<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1999
[ ] 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 1-9957
DIAGNOSTIC PRODUCTS CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-2802182
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5700 WEST 96TH STREET
LOS ANGELES, CALIFORNIA 90045
(Address of principal executive offices)
Registrant's telephone number: (310) 645-8200
NO CHANGE
(Former name, former address and former fiscal year,
if changed since last report)
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 ]
The number of shares of Common Stock, no par value, outstanding as of
September 30, 1999, was 13,672,254.
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PART I. FINANCIAL INFORMATION.
ITEM I. FINANCIAL STATEMENTS.
DIAGNOSTIC PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share data) Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
SALES $ 53,693 $ 48,773 $ 158,752 $ 144,155
--------- --------- --------- ---------
COSTS AND EXPENSES:
Cost of sales 24,645 21,454 72,011 63,278
Selling 9,961 9,356 29,823 27,462
Research and development 6,151 5,470 18,097 16,640
General and administrative 6,621 5,422 19,988 17,328
Equity in income of affiliates (185) (273) (1,069) (897)
Interest income-net (31) (141) (181) (349)
--------- --------- --------- ---------
Total costs and expenses 47,162 41,288 138,669 123,462
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 6,531 7,485 20,083 20,693
PROVISION FOR INCOME TAXES 1,740 2,090 5,680 6,000
--------- --------- --------- ---------
NET INCOME $ 4,791 $ 5,395 $ 14,403 $ 14,693
========= ========= ========= =========
EARNINGS PER SHARE:
BASIC $ .35 $ .39 $ 1.05 $ 1.07
DILUTED .35 .39 1.05 1.06
AVERAGE SHARES OUTSTANDING:
BASIC 13,671 13,792 13,671 13,772
DILUTIVE EFFECT OF STOCK OPTIONS 109 131 108 153
--------- --------- --------- ---------
DILUTED 13,780 13,923 13,779 13,925
========= ========= ========= =========
</TABLE>
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DIAGNOSTIC PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
(Dollars in Thousands) September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 14,589 $ 18,650
Accounts receivable-net of allowance for
doubtful accounts of $141 and $136 55,869 50,440
Inventories 56,187 54,078
Prepaid expenses and other current assets 569 580
Deferred income taxes 3,305 3,305
--------- ---------
Total current assets 130,519 127,053
PROPERTY, PLANT AND EQUIPMENT:
Land and buildings 35,554 35,878
Machinery and equipment 64,387 60,196
Leasehold improvements 7,222 7,135
Construction in progress 861 351
--------- ---------
Total 108,024 103,560
Less accumulated depreciation and amortization 54,803 49,348
--------- ---------
Property, plant and equipment - net 53,221 54,212
SALES-TYPE AND OPERATING LEASES 33,882 33,372
DEFERRED INCOME TAXES 2,005 2,005
INVESTMENTS IN AFFILIATED COMPANIES 14,662 15,509
EXCESS OF COST OVER NET ASSETS ACQUIRED-
Net of amortization of $9,300 and $8,478 13,307 14,073
--------- ---------
TOTAL ASSETS $ 247,596 $ 246,224
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 17,313 $ 21,178
Accounts payable 15,775 15,306
Accrued liabilities 5,288 6,218
Income taxes payable 5,681 3,350
--------- ---------
Total current liabilities 44,057 46,052
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common Stock-no par value, authorized 30,000,000 shares;
outstanding 13,672,254 shares and 13,661,594 shares. 37,720 37,531
Retained earnings 182,381 172,900
Accumulated other comprehensive income (16,562) (10,259)
--------- ---------
Total shareholders' equity 203,539 200,172
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 247,596 $ 246,224
========= =========
</TABLE>
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DIAGNOSTIC PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
(Dollars in Thousands) Nine Months Ended
September 30,
-------------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 14,403 $ 14,693
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 13,369 15,006
Equity in undistributed income of
unconsolidated affiliates (896) (637)
Accounts receivable (7,925) (5,549)
Inventories (2,224) (3,527)
Prepaid expenses and other current assets 11 (107)
Accounts payable 4,046 1,630
Accrued liabilities (930) (1,059)
Income taxes payable 2,083 3,440
-------- --------
Net cash flows from operating activities 21,937 23,890
CASH FLOWS FROM (USED FOR) INVESTING ACTIVITIES:
Additions to property, plant and equipment (5,726) (7,624)
Sales-type and operating leases (12,817) (12,846)
Investment in affiliated companies 344 (2,612)
-------- --------
Net cash flows from (used for) investing activities (18,199) (23,082)
CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES:
Borrowing (repayments) - net (2,150) 2,706
Repurchase of common stock (224)
Proceeds from exercise of stock options 413 1,663
Cash dividends paid (4,922) (4,956)
-------- --------
Net cash flows from (used for) financing activities (6,883) (587)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (916) (346)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,061) (125)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 18,650 20,372
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 14,589 $ 20,247
======== ========
</TABLE>
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DIAGNOSTIC PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1--BASIS OF PRESENTATION
The information for the nine months ended September 30, 1999 and 1998 has not
been audited by independent accountants, but includes all adjustments
(consisting of normal recurring accruals) which are, in the opinion of
management, necessary to a fair statement of the results for such periods.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to the requirements of the Securities and Exchange
Commission, although the Company believes that the disclosures included in these
financial statements are adequate to make the information not misleading.
The consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
1998 annual report on Form 10-K as filed with the Securities and Exchange
Commission.
The results of operations for the nine-month period ending September 30, 1999
are not necessarily indicative of the results to be expected for the year ended
December 31, 1999.
Basic earnings per share is computed by dividing net income by the
weighted-average number of shares outstanding. Diluted earnings per share
includes the dilutive effect of stock options.
NOTE 2--INVENTORIES
Inventories by major categories are summarized as follows:
(Dollars in Thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Raw materials $20,890 $19,235
Work in process 19,073 19,317
Finished goods 16,224 15,526
------- -------
Total $56,187 $54,078
======= =======
</TABLE>
NOTE 3--COMPREHENSIVE INCOME
Comprehensive income is summarized as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 4,791 $ 5,395 $ 14,403 $ 14,693
Foreign currency translation adjustment 1,190 1,754 (6,303) 1,731
-------- -------- -------- --------
Comprehensive income $ 5,981 $ 7,149 $ 8,100 $ 16,424
======== ======== ======== ========
</TABLE>
The Company does not provide for U.S. income taxes on foreign currency
translation adjustments because it does not provide for such taxes on
undistributed earnings of foreign subsidiaries.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4--SEGMENT AND PRODUCT LINE INFORMATION
The Company considers its manufactured instruments and medical immunodiagnostic
test kits as one operating segment as defined under SFAS 131, "Disclosures about
Segments of an Enterprise and Related Information" as the kits are required to
run the instruments and utilize similar technology and instrument manufacturing
processes. The Company manufacturers its instruments and kits principally from
facilities in the United States and the United Kingdom. Kits and instruments are
sold to hospitals, medical centers, clinics, physicians, and other clinical
laboratories throughout the world through a network of distributors including
consolidated distributors located in the United Kingdom, Germany, Czech
Republic, Poland, Spain, The Netherlands, Belgium, Luxembourg, Finland, Norway,
France, Australia, New Zealand, China, Brazil, Uruguay, Venezuela, Costa Rica,
Honduras, El Salvador, Guatemala, Sweden, Estonia, Latvia, and Lithuania.
The Company sells its instruments and immunodiagnostic test kits under several
product lines. Product line sales information is as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales:
IMMULITE $ 38,221 $ 31,065 $108,744 $ 88,719
Radioimmunoassay ("RIA") 9,095 10,529 29,030 32,632
Other 6,377 7,179 20,978 22,804
-------- -------- -------- --------
$ 53,693 $ 48,773 $158,752 $144,155
======== ======== ======== ========
</TABLE>
The Company is organized and managed by geographic area. Transactions between
geographic segments are accounted for as normal sales for internal reporting and
management purposes with all intercompany amounts eliminated in consolidation.
Sales are attributed to geographic area based on the location from which the
instrument or kit is shipped to the customer. Information reviewed by the
Company's chief operating decision maker on significant geographic segments, as
defined under SFAS 131, is prepared on the same basis as the consolidated
financial statements as is as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) Euro/DPC DPC DPC
Limited Biermann Medlab Less:
United (United (German (Brazilian Intersegment
States Kingdom) Group) Group) Other Elimination Total
-------- -------- -------- ---------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Three Months Ended September 30, 1999
Sales $ 39,416 $ 6,549 $ 7,263 $ 6,689 $ 11,498 $(17,722) $ 53,693
Net income (loss) 3,803 619 (190) 415 444 (300) 4,791
Three Months Ended September 30, 1998
Sales $ 32,224 $ 7,056 $ 8,242 $ 6,528 $ 9,461 $(14,738) $ 48,773
Net income (loss) 4,264 1,244 (252) 204 335 (400) 5,395
Nine Months Ended September 30, 1999
Sales $107,436 $ 21,041 $ 23,518 $ 18,286 $ 34,898 $(46,427) $158,752
Net income (loss) 8,533 2,857 (408) 910 1,711 800 14,403
Nine Months Ended September 30, 1998
Sales $ 94,331 $ 20,208 $ 25,467 $ 17,254 $ 27,974 $(41,079) $144,155
Net income (loss) 10,992 3,178 (459) 481 901 (400) 14,693
</TABLE>
5
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
The Company's sales increased 10.1% in the third quarter ended September 30,
1999 to $53.7 million compared to sales of $48.8 million in the third quarter of
1998. Sales increased 10.1% to $158.8 million in the first nine months of 1999
from $144.2 million in the first nine months of 1998. Sales of all IMMULITE
products in the three and nine months ended September 30, 1999 were $38.2
million and $108.7 million, increases of 23% over the corresponding periods of
1998. Sales of IMMULITE products represented 68% of sales in the first nine
months of 1999, compared to 62% of sales in first nine months of 1998.
IMMULITE reagents represented $28.5 million of 1999 third quarter sales, a 21%
increase over the third quarter of 1998, and $82.2 million of sales in the first
nine months of 1999, a 22% increase over the first nine months of 1998. Sales of
IMMULITE systems (including service and parts) were $9.7 million in the 1999
third quarter, up 30% over the third quarter of 1998. In the first nine months
of 1999, sales of IMMULITE systems (including service and parts) increased 24%
to $26.6 million compared to the first nine months of 1998. The Company shipped
a total of 281 IMMULITE systems during the third quarter of 1999, including 102
IMMULITE 2000 systems and 179 IMMULITE One systems. The total base of IMMULITE
systems shipped grew to approximately 4,650, including approximately 550 of the
IMMULITE 2000 systems.
Sales of the Company's mature RIA products declined approximately 14% and 11% in
the three and nine month periods of 1999, representing 17% and 18% of sales
compared to approximately 22% and 23% of sales in each of the three and nine
month periods of 1998. This decline in RIA sales is likely to continue at a
reduced rate. Sales of other DPC products, including allergy reagents,
represented about 8% of sales in each of the three and nine months periods ended
September 30, 1999. Sales of non-DPC products decreased 18% and 14% in the three
and nine month periods of 1999 over the corresponding 1998 periods to
approximately 5% of sales, due to the discontinuation of non-DPC OEM products
previously sold by some consolidated international affiliates.
The devaluation of the Brazilian currency in January 1999 resulted in a pretax
exchange loss of $536,000 or an after tax loss of $.03 per share, for the nine
months ended September 30, 1999, which occurred in the first quarter. The
exchange loss is included in general and administrative expenses. In addition,
the Company recorded a currency translation adjustment of $5.1 million in the
first nine months of 1999, resulting from the Company's long-term intercompany
advances to Brazil. In accordance with the provisions of Statement of Financial
Accounting Standards No. 52, gains and losses arising from intercompany foreign
currency transactions that are of a long-term investment nature (i.e.
transactions for which settlement is not planned or anticipated in the
foreseeable future) are accumulated in a separate component of shareholders'
equity.
The Brazilian devaluation also impacted ongoing operations in Brazil, where the
Company is the market leader. The Brazilian affiliate increased prices to
partially offset the effects of the devaluation. When measured in the local
currency ("Real"), sales by the Brazil affiliate in the third quarter and first
nine months of 1999 were 12.6 million Real and 33.8 million Real compared to 7.6
million Real and 19.8 million Real, in the third quarter and first nine months
of 1998. When measured in U.S. dollars, sales by the Brazil affiliate were $6.7
million in the third quarter of 1999 (12% of total sales) compared to $6.5
million (13% of total sales) in the third quarter of 1998. Although the
devaluation has slowed the Company's rapid sales expansion in that country, the
Company believes that the situation has stabilized.
Due to the significance of foreign sales (approximately 79% of total sales), in
particular in Europe, the Company is subject to currency risks based on the
relative strength or weakness of the U.S. dollar. In periods when the U.S.
dollar is strengthening the effect of the translation of the financial
statements of consolidated foreign affiliates is that of lower sales and net
income. Had the value of the U.S. dollar relative to other currencies remained
constant with the third quarter of 1998, sales for the three and nine month
periods of 1999 would have increased 20.3% and 18.8% over the 1998 periods. Net
income in the three and
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<PAGE> 8
nine month periods of 1999 would have been about 5% greater. Due to intense
competition, the Company's foreign distributors are generally unable to increase
prices to offset the negative effect when the U.S. dollar is strong.
Cost of sales as a percentage of sales increased from approximately 44.0% and
43.9% in the three and nine months ended September 30, 1998, to 45.9% and 45.4%
in the corresponding 1999 periods, due to a product mix with more
instrumentation systems, a stronger dollar and a lower selling price on IMMULITE
2000 reagents. The Company is in the process of automating a number of IMMULITE
2000 reagent manufacturing procedures which will improve manufacturing
efficiencies.
Selling expense decreased as a percentage of sales to 18.6% and 18.8% in the
three and nine month periods of 1999 from 19.2% and 19.1% in similar periods in
1998. General and administrative expenses increased as a percentage of sales to
12.3% and 12.6% in the three and nine month periods of 1999 from 11.1% and 12.0%
in the corresponding periods of 1998. The 1999 nine month period included the
exchange loss from the Brazilian devaluation discussed above (related to the
first quarter), which was not a factor in 1998 general and administrative
expenses. Included in general and administrative expenses is the amortization of
the excess of cost over net assets acquired and minority interest. The increase
in general and administrative expense was in part due to the increase in
minority interest, minority investors' share of the earnings of the Company's
Brazilian affiliate, of $164,000 and $236,000 for the three and nine month
periods, as well as the general and administrative expense related in the
Company's Swedish subsidiary, which was not consolidated last year, of $162,000
and $443,000 for the three and nine month periods.
Equity in income of affiliates represents the Company's share of earnings of
non-consolidated affiliates, principally the 45%-owned Italian distributor. This
amount decreased by approximately 32% in the third quarter of 1999, but
increased approximately 19% in the first nine months of 1999 when compared to
similar periods in 1998.
The Company's effective tax rate includes Federal, state and foreign taxes
representing its estimate of the effective tax rate for 1999.
LIQUIDITY
The Company has adequate working capital and sources of capital to carry on its
current business and to meet its existing capital requirements. Net cash flow
from operating activities was $21.9 million in the first nine months of 1999
compared to $23.9 million in the first nine months of 1998. Additions to
property, plant and equipment in the first nine months of 1999 were $5.7 million
compared to $7.6 million in the first nine months of 1998. Cash flow used for
the placement of IMMULITE systems under sales-type and operating leases (for
periods of generally three to five years) was $12.8 million in the first nine
months of 1999 and 1998. The Company used cash to reduce borrowings by $2.2
million in the first nine months of 1999 compared to $2.7 million cash provided
by borrowings in the first nine months of 1998.
The Company's foreign operations, particularly, at this time, its operations in
Brazil, are subject to risks, such as currency devaluations, associated with
political and economic instability. See discussion above under "Results of
Operations" regarding the effects of the Brazilian devaluation.
The Company expects to purchase real property in New Jersey in 2000 at a cost of
approximately $2.8 million. The Company plans to construct an 80,000 square foot
manufacturing facility on this property over the next several years at a cost of
$8-10 million. The Company has no other material commitments for capital
expenditures in 1999.
The Company has a $20.0 million unsecured line of credit under which there were
no borrowings outstanding at September 30, 1999, and December 31, 1998. Standby
letters of credit under the line of credit were zero at September 30, 1999 and
$2 million at December 31, 1998. The Company had notes payable (consisting of
bank borrowings by the Company's foreign consolidated subsidiaries payable in
the local currency some of which are guaranteed by the U.S. parent company) of
$17.3 million at June 30, 1999 compared to $21.2 million at December 31, 1998.
The Company has paid a quarterly cash dividend of $.12 per share since 1995.
7
<PAGE> 9
On October 14, 1998 the Company announced a plan under which it could repurchase
up to one million shares of its common stock from time to time in open market
transactions. Through September 30, 1999, the Company had repurchased a total of
218,288 shares at a cost of $4.5 million. The Company utilized existing cash to
finance such purchases. Additional repurchases, if any, will depend on the
prevailing market price of the Common Stock and could require bank borrowings.
EURO CONVERSION
The Company has significant sales to European countries (the "participating
countries") which began converting to a common legal currency (the "euro") on
January 1, 1999. During the transition period of January 1, 1999 to January 1,
2002, public and private parties may pay for goods and services using either the
euro or the local currency. During the transition period, conversion rates will
not be computed directly from one local currency to another. Instead, local
currencies will be converted first to a euro denomination and then to the second
local currency. Beginning January 2002, new euro-denominated bills and coins
become legal currency and all former currencies will, over the ensuing months,
be withdrawn from circulation. The ultimate conversion to the euro will
eliminate currency exchange risk among the participating countries.
The Company sells its products in the participating countries through affiliated
and non-affiliated distributors which determine sales prices in their respective
territories. The use of a single currency in the participating countries may
affect this variable pricing in the various European markets because of price
transparency. Nevertheless, other market factors such as local taxes, customer
preferences and product assortment may reduce the need for price equalization.
The Company has significant sales in Europe and is currently evaluating the
business implications of the conversion to the euro, including the need to adapt
internal systems to accommodate euro-denominated transactions, the competitive
implications of cross border price transparency, the impact on existing
marketing programs, and other strategic implications. Due to the existence of
many unknown variables at this early stage, it is not at this time possible for
the Company to predict the precise implications of the euro conversion on its
operations.
YEAR 2000
The Company has completed its program that addressed Year 2000 readiness of its
information and business systems. The Company has tested and repaired all
critical systems and tested and repaired or replaced all non-compliant
workstations.
The Company has instituted a comprehensive vendor/supplier compliance
verification program to assure that the Company will have an uninterrupted
supply of goods, services and materials. The Company has requested compliance
verification from all vendors/suppliers.
The Company believes that with the completed modifications to existing software,
the Year 2000 issue will not pose significant operational problems for the
Company or its affiliates. However, material impact to operations could occur if
third parties with whom the Company does business such as communications or
power providers are unable to provide these services because of their Year 2000
problems.
The Company also has a program to determine whether its instrumentation products
are Year 2000 compliant. The Company's website contains a regularly updated
product compliance status page which customers can access to obtain information
regarding the compliance status of their DPC products. The Company is also
providing customer support and customer satisfaction services to all of its
customers regarding Year 2000 issues. The IMMULITE 2000 instrument, which the
Company began shipping in March 1998, is Year 2000 compliant. The Company has
determined that the IMMULITE One instrument was not Year 2000 compliant and has
so informed the FDA, and has supplied all required upgrades to its customers. A
relatively few older products are not compliant and will not be upgraded due to
obsolescence. The costs incurred to date and expected to be incurred to upgrade
products and systems are not material.
8
<PAGE> 10
While the Company currently believes that it has brought its own systems and
products into Year 2000 compliance, if the Company encounters unforeseen
problems it could be subject to legal claims (with or without merit), increased
warranty costs, or customer dissatisfaction which could result in a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company presently believes that its worst case Year 2000 scenario would be
as a result of the failure of a third party supplier for which there is no
readily available substitute such as power or telecommunications. In such a case
the company could be forced to temporarily reduce or curtail its activities at a
given location. The Company has taken steps to have multiple vendors for many of
the materials it uses in its production process and in certain cases will
increase the amount of materials in its production inventory in December of
1999. During the fourth quarter the company will continue to evaluate its
contingency preparations.
FORWARD LOOKING STATEMENTS
Except for the historical information contained herein, this report contains
forward-looking statements (identified by the words "estimate," "project,"
"anticipate," "expect," "intend," "believe," "hope," "will" and similar
expressions) which are based upon Management's current expectations and speak
only as of the date made. These forward-looking statements are subject to risks,
uncertainties and factors that could cause actual results to differ materially
from the results anticipated in the forward-looking statements. These risks and
uncertainties include the degree of customer demand for the Company's products,
customer acceptance of the IMMULITE 2000 and other new products, the Company's
ability to keep abreast of technological innovations, the risks inherent in the
development and release of new products (such as delays, unforeseen costs and
technical difficulties), competitive pressures, currency risks based on the
relative strength or weakness of the U.S. dollar, health care regulation and
cost containment measures, and political and economic instability in certain
foreign markets.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There has been no material change during the quarter ended September 30, 1999,
from the disclosures about market risk provided in the Company's Annual Report
on Form 10-K for the year ended December 31, 1998.
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PART II. OTHER INFORMATION.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.4 1990 Stock Option Plan
10.6 1997 Stock Option Plan
27 Financial Data Schedule
(b) Reports on Form 8-K. None.
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.
DIAGNOSTIC PRODUCTS CORPORATION
(Registrant)
OCTOBER 27, 1999 SIGI ZIERING
- ----------------------------- ------------------------------------------
Date Sigi Ziering, Ph.D., Chairman of the Board
Chief Executive Officer
OCTOBER 27, 1999 JAMES L. BRILL
- ----------------------------- ------------------------------------------
Date James L. Brill, Vice President
Chief Financial Officer
10
<PAGE> 1
EXHIBIT 10.4
DIAGNOSTIC PRODUCTS CORPORATION
1990 STOCK OPTION PLAN
(AMENDED AND RESTATED AS OF SEPTEMBER 8, 1999)
1. PURPOSE
The purpose of the 1990 Stock Option Plan (the "Plan") is to further the
interests of Diagnostic Products Corporation (the "Company") and its subsidiary
corporations ("Subsidiaries") (as such term is defined in Section 425(f) of the
Internal Revenue Code of 1986, as amended (the "Code")), by encouraging and
enabling selected employees, directors, consultants and advisors of the Company
and its Subsidiaries, upon whose judgment, initiative and effort the Company is
largely dependent for the successful conduct of its business, to acquire a
proprietary interest in the Company by ownership of its stock through the
exercise of stock options to be granted hereunder.
2. AUTHORITY TO GRANT OPTIONS
Options granted under the Plan may be either "incentive stock options" within
the meaning of Section 422A of the Code, or options that do not qualify as
incentive stock options or which are designated "non-qualified options"
("non-qualified options"). The aggregate number of shares of Common Stock of the
Company which may hereafter be issued pursuant to the exercise of options
granted hereunder shall not exceed one million (1,000,000) shares, subject,
however, to the provisions of paragraph 5(h) hereof.
In the event that any outstanding option under the Plan for any reason expires
or is terminated without having been exercised in full, the shares of Common
Stock allocable to the unexercised portion of such option may again be subjected
to an option under the Plan.
3. ADMINISTRATION
Subject to the specific provisions hereinafter set forth, the Plan shall be
administered by the Board of Directors or by a committee consisting of at least
two directors appointed by the Board of Directors of the Company (the Board or
such committee being referred to herein as the "Committee"). Members of the
Committee shall serve at the discretion of the Board of Directors. Subject to
the provisions of the Plan, the Committee shall establish rules and regulations
which it may deem appropriate for the proper administration of the Plan,
interpret and make determinations under the Plan which shall be final,
conclusive and binding upon all persons, including, without limitation, the
Company, the shareholders, the directors and any persons having any interests in
any options which may be granted under the Plan.
4. ELIGIBILITY
(a) Incentive options may be granted only to employees of the Company or its
Subsidiaries. Non-qualified options may be granted to employees, directors,
consultants and advisors of the Company or its Subsidiaries, provided that any
consultant or advisor must render bona fide services to the Company or its
Subsidiaries (which services are not in connection with the offer or sale of
securities in a capital-raising transaction). An optionee may hold more than one
option, but only on the terms and subject to the restrictions hereafter set
forth.
(b) Subject to paragraph 4(c), no person who would be considered to own by
reason of Section 425(d) of the Code more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any Subsidiary
of the Company at the time such option is granted, shall be eligible to receive
an incentive option hereunder.
(c) Paragraph 4(b) shall not apply if at the time such incentive option is
granted the option price is at least 110 percent (110%) of the fair market value
of the stock subject to the option and such incentive option by its terms is not
exercisable after the expiration of five years from the date such option is
granted.
<PAGE> 2
5. TERMS AND CONDITIONS OF OPTIONS
The Committee shall determine the persons to whom options shall be granted, the
time options shall be granted, the number of shares subject to option and,
subject to the provisions hereof, the terms and conditions of the options.
Options granted pursuant to the Plan shall be evidenced by an agreement in such
form as the Committee shall from time to time approve.
(a) NUMBER OF SHARES.
Options may be granted to such persons, and in such amounts, as the Committee,
in its discretion, may from time to time determine; provided, however, that the
aggregate fair market value (at the date of grant) of shares subject to
incentive options (granted under the Plan or any other plans of the Company or
its Subsidiaries) that first become exercisable in any calendar year shall not
exceed $100,000.
(b) OPTION PRICE.
Each option shall state the option price, which in the case of incentive options
shall not be less than 100% of the fair market value (110% with respect to the
optionees who are 10% or more shareholders of the Company as described in
paragraph 4(b)) of the Common Stock on the date of grant, and in the case of
non-qualified options, shall not be less than 85% of the fair market value per
share on the date of grant. The "fair market value per share" shall mean the
mean between the highest and lowest quoted selling prices of the Common Stock on
the applicable date or, if not available, the mean between the bona fide bid and
asked prices of the Common Stock on such date. In any situation not covered
above or if there were not sales on the date of the grant of an option, the fair
market value shall be determined by the Committee in accordance with Section
20.2031-2 of the Federal Estate Tax Regulations. Subject to the foregoing, the
Committee in fixing the option price shall have full authority and discretion
and be fully protected in doing so.
(c) MEDIUM AND TIME OF PAYMENT.
Payment of the option price shall be made to the Company in such manner
permitted by law as determined by the Committee, which may include cash
(including check, bank draft or money order) or delivery of shares of the
Company's Common Stock already owned by the optionee or a combination of Common
Stock and cash. The fair market value of Common Stock so delivered shall be
determined as of the date of exercise in the manner set forth in paragraph 5(b).
(d) TERM AND EXERCISE OF OPTIONS.
The shares covered by an option may be purchased at once or in installments, as
the Committee may determine at the time of grant or in a subsequent amendment of
the option. Incentive options shall expire ten years (five years with respect to
optionees who are more than 10% shareholders of the Company as described in
paragraph 4(b)) after the date of grant or such earlier date as may be
determined by the Committee. Non-qualified options shall expire not more than
ten years plus one month from the date of grant or such earlier date as may be
determined by the Committee. An optionee may exercise a part of the option from
the date that part first becomes exercisable until the option expires or is
otherwise terminated. Not less than ten shares may be purchased at any one time
unless the number purchased is the total number at the time purchasable under
the option. To the extent not exercised, installments shall accumulate. As a
condition to the exercise, in whole or in part, of any option, the Committee may
in its sole discretion require the optionee to pay, in addition to the purchase
price of the shares covered by the option, an amount equal to any federal, state
and local taxes that the Committee has determined are required to be paid in
connection with the exercise of such option in order to enable the Company to
claim a deduction or otherwise. Furthermore, if any optionee disposes of any
shares of stock acquired by exercise of an incentive option prior to the
expiration of either of the holding periods specified in Section 422A(a)(1) of
the Code, the optionee shall pay to the Company, or the Company shall have the
right to withhold from any payments to be made to the optionee, an amount equal
to any federal, state and local taxes that the Committee has determined are
required to be paid in connection with the exercise of such option in order to
enable the Company to claim a deduction or otherwise.
<PAGE> 3
(e) TERMINATION OF EMPLOYMENT EXCEPT BY DEATH AND DISABILITY.
Except as the Committee may determine otherwise at any time with respect to any
particular non-qualified option granted hereunder, in the event that an optionee
shall cease to be employed or retained by the Company or a Subsidiary for any
reason other than his death or disability and shall be no longer in the employ
of or providing services to any of them, such optionee shall have the right to
exercise the option to the extent the option was exercisable on the date of
termination until the earlier of three months after such termination or the
expiration of the term of the option. Whether authorized leave of absence or
absence for military or governmental service shall constitute termination of
employment, for the purposes of the Plan, shall be determined by the Committee,
which determination shall be final and conclusive.
(f) DEATH OR DISABILITY OF OPTIONEE.
Except as the Committee may determine otherwise at any time with respect to any
particular non-qualified option granted hereunder, if an optionee shall die
while in the employ or service of the Company or a Subsidiary or within a period
of three months after the termination of his employment or service with the
Company or a Subsidiary, either voluntarily or by operation of law, any options
granted to him shall expire on the earlier of one year from the date of death or
the expiration of the term of the option. During the period between the
optionee's death and the expiration of the option, the option may be exercised
by the person or persons to whom the optionee's rights under the option have
passed by will or by the laws of descent and distribution, but only to the
extent that it was exercisable on the date of death.
Except as the Committee may determine otherwise at any time with respect to any
particular non-qualified option granted hereunder, if an optionee's employment
or service with the Company or a Subsidiary shall terminate due to the
optionee's permanent disability (as defined by Section 22(e)(3) of the Code),
any options granted to him shall terminate on the earlier of one year from the
date of such termination or the expiration of the term of the option. During
such period, the option shall be exercisable only to the extent it was
exercisable on the day of termination due to permanent disability.
(g) NON-TRANSFERABILITY OF OPTIONS.
No option shall be assignable or transferable by the optionee, either
voluntarily or by operation of law, other than by will or the laws of descent
and distribution, and options shall be exercisable during the optionee's
lifetime only by the optionee.
(h) ADJUSTMENTS.
If the number of outstanding shares of Common Stock is increased or decreased,
or if such shares are exchanged for a different number or kind of shares or
securities of the Company through reorganization, merger, recapitalization,
reclassification, stock dividend, stock split, combination of shares or other
similar transaction, the aggregate number of shares of Common Stock subject to
the Plan as provided in paragraph 2 hereof and the shares of Common Stock
subject to issued and outstanding options under the Plan shall be appropriately
and proportionately adjusted by the Committee. Any such adjustment in the
outstanding options shall be made without change in the aggregate purchase price
applicable to the unexercised portion of the option but with an appropriate
adjustment in the price for each share or other unit of any security covered by
the option. No adjustment shall be made on account of any transaction or event
not specifically set forth in this paragraph 5(h), including, without
limitation, the issuance of Common Stock for consideration.
Subject to any required action by the shareholders, if the Company shall be the
surviving corporation in any merger or consolidation, each outstanding option
shall pertain to and apply to the securities to which a holder of the number of
shares of Common Stock subject to the option would have been entitled. In the
event of the dissolution or liquidation of the Company or a merger or
consolidation in which the Company is not the surviving corporation, or a sale
of all or substantially all of the Company's assets, all outstanding options
shall terminate on the date of any such event unless the Committee takes action,
if any, as the Com-
<PAGE> 4
mittee in its discretion may deem appropriate to accelerate the time within
which and the extent to which options may be exercised or to provide for the
assumption of options by the surviving, consolidated, successor or transferee
corporation(s).
Adjustments under this paragraph 5(h) shall be made by the Committee, whose
determination as to which adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive. No fractional shares of stock shall be
issued under the Plan or in connection with any such adjustment.
The grant of an option pursuant to the Plan shall not affect in any way the
right or power of the Company to make any adjustment, reclassification,
reorganization or change of its capital or business structure or to merge or to
consolidate or to dissolve, liquidate or sell or transfer all or any part of its
business or assets.
(i) MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS.
Subject to the terms and conditions and within the limitations of the Plan, the
Committee may modify, extend or renew outstanding options granted under the
Plan. Notwithstanding the foregoing, however, no modification of an option
shall, without the consent of the optionee, alter or impair any right or
obligation under any option theretofore granted under the Plan in a manner
adverse to the optionee.
(j) CHANGE IN CONTROL.
Upon a "Change in Control" (as hereinafter defined), all outstanding options
shall, subject to the provisions hereof, vest and become immediately 100%
exercisable; provided, however, that this paragraph 5(j) shall be null and void
and there shall be no acceleration of the vesting of options in the event of a
Change in Control if the operation of this paragraph 5(j) would preclude the
Company from being able to utilize the pooling-of-interests method of accounting
in any transaction. A "Change in Control" shall be deemed to have occurred if:
(i) any "person" as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the
Company, any trustee or other fiduciary holding securities under any Company
employee benefit plan, or any entity owned, directly or indirectly, by Company
shareholders in substantially the same proportions as their ownership of the
Company's voting securities), is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act, or any successor rule or regulation
thereto as in effect from time to time), directly or indirectly, of the
Company's securities representing 50% or more of the combined voting power of
the Company's then outstanding securities;
(ii) a tender offer (for which a filing has been made with the Securities and
Exchange Commission which purports to comply with the requirements of Section
14(d) of the Exchange Act and the rules thereunder) is made for the stock of the
Company, upon the first to occur of (A) any time during the offer when the
person (as defined in clause (i) above) making the offer owns or has accepted
for payment securities of the Company representing 25% or more of the combined
voting power of the Company's then outstanding securities or (B) three business
days before the offer is to terminate unless the offer is withdrawn first, if
the person making the offer could own, by the terms of the offer plus any voting
securities owned by such person, securities representing 50% or more of the
combined voting power of the Company's outstanding securities when the offer
terminates;
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directions, and any new
director (other than a director designated by a person who has entered into an
agreement with the Company to effect a transaction described in clause (i),
(ii), (iv) or (v) of this paragraph) whose election by the Board of Directors or
nomination for election by the Company's shareholders was approved by a vote of
at least two-thirds of the directors then still in office who either were
directors at the beginning of the two-year period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute at least a majority of the Board of Directors;
<PAGE> 5
(iv) the Company's shareholders approve a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation that would
result in the Company's voting securities outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than 50% of the combined
voting power of voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation; or
(v) the Company's shareholders approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
If any of the events enumerated in clauses (i) through (v) above occur, the
Board of Directors shall determine the effective date of the Change in Control
resulting therefrom, for purposes of the Plan. The exercise of any portion of an
option which would not have been exercisable but for the occurrence of a Change
in Control under clause (iv) or (v) above shall be conditioned on the
consummation of the transaction described in clause (iv) or (v) which caused the
Change in Control to occur. If such transaction is abandoned, any and all
conditional exercises of options in accordance with this paragraph 5(j) shall be
deemed annulled and of no force or effect and to the extent any option shall
have vested solely by operation of this paragraph 5(j), such vesting shall be
deemed annulled and of no force or effect and the vesting provisions of such
option as in effect prior to the Change in Control shall be reinstated.
(k) RIGHTS AS A SHAREHOLDER.
No person entitled to exercise any option shall have any rights as a shareholder
with respect to any shares covered by the option until the date such person has
become the holder of record of such shares. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior to
the date such person becomes the holder of record of such shares, except as
provided in paragraph 5(h) hereof.
(l) INVESTMENT PURPOSE.
Each option under the Plan shall be granted on the condition that the purchases
of stock thereunder shall be for investment purposes, and not with a view to
resale or distribution, unless the stock subject to such option is registered
under the Securities Act of 1933, as amended, or the resale of such stock
without such registration would otherwise be permissible under the Securities
Act of 1933, as amended, or any other applicable law, regulation, or rule of any
governmental agency.
(m) OTHER PROVISIONS.
The option agreements authorized under the Plan shall contain such other
provisions, including, without limitation, restrictions upon the exercise of the
option, as the Committee shall deem advisable.
6. INDEMNIFICATION OF COMMITTEE
In addition to such other rights of indemnification as they may have, the
members of the Committee shall be indemnified by the Company against their
reasonable expenses, including attorneys' fees actually and necessarily incurred
in connection with the defense of any action, suit or proceeding, or in
connection with any appeal therein, to which they or any of them may be a party
by reason of any action taken or failure to act under or in connection with the
Plan or any option granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a judgment
in any such action, suit or proceeding, except in relation to matters as to
which it shall be adjudged in such action, suit or proceeding that such
Committee member is liable for gross negligence or intentional misconduct in the
performance of his duties; provided that within sixty days after institution of
any such action, suit or proceeding, a Committee member shall in writing offer
the Company the opportunity, at its own expense, to handle and defend the same.
<PAGE> 6
7. TERM AND AMENDMENT OF THE PLAN
The Plan shall remain in effect until all shares covered by options granted
under the Plan have been purchased or all rights to acquire the shares have
lapsed. No stock option shall be granted under the Plan after December 7, 2000.
The Board of Directors of the Company may, insofar as permitted by law, from
time to time, with respect to any shares at the time not subject to options,
suspend or discontinue the Plan or revise or amend it in any respect whatsoever
except that, without the approval of the shareholders, no such revision or
amendment shall change the number of shares subject to the Plan or change the
designation of the persons eligible to receive incentive options under the Plan.
Other amendments or modifications to the Plan shall be approved by the
shareholders only if such approval is required by the Code, by any rule
promulgated by the Securities and Exchange Commission pursuant to Section 16 of
the Securities Exchange Act of 1934, as amended, by any rule of the New York
Stock Exchange, or if the Committee determines that such approval is necessary
and appropriate.
8. ADOPTION AND EFFECTIVENESS OF PLAN
The Plan was adopted by resolution of the Board of Directors on December 8,
1990, and approved by the shareholders on May 8, 1991. The Plan was amended by
the Board of Directors on August 21, 1996 and September 8, 1999.
<PAGE> 1
EXHIBIT 10.6
DIAGNOSTIC PRODUCTS CORPORATION
1997 STOCK OPTION PLAN
(AS AMENDED THROUGH SEPTEMBER 8, 1999)
I. PURPOSE
The purpose of the Diagnostic Products Corporation 1997 Stock Option Plan (the
"Plan") is to further the interests of Diagnostic Products Corporation (the
"Company") and its Subsidiaries by strengthening the desire of Employees to
continue their relationship with the Company and its Subsidiaries and by
inducing individuals to become Employees of the Company and its Subsidiaries
through stock options to be granted hereunder. Options granted under the Plan
are either options intending to qualify as "incentive stock options" within the
meaning of Section 422 of the Code or non-qualified stock options.
I. DEFINITIONS
Whenever used herein the following terms shall have the following meanings,
respectively:
A. "Board" shall mean the Board of Directors of the Company.
A. "Code" shall mean the Internal Revenue Code of 1986, as amended.
A. "Committee" shall mean a Committee of at least two directors appointed by the
Board, or if no such committee has been appointed reference to "Committee" shall
be deemed to refer to the Board.
A. "Common Stock" shall mean the Company's Common Stock, no par value per share,
as described in the Company's Articles of Incorporation, as amended from time to
time.
A. "Company" shall mean Diagnostic Products Corporation, a California
corporation.
A. "Employee" shall mean in connection with Non-Qualified Options, any officer,
employee, consultant or advisor of the Company or any Subsidiary or Parent
Corporation of the Company, and any director of the Company who is not an
employee of the Company or any Subsidiary or Parent Corporation of the Company,
it being understood that the Committee may in its discretion also grant Options
to induce individuals to become and remain as Employees and that such persons,
for purposes of receiving Non-Qualified Options hereunder, shall be deemed
"Employees." In connection with Incentive Options under this Plan, the term
Employee shall mean any individual who is employed, within the meaning of
Section 3401 of the Code, by the Company or any Subsidiary or Parent Corporation
of the Company.
A. "Fair Market Value Per Share" of the Company's Common Stock shall mean if the
Company's Common Stock is publicly traded the mean between the highest and
lowest quoted selling prices of the Common Stock on the date of the grant of the
Option or, if not available, the mean between the bona fide bid and asked prices
of the Common Stock on the date of the grant of the Option. In any situation not
covered above or if there were no sales on the date of the grant of an Option,
the Fair Market Value Per Share shall be determined by the Committee in good
faith based on uniform principles consistently applied.
A. "Incentive Option" shall mean an Option granted under the Plan which is
designated as and qualifies as an incentive stock option within the meaning of
Section 422 of the Code.
A. "Non-Qualified Option" shall mean an Option granted under the Plan which is
designated as a non-qualified stock option or which does not qualify as an
incentive stock option within the meaning of Section 422 of the Code.
A. "Option" shall mean an Incentive Option or a Non-Qualified Option. Each
Option shall be evidenced by a written agreement executed by the Company which
shall set forth the terms and conditions of such Option.
<PAGE> 2
A. "Optionee" shall mean any Employee who has been granted an Option under the
Plan.
A. "Parent Corporation" shall have the meaning set forth in Section 424(e) of
the Code.
A. "Permanent Disability" shall mean termination of employment with the Company
or any Subsidiary or Parent Corporation of the Company with the consent of the
Company or such Subsidiary by reason of permanent and total disability within
the meaning of Section 22(e)(3) of the Code.
A. "Plan" shall mean the Diagnostic Products Corporation 1997 Stock Option Plan,
as from time to time amended.
A. "Subsidiary", in the case of Incentive Options, shall have the meaning set
forth in Section 424(f) of the Code (generally, 50% or more owned subsidiaries),
and in the case of Non-Qualified Options, shall have the meaning of "subsidiary"
in Rule 405 of Regulation C under the Securities Act of 1933, as amended
(generally, a controlled affiliate).
I. ADMINISTRATION
A. The Plan shall be administered either by the Board or, in the discretion of
the Board, by a Committee; provided, however, that if a Committee has been
appointed by the Board, the Board may take any action permitted to be taken by
the Committee with respect to grants or other actions affecting Options for
executive officers or directors of the Company. The Board may from time to time
appoint members of the Committee in substitution for or in addition to members
previously appointed and may fill vacancies.
A. Any action of the Committee with respect to the administration of the Plan
shall be taken by majority vote or by unanimous written consent of its members.
A. Subject to the provisions of the Plan, the Committee shall have the authority
to construe and interpret the Plan, to define the terms used herein, to
determine the Optionees, the time or times an Option may be exercised and the
number of shares which may be exercised at any one time, to prescribe, amend and
rescind rules and regulations relating to the Plan, to approve and determine the
duration of leaves of absence which may be granted to participants without
constituting a termination of their employment for purposes of the Plan, and to
make all other determinations necessary or advisable for the administration of
the Plan. The Committee's authority shall include, without limitation, the
right, in its discretion, to accelerate the exercisability of Options or reprice
or exchange Options with the consent of the Optionee. All determinations and
interpretations made by the Committee shall be conclusive and binding on all
Employees and on their guardians, legal representatives and beneficiaries.
A. The Company will indemnify and hold harmless the members of the Board and the
Committee from and against any and all liabilities, costs and expenses incurred
by such persons as a result of any act, or omission to act, in connection with
the performance of such persons' duties, responsibilities and obligations under
the Plan, other than such liabilities, costs and expenses as may result from the
gross negligence, bad faith, willful misconduct and/or criminal acts of such
persons.
I. NUMBER OF SHARES SUBJECT TO PLAN
The stock to be offered under the Plan shall consist of up to 1,000,000 shares
of the Company's Common Stock. If any Option granted hereunder shall expire or
terminate for any reason without having been exercised in full, the unpurchased
shares subject thereto shall again be available for purposes of this Plan.
I. ELIGIBILITY AND PARTICIPATION
A. The Committee shall determine the Employees to whom Options shall be granted,
the time or times at which such Options shall be granted and the number of
shares to be subject to each Option. An Employee who has been granted an Option
may, if he is otherwise eligible, be granted an additional Option or
<PAGE> 3
Options if the Committee shall so determine. An Employee may be granted
Incentive Options or Non-Qualified Options or both under the Plan.
A. In no event shall the aggregate fair market value (determined as of the time
an Incentive Option is granted) of shares subject to Incentive Options held by
an Optionee (granted under the Plan or under any other plan of the Company) that
first become exercisable in any calendar year exceed $100,000. The portion of
any purported Incentive Option which exceeds such limitation shall be deemed to
be a Non-Qualified Option.
I. PURCHASE PRICE
The purchase price of each share covered by an Option shall be determined by the
Committee on the date of grant; provided, however, that the purchase price of
each share covered by each Incentive Option shall not be less than 100% of the
Fair Market Value Per Share of the Common Stock of the Company on the date the
Incentive Option is granted; and provided, further, that if at the time an
Incentive Option is granted the Optionee owns or would be considered to own by
reason of Section 424(d) of the Code more than 10% of the total combined voting
power of all classes of stock of the Company or any Subsidiary or Parent
Corporation of the Company, the purchase price of the shares covered by such
Incentive Option shall not be less than 110% of the Fair Market Value Per Share
of the Common Stock on the date the Incentive Option is granted.
I. DURATION OF OPTIONS
The expiration date of an Option shall not exceed 10 years from the date on
which the Option was granted, and shall be subject to earlier termination as
provided herein; provided, however, that if at the time an Incentive Option is
granted the Optionee owns or would be considered to own by reason of Section
424(d) of the Code more than 10% of the total combined voting power of all
classes of stock of the Company or any Subsidiary or Parent Corporation of the
Company, such Incentive Option shall expire not more than 5 years from the date
the Incentive Option is granted.
I. EXERCISE OF OPTIONS
An Option shall be exercisable in installments or otherwise upon such terms as
the Committee shall in its discretion determine. An Optionee may purchase less
than the total number of shares for which the Option is exercisable, provided
that the exercise of an Option shall not include any fractional shares. As a
condition to the exercise, in whole or in part, of any Option, the Committee may
in its sole discretion require the Optionee to pay, in addition to the purchase
price of the shares covered by the Option, an amount equal to any federal, state
and local taxes that the Committee has determined are required to be paid in
connection with the exercise of such Option in order to enable the Company to
claim a deduction or otherwise. Furthermore, if any Optionee disposes of any
shares of stock acquired by exercise of an Incentive Option prior to the
expiration of either of the holding periods specified in Section 422(a)(1) of
the Code, the Optionee shall pay to the Company, or the Company shall have the
right to withhold from any payments to be made to the Optionee, an amount equal
to any federal, state and local taxes that the Committee has determined are
required to be paid in connection with the exercise of such Option in order to
enable the Company to claim a deduction or otherwise.
I. METHOD OF EXERCISE
A. To the extent that the right to purchase shares has accrued, Options may be
exercised from time to time by giving written notice to the Company stating the
number of shares with respect to which the Option is being exercised,
accompanied by payment in full of the purchase price for the number of shares
being purchased and, if applicable, any federal, state or local taxes required
to be paid in accordance with the provisions of Section hereof.
<PAGE> 4
A. Payment of the purchase price for any shares pursuant to the exercise of an
Option may be made in cash or by check or, in connection with subparagraphs (i)
through (iv) where expressly approved by the Committee in advance, in its
discretion, and where permitted by law:
1. by cancellation of indebtedness of the Company to the Optionee;
1. by surrender of shares of Common Stock that have been owned by the Optionee
for at least six months;
1. by tender of a full recourse promissory note, which note shall be secured by
the shares being purchased, contain such terms as may be approved by the
Committee and bear interest at a rate sufficient to avoid imputation of income
under Sections 483 and 1274 of the Code;
1. by waiver of compensation due or accrued to the Optionee for services
rendered;
1. provided that a public market for the Company's Common Stock exists:
a) through a "same day sale" commitment from the Optionee and a broker-dealer
that is a member of the National Association of Securities Dealers (an "NASD
Dealer") whereby the Optionee irrevocably elects to exercise the Option and to
sell a portion of the shares so purchased to pay for the purchase price, and
whereby the NASD Dealer irrevocably commits to forward the purchase price
directly to the Company; or
a) through a "margin" commitment from the Optionee and a NASD Dealer whereby the
Optionee irrevocably elects to exercise the Option and to pledge the shares so
purchased to the NASD Dealer in a margin account as security for a loan from the
NASD Dealer in the amount of the purchase price, and whereby the NASD Dealer
irrevocably commits to forward the purchase price directly to the Company; or
1. by any combination of the foregoing.
If payment is made with shares of Common Stock, the Optionee, or other person
entitled to exercise the Option, shall deliver to the Company certificates
representing the number of shares of Common Stock in payment for the shares
being purchased, duly endorsed for transfer to the Company and, if requested by
the Committee, a representation and warranty in writing that he has good and
marketable title to the shares represented by the certificate(s), free and clear
of all liens and encumbrances. The value of the shares of Common Stock tendered
in payment for the shares being purchased shall be their Fair Market Value Per
Share on the date of the Optionee's exercise.
A. Notwithstanding the foregoing, the Company shall have the right to postpone
the time of delivery of the shares for such period as may be required for it to
comply, with reasonable diligence, with any applicable listing requirements of
any national securities exchange or any federal, state or local law. If an
Optionee, or other person entitled to exercise an Option, fails to accept
delivery of or fails to pay for all or any portion of the shares requested in
the notice of exercise, upon tender of delivery thereof, the Committee shall
have the right to terminate his Option with respect to such shares.
I. NON-TRANSFERABILITY OF OPTIONS
(a) Except as otherwise expressly provided in Section 10(b) and in the agreement
which evidences the Option, as the same may be amended, no Option granted under
the Plan shall be assignable or transferable by the Optionee, either voluntarily
or by operation of law, otherwise than by will or the laws of descent and
distribution, and shall be exercisable during his lifetime only by the Optionee.
(b) The Committee may permit Non-Qualified Options to be transferred pursuant to
a domestic relations order or to members of the Optionee's immediate family,
charitable institutions, or trusts or other entities whose beneficiaries or
beneficial owners are members of the Optionee's immediate family and/or
charitable institutions, pursuant to such conditions and procedures as the
Committee may establish. Any permitted
<PAGE> 5
transfer shall be subject to the condition that the Committee receive evidence
satisfactory to it that the transfer is being made pursuant to a domestic
relations order, or for estate and/or tax planning purposes on a gratuitous or
donative basis and without consideration (other than nominal consideration).
Notwithstanding the foregoing, Incentive Options shall be subject to any and all
transfer restrictions under the Code.
I. CONTINUANCE OF EMPLOYMENT
Nothing contained in the Plan or in any Option granted under the Plan shall
confer upon any Optionee any rights with respect to the continuation of his
status as an Employee of the Company or any Subsidiary or Parent Corporation of
the Company or interfere in any way with the right of the Company or any
Subsidiary or Parent Corporation of the Company at any time to terminate such
relationship or to increase or decrease the compensation of the Optionee from
the rate in existence at the time of the grant of an Option.
I. TERMINATION OF EMPLOYEE STATUS OTHER THAN BY DEATH OR PERMANENT DISABILITY
Except as expressly approved by the Committee with respect to any Non-Qualified
Option granted hereunder and set forth in the agreement evidencing such Option,
if an Optionee ceases to be an Employee for any reason other than his death or
Permanent Disability, any Options granted to him under the Plan shall terminate
not later than three months from the date on which such Optionee ceases to be an
Employee unless such Optionee has been rehired by the Company and is an Employee
on such date. Until the termination of the Option, the Optionee may exercise any
Option granted to him but only to the extent such Option was exercisable on the
date he ceased to be an Employee and provided that such Option has not expired
or otherwise terminated as provided herein. A leave of absence approved in
writing by the Committee shall not be deemed a termination for purposes of this
Section, but no Option may be exercised during any such leave of absence, except
during the first 90 days thereof. The fact that the Optionee may receive payment
from the Company or any Subsidiary of the Company after termination of Employee
status for vacation pay, for services rendered prior to termination, for salary
in lieu of notice, or for other benefits shall not affect the termination date.
I. DEATH OR PERMANENT DISABILITY OF OPTIONEE
Except as expressly approved by the Committee with respect to any Non-Qualified
Option granted hereunder and set forth in the agreement evidencing such Option,
if an Optionee shall die at a time when he is an Employee or if the Optionee
shall cease to be an Employee by reason of Permanent Disability, any Options
granted to him under this Plan shall terminate not later than one year after the
date of his death or termination of Employee status due to Permanent Disability
unless by its terms it shall expire before such date or otherwise terminate as
provided herein, and shall only be exercisable to the extent that it would have
been exercisable on the date of his death or termination due to Permanent
Disability. In the case of death, the Option may be exercised by the person or
persons to whom the Optionee's rights under the Option shall pass by will or by
the laws of descent and distribution.
I. STOCK PURCHASE NOT FOR DISTRIBUTION
Each Optionee shall, by accepting the grant of an Option under the Plan,
represent and agree, for himself and his transferees by will or the laws of
descent and distribution, that all shares of stock purchased upon exercise of
the Option will be received and held without a view to distribution except as
may be permitted by the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder. After each notice of exercise of any portion
of an Option, if requested by the Committee, the person entitled to exercise the
Option must agree in writing that the shares of stock are being acquired in good
faith without a view to distribution.
<PAGE> 6
I. PRIVILEGES OF STOCK OWNERSHIP
No person entitled to exercise any Option granted under the Plan shall have any
of the rights or privileges of a shareholder of the Company with respect to any
shares of Common Stock issuable upon exercise of such Option until such person
has become the holder of record of such shares. No adjustment shall be made for
dividends or distributions of rights in respect of such shares if the record
date is prior to the date on which such person becomes the holder of record,
except as provided in Section hereof.
I. ADJUSTMENTS/CHANGE IN CONTROL
If the number of outstanding shares of Common Stock of the Company are increased
or decreased, or if such shares are exchanged for a different number or kind of
shares or securities of the Company through reorganization, merger,
recapitalization, reclassification, stock dividend, stock split, combination of
shares, or other similar transaction, the aggregate number of shares of Common
Stock subject to the Plan as provided in Section hereof and the shares of Common
Stock subject to issued and outstanding Options under the Plan shall be
appropriately and proportionately adjusted by the Committee. Any such adjustment
in the outstanding Options shall be made without change in the aggregate
purchase price applicable to the unexercised portion of the Option but with an
appropriate adjustment in the price for each share or other unit of any security
covered by the Option.
A. Notwithstanding the provisions of subsections (a) or (c) of this Section, the
Plan and each outstanding Option shall terminate on the effective date of the
dissolution or liquidation of the Company or any reorganization, merger or
consolidation with one or more corporations or entities as a result of which the
Company is not the surviving corporation, or any sale of all or substantially
all the assets of the Company, or the sale (by merger or otherwise) of more than
80% of the then outstanding Common Stock, unless the surviving or acquiring
corporation or other entity agrees to assume, or substitute equivalent awards
for, all outstanding Options; provided that the Committee may, in its sole
discretion, accelerate the vesting of any outstanding Option or give notice of
such event to Optionees prior to the effective date of such event.
A. Upon a "Change in Control" (as hereinafter defined), all outstanding Options
shall, subject to the provisions hereof, vest and become immediately 100%
exercisable; provided, however, that this subsection (c) shall be null and void
and there shall be no acceleration of the vesting of Options in the event of a
Change in Control if the operation of this subsection (c) would preclude the
Company from being able to utilize the pooling-of-interests method of accounting
in any transaction. A "Change in Control" shall be deemed to have occurred if:
(i) any "person" as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the
Company, any trustee or other fiduciary holding securities under any Company
employee benefit plan, or any entity owned, directly or indirectly, by Company
shareholders in substantially the same proportions as their ownership of the
Company's voting securities), is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act, or any successor rule or regulation
thereto as in effect from time to time), directly or indirectly, of the
Company's securities representing 50% or more of the combined voting power of
the Company's then outstanding securities;
(ii) a tender offer (for which a filing has been made with the Securities and
Exchange Commission which purports to comply with the requirements of Section
14(d) of the Exchange Act and the rules thereunder) is made for the stock of the
Company, upon the first to occur of (A) any time during the offer when the
person (as defined in clause (i) above) making the offer owns or has accepted
for payment securities of the Company representing 25% or more of the combined
voting power of the Company's then outstanding securities or (B) three business
days before the offer is to terminate unless the offer is withdrawn first, if
the person making the offer could own, by the terms of the offer plus any voting
securities owned by such person, securities representing 50% or more of the
combined voting power of the Company's outstanding securities when the offer
terminates;
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directions, and any new
director (other than a director designated by a person who has entered
<PAGE> 7
into an agreement with the Company to effect a transaction described in clause
(i), (ii), (iv) or (v) of this subsection (c)) whose election by the Board of
Directors or nomination for election by the Company's shareholders was approved
by a vote of at least two-thirds of the directors then still in office who
either were directors at the beginning of the two-year period or whose election
or nomination for election was previously so approved, cease for any reason to
constitute at least a majority of the Board of Directors;
(iv) the Company's shareholders approve a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation that would
result in the Company's voting securities outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than 50% of the combined
voting power of voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation; or
(v) the Company's shareholders approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
If any of the events enumerated in clauses (i) through (v) above occur, the
Board shall determine the effective date of the Change in Control resulting
therefrom, for purposes of the Plan. The exercise of any portion of an Option
which would not have been exercisable but for the occurrence of a Change in
Control under clause (iv) or (v) above shall be conditioned on the consummation
of the transaction described in clause (iv) or (v) which caused the Change in
Control to occur. If such transaction is abandoned, any and all conditional
exercises of Options in accordance with this subsection (c) shall be deemed
annulled and of no force or effect and to the extent any Option shall have
vested solely by operation of this subsection (c), such vesting shall be deemed
annulled and of no force or effect and the vesting provisions of such Option as
in effect prior to the Change in Control shall be reinstated.
A. Adjustments under this Section shall be made by the Committee, whose
determination as to what adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive. No fractional shares of stock shall be
issued under the Plan or in connection with any such adjustment.
I. AMENDMENT AND TERMINATION OF PLAN
1. The Board of Directors of the Company may from time to time, with respect to
any shares at the time not subject to Options, suspend or terminate the Plan or
amend or revise the terms of the Plan; provided that any amendment of the Plan
shall be approved by the shareholders of the Company if the amendment would
increase the number of shares of Common Stock which may be issued under the
Plan, except as permitted under the provisions of Section hereof, or materially
modify the requirements as to eligibility for participation in the Plan.
A. No amendment, suspension or termination of the Plan shall, without the
consent of the Optionee, alter or impair any rights or obligations under any
Option theretofore granted to such Optionee under the Plan.
A. The terms and conditions of any Option granted to an Optionee under the Plan
may be modified or amended only by a written agreement executed by the Optionee
and the Company.
I. EFFECTIVE DATE OF PLAN
This Plan shall become effective upon adoption by the Board of Directors of the
Company and approval by the Company's shareholders; provided, however, that
prior to approval of the Plan by the Company's shareholders, but after adoption
by the Board of Directors, Options may be granted under the Plan subject to
obtaining the shareholders' approval of the adoption of the Plan.
Notwithstanding the foregoing, shareholders' approval must occur no later than
12 months after the date of adoption of the Plan by the Board of Directors.
<PAGE> 8
I. TERM OF PLAN
No Option shall be granted pursuant to the Plan after 10 years from the earlier
of the date of adoption of the Plan by the Board of Directors of the Company or
the date of approval of the Plan by the Company's shareholders.
The Plan was adopted by the Board on February 14, 1997. The Plan was approved by
the shareholders on May 5, 1997 and amended by the Board of Directors on
September 8, 1999.
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