the laws of the
State of North Carolina. In construing this Plan, the singular shall include the
plural and the masculine gender shall include the feminine and neuter, unless
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the context otherwise requires.
CARDIOVASCULAR DIAGNOSTICS, INC.
1995 STOCK PLAN
AS AMENDED BY THE BOARD OF DIRECTORS THROUGH
MAY 7, 1998
1. Purpose. This 1995 Stock Plan (the "Plan") is intended to
provide incentives:
(a) to employees of Cardiovascular Diagnostics, Inc. (the
"Company"), or its parent (if any) or any of its present or future subsidiaries
(collectively, "Related Corporations"), by providing them with opportunities to
purchase Common Stock (as defined below) of the Company pursuant to options
granted hereunder that qualify as "incentive stock options" ("ISOs") under
Section 422 of the Internal Revenue Code of 1986, as amended, or any successor
statute (the "Code");
(b) to directors, employees and consultants of the Company and
Related Corporations by providing them with opportunities to purchase Common
Stock (as defined below) of the Company pursuant to options granted hereunder
that do not qualify as ISOs (nonstatutory stock options, or "NSOs");
(c) to employees and consultants of the Company and Related
Corporations by providing them with bonus awards of Common Stock (as defined
below) of the Company ("Stock Bonuses"); and
(d) to employees and consultants of the Company and Related
Corporations by providing them with opportunities to make direct purchases of
Common Stock (as defined below) of the Company ("Purchase Rights").
Both ISOs and NSOs are referred to hereafter individually as "Options",
and Options, Stock Bonuses and Purchase Rights are referred to hereafter
collectively as "Stock Rights". As used herein, the terms "parent" and
"subsidiary" mean "parent corporation" and "subsidiary corporation",
respectively, as those terms are defined in Section 424 of the Code.
2. Administration of the Plan.
(a) Procedure. The Plan shall be administered by (A) the Board or
(B) a committee designated by the Board, which committee shall be constituted in
such a manner as to satisfy the legal requirements relating to the
administration of incentive stock option plans, if any, of applicable state and
federal corporate and securities laws, of the Code and of any applicable stock
exchange or market (collectively, the "APPLICABLE LAWS"). Once appointed, such
Committee shall continue to serve in its designated capacity until otherwise
directed by the Board. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies,
however caused, and remove all members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by the Applicable Laws.
<PAGE>
(b) Subject to ratification of the grant or authorization of each
Stock Right by the Board (if so required by applicable law), and subject to the
terms of the Plan, the Committee, if so appointed, shall have the authority to:
(i) determine the employees of the Company and Related
Corporations (from among the class of employees eligible under Section 3 to
receive ISOs) to whom ISOs may be granted, and to determine (from among the
class of individuals and entities eligible under Section 3 to receive NSOs,
Stock Bonuses and Purchase Rights) to whom NSOs, Stock Bonuses and Purchase
Rights may be granted;
(ii) determine the time or times at which Options, Stock Bonuses
or Purchase Rights may be granted;
(iii) determine the option price of shares subject to each Option,
which price shall not be less than the minimum price specified in Section 6
hereof, as appropriate, and the purchase price of shares subject to each
Purchase Right;
(iv) determine whether each Option granted shall be an ISO or
NSO;
(v) determine (subject to Section 7) the time or times when each
Option shall become exercisable and the duration of the exercise period;
(vi) determine whether restrictions such as repurchase options
are to be imposed on shares subject to Options, Stock Bonuses and Purchase
Rights and the nature of such restrictions, if any; and
(vii) interpret the Plan and prescribe and rescind rules and
regulations relating to it.
If the Committee determines to issue a NSO, it shall take whatever
actions it deems necessary, under Section 422 of the Code and the regulations
promulgated thereunder, to ensure that such Option is not treated as an ISO. The
interpretation and construction by the Committee of any provisions of the Plan
or of any Stock Right granted under it shall be final unless otherwise
determined by the Board. The Committee may from time to time adopt such rules
and regulations for carrying out the Plan as it may deem best. 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 Stock Right granted under it.
(c) The Committee may select one of its members as its chairman, and
shall hold meetings at such time and places as it may determine. Acts by a
majority of the Committee, or acts reduced to or approved in writing by a
majority of the members of the Committee, shall be the valid acts of the
Committee. All references in this Plan to the Committee shall mean the Board if
no Committee has been appointed. From time to time the Board may increase the
size of the Committee and appoint additional members thereof, remove members
(with or without cause) and appoint new members in substitution therefor, fill
vacancies however caused, or remove all members thereof and thereafter directly
administer the Plan.
3. Eligible Employees and Others. ISOs may be granted to any employee of
the Company or any Related Corporation. Those officers of the Company who are
not employees may not be granted ISOs under the Plan. NSOs, Stock Bonuses and
Purchase Rights may be granted to any director, employee or consultant of the
Company or any Related Corporation; provided, however, that, no director of the
Company who is not also an employee of the Company shall be eligible to receive
any Stock Right under the Plan after the time when the Company shall have
registered its equity securities under Section 12 of the Exchange Act. Granting
of any Stock Right to any individual or entity shall
<PAGE>
neither entitle that individual or entity to, nor disqualify him or her from,
participation in any other grant of Stock Rights.
4. Stock. The stock subject to Stock Rights shall be authorized but
unissued shares of Common Stock of the Company, $.001 par value per share, or
such shares of the Company's capital stock into which such class of shares may
be converted pursuant to any reorganization, recapitalization, merger,
consolidation or the like (the "Common Stock"), or shares of Common Stock
reacquired by the Company in any manner. The aggregate number of shares that may
be issued pursuant to the Plan is 488,150 shares, subject to adjustment as
provided herein. Any such shares may be issued as ISOs, NSOs or Stock Bonuses,
or to persons or entities making purchases pursuant to Purchase Rights, so long
as the number of shares so issued does not exceed such aggregate number, as
adjusted. If any Option granted under the Plan shall expire or terminate for any
reason without having been exercised in full or shall cease for any reason to be
exercisable in whole or in part, or if the Company shall reacquire any shares
issued pursuant to Stock Rights, the unpurchased shares subject to such Options
and any shares so reacquired by the Company shall again be available for grants
of Stock Rights under the Plan.
5. Granting of Stock Rights. Stock Rights may be granted under the Plan at
any time after the Effective Date, as set forth in Section 16, and prior to 10
years thereafter. The date of grant of a Stock Right under the Plan will be the
date specified by the Committee at the time it grants the Stock Right; provided,
however, that such date shall not be prior to the date on which the Committee
acts. The Committee shall have the right, with the consent of the optionee, to
convert an ISO granted under the Plan to an NSO pursuant to Section 17.
6. Minimum Price; ISO Limitations.
(a) The price per share specified in the agreement relating to each
NSO, Stock Bonus or Purchase Right granted under the Plan shall be established
by the Board or the Committee, taking into account any noncash consideration to
be received by the Company from the recipient of Stock Rights.
(b) The price per share specified in the agreement relating to each
ISO granted under the Plan shall not be less than the fair market value per
share of Common Stock on the date of such grant. In the case of an ISO to be
granted to an employee owning stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any Related
Corporation, the price per share specified in the agreement relating to such ISO
shall not be less than 110% of the fair market value per share of Common Stock
on the date of the grant.
(c) In no event shall the aggregate fair market value (determined at
the time an ISO is granted) of Common Stock for which ISOs granted to any
employee are exercisable for the first time by such employee during any calendar
year (under all stock option plans of the Company and any Related Corporation)
exceed $100,000; provided that this Section shall have no force or effect to the
extent that its inclusion in the Plan is not necessary for Options issued as
ISOs to qualify as ISOs pursuant to Section 422 of the Code.
(d) If, at the time an Option is granted under the Plan, the
Company's Common Stock is publicly traded, "fair market value" shall be
determined as of the last business day for which the prices or quotes discussed
in this sentence are available prior to the time such Option is granted and
shall mean:
(i) the average as of the close of business on that date of the
high and low prices of the Common Stock on the principal national securities
exchange on which the Common Stock is traded, if the Common Stock is then traded
on a national securities exchange;
<PAGE>
(ii) the last reported sale price as of the close of business on
that date of the Common Stock on the Nasdaq National Market System (the
"NASDAQ/NMS"), if the Common Stock is not then traded on a national securities
exchange but is then traded on the NASDAQ/NMS; or
(iii) the closing bid price or average of bid prices last quoted
on that date by an established quotation service, if the Common Stock is not
reported on the NASDAQ/NMS.
However, if the Common Stock is not publicly traded at the
time an Option is granted under the Plan, "fair market value" shall be deemed to
be the fair value of the Common Stock as determined by the Committee after
taking into consideration all factors that it deems appropriate, including,
without limitation, recent sale and offer prices on the Common Stock in private
transactions negotiated at arm's length, but determined without regard to any
restriction other than a restriction that, by its terms, will never lapse.
7. Option Duration. Subject to earlier termination as provided in Sections
9 and 10, each Option shall expire on the date specified by the Committee, but
not more than:
(a) 10 years from the date of grant in the case of NSOs;
(b) 10 years from the date of grant in the case of ISOs generally;
and
(c) 5 years from the date of grant in the case of ISOs granted to an
employee owning stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any Related Corporation.
Subject to earlier termination as provided in Sections 9 and 10, the
term of each ISO shall be the term set forth in the original instrument granting
such ISO, except with respect to any part of such ISO that is converted into an
NSO pursuant to Section 17.
8. Exercise of Options. Subject to the provisions of Section 9 through
Section 12 of the Plan, each Option granted under the Plan shall be exercisable
as follows:
(a) the Option shall either be fully exercisable on the date of
grant or shall become exercisable thereafter in such installments as the
Committee may specify;
(b) once an installment becomes exercisable it shall remain
exercisable until expiration or termination of the Option, unless otherwise
specified by the Committee;
(c) each Option or installment may be exercised at any time or from
time to time, in whole or in part, for up to the total number of shares with
respect to which it is then exercisable; and
(d) the Committee shall have the right to accelerate the date of
exercise of any installment of any Option, provided that the Committee shall not
accelerate the exercise date of any installment of any ISO granted to any
employee (and not previously converted into an NSO pursuant to Section 17) if
such acceleration would violate the annual vesting limitation contained in
Section 422 of the Code, as described in Section 6(c).
9. Termination of Employment. If an ISO optionee ceases to be employed by
the Company and all Related Corporations other than by reason of death or
disability as defined in Section 10, unless otherwise specified in the
instrument granting such ISO, the ISO optionee shall have the continued right to
exercise any ISO held by him or her, to the extent of the number of shares with
respect to which he or she could have exercised it on the date of termination,
until the ISO's specified expiration date; provided,
<PAGE>
however, in the event the ISO optionee exercises any ISO after the date that is
three months following the date of termination of employment, such ISO will
automatically be converted into an NSO subject to the terms of the Plan.
Employment shall be considered as continuing uninterrupted during any bona fide
leave of absence (such as those attributable to illness, military obligations or
governmental service) provided that the period of such leave does not exceed 90
days or, if longer, any period during which such optionee's right to
reemployment with the Company is guaranteed by statute or by contract. A bona
fide leave of absence with the written approval of the Company shall not be
considered an interruption of employment under the Plan, provided that such
written approval contractually obligates the Company or any Related Corporation
to continue the employment of the optionee after the approved period of absence.
ISOs granted under the Plan shall not be affected by any change of employment
within or among the Company and Related Corporations, so long as the optionee
continues to be an employee of the Company or any Related Corporation.
NOTHING IN THE PLAN SHALL BE DEEMED TO GIVE ANY GRANTEE OF ANY STOCK RIGHT
THE RIGHT TO BE RETAINED IN EMPLOYMENT OR OTHER SERVICE BY THE COMPANY OR ANY
RELATED CORPORATION FOR ANY PERIOD OF TIME.
10. Death; Disability.
(a) If an ISO optionee ceases to be employed by the Company and all
Related Corporations by reason of death, any ISO of his or hers may be exercised
to the extent of the number of shares with respect to which he or she could have
exercised it on the date of death, by his or her estate, personal representative
or beneficiary who has acquired the ISO by will or by the laws of descent and
distribution, at any time prior to the ISO's specified expiration date, unless
otherwise specified in the instrument granting such ISO.
(b) If an ISO optionee ceases to be employed by the Company and all
Related Corporations by reason of disability, he or she shall continue to have
the right to exercise any ISO held by him or her on the date of termination
until the ISO's specified expiration date, unless otherwise specified in the
instrument granting such ISO; provided, however, in the event the optionee
exercises after the date that is one year following the date of termination,
such ISO will automatically be converted into a NSO subject to the terms of the
Plan. For the purposes of the Plan, the term "disability" shall mean "permanent
and total disability" as defined in Section 22(e)(3) of the Code.
11. Assignability. No Stock Right shall be assignable or transferable by
the grantee except with the consent of the Committee, by will or by the laws of
descent and distribution, and during the lifetime of the grantee each Stock
Right shall be exercisable only by him or her, except with the prior consent of
the Committee; provided that no such assignment shall be made in the case of an
ISO.
12. Terms and Conditions of Options. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in Sections 6 through 11 hereof and may contain such other
provisions as the Committee deems advisable that are not inconsistent with the
Plan, including restrictions (or other conditions deemed by the Committee to be
in the best interests of the Company) applicable to the exercise of Options or
to shares of Common Stock issuable upon exercise of Options. In granting any
NSO, the Committee may specify that such NSO shall be subject to the
restrictions set forth herein with respect to ISOs, or to such other termination
and cancellation provisions as the Committee may determine. The Committee may
from time to time confer authority and responsibility on one or more of its own
members and/or one or more officers of the Company to execute and deliver such
instruments. The proper officers of the Company are authorized and directed to
take any and all action necessary or advisable from time to time to carry out
the terms of such instruments.
<PAGE>
13. Adjustments. Upon the occurrence of any of the following events, the
rights of a recipient of a Stock Right granted hereunder shall be adjusted as
hereinafter provided, unless otherwise provided in the written agreement between
the recipient and the Company relating to such Stock Right:
(a) If the shares of Common Stock shall be subdivided or combined
into a greater or smaller number of shares or if the Company shall issue shares
of Common Stock as a stock dividend on its outstanding Common Stock, the number
of shares of Common Stock deliverable upon the exercise of outstanding Stock
Rights shall be appropriately increased or decreased proportionately, and
appropriate adjustments shall be made in the purchase price (if any) per share
to reflect such subdivision, combination or stock dividend.
(b) If the Company is to be consolidated with or acquired by another
entity in a merger, sale of all or substantially all of the Company's assets or
otherwise (an "Acquisition"), unless otherwise provided by the Committee, in its
sole discretion, all conditions to the exercisability of Options and rights of
the Company to repurchase or restrict the sale of shares of Common Stock issued
pursuant to exercise of a Stock Right shall lapse and the Committee or the board
of directors of any entity assuming the obligations of the Company hereunder
(the "Successor Board") shall, as to outstanding Options, make appropriate
provision for the continuation of such Options by substituting on an equitable
basis for the shares then subject to such Options the consideration payable with
respect to the outstanding shares of Common Stock in connection with the
Acquisition.
(c) In the event of a recapitalization or reorganization of the
Company (other than a transaction described in subsection (b) above) pursuant to
which securities of the Company or of another corporation are issued with
respect to the outstanding shares of Common Stock, an optionee upon exercising
an Option shall be entitled to receive for the purchase price paid upon such
exercise the securities he or she would have received if he or she had exercised
the Option immediately prior to such recapitalization or reorganization.
(d) Notwithstanding the foregoing, any adjustments made pursuant to
subsections (a), (b) or (c) with respect to ISOs shall be made only after the
Committee determines whether such adjustments would constitute a "modification"
of such ISOs (as that term is defined in Section 424 of the Code) or would cause
any adverse tax consequences for the holders of such ISOs. If the Committee
determines that such adjustments made with respect to ISOs would constitute a
modification of such ISOs, it may refrain from making such adjustments as to all
or some of such ISOs.
(e) In the event of the proposed dissolution or liquidation of the
Company, each Option will terminate immediately prior to the consummation of
such proposed action or at such other time and subject to such other conditions
as shall be determined by the Committee.
(f) Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares subject to Options. No
adjustments shall be made for dividends paid in cash or in property other than
Common Stock of the Company.
(g) No fractional shares shall be issued under the Plan and any
optionee who would otherwise be entitled to receive a fraction of a share upon
exercise of an Option shall receive from the Company cash in lieu of such
fractional shares in an amount equal to the fair market value of such fractional
shares, as determined in the sole discretion of the Committee.
<PAGE>
(h) Upon the happening of any of the foregoing events described in
subsections (a), (b) or (c) above, the class and aggregate number of shares set
forth in Section 4 hereof that are subject to Stock Rights that previously have
been or subsequently may be granted under the Plan shall also be appropriately
adjusted to reflect the events described. The Committee or the Successor Board
shall determine the specific adjustments to be made under this Section 13 and,
subject to Section 2, its determination shall be conclusive.
14. Means of Exercising Stock Rights. A Stock Right (or any part or
installment thereof) shall be exercised by giving written notice to the Company
at its principal office address. Such notice shall identify the Stock Right
being exercised and specify the number of shares as to which such Stock Right is
being exercised, accompanied by full payment of the exercise price therefor
either (a) in United States dollars in cash or by check, (b) at the discretion
of the Committee, through the delivery of already-owned shares of Common Stock
having a fair market value equal as of the date of the exercise to the cash
exercise price of the Stock Right, or (c) at the discretion of the Committee, by
delivery of the grantee's personal recourse note bearing interest payable not
less than annually at no less than 100% of the lowest applicable Federal rate,
as defined in Section 1274(d) of the Code, or (d) at the discretion of the
Committee, by any combination of (a), (b) and (c). If the Committee exercises
its discretion to permit payment of the exercise price of an ISO by means of the
methods set forth in clauses (b), (c) or (d) of the preceding sentence, such
discretion shall be exercised in writing at the time of the grant of the ISO in
question. The holder of a Stock Right shall not have the rights of a shareholder
with respect to the shares covered by the Stock Right until the date of issuance
of a stock certificate for such shares. Except as expressly provided above in
Section 13 with respect to changes in capitalization and stock dividends, no
adjustment shall be made for dividends or similar rights for which the record
date is before the date such stock certificate is issued.
15. Stock Appreciation Rights; Surrender of Options. The Committee may, in
its sole and absolute discretion and subject to such terms and conditions as it
deems appropriate, accept the surrender by an optionee of an Option granted to
him under the Plan and authorize payment in consideration therefor of an amount
equal to the difference between the purchase price payable for the shares of
Common Stock under the instrument granting the Option and the fair market value
of the shares subject to the Option (determined as of the date of such surrender
of the Option). Such payment shall be made in shares of Common Stock valued at
fair market value on the date of such surrender, or in cash, or partly in such
shares of Common Stock and partly in cash as the Committee shall determine. The
surrender shall be permitted only if the Committee determines that such
surrender is consistent with the purpose set forth in Section 1, and only to the
extent that the Option is exercisable under Section 8 on the date of surrender.
In no event shall an optionee surrender his Option under this Section if the
fair market value of the shares on the date of such surrender is less than the
purchase price payable for the shares of Common Stock subject to the Option. Any
ISO surrendered pursuant to the provisions of this Section 15 shall be deemed to
have been converted into a NSO immediately prior to such surrender.
Notwithstanding the foregoing, if on the date of surrender the optionee is an
Insider, then any election to surrender an Option shall not be permitted unless
(a) such surrender shall occur after the date six (6) months from the date such
Option was granted, (b) the Insider shall have made an irrevocable election to
surrender the Option pursuant to this paragraph 15 at least six (6) months prior
to the date the Option is surrendered or (c) the surrender of the Option
hereunder by the Insider is otherwise exempt pursuant to the regulations
promulgated under Section 16 of the Exchange Act.
<PAGE>
16. Term and Amendment of Plan. This Plan was adopted by the Board on
September 12, 1995 (the "Effective Date"), subject (with respect to the
validation of ISOs granted under the Plan) to approval of the Plan by the
shareholders of the Company. If the approval of shareholders is not obtained by
one year after the Effective Date, any grants of ISOs under the Plan made prior
to that date will be rescinded. The Plan shall expire 10 years after the
Effective Date (except as to Stock Rights outstanding on that date). Subject to
the provisions of Section 5 above, Stock Rights may be granted under the Plan
prior to the date of shareholder approval of the Plan. The Board may terminate
or amend the Plan in any respect at any time, except that without the approval
of the shareholders obtained within 12 months before or after the Board adopts a
resolution authorizing any of the following actions,
(a) the total number of shares that may be issued under the Plan may
not be increased (except by adjustment pursuant to Section 13);
(b) the provisions of Section 3 regarding eligibility for grants of
ISOs may not be modified;
(c) the provisions of Section 6(b) regarding the exercise price at
which shares may be offered pursuant to ISOs may not be modified (except by
adjustment pursuant to Section 13); and
(d) the expiration date of the Plan may not be extended.
Except as provided in Section 13(b) and the second sentence of this
Section 16, in no event may action of the Board or shareholders alter or impair
the rights of a grantee, without his or her consent, under any Stock Right
previously granted.
17. Conversion of ISOs into NSOs; Termination of ISOs. The Committee, at
the request of any optionee, may in its discretion take such actions as may be
necessary to convert such optionee's ISOs (or any installments or portions of
installments thereof) that have not been exercised on the date of conversion
into NSOs at any time prior to the expiration of such ISOs. Such actions may
include, but not be limited to, extending the exercise period or reducing the
exercise price of the appropriate installments of such Options. At the time of
such conversion, the Committee (with the consent of the optionee) may impose
such conditions on the exercise of the resulting NSOs as the Committee in its
discretion may determine, provided that such conditions shall not be
inconsistent with the Plan. Nothing in the Plan shall be deemed to give any
optionee the right to have such optionee's ISOs converted into NSOs, and no such
conversion shall occur until and unless the Committee takes appropriate action.
The Committee, with the consent of the optionee, may also terminate any portion
of any ISO that has not been exercised at the time of such termination.
18. Application of Funds. The proceeds received by the Company from the
sale of shares pursuant to Stock Rights shall be used for general corporate
purposes.
19. Governmental Regulation. The Company's obligation to sell and deliver
shares of the Common Stock under the Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
<PAGE>
20. Withholding of Additional Income Taxes.
(a) Upon the exercise of an NSO, or the grant of a Stock Bonus or
Purchase Right for less than the fair market value of the Common Stock, the
making of a Disqualifying Disposition (as defined in Section 21), the vesting of
restricted Common Stock acquired on the exercise of a Stock Right hereunder or
the surrender of an Option pursuant to Section 15, the Company, in accordance
with Section 3402(a) of the Code and any applicable state statute or regulation,
may require the optionee, Stock Bonus recipient or purchaser to pay to the
Company additional withholding taxes in respect of the amount that is considered
compensation includable in such person's gross income. With respect to (a) the
exercise of an Option, (b) the grant of a Stock Bonus, (c) the grant of a
Purchase Right of Common Stock for less than its fair market value, (d) the
vesting of restricted Common Stock acquired by exercising a Stock Right, or (e)
the acceptance of a surrender of an Option, the Committee in its discretion may
condition such event on the payment by the optionee, Stock Bonus recipient or
purchaser of any such additional withholding taxes.
(b) At the sole and absolute discretion of the Committee, the holder
of Stock Rights may pay all or any part of the total estimated federal and state
income tax liability arising out of the exercise or receipt of such Stock
Rights, the making of a Disqualifying Disposition, or the vesting of restricted
Common Stock acquired on the exercise of a Stock Right hereunder (each of the
foregoing, a "Tax Event") by tendering already-owned shares of Common Stock or
(except in the case of a Disqualifying Disposition) by directing the Company to
withhold shares of Common Stock otherwise to be transferred to the holder of
such Stock Rights as a result of the exercise or receipt thereof in an amount
equal to the estimated federal and state income tax liability arising out of
such event. In such event, the holder of Stock Rights must, however, notify the
Committee of his or her desire to pay all or any part of the total estimated
federal and state income tax liability arising out of a Tax Event by tendering
already-owned shares of Common Stock or having shares of Common Stock withheld
prior to the date that the amount of federal or state income tax to be withheld
is to be determined. If the holder of Stock Rights is an Insider, an election by
an Insider to pay all or any part of the total estimated federal and state
income tax liability arising out of any Tax Event (other than a Disqualifying
Disposition) by having shares of Common Stock withheld (i) shall be made at
least six (6) months prior to the date of the Tax Event and shall be irrevocable
(except that an Insider can revoke such election upon six months' notice to the
Committee by making a written irrevocable election to revoke the prior
election); or (ii) shall be made in accordance with paragraph 15 of the Plan or
as otherwise may be permitted pursuant to the regulations promulgated under
Section 16 of the Exchange Act. For purposes of this paragraph 20, shares of
Common Stock shall be valued at their fair market value on the date that the
amount of the tax withholdings is to be determined.
21. Notice to Company of Disqualifying Disposition. Each employee who
receives an ISO must agree to notify the Company in writing immediately after
the employee makes a Disqualifying Disposition (as defined below) of any Common
Stock acquired pursuant to the exercise of an ISO. A "Disqualifying Disposition"
is any disposition (including any sale) of such Common Stock before either (a)
two years after the date the employee was granted the ISO, or (b) one year after
the date the employee acquired Common Stock by exercising the ISO. If the
employee has died before such stock is sold, these holding period requirements
do not apply and no Disqualifying Disposition can occur thereafter.
22. Governing Law; Construction. The validity and construction of the Plan
and the instruments evidencing Stock Rights shall be governed by the laws of the
State of North Carolina. In construing this Plan, the singular shall include the
plural and the masculine gender shall include the feminine and neuter, unless
the context otherwise requires.
<PAGE>
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,800
<SECURITIES> 0
<RECEIVABLES> 1,739
<ALLOWANCES> (15)
<INVENTORY> 2,604
<CURRENT-ASSETS> 394
<PP&E> 8,773
<DEPRECIATION> (3,911)
<TOTAL-ASSETS> 15,024
<CURRENT-LIABILITIES> 1,174
<BONDS> 0
0
0
<COMMON> 7
<OTHER-SE> 11,813
<TOTAL-LIABILITY-AND-EQUITY> 15,024
<SALES> 4,596
<TOTAL-REVENUES> 4,596
<CGS> (3,149)
<TOTAL-COSTS> (3,149)
<OTHER-EXPENSES> (3,279)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (180)
<INCOME-PRETAX> (1,472)
<INCOME-TAX> (52)
<INCOME-CONTINUING> (1,524)
<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> (1,524)
<EPS-PRIMARY> (0.23)
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</TABLE>
