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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ 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
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission File Number 0-22879
BIORELIANCE CORPORATION
(Exact name of the registrant as specified in its charter)
DELAWARE 52-1541583
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9900 BLACKWELL ROAD
ROCKVILLE, MARYLAND 20850
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code:
(301) 738-1000
- --------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------- -------
As of June 30, 1998, 7,813,024 shares of registrant's Common Stock, par value
$.01 per share, were outstanding.
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BIORELIANCE CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
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<S><C>
PART I FINANCIAL INFORMATION
Item 1 - Financial Statements:
Consolidated Balance Sheets as of December 31, 1997 and
June 30, 1998............................................................ 3
Consolidated Statements of Income for the Three Months and
Six Months Ended June 30, 1997 and 1998.................................. 4
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1997 and 1998............................................. 5
Notes to Consolidated Financial Statements............................... 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................... 11
PART II OTHER INFORMATION............................................................ 17
SIGNATURES..................................................................................... 18
EXHIBIT INDEX.................................................................................. 19
</TABLE>
2
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIORELIANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, 1998
1997 (UNAUDITED)
------------ -----------
<S><C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 6,227 $ 4,498
Marketable securities.............................................. 27,554 26,497
Accounts receivable, net........................................... 15,923 19,837
Other current assets............................................... 1,827 2,283
------- -------
Total current assets..................................... 51,531 53,115
Property and equipment, net............................................ 15,601 19,810
Intangible assets, net................................................. 256 182
Deposits and other assets.............................................. 286 336
Deferred income taxes.................................................. 977 977
------- -------
Total assets............................................. $68,651 $74,420
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................................. $ 1,574 $ 1,524
Accounts payable................................................... 1,811 1,131
Accrued employee compensation and benefits......................... 2,829 2,042
Other accrued liabilities.......................................... 2,302 3,094
Customer advances.................................................. 3,635 4,102
Deferred income taxes.............................................. 1,271 1,271
------- -------
Total current liabilities................................ 13,422 13,164
Long-term debt......................................................... 5,434 9,017
------- -------
Total liabilities........................................ 18,856 22,181
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Commitments and contingencies (Note 8)
Stockholders' equity:
Convertible preferred stock, $.01 par value: 6,900,000 shares
authorized; no shares issued and outstanding.................... --- ---
Common stock, $.01 par value: 15,000,000 shares authorized;
7,685,208 and 7,813,024 shares issued and outstanding............ 77 78
Additional paid-in capital......................................... 52,457 52,566
Retained earnings/(accumulated deficit)............................ (2,145) 179
Equity adjustment from foreign currency translation................ (594) (584)
------- -------
Total stockholders' equity............................... 49,795 52,239
------- -------
Total liabilities and stockholders' equity............... $68,651 $74,420
======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
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BIORELIANCE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- --------------------------
1997 1998 1997 1998
---------- --------- ---------- ---------
<S><C>
Revenue................................... $ 12,583 $ 12,677 $ 24,364 $ 24,648
---------- --------- ---------- ---------
Expenses:
Cost of sales........................ 7,585 6,611 15,027 13,757
Selling, general and administrative.. 2,694 3,810 5,329 6,704
Research and development............. 323 347 626 733
---------- --------- ---------- ---------
10,602 10,768 20,982 21,194
---------- --------- ---------- ---------
Income from operations.................... 1,981 1,909 3,382 3,454
---------- --------- ---------- ---------
Other income (expense):
Interest income...................... 90 434 120 920
Interest expense..................... (219) (73) (448) (232)
Other income (expense)............... 12 (139) 11 (271)
---------- --------- ---------- ---------
(117) 222 (317) 417
---------- --------- ---------- ---------
Income before income taxes................ 1,864 2,131 3,065 3,871
Provision for income taxes................ 776 813 1,287 1,547
---------- --------- ---------- ---------
Net income................................ $ 1,088 $ 1,318 $ 1,778 $ 2,324
========== ========= ========== =========
Net income per share:
Basic................................ $ 2.85 $ 0.17 $ 4.78 $ 0.30
========== ========= ========== =========
Diluted.............................. $ 0.19 $ 0.16 $ 0.30 $ 0.28
========== ========= ========== =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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BIORELIANCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------
1997 1998
---------- ---------
<S><C>
Cash flows from operating activities:
Net income................................................................. $ 1,778 $ 2,324
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation........................................................... 1,561 1,546
Amortization of intangibles............................................ 156 118
Amortization of bond premiums and discounts............................ --- (96)
Loss on disposal of fixed assets....................................... 155 20
Deferred income taxes, net............................................. 945 ---
Changes in current assets and liabilities:
Accounts receivable, net........................................... (640) (3,869)
Other current assets............................................... 375 (438)
Accounts payable................................................... 551 (679)
Accrued employee compensation and benefits......................... (19) (788)
Other accrued liabilities.......................................... 377 710
Customer advances.................................................. (15) 438
Deposits and other assets.............................................. (1,317) (96)
---------- --------
Net cash provided by (used in) operating activities.......... 3,907 (810)
---------- --------
Cash flows from investing activities:
Purchases of marketable securities....................................... --- (21,997)
Proceeds from the maturities of marketable securities.................... --- 23,150
Purchases of property and equipment...................................... (1,297) (1,492)
---------- --------
Net cash (used in) investing activities....................... (1,297) (339)
---------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options................................. 49 249
Proceeds from debt...................................................... --- ---
Payments on debt........................................................ (358) (400)
Repayment of note payable to stockholder................................ (1,900) ---
Payments on capital lease obligations................................... (484) (341)
Repurchase and cancellation of treasury stock........................... --- (139)
---------- --------
Net cash (used in) financing activities....................... (2,693) (631)
---------- --------
Effect of exchange rate changes on cash and cash equivalents................. (438) 51
---------- --------
Net decrease in cash and cash equivalents.................................... (521) (1,729)
Cash and cash equivalents, beginning of period............................... 2,965 6,227
---------- --------
Cash and cash equivalents, end of period................................. $ 2,444 $ 4,498
========== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
BIORELIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) DESCRIPTION OF THE BUSINESS
BioReliance Corporation (the "Corporation") is a contract research
organization providing nonclinical testing and contract manufacturing services
for biologics to biotechnology and pharmaceutical companies worldwide.
(2) INTERIM FINANCIAL STATEMENTS PRESENTATION
The accompanying interim financial statements are unaudited and have been
prepared by the Corporation pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC") regarding interim financial
reporting. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements, and therefore these consolidated financial statements should be read
in conjunction with the audited consolidated financial statements, and the notes
thereto, included in the Corporation's Annual Report on Form 10-K. In the
opinion of management, the unaudited consolidated financial statements for the
three-month and six-month periods ended June 30, 1997 and 1998 include all
normal and recurring adjustments which are necessary for a fair presentation of
the results of the interim period. The results of operations for the three-month
and six-month periods ended June 30, 1997 and 1998 are not necessarily
indicative of the results for the entire year ending December 31, 1998.
(3) REVENUE RECOGNITION
Revenue recognized from commercial contracts, which are principally
fixed-price or fixed-rate, is recorded using the percentage-of-completion or the
completed-contract method, depending on the nature and duration of the contract.
The percentage-of-completion method is used for nonclinical testing services
that are completed generally in greater than three days and for manufacturing
contracts that do not provide for delivery of product. The completed-contract
method is used for nonclinical testing services that are completed generally
within three days and for contract manufacturing services that provide for
delivery of product. The percentage of completion is determined using total
project costs as a cost input measure. Revenue recognized from government
contracts, which are principally cost-plus-fixed-fee, is recognized in an amount
equal to reimbursable costs plus a pro-rata portion of the earned fee. Losses,
if any, are provided for at the time at which they become known.
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(4) FOREIGN CURRENCY TRANSLATION
The accounts of foreign subsidiaries are measured using local currency as
the functional currency. Assets and liabilities of these subsidiaries are
translated into U.S. dollars at period-end exchange rates, and income and
expense accounts are translated at average monthly exchange rates. Net gains and
losses resulting from such translations are included in comprehensive income and
are accumulated in a separate component of stockholders' equity.
(5) NET INCOME PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128").
This statement replaces the presentation of primary earnings per share ("EPS")
with a presentation of basic EPS, and requires dual presentation of basic and
diluted EPS on the face of the income statement. Basic EPS excludes dilution and
is computed by dividing income available to common shareholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity. Dilutive securities are excluded from the computation in periods in
which they have an anti-dilutive effect, and net income available to common
stockholders is adjusted accordingly for the effect of cumulative dividends on
Convertible Preferred Stock. The Corporation adopted this statement during the
fourth quarter of 1997, as required. Accordingly, all prior period EPS data has
been restated as required by SFAS 128.
In February 1998, the SEC issued Staff Accounting Bulletin 98 ("SAB 98").
SAB 98 rescinded SAB 83, which required common shares and common share
equivalents issued or granted by the Corporation at prices below the public
offering price during the twelve months immediately preceding the filing of the
Corporation's initial Registration Statement and through the effective date of
such Registration Statement to be calculated using the treasury stock method
based upon the estimated initial public offering price, and to be included for
all periods presented regardless of whether they are dilutive. The Corporation
has adopted SAB 98 and, accordingly, all EPS data has been restated as required.
The following is a reconciliation between net income and net income
available to common stockholders used in the numerator for basic EPS for the
three and six months ended June 30:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS
JUNE 30, ENDED JUNE 30,
1997 1998 1997 1998
---- ---- ---- ----
(IN THOUSANDS)
<S><C>
Net income............................... $ 1,088 $ 1,318 $1,778 $2,324
Assumed dividends paid to preferred
stockholders............................. (35) --- (70) ---
-------- ------- ------- ------
Net income available to common stockholders $ 1,053 $ 1,318 $1,708 $2,324
======= ======= ====== ======
</TABLE>
7
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The following is a reconciliation between net income available to common
stockholders and net income available per common and common equivalent
stockholders used in the numerator for diluted EPS for the three and six months
ended June 30:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS
JUNE 30, ENDED JUNE 30,
1997 1998 1997 1998
------- ------- ------- ------
(IN THOUSANDS)
<S><C>
Net income available to common
stockholders............................. $1,053 $1,318 $1,708 $2,324
Assumed dividends paid to preferred
stockholders............................. 35 --- 70 ---
------ ------ ------ ------
Net income available to common and
common equivalent stockholders........... $1,088 $1,318 $1,778 $2,324
====== ====== ====== ======
</TABLE>
The following is a reconciliation between the weighted average common stock
outstanding denominator used in basic EPS and the weighted average common and
common equivalent shares outstanding denominator used in diluted EPS for the
three and six months ended June 30:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1997 1998 1997 1998
------- ------- ------- ------
(IN THOUSANDS)
<S><C>
Weighted average common stock outstanding 369 7,799 357 7,766
Preferred stock, as if converted......... 4,783 --- 4,788 ---
Stock options, as if converted.......... 695 452 695 570
----- ----- ----- -----
Weighted average common and common
equivalent shares outstanding............ 5,847 8,251 5,840 8,336
===== ===== ===== =====
</TABLE>
(6) INITIAL PUBLIC OFFERING
On August 1, 1997, the Corporation completed its initial public offering of
2,102,014 shares of its common stock (plus an additional 297,986 shares by a
selling stockholder) at an offering price of $15.00 per share. On August 7,
1997, the underwriters exercised an over-allotment option to purchase an
additional 315,302 shares. The net proceeds to the Corporation from the public
offering and the exercise of the over-allotment option by the underwriters,
after deducting the underwriting discounts and commissions and offering expenses
payable by the Corporation, were approximately $32.5 million. Upon the closing
of the offering, all outstanding shares of the Corporation's convertible
preferred stock were automatically converted into 4,778,072 shares of common
stock.
(7) COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). This statement establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. Comprehensive income is
8
<PAGE>
defined as the change in equity of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources. SFAS 130
requires that all components of comprehensive income be reported in the
financial statements in the period in which they are recognized. The statement
requires reclassification of earlier statements in comparative financial
statements and is effective for fiscal years beginning after December 15, 1997.
The Corporation adopted this statement during the first quarter of 1998.
Total comprehensive income amounted to $735,000 for the quarter ended June 30,
1998 and $819,000 for the quarter ended June 30, 1997. For the six months ended
June 30, 1998 and 1997, total comprehensive income amounted to $1,017,000 and
$62,000, respectively.
(8) CAPITAL LEASE OBLIGATIONS
In April 1998, the Corporation entered into certain third-party leasing
and subleasing arrangements relating to the construction of new laboratory
space. These arrangements require the Corporation to make certain noncancelable
lease payments over the next twenty years and to guarantee indebtedness of
approximately $4.4 million. The terms of the arrangements require that the
leases be accounted for as capital leases. The assets underlying such
capitalized leases are included with the Corporation's owned property and
equipment and are summarized as follows as of June 30, 1998 (in thousands):
Land $ 720
Construction in progress 3,554
-----
Total assets at cost 4,274
Less accumulated depreciation ---
------
Net assets $4,274
======
The future minimum lease payments under the capital lease obligations at
June 30, 1998 were as follows (in thousands):
Year ending December 31:
1998 $ ---
1999 260
2000 389
2001 389
2002 389
Thereafter 7,079
-------
Total minimum lease payments 8,506
Less amount representing interest (4,232)
-------
Present value of minimum lease payments 4,274
Less current portion (20)
-------
Long-term portion $ 4,254
=======
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Beginning July 1, 1998, the Corporation was committed to make additional
noncancelable payments totaling approximately $3.3 million including interest
over the next twenty years under terms outlined in the aforementioned
agreements. Additionally, the Corporation's obligation for future lease payments
will increase as additional costs are incurred for the construction of the
space. Such additional amounts are estimated to total $1.6 million including
interest.
(9) NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivatives Instruments and for Hedging Activities." SFAS
No. 133 requires all derivatives to be recorded on the balance sheet at fair
value and establishes "special accounting" for the following three different
types of hedges: hedges of changes in the fair value of assets, liabilities or
firm commitments; hedges of the variable cash flows of forecasted transactions;
and hedges of foreign currency exposures of net investments in foreign
operations. SFAS No. 133 is effective for years beginning after June 15, 1999,
with earlier adoption permitted. The Corporation believes that the effect of
adoption of SFAS No. 133 will not be material.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Private Securities Litigation Reform Act provides a "safe harbor"
for forward-looking statements. Certain statements included in this Quarterly
Report on Form 10-Q are forward-looking. Such forward-looking statements, such
as those related to planned capital expenditures and expansion of operations, in
addition to information contained in Management's Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this Form 10-Q,
are based on the Corporation's current expectations and are subject to a number
of risks and uncertainties that could cause actual future results to differ
significantly from results expressed or implied in any forward-looking
statements contained herein or that may be made from time to time by, or on
behalf of, the Corporation. Information presented in this Form 10-Q should be
read in conjunction with the Corporation's Annual Report on Form 10-K filed with
the Securities and Exchange Commission, including the risk factors contained
therein.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1997
Revenue was $12.7 million in the three months ended June 30, 1998, an
increase of 1% over revenue of $12.6 million in the three months ended June 30,
1997. The increase was primarily attributable to strong revenues in the
BioSafety division, offset by declines elsewhere.
Cost of sales was $6.6 million in the three months ended June 30, 1998,
a decrease of 15% over cost of sales of $7.6 million in the three months ended
June 30, 1997. The decrease was attributable to a favorable mix variance wherein
higher margin BioSafety division revenues made significant additional
contribution.
Selling, general and administrative expense was $3.8 million in the
three months ended June 30, 1998, an increase of 41% over selling, general and
administrative expense of $2.7 million in the three months ended June 30, 1997.
This increase was due primarily to increased legal and accounting
infrastructure, information systems investment, labor and professional services
expenses.
Research and development expense was $347,000 in the three months ended
June 30, 1998, an increase of 7% over research and development expense of
$323,000 in the three months ended June 30, 1997. The increase primarily was
attributable to continuing expansion of biotesting assay development work.
Operating income was $1.9 million in the three months ended June 30,
1998, a decrease of 4% over operating income of $2.0 million in the three months
ended June 30, 1997. The decrease primarily was due to the minor excess of
expenditure growth over the growth of net income.
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The Corporation earned net interest income and other income of $222,000
in the three months ended June 30, 1998, compared to net interest and other
expense of $117,000 in the three months ended June 30, 1997. The improvement was
due primarily to interest earned on IPO cash investments not present in the
quarter ended June 30, 1997.
The provision for income taxes was $813,000 in the three months ended
June 30, 1998, compared to a provision of $776,000 in the three months ended
June 30, 1997. The effective tax rate was 38% for the three months ended June
30, 1998 and 42% for the three months ended June 30, 1997. The tax rate declined
primarily due to a lower proportion of high tax rate earnings from Germany.
Net income was $1.3 million in the three months ended June 30, 1998, an
increase of 21% over net income of $1.1 million in the three months ended June
30, 1997. The increase primarily was due to increased gross margin which can be
attributed to favorable mix variances arising in constituent revenues, and an
increase in interest income, offset by increased operating expenses.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1997
Revenue was $24.6 million in the six months ended June 30, 1998, an
increase of 1% over revenue of $24.4 million in the six months ended June 30,
1997. The increase was attributable to the strength of the BioTesting business
in the U.S. and the establishment of a new BioTesting business in Germany.
Cost of sales was $13.8 million in the six months ended June 30, 1998,
a decrease of 8% over cost of sales of $15.0 million in the six months ended
June 30, 1997. The decrease was attributable primarily to mix variances arising
in constituent revenues and a variety of operating efficiencies as offset by
higher costs in establishing U.S. manufacturing, and other business
developments.
Selling, general and administrative expense was $6.7 million in the six
months ended June 30, 1998, an increase of 26% over selling, general and
administrative expense of $5.3 million in the six months ended June 30, 1997.
This increase was due to increased information systems investment, labor and
professional services and the additional administrative costs of supporting a
public company.
Research and development expense was $733,000 in the six months ended
June 30, 1998, an increase of 17% over research and development expense of
$626,000 in the six months ended June 30, 1997. The increase primarily was
attributable to continuing development and expansion of new biotesting assays.
Operating income was $3.5 million in the six months ended June 30,
1998, an increase of 2% over operating income of $3.4 million in the six months
ended June 30, 1997. The increase primarily was due to the leverage achieved
from the increase in revenue on a high fixed cost structure.
12
<PAGE>
The Corporation earned net interest and other income of $417,000 in the
six months ended June 30, 1998, compared to net interest and other expense of
$317,000 in the six months ended June 30, 1997. The improvement was due
primarily to interest income earned in 1998 on the investment of proceeds
received from the August 1997 Initial Public Offering.
The provision for income taxes was $1.5 million in the six months ended
June 30, 1998, compared to a provision of $1.3 million in the six months ended
June 30, 1997. The effective tax rate was 40% for the six months ended June 30,
1998 and 42% for the six months ended June 30, 1997. The tax rate declined
primarily due to a lower proportion of high tax rate earnings sourced from
Germany compared to earnings sourced from elsewhere.
Net income was $2.3 million in the six months ended June 30, 1998, an
increase of 31% over net income of $1.8 million in the six months ended June 30,
1997. The improvement primarily was due to an increase in revenues, an increase
in gross margin primarily attributable to favorable mix variances, and an
increase in interest income.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Corporation had cash, cash equivalents and
marketable securities of $31.0 million, compared to cash, cash equivalents and
marketable securities of $33.8 million at December 31, 1997.
The Corporation used cash flows in operations of $810,000 in the six
months ended June 30, 1998, compared to a generation of $3.9 million in the six
months ended June 30, 1997. Net income, as adjusted for depreciation and
amortization, loss on disposal of fixed assets, and deferred income taxes,
provided $3.9 million and $4.6 million in the six months ended June 30, 1998 and
1997, respectively. The decrease in adjusted net income was due primarily to the
absence of a deferred income tax adjustment in 1998 which more than offset a
higher net income in the first half of 1998 compared to the same period in 1997.
Changes in current assets and liabilities used cash of $4.6 million and provided
cash of $629,000 in the six months ended June 30, 1998 and 1997, respectively.
Working capital increased to $40.0 million at June 30, 1998, compared
to $38.1 million at December 31, 1997. The net increase in working capital
primarily was due to the reinvestment of earnings during the period, as
reflected in payment of accounts payable and employee related accruals and an
investment in accounts receivable, prepayments and other current assets. Such
items are offset by a decrease in marketable securities.
The Corporation spent $1.5 million for capital expenditures for the six
months ended June 30, 1998, compared to $1.3 million in the six months ended
June 30, 1997 and the six months ended June 30, 1998, respectively. The increase
in capital expenditures reflects the Corporation's investment in information
systems and expansion of the Corporation's laboratory facilities and related
equipment.
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<PAGE>
In April 1998, the Corporation entered into a lease agreement with a
developer to construct and lease a facility adjacent to one of the Corporation's
existing facilities in Rockville, Maryland. The new facility will be used as the
Corporation's headquarters to consolidate existing research and development and
administrative activities, and to provide expanded capacity for Analytical
Services.
In April 1998, the Corporation entered into certain third-party leasing
and subleasing arrangements relating to the construction of the exterior shell
of new biomanufacturing space. These arrangements require the Corporation to
make certain net noncancelable lease payments totaling approximately $11.8
million over the next twenty years and to guarantee indebtedness of
approximately $4.4 million. In addition, the Company intends to incur
approximately $20.0 million in leasehold improvements and laboratory equipment
relating to the new laboratory and the new headquarters facilities. The terms of
the arrangements require that the leases be accounted for as capital leases. The
assets underlying such capitalized leases are included with the Corporation's
owned property and equipment as of June 30, 1998. Property and equipment at June
30, 1998 includes approximately $4.3 million related to such leases. The related
obligation is included in the Corporation's liabilities at June 30, 1998.
The Corporation financed the acquisition of BIOMEVA in July 1996 and
obtained additional funds for working capital and expansion of its business
through a promissory note with NationsBank, N.A. ("NationsBank") in the amount
of $1.8 million and a subordinated note from Sidney R. Knafel, the Corporation's
largest stockholder, in the amount of $1.9 million, which was repaid on March
28, 1997. The NationsBank promissory note has a maturity date of June 30, 1999,
requires monthly principal payments of $30,000, and at June 30, 1998,
approximately $1.1 million was outstanding on the note. The note bears interest
at the same rate as the Mortgage Loan. At June 30, 1998, the interest rate was
6.7%.
In December 1994, the Corporation's existing loan agreement with
NationsBank was modified to provide term loan financing in the amount of
$4,300,000 with a maturity date of November 30, 1999 (the "Mortgage Loan"). In
October 1997 and on April 1, 1998, the Mortgage Loan was modified and restated
to release the foreign subsidiaries from joint and several liability, to include
all the U.S. subsidiaries as joint and several makers, to release the liens
created by the first security interest in all of its tangible and intangible
assets, and to modify the interest rate terms. The Mortgage Loan is secured by a
deed of trust on the Company's facility in Rockville, Maryland. In addition to a
principal payment of $30,000 per month, the note bears interest at the London
Inter-Bank Offering Rate ("LIBOR") plus the applicable LIBOR Rate Additional
Percentage ("LIBOR Rate Option"). The LIBOR Rate Option ranged from 0.85% to
2.15% depending on the Company achieving certain funded debt to EBITDA ratios.
At June 30, 1998 the applicable interest rate was 6.7%. At June 30, 1998,
approximately $3.1 million was outstanding on the loan.
In May 1995, the Company entered into an interest rate swap agreement
whereby the variable interest rate of the Mortgage Loan was effectively
converted into debt with a fixed rate of 9.05% per annum. Amounts to be paid or
received under the interest rate swap agreement are recognized as interest
income or expense in the periods in which they accrue and are recorded in
14
<PAGE>
the same category as that arising from the Mortgage Loan. This agreement expires
on November 30, 1999. The effect of the interest rate swap agreement on interest
expense was not material in the quarters ended June 30, 1997 and 1998.
In addition to the Mortgage Loan, the Company has entered into a
revolving loan agreement with NationsBank with a maximum available balance not
to exceed $1,000,000. Amounts to be paid include interest only on the unpaid
principal sum, payable monthly, and unless paid sooner, the unpaid principal
sum, together with unpaid accrued interest payable in full on May 31, 1998. The
note bears interest at the same rate as the Mortgage Loan. The Company has also
agreed to pay a quarterly commitment fee equaling 0.25% of the average unused
portion of the revolving bank loan. At June 30, 1998, no amounts were
outstanding under the facility. This line of credit expires in May 1999.
The various agreements with NationsBank are cross collateralized and
are secured by a deed of trust on one of the Corporation's facilities in
Rockville, Maryland. The agreements require the Corporation to meet certain
financial and restrictive covenants, including maintaining certain tangible net
worth levels and funded debt to equity ratios.
At December 31, 1997, the Corporation had formulated capital spending
plans of approximately $25 million, primarily for biomanufacturing facilities,
the consolidation of headquarter and certain biotesting facilities and the
continuing development of computer information systems. To the extent these
plans are confirmed, if external funds are available on favorable terms and
conditions, a significant proportion of the potential expenditure may be
financed from third parties.
At June 30, 1998, the Corporation had commitments to spend
approximately $253,000 for computer systems, software and integration related to
the development of new information and telecommunication systems, approximately
$577,000 for building and leasehold improvement costs, and approximately $97,000
for laboratory equipment.
The Corporation expects to continue expanding its operations through
internal growth, geographic expansion and possible strategic acquisitions. The
Corporation expects that such activities will be funded from existing cash, cash
equivalents and marketable securities; cash flows from operations; and bank
borrowings and lease financing. Although the Corporation has no agreements or
arrangements in place with respect to any future acquisition, there may be
acquisition or other growth opportunities that require additional external
financing, and the Corporation may, from time to time, seek to obtain funds from
public or private issuances of equity or debt securities. There can be no
assurances that such financing will be available on terms acceptable to the
Corporation.
Based on its current operating plan, the Corporation believes that
available liquid resources are sufficient to meet its foreseeable cash needs.
15
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FOREIGN CURRENCY
The accounts of foreign subsidiaries are measured using local currency
as the functional currency. Assets and liabilities of these subsidiaries are
translated into U.S. dollars at period-end exchange rates, and income and
expense accounts are translated at average monthly exchange rates. Net gains and
losses resulting from such translations are included in comprehensive income and
are accumulated in a separate component of stockholders' equity.
YEAR 2000
An issue affecting the Corporation and most other corporations is
whether computer systems will recognize and process dates beginning with the
year 2000. If not corrected, many computer applications could fail or create
erroneous results. The Corporation is currently in the process of evaluating its
computer software, hardware and other equipment incorporating computer
applications to determine whether or not modifications or contingency plans will
be required to avoid problems related to the year 2000. The Corporation has
formed a task force to coordinate its year 2000 assessment. The Corporation's
successful avoidance of year 2000 problems will depend in part on the year 2000
efforts undertaken by its vendors and other entities with which the Corporation
interacts. In addition to evaluating the Corporation's internal systems for
potential year 2000 issues, the task force is taking steps to determine the
status of these other entities' year 2000 compliance. At this time, the
Corporation has not yet determined the cost of evaluating its year 2000 issues
or of making any necessary modifications or contingency plans, but, based on the
information it currently has, the incremental costs are not presently expected
to materially adversely affect the Corporation's financial condition.
16
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PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
As of June 30, 1998 the Corporation had used approximately $3.2
million of the net proceeds from the Corporation's initial public offering
toward debt repayment and purchases of laboratory equipment and information
systems hardware and software.
At June 30, 1998, approximately $26.5 million of the net proceeds of
the initial public offering were invested in short-term United States government
securities, and the balance was invested in money market funds pending the
purchase of additional United States government securities or in other operating
accounts of the Corporation.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders held on May 21, 1998, the
shareholders reelected Messrs. Louttit and Gedale as directors of the
Corporation to terms expiring in 2001, and ratified the appointment of
PricewaterhouseCoopers LLP (formerly Price Waterhouse LLP) as the Corporation's
auditors.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The documents required to be filed as exhibits to this report
under Item 601 of Regulation S-K are listed in the Exhibit Index included
elsewhere in this report, which list is incorporated herein by reference.
(b) Reports on Form 8-K
None
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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.
Dated: August 14, 1998
BioReliance Corporation
(Registrant)
By __________________________________
Capers W. McDonald
President and Chief Executive Officer
By __________________________________
Michael R.N. Thomas
Vice President,
Chief Financial Officer and Treasurer
(Principal Financial and
Accounting Officer)
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
10.32 BioReliance Corporation 1997 Incentive Stock Plan
(As Adopted May 28, 1997 and Amended and Restated
September 24, 1997 and May 21, 1998)
19
BIORELIANCE CORPORATION
1997 INCENTIVE PLAN
(As Adopted May 28, 1997
and Amended and Restated September 24, 1997
and May 21, 1998)
<PAGE>
EXHIBIT 10.32
BIORELIANCE CORPORATION
1997 INCENTIVE PLAN
1. Purpose. The purpose of this Plan is to strengthen BioReliance
Corporation, a Delaware corporation (the "Company"), by providing an incentive
to its employees, officers, consultants and directors and thereby encouraging
them to devote their abilities and industry to the success of the Company's
business enterprise. It is intended that this purpose be achieved by extending
to employees, officers, consultants and directors of the Company and its
Subsidiaries a long-term incentive for high levels of performance and unusual
efforts through the grant of Incentive Stock Options, Nonqualified Stock
Options, Stock Appreciation Rights, Dividend Equivalent Rights, Performance
Awards and/or Restricted Stock (as each term is herein defined). After the
Effective Date of this Plan, no further awards shall be made under any of the
Former Plans. Each award outstanding under a Former Plan as of the Effective
Date of this Plan shall remain outstanding and continue to be subject to the
terms of the Former Plan and the award agreement under which such award was
granted. Each Share that is available for the granting of new awards under
either of the Former Plans as of the Effective Date of this Plan and each Share
that is the subject of an award under either of the Former Plans but is not
issued prior to the time that such award expires or otherwise terminates shall,
after the Effective Date of this Plan, not be available for the granting of
awards under either of the Former Plans, but shall instead be available for the
granting of Options under this Plan.
2. Definitions. For purposes of the Plan:
2.1 "Adjusted Fair Market Value" means, in the event of a Change in
Control, the greater of (i) the highest price per Share paid to holders of the
Shares in any transaction (or series of transactions) constituting or resulting
in a Change in Control or (ii) the highest Fair Market Value of a Share during
the sixty (60) day period ending on the date of a Change in Control.
2.2 "Affiliate" means any entity, directly or indirectly, controlled
by, controlling or under common control with the Company or any corporation or
other entity acquiring, directly or indirectly, all or substantially all the
assets and business of the Company, whether by operation of law or otherwise.
2.3 "Agreement" means the written agreement between the Company and
an Optionee or Grantee evidencing the grant of an Option or Award and setting
forth the terms and conditions thereof.
2.4 "Automatic Option" means an Option granted pursuant to Section
6.
2.5 "Award" means a grant of Restricted Stock, a Stock Appreciation
Right, a Performance Award, a Dividend Equivalent Right or any or all of them.
<PAGE>
2.6 "Beneficial Ownership" means ownership within the meaning of
Rule 13d-3 promulgated under the Exchange Act.
2.7 "Beneficiary" means an individual, trust or estate who or which,
by a written designation of the Optionee or Grantee filed with the Company by
operation of law, succeeds to the rights and obligations of the Optionee or
Grantee under the Plan and an Agreement upon the Optionee's or Grantee's death.
2.8 "Board" means the Board of Directors of the Company.
2.9 "Business Day" means any day on which the New York Stock
Exchange is open for trading.
2.10 "Cause" shall mean:
(a) for purposes of Section 6.4, (i) a willful act which
constitutes gross misconduct or fraud and which is materially injurious to the
Company or (ii) conviction of, or plea of "guilty" or "no contest" to, a felony;
and
(b) in all other cases, either (1) the definition set forth in
the employment agreement between the Optionee or Grantee and the Company, or in
absence thereof, (2) (i) intentional failure to perform reasonably assigned
duties, (ii) dishonesty or willful misconduct in the performance of duties,
(iii) involvement in a transaction in connection with the performance of duties
to the Company or any of its Subsidiaries which transaction is adverse to the
interests of the Company or any of its Subsidiaries and which is engaged in for
personal profit or (iv) willful violation of any law, rule or regulation in
connection with the performance of duties (other than traffic violations or
similar offenses). No act or failure to act shall be considered willful unless
done or omitted to be done in bad faith and without reasonable belief that the
action or omission was in the best interest of the Company.
2.11 "Change in Capitalization" means any increase or reduction in
the number of Shares, or any change (including, without limitation, a change in
value) in the Shares or exchange of Shares for a different number or kind of
shares or other securities of the Company or another corporation, by reason of a
reclassification, recapitalization, merger, consolidation, reorganization,
spin-off, split-up, issuance of warrants or rights or debentures, stock
dividend, stock split or reverse stock split, property dividend, combination or
exchange of shares, change in corporate structure or substantially similar
event.
2.12 A "Change in Control" shall mean the occurrence during the term
of the Plan of any of the following events; provided, however, that the
Committee, in its sole discretion, may specify a more restrictive definition of
Change in Control in any Agreement and, in such event, the definition of Change
in Control set forth in the Agreement shall apply to the Award granted under
such Agreement:
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(1) An acquisition in one or more transactions (other than
directly from the Company or pursuant to options granted under this Plan or
otherwise by the Company) of any voting securities of the Company (the "Voting
Securities") by any Person (other than any member of the Knafel Family)
immediately after which such Person has Beneficial Ownership of (i) thirty
percent (30%) or more of the combined voting power of the Company's then
outstanding Voting Securities and (ii) a number of Voting Securities having
combined voting power greater than the combined voting power of the Voting
Securities then Beneficially Owned by members of the Knafel Family; provided,
however, in determining whether a Change in Control has occurred, Voting
Securities which are acquired in a "Non-Control Acquisition" (as defined below)
shall not constitute an acquisition which would cause a Change in Control. A
"Non-Control Acquisition" shall mean an acquisition by (A) an employee benefit
plan (or a trust forming a part thereof) maintained by (i) the Company or (ii)
any Subsidiary, (B) the Company or any Subsidiary, or (C) any Person in
connection with a "Non-Control Transaction" (as defined below);
(2) The individuals who, as of April 24, 1997, are members of
the Board (the "Incumbent Board"), cease for any reason to constitute at least
two-thirds of the Board; provided, however, that if the election, or nomination
for election by the Company's stockholders, of any new director was approved by
a vote of at least two-thirds of the Incumbent Board, such new director shall,
for purposes of the Plan, be considered as a member of the Incumbent Board;
provided, further, however, that no individual shall be considered a member of
the Incumbent Board if such individual initially assumed office as a result of
either an actual or threatened "Election Contest" (as described in Rule 14a-11
promulgated under the Exchange Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board (a
"Proxy Contest") including by reason of any agreement intended to avoid or
settle any Election Contest or Proxy Contest; or
(3) Consummation of:
(A) A merger, consolidation or reorganization involving the
Company, unless
(i) the stockholders of the Company immediately before
such merger, consolidation or reorganization own, directly or indirectly,
immediately following such merger, consolidation or reorganization, more than
fifty percent (50%) of the combined voting power of the outstanding voting
securities of the corporation resulting from such merger or consolidation or
reorganization (the "Surviving Corporation") in substantially the same
proportion as their ownership of the Voting Securities immediately before such
merger, consolidation or reorganization;
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(ii) the individuals who were members of the Incumbent
Board immediately prior to the execution of the agreement providing for such
merger, consolidation or reorganization constitute at least two-thirds of the
members of the governing board of directors of the Surviving Corporation;
(iii) no Person (other than the Company or any
Subsidiary, any employee benefit plan (or any trust forming a part thereof)
maintained by the Company, the Surviving Corporation or any Subsidiary, or any
Person who, immediately prior to such merger, consolidation or reorganization
had Beneficial Ownership of twenty percent (20%) or more of the then outstanding
Voting Securities) has Beneficial Ownership of twenty percent (20%) or more of
the combined voting power of the Surviving Corporation's then outstanding voting
securities; and
(iv) a transaction described in clauses (i) through
(iii) shall herein be referred to as a "Non-Control Transaction";
(B) A complete liquidation or dissolution of the Company;
or
(C) An agreement for the sale or other disposition of all
or substantially all of the assets of the Company to any Person (other than a
transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
solely because any Person (the "Subject Person") acquired Beneficial Ownership
of more than the permitted amount of the outstanding Voting Securities as a
result of the acquisition of Voting Securities by the Company which, by reducing
the number of Voting Securities outstanding, increases the proportional number
of shares beneficially owned by the Subject Person; provided, however, that if a
Change in Control would occur (but for the operation of this sentence) as a
result of the acquisition of Voting Securities by the Company, and after such
share acquisition by the Company, the Subject Person becomes the Beneficial
Owner of any additional Voting Securities which increases the percentage of the
then outstanding Voting Securities beneficially owned by the Subject Person,
then a Change in Control shall occur.
2.13 "Code" means the Internal Revenue Code of 1986, as amended.
2.14 "Committee" means a committee, as described in Section 3.1,
appointed by the Board from time to time to administer the Plan and to perform
the functions set forth herein.
2.15 "Company" means BioReliance Corporation, a Delaware
corporation.
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<PAGE>
2.16 "Date of Grant" means the date designated by the Committee as
the date as of which it grants an Option or Award, which shall not be earlier
than the date on which the Committee approves the granting of such Option or
Award.
2.17 "Director" means a director of the Company.
2.18 "Disability" means:
(a) in the case of an Optionee or Grantee whose employment with
the Company or a Subsidiary is subject to the terms of an employment agreement
between such Optionee or Grantee and the Company or Subsidiary, which employment
agreement includes a definition of "Disability", the term "Disability" as used
in this Plan or any Agreement shall have the meaning set forth in such
employment agreement during the period that such employment agreement remains in
effect; and
(b) in all other cases, the term "Disability" as used in this
Plan or any Agreement shall mean a physical or mental infirmity which impairs
the Optionee's or Grantee's ability to perform substantially his or her duties
for a period of one hundred eighty (180) consecutive days.
2.19 "Disability Date" means the date which is six months after the
date on which an Optionee or Grantee is first absent from active employment with
the Company by reason of a Disability.
2.20 "Discretionary Option" means an Option granted pursuant to
Section 5.
2.21 "Dividend Equivalent Right" means a right to receive all or
some portion of the cash dividends that are or would be payable with respect to
Shares.
2.22 "Division" means any of the operating units or divisions of the
Company designated as a Division by the Committee.
2.23 "Eligible Individual" means any of the following individuals
who is designated by the Committee as eligible to receive Options subject to the
conditions set forth herein: (a) any director (including any Non-Employee
Director), officer or employee of the company or a Subsidiary, (b) any
individual to whom the Company or a Subsidiary has extended a formal, written
offer of employment, or (c) any consultant or advisor who performs actual
services for the Company or a Subsidiary.
2.24 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.25 "Fair Market Value" on any date means the closing price of the
Shares on such date on the principal national securities exchange on which such
Shares are listed or admitted to trading, or, if such Shares are not so listed
or admitted to trading, the closing
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<PAGE>
price on such date as quoted on the Nasdaq National Market or such other market
in which such prices are regularly quoted, or, if there have been no published
bid or asked quotations with respect to Shares on such date, the Fair Market
Value shall be the value established by the Board in good faith and, in the case
of an Incentive Stock Option, in accordance with Section 422 of the Code.
2.26 "Former Plans" means the Microbiological Associates, Inc. 1988
Incentive Stock Option Plan, the Microbiological Associates, Inc. 1995
Non-Qualified Stock Option Plan, and the Magenta Corporation 1994 Incentive
Stock Option Plan.
2.27 "Grantee" means a person to whom an Award has been granted
under the Plan.
2.28 "Incentive Stock Option" means an Option satisfying the
requirements of Section 422 of the Code and designated by the Committee as an
Incentive Stock Option.
2.29 "Knafel Family" means (i) Sidney R. Knafel and/or members of
his "immediate family" (as defined in Rule 16a-1 promulgated under the Exchange
Act), (ii) a trust solely for the benefit of any of the individuals referred to
in clause (i) above; (iii) the guardian, conservator, estate or other legal
representative of any of the individuals referred to in clause (i) above; and
(iv) any corporation, partnership, limited liability company or other entity all
of the outstanding equity securities of which are owned, directly or indirectly,
by the individuals or entities referred to in clause (i), (ii) or (iii) above.
2.30 "Non-Employee Director" means a director of the Company who is
a "Non-employee director" within the meaning of Rule 16b-3 promulgated under the
Exchange Act.
2.31 "Nonqualified Stock Option" means an Option which is not an
Incentive Stock Option.
2.32 "Normal Retirement Date" means the date on which an Optionee or
Grantee terminates active employment with the Company on or after attainment of
age 65, but does not include termination by the Company for Cause.
2.33 "Option" means a Nonqualified Stock Option, an Incentive Stock
Option, a Discretionary Option, an Automatic Option, or any or all of them.
2.34 "Optionee" means a person to whom an Option has been granted
under the Plan.
2.35 "Outside Director" means a director of the Company who is an
"Outside Director" within the meaning of Section 162(m) of the Code and the
regulations promulgated thereunder.
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2.36 "Parent" means any corporation which is a parent corporation
(within the meaning of Section 424(e) of the Code) with respect to the Company.
2.37 "Performance Awards" means Performance Units, Performance
Shares or either or both of them.
2.38 "Performance Cycle" means the time period specified by the
Committee at the time Performance Awards are granted during which the
performance of the Company, a Subsidiary or a Division will be measured.
2.39 "Performance Objectives" has the meaning set forth in Section
11.
2.40 "Performance Shares" means Shares issued or transferred to an
Eligible Individual under Section 11.
2.41 "Performance Units" means Performance Units granted to an
Eligible Individual under Section 11.
2.42 "Person" means "person" as such term is used for purposes of
Section 13(d) or 14(d) of the Exchange Act, including, without limitation, any
individual, firm, corporation, partnership, limited liability company, joint
venture, association, trust or other entity, or any group of Persons.
2.43 "Plan" means the BioReliance Corporation 1997 Incentive Plan,
as amended and restated from time to time.
2.44 "Pooling Transaction" means an acquisition of the Company in a
transaction which is intended to be treated as a "pooling of interests" under
generally accepted accounting principles.
2.45 "Restricted Stock" means Shares issued or transferred to an
Eligible Individual pursuant to Section 10.
2.46 "Scientific Advisory Board" means the Scientific Advisory Board
of the Company.
2.47 "Shares" means the common stock, par value $.01 per share, of
the Company.
2.48 "Stock Appreciation Right" means a right to receive all or some
portion of the increase in the value of the Shares as provided in Section 8
hereof.
2.49 "Subsidiary" means any corporation or other Person of which a
majority of its voting power or its equity securities or equity interest is
owned directly or indirectly by the Company.
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<PAGE>
2.50 "Successor Corporation" means a corporation, or a parent or
subsidiary thereof within the meaning of Section 424(a) of the Code, which
issues or assumes a stock option in a transaction to which Section 424(a) of the
Code applies.
2.51 "Ten-Percent Stockholder" means an Eligible Individual, who, at
the time an Incentive Stock Option is to be granted to him or her, owns (within
the meaning of Section 422(b)(6) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company, or of a Parent or a Subsidiary.
2.52 "Termination of Employment" means the later of (i) a severance
of the employer-employee relationship with the Company or (ii) the resignation,
removal or termination of an officer of the Company.
2.53 For the purpose of UK Approved Options, the following terms and
modifications shall apply, namely:
Agreement shall include an option certificate issued
pursuant to Section 5.1 of the Plan.
Beneficiary shall include the Optionee's legal personal
representatives or executors (but so that, in the
event of the insolvency of an Optionee, all his UK
Approved Options shall lapse).
Change in Capitalization means a spin-off or other change which does not
cause a variation of share capital of the Company,
shall not result in an adjustment to the number,
price or other terms of UK Approved Options, nor
shall any such adjustments be made without the
prior approval of the UK Inland Revenue.
Dividend Equivalent Right means a UK Approved Option shall not carry a
Dividend Equivalent Right.
Eligible Employee means an employee (including a Full-Time director)
of the Company or a Subsidiary who is resident or
ordinarily resident in the United Kingdom at the
Date of Grant of his Option, but excluding any
Excluded Person.
Excluded Person means any person who has (or within the preceding
12 months has had) a material interest in the
Company (if then a close company within the
meaning of Schedule 9 to the Taxes Act) or a
company which is a close company and either
controls the Company or is a member of a
consortium which owns the Company.
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Full-Time means an employee required under the terms of his
or her employment to work for his or her employing
company or companies for at least 25 hours per
week (excluding meal breaks).
Option shall include a UK Approved Option unless
otherwise stated in the Plan.
Performance Award The grant of a UK Approved Option shall not
include a Performance Award.
Stock Appreciation Right The grant of a UK Approved Option shall not
include a Stock Appreciation Right.
Taxes Act Income and Corporation Taxes Act 1988 of the
United Kingdom.
UK Approved Option means a non-transferable right to acquire Shares
granted to an Eligible Employee pursuant to
Section 5 of the Plan and for the time being
subsisting.
3. Administration.
3.1 The Plan shall be administered by the Committee, which shall hold
meetings at such times as may be necessary for the proper administration of the
Plan. The Committee shall keep minutes of its meetings. A quorum shall consist
of not fewer than two members of the Committee and a majority of a quorum may
authorize any action. Any decision or determination reduced to writing and
signed by a majority of all of the members of the Committee shall be as fully
effective as if made by a majority vote at a meeting duly called and held. The
Committee shall consist of at least two (2) directors of the Company and may
consist of the entire Board; provided, however, that (A) if the Committee
consists of less than the entire Board, each member shall be a Non-employee
Director and (B) to the extent necessary for any Option or Award intended to
qualify as performance-based compensation under Section 162(m) of the Code to so
qualify, each member of the Committee, whether or not it consists of the entire
Board, shall be an Outside Director. No member of the Committee shall be liable
for any action, failure to act, determination or interpretation made in good
faith with respect to this Plan or any transaction hereunder, except for
liability arising from his or her own willful misfeasance, gross negligence or
reckless disregard of his or her duties. The Company hereby agrees to indemnify
each member of the Committee for all costs and expenses and, to the extent
permitted by applicable law, any liability incurred in connection with defending
against, responding to, negotiating for the settlement of or otherwise dealing
with any claim, cause of action or dispute of any kind arising in connection
with any actions in administering this Plan or in authorizing or denying
authorization to any transaction hereunder.
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3.2 Subject to the express terms and conditions set forth herein,
the Committee shall have the power from time to time to:
(a) determine those Eligible Individuals to whom Discretionary
Options may be granted under the Plan and the number of such Discretionary
Options to be granted and to prescribe the terms and conditions (which need not
be identical) of each such Discretionary Option, including the purchase price
per Share subject to each Discretionary Option, and make any amendment or
modification to any applicable Agreement consistent with the terms of the Plan;
(b) select those Eligible Individuals to whom Awards shall be
granted under the Plan and to determine the number of Stock Appreciation Rights,
Performance Awards, Shares of Restricted Stock and/or Dividend Equivalent Rights
to be granted pursuant to each Award, the terms and conditions of each Award,
including the restrictions or Performance Objectives relating to Awards and the
maximum value of any Award, and make any amendment or modification to any
Agreement consistent with the terms of the Plan;
(c) accelerate a Discretionary Option or Award and to waive
restrictive conditions for a Discretionary Option or Award (including, without
limitation, any forfeiture conditions), in such circumstances as the Committee
deems appropriate, subject to any express limitations of the Plan, including,
without limitation, Section 16(b); provided, however, that nothing in this
Section 3.2(c) shall be construed to limit the Committee's authority under other
provisions of the Plan. In the case of any acceleration of a Discretionary
Option or Award after the attainment of the applicable Performance Objective(s),
the amount payable shall be discounted to its present value using an interest
rate equal to Moody's Average Corporate Bond Yield for the month preceding the
month in which such acceleration occurs. This paragraph shall not apply in
respect of a UK Approved Option;
(d) to construe and interpret the Plan and the Options and
Awards granted hereunder and to establish, amend and revoke rules and
regulations for the administration of the Plan, including, without limitation,
correcting any defect or supplying any omission, or reconciling any
inconsistency in the Plan or in any Agreement, in the manner and to the extent
it shall deem necessary or advisable so that the Plan complies with applicable
law including Rule 16b-3 under the Exchange Act and the Code to the extent
applicable, and otherwise to make the Plan fully effective. All decisions and
determinations by the Committee in the exercise of this power shall be final,
binding and conclusive upon the Company, its Subsidiaries, the Optionees and
Grantees, and all other persons having any interest therein;
(e) to determine the duration and purposes for leaves of absence
which may be granted to an Optionee or Grantee on an individual basis without
constituting a termination of employment or service for purposes of the Plan;
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(f) to exercise its sole discretion with respect to the powers
and rights granted to it as set forth in the Plan; and
(g) generally, to exercise such powers and to perform such acts
as are deemed necessary or advisable to promote the best interests of the
Company with respect to the Plan.
4. Stock Subject to the Plan.
4.1 The maximum number of Shares that may be made the subject of
Options and Awards granted under the Plan is 500,000 Shares, plus the aggregate
number of Shares that would have been available for new awards under the Former
Plans after the Effective Date of this Plan (but for the prospective termination
of the Former Plans), including the Shares that were available for new grants
under each of the Former Plans as of the Effective Date of this Plan and the
Shares that are subject to awards granted under either of the Former Plans which
Shares are not issued prior to the expiration or other termination of such
awards (including Shares subject to awards that expire or terminate after the
expiration of the term of a Former Plan); provided, however, that in the
aggregate, not more than one-third of the number of allotted Shares may be made
the subject of Restricted Stock Awards under Section 10 of the Plan; and
provided, further, that the aggregate Fair Market Value of the Shares with
respect to which Incentive Stock Options granted under the Plan become
exercisable for the first time by an Optionee during any calendar year shall not
exceed $100,000. Upon a Change in Capitalization, the maximum number of Shares
referred to in the preceding sentence shall be adjusted in number and kind
pursuant to Section 13. The Company shall reserve for the purposes of the Plan,
out of its authorized but unissued Shares or out of Shares held in the Company's
treasury, or partly out of each, such number of Shares as shall be determined by
the Board.
4.2 Upon the granting of an Option or an Award, the number of Shares
available under Section 4.1 for the granting of further Options and Awards shall
be reduced as follows:
(a) In connection with the granting of an Option or an Award
(other than the granting of a Performance Unit denominated in dollars), the
number of Shares shall be reduced by the number of Shares in respect of which
the Option or Award is granted or denominated.
(b) In connection with the granting of a Performance Unit
denominated in dollars, the number of Shares shall be reduced by an amount equal
to the quotient of (i) the dollar amount in which the Performance Unit is
denominated, divided by (ii) the Fair Market Value of a Share on the date the
Performance Unit is granted.
4.3 Whenever any outstanding Option or Award or portion thereof
expires, is canceled or is otherwise terminated for any reason without having
been exercised or payment having been made in respect of the entire Option or
Award (including any
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outstanding Options under any of the Former Plans), the Shares allocable to the
expired, canceled or otherwise terminated portion of the Option or Award may
again be the subject of Options or Awards granted hereunder.
5. Option Grants for Eligible Individuals.
5.1 Authority of Committee. (a) Subject to the provisions of the
Plan, the Committee shall have full and final authority to select those Eligible
Individuals who will receive Discretionary Options, and the terms and conditions
of the grant to such Eligible Individuals shall be set forth in an Agreement.
The terms and conditions of UK Approved Options shall be set forth in a
certificate executed as a deed by the Company and UK Approved Options may only
be granted to Eligible Employees.
(b) Notwithstanding any provision of this Section 5, any
Discretionary Option granted under this Section 5 to an Eligible Individual who
is a Non-Employee Director shall be governed by the duration and termination
provisions set forth in Sections 6.4(a) - (e) of the Plan or such other duration
and termination provisions as determined by the Committee and set forth in an
Agreement.
5.2 Purchase Price. The purchase price (which may be greater than,
less than or equal to the Fair Market Value on the Date of Grant) or the manner
in which the purchase price is to be determined for Shares under each
Discretionary Option shall be determined by the Committee and set forth in the
Agreement; provided, however, that the purchase price per Share under each
Incentive Stock Option shall not be less than 100% of the Fair Market Value of a
Share on the Date of Grant (110% in the case of an Incentive Stock Option
granted to a Ten-Percent Stockholder).
(a) The purchase price of a Share under a UK Approved Option
shall be not less than:
(i) its market value as determined by the Committee in
accordance with the provisions of Part VIII of the Taxation of Chargeable Gains
Act 1992 of the United Kingdom and approved prior to the grant of the related UK
Approved Option by the Shares Valuation Division of the UK Inland Revenue; or
(ii) its nominal amount or (when applicable) such price as
from time to time adjusted pursuant to the Plan.
(b) No UK Approved Option shall be granted under this Plan to an
Eligible Employee if the aggregate purchase price of the Shares comprised
therein, when added to the aggregate of the amounts for which shares of the
Company may be acquired under any subsisting UK Approved Options granted to him
under the Plan or any other scheme (not being a savings-related share option
scheme) approved under Schedule 9 to the Taxes Act and established by the
Company or a Subsidiary, would exceed, or further exceed,
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pounds sterling 30,000 or such other limit as may apply from time to time under
paragraph 28 of Schedule 9 to the Taxes Act (the "Limit"). For the purposes of
determining whether an Option is subject to the Limit, Options which fell to be
treated under the provisions of Section 115 of the Finance Act 1996 of the
United Kingdom as unapproved options shall be treated as having been granted
under a scheme other than one which is approved under Schedule 9 to the Taxes
Act.
5.3 Maximum Duration. Discretionary Options granted hereunder shall
be for such term as the Committee shall determine, provided that an Incentive
Stock Option shall not be exercisable after the expiration of ten (10) years
from the date it is granted (five (5) years in the case of an Incentive Stock
Option granted to a Ten-Percent Stockholder) and a Nonqualified Stock Option
shall not be exercisable after the expiration of ten (10) years from the Date of
Grant. The Committee may, subsequent to the granting of any Discretionary Option
(other than a UK Approved Option), extend the term thereof, but in no event
shall the term as so extended exceed the maximum term provided for in the
preceding sentence.
5.4 Exercisability. Subject to Sections 5.5 and 7.3, each
Discretionary Option shall become exercisable in such installments (which need
not be equal) and at such times as may be designated by the Committee and set
forth in the Agreement. To the extent not exercised, installments shall
accumulate and be exercisable, in whole or in part, at any time after becoming
exercisable, but not later than the date the Discretionary Option expires. No UK
Approved Option shall become exercisable in any circumstances by an Optionee who
is at the time of such intended exercise an Excluded Person.
5.5 Termination. Except as provided in Sections 5.1(b) and 12, and
unless otherwise provided by the Committee, in its sole discretion, in the
applicable Agreement, the following provisions shall apply to Discretionary
Options upon a Termination of Employment:
(a) Subject to Section 5.3 and except as provided in Section 5.5(d),
unless otherwise determined by the Committee at the time of grant (and set forth
in the applicable Agreement) or at a later date, except in the case of
Disability, retirement on or after the Optionee's Normal Retirement Date and
death as provided in Sections 5.5(b) and 5.5(c) below, if an Optionee of a
Discretionary Option has a Termination of Employment with the Company or a
Subsidiary, any unexercised Discretionary Option held by such Optionee shall
expire ninety (90) days after the Optionee has a Termination of Employment for
any reason other than a termination for Cause, and such Discretionary Option may
only be exercised by the Optionee or his or her Beneficiary to the extent that
the Discretionary Option or a portion thereof was exercisable on the date of
Termination of Employment; provided, however, that no Discretionary Option may
be exercised after the expiration date specified for the particular
Discretionary Option in the Discretionary Option grant. If the Optionee's
Termination of Employment arises as a result of a termination for Cause, then,
unless the Committee determines otherwise at the time of the Termination of
Employment,
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any unexercised Options held by such Optionee shall terminate and expire
concurrently with the Optionee's Termination of Employment.
(b) Subject to Section 5.3, unless otherwise determined by the
Committee at the time of grant (and set forth in the applicable Agreement) or at
a later date, if an Optionee becomes disabled within the meaning of Section 2.17
hereof or retires on or after the Optionee's Normal Retirement Date, any
unexercised Discretionary Option held by such disabled or retired Optionee shall
expire one (1) year after the Disability Date or date of Termination of
Employment by reason of retirement, as the case may be, and such Option may only
be exercised by the Optionee or his or her Beneficiary to the extent that the
Discretionary Option or a portion thereof was exercisable on the Disability Date
or the date of Termination of Employment by reason of retirement, as the case
may be; provided, however, no Discretionary Option may be exercised after the
expiration date specified for the particular Discretionary Option in the
Discretionary Option grant.
(c) Subject to Section 5.3, unless otherwise determined by the
Committee at the time of grant (and set forth in the applicable Agreement) or at
a later date, if an Optionee dies while still employed by the Company, the
Options which the Optionee was entitled to exercise on the date of the
Optionee's death may be exercised at any time after the Optionee's death by the
Optionee's Beneficiary; provided, however, that no Option may be exercised after
the earlier of: (i) one (1) year after the Optionee's death or (ii) the
expiration date specified for the particular Option in the Option Agreement. If
an Optionee dies after his or her Termination of Employment, then the Options
which the Optionee was entitled to exercise on the date of the Optionee's death
may be exercised by his or her Beneficiary within the period specified in
Sections 5.5(a) or 5.5(b), as the case may be.
(d) Subject to Section 5.3, upon an Optionee's Termination of
Employment following a Change in Control, each Option held by the Optionee that
was exercisable as of the date of such Termination of Employment shall remain
exercisable for a period ending not before the earlier of (A) the first
anniversary of the Termination of Employment or (B) the expiration of the stated
term of the Option.
5.6 Modification. No modification of a Discretionary Option shall
adversely alter or impair any rights or obligations under the Discretionary
Option without the Optionee's consent.
6. Automatic Option Grants for Non-Employee Directors, Committee
Chairpersons and Scientific Advisory Board Members.
6.1 Grant. Automatic Options shall be granted (i) to each
Non-Employee Director who becomes a member of the Board after April 24, 1997
upon election or appointment, (ii) to each Non-Employee Director who is a member
of the Board, (iii) to each Non-Employee Director who is the chairperson of a
committee of the Board, (iv) to each member of the Scientific Advisory Board
who becomes a member of the Scientific Advisory
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Board after April 24, 1997 upon election or appointment and (v) to each member
of the Scientific Advisory Board, as follows:
(a) Initial Grant. Each Non-Employee Director who becomes a
Director after April 24, 1997 shall, upon becoming a Director, be granted an
Automatic Option in respect of 2,000 Shares and each member of the Scientific
Advisory Board who becomes a member of the Scientific Advisory Board after April
24, 1997 shall, upon becoming a member of the Scientific Advisory Board, be
granted an Automatic Option in respect of 1,000 Shares.
(b) Annual Grants to Non-Employee Directors and Members of the
Scientific Advisory Board. Each Non-Employee Director shall be granted an
Automatic Option in respect of 1,000 Shares annually on the first Business Day
on or after January 1 of each calendar year that the Plan is in effect provided
that the Non-Employee Director is a Director on such date and each member of the
Scientific Advisory Board shall be granted an Automatic Option in respect of 500
Shares annually on the first Business Day on or after January 1 of each calendar
year that the Plan is in effect provided that the member of the Scientific
Advisory Board is a member on such date; provided, however, that a Director or
member of the Scientific Advisory Board shall not be entitled to receive an
annual grant pursuant to this Section 6.1(b) for the calendar year in which such
Director or member of the Scientific Advisory Board is first elected or
appointed to the Board or to the Scientific Advisory Board, as the case may be.
(c) Annual Grants to Committee Chairpersons. Each Non-Employee
Director who, in accordance with the Bylaws of the Company, serves as a
chairperson of any committee of the Board as of the first Business Day on or
after January 1 of each calendar year that the Plan is in effect shall, on such
date, be granted an Automatic Option in respect of 500 Shares.
(d) Terms and Conditions. All Automatic Options granted pursuant
to this Section 6 shall be evidenced by an Agreement containing such other terms
and conditions not inconsistent with the provisions of this Plan as determined
by the Board; provided, however, that such terms shall not vary the price,
amount or timing of the Automatic Options provided under this Section 6,
including provisions dealing with vesting, forfeiture and termination of such
Automatic Options.
6.2 Purchase Price. The purchase price for Shares under each
Automatic Option shall be equal to 100% of the Fair Market Value of such Shares
on the Date of Grant.
6.3 Vesting. Subject to Sections 6.4 and 7.3, each Automatic Option
granted after May 21, 1998 shall vest in one-third increments on each of the
first three anniversaries of the Grant Date; provided, however, that the
Optionee continues to serve as a Director or member of the Scientific Advisory
Board (as the case may be) as of such date. If an Optionee ceases to serve as a
Director or member of the Scientific Advisory Board (as
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the case may be) for any reason, the Optionee shall have no rights with respect
to any Automatic Option (or portion thereof) which has not then vested pursuant
to the preceding sentence and the Optionee shall automatically forfeit any
Automatic Option (or portion thereof) which remains unvested.
6.4 Duration. Each Automatic Option (and, with respect to
Non-Employee Directors, each Discretionary Option) shall terminate on the date
which is the tenth anniversary of the Date of Grant, unless terminated earlier
as follows:
(a) If an Optionee's service as a Director or member of the
Scientific Advisory Board terminates for any reason other than Disability, death
or Cause, the Optionee may for a period of three (3) months after such
termination exercise his or her Option to the extent, and only to the extent,
that such Option or portion thereof was vested and exercisable as of the date
the Optionee's service as a Director or member of the Scientific Advisory Board
terminated, after which time the Option shall automatically terminate in full.
(b) If an Optionee's service as a Director or member of the
Scientific Advisory Board terminates by reason of the Optionee's resignation or
removal due to Disability, the Optionee may, for a period of one (1) year after
such termination, exercise his or her Option to the extent, and only to the
extent, that such Option or portion thereof was vested and exercisable, as of
the date the Optionee's service as Director or member of the Scientific Advisory
Board terminated, after which time the Option shall automatically terminate in
full.
(c) If an Optionee's service as a Director or member of the
Scientific Advisory Board terminates for Cause, the Option granted to the
Optionee hereunder shall immediately terminate in full and no rights thereunder
may be exercised.
(d) If an Optionee dies while a Director or member of the
Scientific Advisory Board or within three (3) months after termination of
service as a Director or member of the Scientific Advisory Board as described in
clause (a) of this Section 6.4 or within twelve (12) months after termination of
service as a Director or member of the Scientific Advisory Board as described in
clause (b) of this Section 6.4, the Option granted to the Optionee may be
exercised at any time within twelve (12) months after the Optionee's death by
the person or persons to whom such rights under the Option shall pass by will,
or by the laws of descent or distribution, after which time the Option shall
terminate in full; provided, however, that an Option may be exercised to the
extent, and only to the extent, that the Option or portion thereof was
exercisable on the date of death or earlier termination of the Optionee's
services as a Director or member of the Scientific Advisory Board.
(e) In the event an Optionee's service as a Director or member of
the Scientific Advisory Board of the Company is terminated by the Company
following a Change in Control, each Option held by the Optionee that was
exercisable as of the date of termination of the Optionee's service shall remain
exercisable for a period ending not before
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the earlier of (A) the first anniversary of the termination of the Optionee's
service as a Director or member of the Scientific Advisory Board or (B) the
expiration of the stated term of the Option.
7. Terms and Conditions Applicable to All Options.
7.1 Method of Exercise.
(a) The exercise of an Option shall be made only by a written
notice delivered in person or by mail to the Secretary of the Company at the
Company's principal executive office, specifying the number of Shares to be
purchased and accompanied by payment therefor and otherwise in accordance with
the Agreement pursuant to which the Option was granted. The purchase price for
any Shares purchased pursuant to the exercise of an Option shall be paid, as
determined by the Committee in its sole discretion, in either of the following
forms (or any combination thereof): (i) cash or (ii) the transfer of Shares to
the Company upon such terms and conditions as determined by the Committee. In
addition, both Discretionary Options and Automatic Options may be exercised
through a registered broker-dealer pursuant to such cashless exercise procedures
(other than Share withholding) which are, from time to time, deemed acceptable
by the Committee. Any Shares transferred to the Company (or withheld upon
exercise) as payment of the purchase price under an Option shall be valued at
their Fair Market Value on the day preceding the date of exercise of such
Option. The Optionee shall deliver the Agreement evidencing the Option to the
Secretary of the Company who shall endorse thereon a notation of such exercise
and return such Agreement to the Optionee. No fractional Shares (or cash in lieu
thereof) shall be issued upon exercise of an Option and the number of Shares
that may be purchased upon exercise shall be rounded to the nearest number of
whole Shares. Notwithstanding anything to the contrary contained herein, payment
on exercise of UK Approved Options shall be made only in cash.
(b) If the Fair Market Value of the Shares with respect to which
the Option is being exercised exceeds the exercise price of such Option, an
Optionee may, instead of exercising an Option as provided in Section 7.1(a),
request that the Committee authorize payment to the Optionee of the difference
between the Fair Market Value of part or all of the Shares which are the subject
of the Option and the exercise price of the Option, such difference to be
determined as of the date the Committee receives the request from the Optionee.
The Committee, in its sole discretion, may grant or deny such a request from an
Optionee with respect to part or all of the Shares as to which the Option is
then exercisable and, to the extent granted, shall direct the Company to make
the payment to the Optionee either in cash or in Shares or in any combination
thereof; provided, however, that payment in Shares shall be made based upon the
Fair Market Value of Shares as of the date the Committee received the request
from the Optionee. An Option shall be deemed to have been exercised and shall be
canceled to the extent that the Committee grants a request pursuant to this
Section 7.1(b). The provisions of this paragraph shall not apply to holders of
UK Approved Options.
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7.2 Rights of Optionees. No Optionee shall be deemed for any purpose
to be the owner of any Shares subject to any Option unless and until (i) the
Option shall have been exercised pursuant to the terms thereof, (ii) the Company
shall have issued and delivered Shares to the Optionee, and (iii) the Optionee's
name shall have been entered as a stockholder of record on the books of the
Company. Thereupon, the Optionee shall have full voting, dividend and other
ownership rights with respect to such Shares, subject to such terms and
conditions as may be set forth in the applicable Agreement. The preceding
sentence shall not apply to any Optionee holding a UK Approved Option. If under
the terms of a resolution passed or an announcement made by the Company prior to
the date of exercise of a UK Approved Option, a dividend is to be or is proposed
to be paid to holders of Shares by reference to a record date after such date of
exercise, any Shares to be issued upon such exercise of a UK Approved Option
will not rank for such dividend. Subject as aforesaid, the Shares so to be
issued shall be identical and rank pari passu in all respects with the fully
paid Shares then in issue.
7.3 Effect of Change in Control. In the event of a Change in Control,
all Options outstanding on the date of such Change in Control shall become
immediately and fully exercisable. In addition, to the extent set forth in an
Agreement evidencing the grant of a Discretionary Option, an Optionee will be
permitted to surrender to the Company for cancellation within sixty (60) days
after such Change in Control any Discretionary Option or portion of a
Discretionary Option to the extent not yet exercised and the Optionee will be
entitled to receive a cash payment in an amount equal to the excess, if any, of
(x) (A) in the case of a Nonqualified Stock Option, the greater of (1) the Fair
Market Value, on the date preceding the date of surrender, of the Shares subject
to the Discretionary Option or portion thereof surrendered or (2) the Adjusted
Fair Market Value of the Shares subject to the Discretionary Option or portion
thereof surrendered or (B) in the case of an Incentive Stock Option, the Fair
Market Value, on the date preceding the date of surrender, of the Shares subject
to the Discretionary Option or portion thereof surrendered, over (y) the
aggregate purchase price for such Shares under the Discretionary Option or
portion thereof surrendered.
8. Stock Appreciation Rights. The Committee may in its sole discretion,
either alone or in connection with the grant of a Discretionary Option, grant
Stock Appreciation Rights in accordance with the Plan, the terms and conditions
of which shall be set forth in an Agreement. If granted in connection with an
Option, a Stock Appreciation Right shall cover the same Shares covered by the
Option (or such lesser number of Shares as the Committee may determine) and
shall, except as provided in this Section 8, be subject to the same terms and
conditions as the related Option.
8.1 Time of Grant. A Stock Appreciation Right may be granted (i) at
any time if unrelated to an Option, or (ii) if related to an Option, either at
the time of grant, or at any time thereafter during the term of the Option.
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8.2 Stock Appreciation Right Related to an Option.
(a) Exercise. Subject to Section 8.8, a Stock Appreciation Right
granted in connection with an Option shall be exercisable at such time or times
and only to the extent that the related Options are exercisable (including,
without limitation, exercisability upon Termination of Employment), and will not
be transferable except to the extent the related Option may be transferable. A
Stock Appreciation Right granted in connection with an Incentive Stock Option
shall be exercisable only if the Fair Market Value of a Share on the date of
exercise exceeds the purchase price specified in the related Incentive Stock
Option Agreement.
(b) Treatment of Related Options and Stock Appreciation Rights
Upon Exercise. Upon the exercise of a Stock Appreciation Right granted in
connection with an Option, the Option shall be canceled to the extent of the
number of Shares as to which the Stock Appreciation Right is exercised, and upon
the exercise of an Option granted in connection with a Stock Appreciation Right,
the Stock Appreciation Right shall be canceled to the extent of the number of
Shares as to which the Option is exercised or surrendered.
8.3 Stock Appreciation Right Unrelated to an Option.
(a) Terms. Stock Appreciation Rights unrelated to Options shall
contain such terms and conditions as to exercisability (subject to Sections
8.3(b) and 8.8), vesting and duration as the Committee shall determine, but in
no event shall they have a term of greater than ten (10) years.
(b) Termination. Except as provided in Section 8.8 and subject to
Section 8.3(a), and unless otherwise provided by the Committee, in its sole
discretion, in the applicable Agreement, upon a Grantee's Termination of
Employment or, in the case of a Non-Employee Director, termination of service as
a director, a Stock Appreciation Right shall be exercisable by the Grantee to
the same extent that a Discretionary Option would be exercisable by an Optionee
upon the Optionee's Termination of Employment under the provisions of Sections
5.5(a) through (d) (or, as applicable for Non-Employee Directors, Section 6.4);
provided, however, no Stock Appreciation Right may be exercised after the
expiration date specified for the particular Stock Appreciation Right in the
applicable Agreement.
8.4 Amount Payable. Upon exercise of a Stock Appreciation Right, the
Grantee shall be entitled to receive an amount determined by multiplying (x) the
excess of the Fair Market Value of a Share on the date preceding the date of
exercise of such Stock Appreciation Right over (A) in the case of a Stock
Appreciation Right related to an Option, the per Share purchase price under the
related option or (B) in the case of a Stock Appreciation Right unrelated to an
Option, the Fair Market Value of a Share on the date the Stock Appreciation
Right was granted, by (y) the number of Shares as to which the Stock
Appreciation Right is being exercised. Notwithstanding the foregoing, the
Committee may
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limit in any manner the amount payable with respect to any Stock Appreciation
Right by including such a limit in the Agreement evidencing the Stock
Appreciation Right at the time it is granted.
8.5 Method of Exercise. Stock Appreciation Rights shall be exercised
by a Grantee only by a written notice delivered in person or by mail to the
Secretary of the Company at the Company's principal executive office, specifying
the number of Shares with respect to which the Stock Appreciation Right is being
exercised. If requested by the Committee, the Grantee shall deliver the
Agreement evidencing the Stock Appreciation Right being exercised and the
Agreement evidencing any related Option to the Secretary of the Company who
shall endorse thereon a notation of such exercise and return such Agreement to
the Grantee.
8.6 Form of Payment. Payment of the amount determined under Section
8.4 may be made in the sole discretion of the Committee solely in whole Shares
in a number determined at their Fair Market Value on the date preceding the date
of exercise of the Stock Appreciation Right, or solely in cash, or in a
combination of cash and Shares. If the Committee decides to make full payment in
Shares and the amount payable results in a fractional Share, payment for the
fractional Share will be made in cash.
8.7 Modification. No modification of an Award shall adversely alter
or impair any rights or obligations under the Agreement without the Grantee's
consent.
8.8 Effect of Change in Control. In the event of a Change in Control,
all Stock Appreciation Rights shall become immediately and fully exercisable. In
addition, to the extent set forth in an Agreement evidencing the grant of a
Stock Appreciation Right (but not with respect to any Stock Appreciation Right
granted in connection with an Incentive Stock Option), a Grantee will be
permitted to surrender to the Company for cancellation within sixty (60) days
after such Change in Control any Stock Appreciation Right or portion of a Stock
Appreciation Right to the extent not yet exercised and the Grantee will be
entitled to receive a payment from the Company in cash or Shares, in either
case, with a value equal to the excess, if any, of (A) the Adjusted Fair Market
Value, on the date preceding the date of exercise, of the Shares over (B) the
aggregate Fair Market Value, on the date the Stock Appreciation was granted, of
the Shares subject to the Stock Appreciation Right or portion thereof exercised.
9. Dividend Equivalent Rights. Dividend Equivalent Rights may be granted
to Eligible Individuals in tandem with an Option or Award. The terms and
conditions (including, without limitation, terms and conditions relating to a
Change in Control) applicable to each Dividend Equivalent Right shall be
specified in the Agreement under which the Dividend Equivalent Right is granted.
Amounts payable in respect of Dividend Equivalent Rights may be payable
currently or deferred until the lapsing of restrictions on such Dividend
Equivalent Rights or until the vesting, exercise, payment, settlement or other
lapse of restrictions on the Option or Award to which the Dividend Equivalent
Rights relate.
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In the event that the amount payable in respect of Dividend Equivalent Rights
are to be deferred, the Committee shall determine whether such amounts are to be
held in cash or reinvested in Shares or deemed (notionally) to be reinvested in
Shares. If amounts payable in respect of Dividend Equivalent Rights are to be
held in cash, there may be credited at the end of each year (or portion thereof)
interest on the amount of the account at the beginning of the year at a rate per
annum as the Committee, in its sole discretion, may determine. Dividend
Equivalent Rights may be settled in cash or Shares or a combination thereof, in
a single installment or multiple installments. With respect to Dividend
Equivalent Rights granted in tandem with an Option, the Agreement may provide
that the Optionee may elect to have amounts payable in respect of such Dividend
Equivalent Rights applied against the exercise price of such Option. To the
extent necessary for any Dividend Equivalent Right intended to qualify as
performance-based compensation under Section 162(m) of the Code to so qualify,
the terms and conditions of the Dividend Equivalent Right shall be such that
payment of the Dividend Equivalent Right is contingent upon the attainment of
specified Performance Objectives within the Performance Cycle, as provided for
in Section 11, and such Dividend Equivalent Right shall be treated as a
Performance Award for purposes of Sections 11 and 16(b).
10. Restricted Stock.
10.1 Grant. The Committee may grant Awards to Eligible Individuals
of Restricted Stock, which shall be evidenced by an Agreement between the
Company and the Grantee. Each Agreement shall contain such restrictions, terms
and conditions as the Committee may, in its sole discretion, determine and
(without limiting the generality of the foregoing) such Agreements may require
that an appropriate legend be placed on Share certificates. Awards of Restricted
Stock shall be subject to the terms and provisions set forth below in this
Section 10.
10.2 Rights of Grantee. Shares of Restricted Stock granted pursuant
to an Award hereunder shall be issued in the name of the Grantee as soon as
reasonably practicable after the Date of Grant provided that the Grantee has
executed an Agreement evidencing the Award, the appropriate blank stock powers
and, in the sole discretion of the Committee, an escrow agreement and any other
documents which the Committee may require as a condition to the issuance of such
Shares. If a Grantee shall fail to execute the Agreement evidencing a Restricted
Stock Award, the appropriate blank stock powers and, in the sole discretion of
the Committee, an escrow agreement and any other documents which the Committee
may require within the time period prescribed by the Committee at the time the
Award is granted, the Award shall be null and void. At the sole discretion of
the Committee, Shares issued in connection with a Restricted Stock Award shall
be deposited together with the stock powers with an escrow agent (which may be
the Company) designated by the Committee. Unless the Committee determines
otherwise and as set forth in the Agreement, upon delivery of the Shares to the
escrow agent, the Grantee shall have all of the rights of a stockholder with
respect to such Shares, including the right to vote the Shares and to receive
all dividends or other distributions paid or made with respect to the Shares.
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10.3 Non-transferability. Until all restrictions upon the Shares of
Restricted Stock awarded to a Grantee shall have lapsed in the manner set forth
in Section 10.4, such Shares shall not be sold, transferred or otherwise
disposed of and shall not be pledged or otherwise hypothecated, nor shall they
be delivered to the Grantee.
10.4 Lapse of Restrictions.
(a) Generally. Subject to Section 10.4(b), restrictions upon
Shares of Restricted Stock awarded hereunder shall lapse at such time or times
and on such terms and conditions as the Committee may determine. The Agreement
evidencing the Award shall set forth any such restrictions.
(b) Effect of Change in Control. Unless the Committee shall
determine otherwise at the time of the grant of an Award of Restricted Stock,
the restrictions upon Shares of Restricted Stock shall lapse upon a Change in
Control. The Agreement evidencing the Award shall set forth any such provisions.
10.5 Terms of Restricted Stock.
(a) Forfeiture of Restricted Stock. Subject to Sections 10.4(b)
and 10.5(b), all Restricted Stock shall be forfeited and returned to the Company
and all rights of the Grantee with respect to such Restricted Stock shall
terminate unless the Grantee continues in the service of the Company as an
employee or director until the expiration of the forfeiture period for such
Restricted Stock and satisfies any and all other conditions set forth in the
Agreement. The Committee, in its sole discretion, shall determine the forfeiture
period (which may, but need not, lapse in installments) and any other terms and
conditions applicable with respect to any Restricted Stock Award.
(b) Waiver of Forfeiture Period. Notwithstanding anything
contained in this Section 10 to the contrary, the Committee may, in its sole
discretion, waive the forfeiture period and any other conditions set forth in
any Agreement under appropriate circumstances (including, without limitation,
the death, Disability or retirement of the Grantee or a material change in
circumstances arising after the Date of Grant) and subject to such terms and
conditions (including, without limitation, forfeiture of a proportionate number
of the Restricted Stock) as the Committee shall deem appropriate, provided that
the Grantee shall at that time have completed at least one (1) year of
employment or service after the Date of Grant.
10.6 Modification or Substitution. Subject to the terms of the Plan,
including, without limitation, Section 16(b), the Committee may modify
outstanding Awards of Restricted Stock or accept the surrender of outstanding
Shares of Restricted Stock (to the extent the restrictions on such Shares have
not yet lapsed) and grant new Awards in substitution for them. Notwithstanding
the foregoing, no modification of an Award shall adversely alter or impair any
rights or obligations under the Agreement without the Grantee's consent.
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10.7 Treatment of Dividends. At the time an Award of Shares of
Restricted Stock is granted, the Committee may, in its sole discretion,
determine that the payment to the Grantee of dividends, or a specified portion
thereof, declared or paid on such Shares by the Company shall be (i) deferred
until the lapsing of the restrictions imposed upon such Shares and (ii) held by
the Company for the account of the Grantee until such time. In the event that
dividends are to be deferred, the Committee shall determine whether such
dividends are to be reinvested in Shares (which shall be held as additional
Shares of Restricted Stock) or held in cash. If deferred dividends are to be
held in cash, there may be credited at the end of each year (or portion thereof)
interest on the amount of the account at the beginning of the year at a rate per
annum as the Committee, in its sole discretion, may determine. Payment of
deferred dividends in respect of Shares of Restricted Stock (whether held in
cash or as additional Shares of Restricted Stock), together with interest
accrued thereon, if any, shall be made upon the lapsing of restrictions imposed
on the Shares in respect of which the deferred dividends were paid, and any
dividends deferred (together with any interest accrued thereon) in respect of
any Shares of Restricted Stock shall be forfeited upon the forfeiture of such
Shares.
10.8 Delivery of Shares. Upon the lapse of the restrictions on
Shares of Restricted Stock, the Committee shall cause a stock certificate to be
delivered to the Grantee with respect to such Shares, free of all restrictions
hereunder.
11. Performance Awards.
11.1 (a) Performance Objectives. Performance Objectives for
Performance Awards may be expressed in terms of (i) earnings per Share, (ii)
Share price, (iii) pre-tax profits, (iv) net earnings, (v) return on equity or
assets, (vi) revenues, (vii) EBITDA, (viii) market share or market penetration
or (ix) any combination of the foregoing, and may be determined before or after
accounting changes, special charges, foreign currency effects, acquisitions,
divestitures or other extraordinary events. Performance Objectives may be in
respect of the performance of the Company and its Subsidiaries (which may be on
a consolidated basis), a Subsidiary or a Division. Performance Objectives may be
absolute or relative and may be expressed in terms of a progression within a
specified range. The Performance Objectives with respect to a Performance Cycle
shall be established in writing by the Committee by the earlier of (i) the date
on which a quarter of the Performance Cycle has elapsed or (ii) the date which
is ninety (90) days after the commencement of the Performance Cycle, and in any
event, while the performance relating to the Performance Objectives remains
substantially uncertain.
(b) Determination of Performance. Prior to the vesting,
payment, settlement or lapsing of any restrictions with respect to any
Performance Award made to a Grantee who is subject to Section 162(m) of the
Code, the Committee shall certify in writing that the applicable Performance
Objectives have been satisfied.
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11.2 Performance Units. The Committee, in its sole discretion, may
grant Awards of Performance Units to Eligible Individuals (with the exception of
Non-Employee Directors), the terms and conditions of which shall be set forth in
an Agreement between the Company and the Grantee. Performance Units shall be
denominated in Shares or dollars and, contingent upon the attainment of
specified Performance Objectives within the Performance Cycle, represent the
right to receive payment as provided in Section 11.2(b) depending on the level
of Performance Objective attainment. Each Agreement shall specify the number of
Performance Units to which it relates, the Performance Objectives which must be
satisfied in order for the Performance Units to vest and the Performance Cycle
within which such Performance Objectives must be satisfied.
(a) Vesting and Forfeiture. Subject to Sections 11.1(b) and
11.4, a Grantee shall become vested with respect to the Performance Units to the
extent that the Performance Objectives set forth in the Agreement are satisfied
for the Performance Cycle.
(b) Payment of Awards. Payment to Grantees in respect of vested
Performance Units shall be made as soon as practicable after the last day of the
Performance Cycle to which such Award relates unless the Agreement evidencing
the Award provides for the deferral of payment, in which event the terms and
conditions of the deferral shall be set forth in the Agreement. Subject to
Section 11.4, such payments may be made entirely in Shares valued at their Fair
Market Value as of the last day of the applicable Performance Cycle or such
other date specified by the Committee, entirely in cash, or in such combination
of Shares and cash as the Committee in its sole discretion shall determine at
any time prior to such payment.
11.3 Performance Shares. The Committee, in its sole discretion, may
grant Awards of Performance Shares to Eligible Individuals (with the exception
of Non-Employee Directors), the terms and conditions of which shall be set forth
in an Agreement between the Company and the Grantee. Each Agreement may require
that an appropriate legend be placed on Share certificates. Awards of
Performance Shares shall be subject to the following terms and provisions:
(a) Rights of Grantee. The Committee shall provide at the time
an Award of Performance Shares is made the time or times at which the actual
Shares represented by such Award shall be issued in the name of the Grantee;
provided, however, that no Performance Shares shall be issued until the Grantee
has executed an Agreement evidencing the Award, the appropriate blank stock
powers and, in the sole discretion of the Committee, an escrow agreement and any
other documents which the Committee may require as a condition to the issuance
of such Performance Shares. If a Grantee shall fail to execute the Agreement
evidencing an Award of Performance Shares, the appropriate blank stock powers
and, in the sole discretion of the Committee, an escrow agreement and any other
documents which the Committee may require within the time period prescribed by
the Committee at the time the Award is granted, the Award shall be null and
void. At the sole discretion of the Committee, Shares issued in connection with
an Award of Performance
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Shares shall be deposited together with the stock powers with an escrow agent
(which may be the Company) designated by the Committee. Except as restricted by
the terms of the Agreement, upon delivery of the Shares to the escrow agent, the
Grantee shall have, in the sole discretion of the Committee, all of the rights
of a stockholder with respect to such Shares, including the right to vote the
Shares and to receive all dividends or other distributions paid or made with
respect to the Shares.
(b) Non-transferability. Until any restrictions upon the
Performance Shares awarded to a Grantee shall have lapsed in the manner set
forth in Sections 11.3(c) or 11.4, such Performance Shares shall not be sold,
transferred or otherwise disposed of and shall not be pledged or otherwise
hypothecated, nor shall they be delivered to the Grantee. The Committee may also
impose such other restrictions and conditions on the Performance Shares, if any,
as it deems appropriate.
(c) Lapse of Restrictions. Subject to Sections 11.1(b) and
11.4, restrictions upon Performance Shares awarded hereunder shall lapse and
such Performance Shares shall become vested at such time or times and on such
terms, conditions and satisfaction of Performance Objectives as the Committee
may, in its sole discretion, determine at the time an Award is granted.
(d) Treatment of Dividends. At the time the Award of
Performance Shares is granted, the Committee may, in its sole discretion,
determine that the payment to the Grantee of dividends, or a specified portion
thereof, declared or paid on actual Shares represented by such Award which have
been issued by the Company to the Grantee shall be (i) deferred until the
lapsing of the restrictions imposed upon such Performance Shares and (ii) held
by the Company for the account of the Grantee until such time. In the event that
dividends are to be deferred, the Committee shall determine whether such
dividends are to be reinvested in Shares (which shall be held as additional
Performance Shares) or held in cash. If deferred dividends are to be held in
cash, there may be credited at the end of each year (or portion thereof)
interest on the amount of the account at the beginning of the year at a rate per
annum as the Committee, in its sole discretion, may determine. Payment of
deferred dividends in respect of Performance Shares (whether held in cash or in
additional Performance Shares), together with interest accrued thereon, if any,
shall be made upon the lapsing of restrictions imposed on the Performance Shares
in respect of which the deferred dividends were paid, and any dividends deferred
(together with any interest accrued thereon) in respect of any Performance
Shares shall be forfeited upon the forfeiture of such Performance Shares.
(e) Delivery of Shares. Upon the lapse of the restrictions on
Performance Shares awarded the Committee shall cause a stock certificate to be
delivered to the Grantee, free of all restrictions hereunder.
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11.4 Effect of Change in Control. In the event of a Change in
Control:
(a) With respect to Performance Units, unless otherwise
determined by the Committee, the Grantee shall (i) become vested in all
Performance Units and (ii) be entitled to receive in respect of all Performance
Units which become vested as a result of a Change in Control a cash payment
within ten (10) Business Days after such Change in Control in an amount as
determined by the Committee at the time of the Award of such Performance Unit
and as set forth in the Agreement.
(b) With respect to Performance Shares, unless otherwise
determined by the Committee, restrictions shall lapse immediately on all
Performance Shares.
(c) The Agreements evidencing Performance Shares and
Performance Units shall provide for the treatment of such Awards (or portions
thereof) which do not become vested as the result of a Change in Control,
including, without limitation, provisions for the adjustment of applicable
Performance Objectives.
11.5 Termination. Except as provided in Section 12, and unless
otherwise provided by the Committee, in its sole discretion, in the applicable
Agreement, the following provisions shall apply to Performance Awards upon a
Termination of Employment:
(a) Termination of Employment. Except as provided in Sections
11.5(b) and (d), in the case of a Grantee's Termination of Employment, prior to
the end of a Performance Cycle, the Grantee will not be entitled to any
Performance Awards, and any Performance Shares shall be forfeited.
(b) Disability, Retirement or Death. Unless otherwise provided
by the Committee, in its sole discretion, in the Agreement, if a Grantee's
Disability Date or Termination of Employment by reason of retirement on or after
the Grantee's Normal Retirement Date or death occurs following at least twelve
months of participation in any Performance Cycle, but prior to the end of a
Performance Cycle, the Grantee or such Grantee's Beneficiary, as the case may
be, shall be entitled to receive a pro-rata share of his or her Performance
Award as determined under Subsection (c).
(c) Pro-Rata Payment.
(i) Performance Units. With respect to Performance Units,
the amount of any payment made to a Grantee (or Beneficiary) under circumstances
described in Section 11.5(b) will be the amount determined by multiplying the
amount of the Performance Units payable in Shares or dollars which would have
been earned, determined at the end of the Performance Cycle, had such employment
not been terminated, by a fraction, the numerator of which is the number of
whole months such Grantee was employed during the Performance Cycle, and the
denominator of which is the total number of months of the Performance Cycle. Any
such payment shall be made as soon as practicable after the
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end of the respective Performance Cycle, and shall relate to attainment of
Performance Objectives over the entire Performance Cycle.
(ii) Performance Shares. With respect to Performance
Shares, the amount of Performance Shares held by a Grantee (or Beneficiary) with
respect to which restrictions shall lapse under circumstances described in
Section 11.5(b) will be the amount determined by multiplying the amount of the
Performance Shares with respect to which restrictions would have lapsed,
determined at the end of the Performance Cycle, had such employment not been
terminated, by a fraction, the numerator of which is the number of whole months
such Grantee was employed during the Performance Cycle, and the denominator of
which is the total number of months of the Performance Cycle. The Committee
shall determine the amount of Performance Shares with respect to which
restrictions shall lapse under this Section 11.5(c)(ii) as soon as practicable
after the end of the respective Performance Cycle, and such determination shall
relate to attainment of Performance Objectives over the entire Performance
Cycle. At that time, all Performance Shares relating to that Performance Cycle
with respect to which restrictions shall not lapse shall be forfeited.
(d) Other Events. Notwithstanding anything to the contrary in
this Section 11, the Committee may, in its sole discretion, determine to pay all
or any portion of a Performance Award to a Grantee who has terminated employment
prior to the end of a Performance Cycle under certain circumstances (including,
without limitation, a material change in circumstances arising after the Date of
Grant) and subject to such terms and conditions that the Grantee shall have
completed, at his or her Termination of Employment at least one year of
employment after the Date of Grant.
11.6 Modification or Substitution. Subject to the terms of the Plan,
including, without limitation, Section 16(b), the Committee may modify
outstanding Performance Awards or accept the surrender of outstanding
Performance Awards and grant new Performance Awards in substitution for them.
Notwithstanding the foregoing, no modification of a Performance Award shall
adversely alter or impair any rights or obligations under the Agreement without
the Grantee's consent.
12. Employment Agreement Governs Termination of Employment. An
employment agreement, if applicable, between an Optionee or Grantee and the
Company shall govern with respect to the terms and conditions applicable to such
Option or Award upon a termination or change in the status of the employment of
the Optionee or Grantee, to the extent that such employment agreement provides
for terms and conditions that differ from the terms and conditions provided for
in the applicable Agreement or the Plan; provided, however, that to the extent
necessary for an Option or Award intended to qualify as performance-based
compensation under Section 162(m) of the Code to so qualify, the terms of the
applicable Agreement or the Plan shall govern the Option or Award; and,
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provided further, that the Committee shall have reviewed and, in its sole
discretion, approved the employment agreement.
13. Adjustment Upon Changes in Capitalization.
(a) In the event of a Change in Capitalization, the Committee shall
conclusively determine the appropriate adjustments, if any, to (i) the maximum
number and class of Shares or other stock or securities with respect to which
Options or Awards may be granted under the Plan, (ii) the maximum number and
class of Shares or other stock or securities with respect to which Options or
Awards may be granted to any Eligible Individual during any calendar year, (iii)
the number and class of Shares or other stock or securities which are subject to
outstanding Options or Awards granted under the Plan and the purchase price
therefor, if applicable, (iv) the number and class of Shares or other securities
in respect of which Automatic Options are to be granted under Section 6 and (v)
the Performance Objectives.
(b) Any such adjustment in the Shares or other stock or securities
subject to outstanding Incentive Stock Options (including any adjustments in the
purchase price) shall be made in such manner as not to constitute a modification
as defined by Section 424(h)(3) of the Code and only to the extent otherwise
permitted by Sections 422 and 424 of the Code.
(c) If, by reason of a Change in Capitalization, a Grantee of an
Award shall be entitled to, or an Optionee shall be entitled to exercise an
Option with respect to, new, additional or different shares of stock or
securities, such new, additional or different shares shall thereupon be subject
to all of the conditions, restrictions and performance criteria which were
applicable to the Shares subject to the Award or Option, as the case may be,
prior to such Change in Capitalization.
14. Effect of Certain Transactions. Subject to Sections 7.3, 8.8,
10.4(b) and 11.4 or as otherwise provided in an Agreement, in the event of (i)
the liquidation or dissolution of the Company or (ii) a merger or consolidation
of the Company (a "Transaction"), the Plan and the Options and Awards issued
hereunder shall continue in effect in accordance with their respective terms,
except that following a Transaction each Optionee and Grantee shall be entitled
to receive in respect of each Share subject to any outstanding Options or
Awards, as the case may be, upon exercise of any Option or payment or transfer
in respect of any Award, the same number and kind of stock, securities, cash,
property or other consideration that each holder of a Share was entitled to
receive in the Transaction in respect of a Share; provided, however, that such
stock, securities, cash, property, or other consideration shall remain subject
to all of the conditions, restrictions and performance criteria which were
applicable to the Options and Awards prior to such Transaction.
15. Limitation on Transfer. Subject to any limitations on
transferability specifically provided for elsewhere in the Plan, the rights and
interest of an Optionee or
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Grantee in any Option or Award may not be assigned or transferred other than by
will or the laws of descent and distribution or, in the Committee's sole
discretion, pursuant to a domestic relations order (within the meaning of
Exchange Act Rule 16a-12). During the lifetime of an Optionee or Grantee, and
except as the preceding sentence provides, only the Optionee or Grantee
personally may exercise rights under the Plan. Except as otherwise specifically
provided in the Plan, the Beneficiary of an Optionee or Grantee may exercise the
rights of the Optionee or Grantee only to the extent they were exercisable under
the Plan at the date of the death of the Optionee or Grantee and are otherwise
currently exercisable.
16. Interpretation. Following the required registration of any equity
security of the Company pursuant to Section 12 of the Exchange Act:
(a) The Plan is intended to comply with Rule 16b-3 promulgated under
the Exchange Act and the Committee shall interpret and administer the provisions
of the Plan or any Agreement in a manner consistent therewith. Any provisions
inconsistent with such Rule shall be inoperative and shall not affect the
validity of the Plan.
(b) Unless otherwise expressly stated in the relevant Agreement,
each Option, Stock Appreciation Right and Performance Award granted under the
Plan is intended to be performance-based compensation within the meaning of
Section 162(m)(4)(C) of the Code (except that, in the event of a Change in
Control, payment of Performance Awards to a Grantee who remains a "covered
employee" with respect to such payment within the meaning of Section 162(m)(3)
of the Code may not qualify as performance-based compensation). The Committee
shall not be entitled to exercise any discretion otherwise authorized hereunder
with respect to such Options or Awards if the ability to exercise such
discretion or the exercise of such discretion itself would cause the
compensation attributable to such Options or Awards to fail to qualify as
performance-based compensation. Notwithstanding anything to the contrary in the
Plan, the provisions of the Plan may at any time be bifurcated by the Board or
the Committee in any manner so that certain provisions of the Plan or any
Performance Award intended (or required in order) to satisfy the applicable
requirements of Section 162(m) of the Code are only applicable to persons whose
compensation is subject to Section 162(m).
(c) UK Approved Options are intended to comply with Schedule 9 to
the Taxes Act, and in particular, but without limitation, with paragraphs 10 to
14 thereof, and the Plan shall, except where inconsistent with the subject or
context, be interpreted accordingly.
17. Pooling Transactions. Notwithstanding anything contained in the Plan
or any Agreement to the contrary, in the event of a Change in Control which is
also intended to constitute a Pooling Transaction, the Committee shall take such
actions, if any, as are specifically recommended by an independent accounting
firm retained by the Company to the extent reasonably necessary in order to
assure that the Pooling Transaction will qualify as such, including, without
limitation, (i) deferring the vesting, exercise, payment, settlement or lapsing
of restrictions with respect to any Option or Award, (ii) providing that the
payment or
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settlement in respect of any Option or Award be made in the form of cash, Shares
or securities of a successor or acquirer of the Company, or a combination of the
foregoing, and (iii) providing for the extension of the term of any Option or
Award to the extent necessary to accommodate the foregoing, but not beyond the
maximum term permitted for any Option or Award.
18. Effective Date, Termination and Amendment of the Plan. The effective
date of this Plan shall be the date the Plan is adopted by the Board, subject
only to the approval by the affirmative vote of the holders of a majority of the
securities of the Company present, or represented, and entitled to vote at a
meeting of stockholders duly held in accordance with the applicable laws of the
State of Delaware within twelve (12) months of the adoption of the Plan by the
Board.
The Plan shall terminate on the day preceding the tenth anniversary of
the date of its adoption by the Board and no Option or Award may be granted
thereafter. The Board may sooner terminate the Plan and the Board may at any
time and from time to time amend, modify or suspend the Plan; provided, however,
that: (a) no such amendment, modification, suspension or termination shall
impair or adversely alter any Options or Awards theretofore granted under the
Plan, except with the consent of the Optionee or Grantee, nor shall any
amendment, modification, suspension or termination deprive any Optionee or
Grantee of any Shares which he or she may have acquired through or as a result
of the Plan; and (b) to the extent necessary under applicable law, no amendment
shall be effective unless approved by the stockholders of the Company in
accordance with applicable law.
No alteration shall be made to provisions of the Plan relating to UK
Approved Options without the prior written approval of the UK Inland Revenue.
19. Non-Exclusivity of the Plan. The adoption of the Plan by the Board
shall not be construed as amending, modifying or rescinding any previously
approved incentive arrangement or as creating any limitations on the power of
the Board to adopt such other incentive arrangements as it may deem desirable,
including, without limitation, the granting of stock options otherwise than
under the Plan, and such arrangements may be either applicable generally or only
in specific cases.
20. Limitation of Liability. As illustrative of the limitations of
liability of the Company, but not intended to be exhaustive thereof, nothing in
the Plan shall be construed to:
(i) give any person any right to be granted an Option or Award other
than at the sole discretion of the Committee;
(ii) give any person any rights whatsoever with respect to Shares
except as specifically provided in the Plan;
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(iii) limit in any way the right of the Company to terminate the
employment of any person at any time; or
(iv) be evidence of any agreement or understanding, expressed or
implied, that the Company will employ any person at any particular rate of
compensation or for any particular period of time.
21. Regulations and Other Approvals; Governing Law.
21.1 Except as to matters of federal law, the Plan and the rights of
all persons claiming hereunder shall be construed and determined in accordance
with the laws of the State of Delaware without giving effect to conflicts of
laws principles thereof.
21.2 The obligation of the Company to sell or deliver Shares with
respect to Options and Awards granted under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable federal and
state securities laws, and the obtaining of all such approvals by governmental
agencies as may be deemed necessary or appropriate by the Committee.
21.3 The Board may make such changes as may be necessary or
appropriate to comply with the rules and regulations of any government
authority, or to obtain for Eligible Individuals granted Incentive Stock Options
the tax benefits under the applicable provisions of the Code and regulations
promulgated thereunder.
The Board may make such changes as may be necessary or appropriate to
obtain or maintain the approval of the provisions of the Plan relating to UK
Approved Options by the UK Inland Revenue.
21.4 Each Option and Award is subject to the requirement that, if at
any time the Committee determines, in its sole discretion, that the listing,
registration or qualification of Shares issuable pursuant to the Plan is
required by any securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory body is necessary or
desirable as a condition of, or in connection with, the grant of an Option or
Award or the issuance of Shares, no Options or Awards shall be granted or
payment made or Shares issued, in whole or in part, unless listing,
registration, qualification, consent or approval has been effected or obtained
free of any conditions as acceptable to the Committee.
21.5 Notwithstanding anything contained in the Plan or any Agreement
to the contrary, in the event that the disposition of Shares acquired pursuant
to the Plan is not covered by a then current registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), and is not otherwise
exempt from such registration, such Shares shall be restricted against transfer
to the extent required by the Securities Act and Rule 144 or other regulations
thereunder. The Committee may require any individual receiving Shares pursuant
to an Option or Award granted under the Plan, as a condition precedent to
receipt of such Shares, to represent and warrant to the Company in writing that
the Shares acquired by
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such individual are acquired without a view to any distribution thereof and will
not be sold or transferred other than pursuant to an effective registration
thereof under said Act or pursuant to an exemption applicable under the
Securities Act or the rules and regulations promulgated thereunder. The
certificates evidencing any of such Shares shall be appropriately amended to
reflect their status as restricted securities as aforesaid.
22. Miscellaneous.
22.1 Multiple Agreements. The terms of each Option or Award may
differ from other Options or Awards granted under the Plan at the same time, or
at some other time. The Committee may also grant more than one Option or Award
to a given Eligible Individual during the term of the Plan, either in addition
to, or in substitution for, one or more Options or Awards previously granted to
that Eligible Individual.
22.2 Withholding of Taxes.
(a) At such times as an Optionee or Grantee recognizes taxable
income in connection with the receipt of Shares or cash hereunder (a "Taxable
Event"), the Optionee or Grantee shall pay to the Company an amount equal to the
federal, state and local income taxes and other amounts as may be required by
law to be withheld by the Company in connection with the Taxable Event (the
"Withholding Taxes") prior to the issuance, or release from escrow, of such
Shares or the payment of such cash. The Company shall have the right to deduct
from any payment of cash to an Optionee or Grantee an amount equal to the
Withholding Taxes in satisfaction of the obligation to pay Withholding Taxes. In
satisfaction of the obligation to pay Withholding Taxes to the Company, the
Optionee or Grantee may make a written election (the "Tax Election"), which may
be accepted or rejected in the sole discretion of the Committee, to have
withheld a portion of the Shares then issuable to him or her having an aggregate
Fair Market Value equal to the Withholding Taxes.
(b) If an Optionee makes a disposition, within the meaning of
Section 424(c) of the Code and regulations promulgated thereunder, of any Share
or Shares issued to such Optionee pursuant to the exercise of an Incentive Stock
Option within the two-year period commencing on the day after the date of the
grant or within the one-year period commencing on the day after the date of
transfer of such Share or Shares to the Optionee pursuant to such exercise, the
Optionee shall, within ten (10) Business Days of such disposition, notify the
Company thereof, by delivery of written notice to the Company at its principal
executive office.
22.3 Power of Attorney given by UK Employees. The following provisions
shall apply only to Options and Awards granted to UK-resident or ordinarily
resident Employees.
(a) It shall be a condition of all Options (which term shall for
the purposes of paragraphs 22.3 (a) through (d) exclude UK Approved Options
which retain approval from the UK Inland Revenue under Schedule 9 to the Taxes
Act) and Awards
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granted to UK Employees and a condition precedent to the vesting,
exercisability, or release for consideration, of all such Options and Awards
that, if the vesting, exercise, or release for consideration gives rise to a
liability of the Company or any Subsidiary (the "Relevant Body") under Section
203F of the Taxes Act or otherwise pursuant to the United Kingdom's Pay As You
Earn ("PAYE") system (or any other similar withholding tax system in any other
applicable jurisdiction), the Relevant Body shall (to the extent permitted by
English law) be entitled to withhold from such Grantee's or Optionee's salary or
other payments due to him, and/or the Grantee or Optionee shall be required to
pay to the Relevant Body, as a condition of such vesting, exercise or release,
the amount which the Relevant Body is required to pay to the UK Inland Revenue
(or other relevant taxing authority).
(b) Any payment by the Grantee or Optionee shall be made within
such period as the Relevant Body shall notify to him. The Company may refuse to
permit (a) the vesting or exercise of any Option or Award or (b) the release of
any Option or Award for consideration if any such payment is not satisfied by
the Grantee or Optionee within such period as shall have been notified to him.
(c) Alternatively, if the Committee so decides in its absolute
discretion, the PAYE or other taxation liability falling upon any Relevant Body
may be satisfied by (a) the Company not releasing to the Grantee or Optionee
concerned such number of Shares (which expression shall for this purpose include
other shares or securities to be issued upon such vesting or exercise) or (b)
deducting from any consideration for the release of an Option or Award such
monetary amount as shall in either case equal in value the amount required to be
paid to the Inland Revenue (or other relevant taxing authority), together (where
relevant) with any commission or similar costs associated with or to be incurred
upon the disposal of any such Shares to fund such tax liability.
(d) Each holder of an Option or an Award under the Plan hereby
appoints any Director of the Company or a Subsidiary as his attorney for the
purpose of signing, in the name and on behalf of such holder, any documents
required to implement the foregoing (including, without prejudice to the
generality of the foregoing, the right to sell Shares not so released as
aforesaid).
-33-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FOR (A) 2ND
QUARTER 10-Q UNAUDITED CONSOLIDATED BALANCE SHEETS AND UNAUDITED CONSOLIDATED
STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED JUNE 30 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH (B) FORM 10-Q
</LEGEND>
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,498
<SECURITIES> 26,497
<RECEIVABLES> 19,837
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 53,115
<PP&E> 19,810
<DEPRECIATION> 0
<TOTAL-ASSETS> 74,420
<CURRENT-LIABILITIES> 13,164
<BONDS> 0
0
0
<COMMON> 78
<OTHER-SE> 52,161
<TOTAL-LIABILITY-AND-EQUITY> 74,420
<SALES> 24,648
<TOTAL-REVENUES> 24,648
<CGS> 13,757
<TOTAL-COSTS> 13,757
<OTHER-EXPENSES> 7,437
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 232
<INCOME-PRETAX> 3,871
<INCOME-TAX> 1,547
<INCOME-CONTINUING> 2,324
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,324
<EPS-PRIMARY> .30
<EPS-DILUTED> .28
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