<PAGE>
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 SEPTEMBER 28, 1996 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 0-14953
-------
ACUSON CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 94-2784998
- ----------------------------- ---------------------------------
(State of Incorporation) (IRS Employer Identification No.)
1220 CHARLESTON ROAD
P. O. BOX 7393
MOUNTAIN VIEW, CA 94039-7393
(Address of principal executive offices)
Registrant's telephone number, including area code, is (415) 969-9112
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 [_]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.0001 par value 28,010,747 shares
------------------------------- -------------------------------
(Class) Outstanding at November 1, 1996
<PAGE>
____________________________
FORM 10-Q
ACUSON CORPORATION
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of
September 28, 1996 and December 31, 1995 1
Condensed Consolidated Statements of Operations
for the Three Months Ended September 28, 1996 and
September 30, 1995 and for the Nine Months Ended
September 28, 1996 and September 30, 1995 2
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 28, 1996 and
September 30, 1995 3
Notes to Condensed Consolidated Financial
Statements 4
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 8
ITEM 4. Submission of Matters to a Vote of Security Holders 8
ITEM 6. Exhibits and Reports on Form 8-K 8
Signature 9
</TABLE>
<PAGE>
________________________________________________________________________________
ACUSON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
SEPTEMBER 28, DECEMBER 31,
1996 1995
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 13,168 $ 46,135
Short-term investments -- 10,000
-------- --------
Total cash and
short-term investments 13,168 56,135
Accounts receivable, net 87,105 77,992
Inventories 84,072 50,484
Deferred income taxes 29,561 24,188
Other current assets 11,223 12,467
-------- --------
Total current assets 225,129 221,266
PROPERTY AND EQUIPMENT, at cost, net of
accumulated depreciation and amortization
of $116,096 and $106,647 in 1996 and 1995,
respectively 61,433 50,244
OTHER ASSETS, NET 16,629 24,343
-------- --------
Total Assets $303,191 $295,853
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 8,000 $ --
Accounts payable 22,054 16,295
Other accrued liabilities 79,471 83,561
-------- --------
Total current liabilities 109,525 99,856
-------- --------
Commitments and contingencies (Note 4)
STOCKHOLDERS' EQUITY
Preferred stock, par value $.0001:
authorized, 10,000 shares,
outstanding, none -- --
Common stock and additional paid-in
capital, common stock par value
$.0001: authorized, 50,000 shares;
outstanding; 27,843 shares and
27,275 shares in 1996 and 1995,
respectively 93,881 79,702
Cumulative translation adjustment 408 206
Unrealized holding gain on
investment securities - 37
Retained earnings 99,377 116,052
-------- --------
Total stockholders' equity 193,666 195,997
-------- --------
Total liabilities and
Stockholders' Equity $303,191 $295,853
======== ========
</TABLE>
________________________________________________________________________________
See accompanying notes to the condensed consolidated financial statements.
<PAGE>
________________________________________________________________________________
ACUSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------------- --------------------------------
SEPTEMBER 28, SEPTEMBER 30, SEPTEMBER 28, SEPTEMBER 30,
1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES
Product $71,839 $54,976 $189,481 $185,480
Service 21,466 20,399 63,005 59,800
------- ------- -------- --------
Total net sales 93,305 75,375 252,486 245,280
------- ------- -------- --------
COST OF SALES
Product 39,427 26,236 99,575 86,599
Service 10,358 9,108 30,493 26,490
------- ------- -------- --------
Total cost of sales 49,785 35,344 130,068 113,089
------- ------- -------- --------
Gross profit 43,520 40,031 122,418 132,191
------- ------- -------- --------
OPERATING EXPENSES
Selling, general and administrative 28,199 22,460 90,673 76,971
Product development 14,227 15,823 47,342 50,836
------- ------- -------- --------
Total operating expenses 42,426 38,283 138,015 127,807
------- ------- -------- --------
Income (loss) from operations 1,094 1,748 (15,597) 4,384
INTEREST INCOME, NET 476 920 2,387 2,865
------- ------- -------- --------
Income (loss) before income
taxes 1,570 2,668 (13,210) 7,249
PROVISION FOR (BENEFIT FROM) INCOME TAXES (78) 774 (5,536) 2,102
------- ------- -------- --------
Net income (loss) $ 1,648 $ 1,894 $ (7,674) $ 5,147
======= ======= ======== ========
EARNINGS (LOSS) PER SHARE $0.06 $0.07 $(0.28) $0.18
======= ======= ======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 27,524 27,943 27,286 28,428
======= ======= ======== ========
</TABLE>
________________________________________________________________________________
See accompanying notes to the condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
ACUSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
NINE MONTHS ENDED
-------------------------------------
SEPTEMBER 28, SEPTEMBER 30,
1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (7,674) $ 5,147
Adjustments to reconcile net
income (loss) to cash provided by
(used in) operating activities:
Depreciation and amortization 11,713 13,626
Tax benefit of employee stock
transactions 2,436 360
Changes in:
Accounts receivable (8,933) 6,648
Leases receivable 7,317 (4,410)
Inventories (33,628) (1,236)
Deferred income taxes (6,181) (4,020)
Other current assets 430 1,755
Accounts payable 5,785 (2,611)
Other accrued liabilities (2,957) 5,519
-------- ---------
Net cash provided by
(used in) operating
activities (31,692) 20,778
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in short-term investments 9,983 13,751
Investment in property and equipment (22,935) (14,447)
Decrease in other 1,905 821
-------- ---------
Net cash provided by
(used in) investing
activities (11,047) 125
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under short-term
borrowing agreement 10,000 0
Repayments of short-term
borrowing agreement (2,000) 0
Repurchase of common stock (12,012) (19,152)
Issuance of common stock under stock
option and stock purchase plans 14,013 6,314
-------- ---------
Net cash provided by
(used in) financing
activities 10,001 (12,838)
-------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (229) 394
-------- ---------
Net increase (decrease) in
cash and cash equivalents (32,967) 8,459
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 46,135 28,671
-------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 13,168 $ 37,130
======== =========
</TABLE>
- --------------------------------------------------------------------------
See accompanying notes to the condensed consolidated financial statements.
3
<PAGE>
________________________________________________________________________________
ACUSON CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 - INTERIM STATEMENTS
In the opinion of management, the unaudited interim condensed
consolidated financial statements include all adjustments, which include only
normal recurring adjustments, necessary to summarize fairly Acuson Corporation's
(the "Company's") condensed consolidated financial position as of September 28,
1996 and its condensed consolidated results of operations and cash flows for the
nine-month periods ended September 28, 1996 and September 30, 1995. The results
of operations for the three and nine months ended September 28, 1996 are not
necessarily indicative of the results to be expected for the entire year ending
December 31, 1996. Certain information reported in the prior year has been
reclassified to conform to the 1996 presentation.
The Company's principle accounting policies are set forth in the
financial statements for the year ended December 31, 1995 and notes thereto,
contained in the Company's Annual Report filed with the Securities and Exchange
Commission.
NOTE 2 - INVENTORIES
The components of inventories were as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 28, DECEMBER 31,
1996 1995
--------------------------------
<S> <C> <C>
Raw materials $42,007 $26,906
Work-in-process 20,862 5,981
Finished goods 21,203 17,597
------- -------
Total inventories $84,072 $50,484
======= =======
</TABLE>
NOTE 3 - SHORT-TERM BORROWINGS
The Company has a revolving unsecured credit facility for $50 million
which is in effect through March 1997. No compensating balances are required.
Under the terms of the agreement, the interest rate is determined at the time of
borrowing and is based on the London Interbank Offered Rate plus a margin, or
prime rate. At September 28, 1996, borrowings under the facility totalled $8.0
million with a weighted average interest rate of 5.9%.
NOTE 4 - LEGAL CONTINGENCIES
On July 1, 1993 and July 30, 1993, individuals purporting to represent
a class of persons who purchased Acuson common stock during the period between
October 24, 1990, and July 22, 1992, filed two separate, but related, actions
against the Company and twelve of its officers and one former officer in the
Federal District Court for the Northern District of California (the "Court")
alleging that the defendants' statements about the Company were incomplete or
inaccurate, in violation of Federal securities laws. Plaintiffs sought damages
in an unspecified amount, as well as equitable relief or injunctive relief and
attorneys' fees, experts' fees and costs. On October 7, 1996, the Court approved
the settlement of this matter. The settlement did not have a material adverse
effect on the Company's financial condition.
<PAGE>
On October 27, 1994, the Company was sued in Ghent, Belgium, by
Cormedica NV, in connection with the Company's termination of its distributor
relationship with Cormedica. In the suit, Cormedica seeks indemnities and
damages in the amount of approximately $2.5 million. The Company intends to
defend this suit vigorously. Management believes that the ultimate outcome of
this matter will not have a material adverse effect on the Company's financial
condition.
- -------------------------------------------------------------------------------
5
<PAGE>
________________________________________________________________________________
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company reported record revenues for the third quarter ended
September 28, 1996, representing a 24.0% increase over the 1995 third quarter
revenues. Net revenues for the quarter ended September 28, 1996, were $93.3
million compared to $75.4 million in the quarter ended September 30, 1995. For
the nine months in 1996, net sales were $252.5 million, representing an increase
of 2.9% from the nine months in 1995. The change in the third quarter revenue
resulted, in part, from shipments of the Sequoia(TM) 512 and Sequoia(TM) C256
ultrasound systems which began shipping at the end of July 1996. Worldwide
service revenue increased 5.2% to $21.5 million from $20.4 million in the
quarter ended September 30, 1995, and increased 5.4% to $63.0 million from $59.8
million for the nine months in 1995, primarily due to a larger base of installed
systems under service contract. International revenue increased to $32.2
million in the third quarter from $27.1 million in the third quarter of 1995 and
$94.0 million during the first nine months of 1996, totalling 37.2% of net
sales, as compared to 35.9% in the comparable 1995 period.
The Company believes that the trends of health care provider
consolidation, medical cost containment and intense competitive pressures which
existed in 1995 are continuing in 1996. The Company believes that future
revenues may continue to be impacted by these uncertainties, especially in the
domestic ultrasound market.
The gross profit for the third quarter of 1996, was 46.6% of net
sales, compared to 53.1% in the third quarter of 1995. For the nine months
ended September 28, 1996, gross profit was 48.5% of net sales compared to 53.9%
for the nine months in 1995. The percentage change was primarily a reflection
of the manufacturing start-up costs for the new Sequoia ultrasound systems and
of lower service margins. The lower service margins were primarily due to
pricing pressures as a result of medical cost containment.
Selling, general and administrative costs were $28.2 million or 30.2%
of net sales in the quarter ended September 28, 1996, as compared to $22.5
million or 29.8% of net sales in the same period of the prior year. For the
nine months ended September 28, 1996, selling, general and administrative
expenses were $90.7 million or 35.9% compared to $77.0 million or 31.4% in the
nine months in 1995. The spending increase was primarily attributable to the
launch of the new Sequoia ultrasound systems plus investments in international
distribution.
Product development costs in the third quarter of 1996, decreased to
$14.2 million or 15.2% of net sales, from $15.8 million or 21.0% of net sales in
the third quarter of 1995. For the nine months ended September 28, 1996,
product development costs decreased to $47.3 million or 18.8% of net sales
compared to $50.8 million or 20.7% of net sales in the nine months in 1995.
The tax benefit for the nine months ended September 28, 1996, was $5.5
million versus a tax provision of $2.1 million in 1995. The effective tax rate
for the nine months ended September 28, 1996, was a benefit of 41.9% versus a
provision of 29.0% in the same period in the prior year. The benefits result
from an application of the year- to-date loss to tax liabilities in other
periods and from the reinstated federal research and development tax credit.
On October 28, 1996, the Company introduced its new Aspen(TM)
ultrasound system. The Company plans to begin shipments of the Aspen product in
the fourth quarter of 1996. As a result of this new product introduction, the
Company expects to incur substantial additional selling expenses and
manufacturing costs. The introduction of the Aspen and Sequoia ultrasound
systems may also negatively impact revenues from existing products, as potential
customers postpone buying decisions until they evaluate the capabilities of the
new ultrasound systems. Accordingly, the Company currently expects to report a
loss in the range of $0.10 to $0.20 per share for the fourth quarter of 1996.
6
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and short-term investments balance decreased $43.0
million during the nine months ended September 28, 1996, to $13.2 million.
During the nine months ended September 28, 1996, the Company used $31.7 million
in cash for operations, as compared to 1995 when operations generated $20.8
million in cash. Included in the cash used in operations was $15.0 million
provided by the sale of the lease portfolio during the second quarter of 1996.
Inventories increased $33.6 million during the nine months primarily as a result
of the planned introduction of new products. The increase in inventories also
was the primary cause for an increase in accounts payable of $5.8 million during
the year.
The Company's investing and financing activities for the nine months
ended September 28, 1996, used $1.0 million. The Company purchased $22.9
million of equipment during the year, primarily consisting of demonstration
systems, manufacturing equipment, computers and software. Included in the
financing activities for the nine months of 1996, is $14.0 million raised
through employee participation in the Company's stock option and stock purchase
plans and $12.0 million used for common stock repurchases. In the same period a
year ago, employee participation in the Company's stock plans generated $6.3
million while the repurchases of common stock used $19.2 million.
In 1993, the Board of Directors authorized the repurchase of 4,000,000
shares of common stock over an unspecified period of time. During the third
quarter of 1996, the Company repurchased no shares. There have been 3,464,800
shares repurchased, to date, toward this Board authorization. On October 15,
1996, the Board of Directors authorized the repurchase of an additional
4,000,000 shares of common stock over an unspecified time. There have been no
purchases toward this authorization.
At September 28, 1996, the Company's working capital totalled $115.6
million. The Company also has a revolving unsecured credit facility for $50
million which is in effect through March 1997. No compensating balances are
required. The Company drew a net of $8.0 million on this line of credit during
the quarter. At the end of the quarter there was $42.0 million available under
this credit facility.
Based on its current operating plan, the Company believes that the
liquidity provided by its existing cash, the borrowing arrangements described
above, and cash generated from operations will be sufficient to meet the
Company's operating and capital requirements for fiscal 1996.
INVESTMENT RISKS
Except for the historical information contained herein, the
Management's Discussion and Analysis of Financial Condition and Results of
Operations section in this report contains forward-looking statements regarding
the Company and its products. These forward-looking statements involve risks
and uncertainties. Actual results may differ materially from these forward-
looking statements due to a number of important factors, including the
following:
The introduction of the Sequoia and Aspen platforms raises several
risk factors. Specifically, the success of the Sequoia and Aspen products
depends on actual and perceived levels of product performance in a clinical
environment; market acceptance of the products and their pricing; successful
ramp-up of production; competitor responses including competing products and
pricing, intellectual property allegations, and product positioning
counterstrategies; and timely completion of future product enhancements. The
introduction of the new Sequoia and Aspen products may adversely impact sales of
the Company's existing product lines as potential customers evaluate Sequoia
and Aspen technology. The realizable value of inventory and/or fixed assets for
all of the Company's products is dependent on the timing and success of product
introduction to the marketplace and market acceptance.
For a description of the investment considerations and risks
surrounding Acuson's overall business and financial prospects, refer to the
Company's Form 10-K for the year ended December 31, 1995 and Form 8-K filed on
October 28, 1996, with the Securities and Exchange Commission.
________________________________________________________________________________
7
<PAGE>
________________________________________________________________________________
PART II
ITEM 1
LEGAL PROCEEDINGS
The current status is the same as previously reported in the Company's
Form 10-K for the fiscal year ended December 31, 1995, except as follows:
On July 1, 1993 and July 30, 1993, individuals purporting to represent
a class of persons who purchased Acuson common stock during the period between
October 24, 1990, and July 22, 1992, filed two separate, but related, actions
against the Company and twelve of its officers and one former officer in the
Federal District Court for the Northern District of California (the "Court")
alleging that the defendants' statements about the Company were incomplete or
inaccurate, in violation of Federal securities laws. Plaintiffs sought damages
in an unspecified amount, as well as equitable relief or injunctive relief and
attorneys' fees, experts' fees and costs. On October 7, 1996, the Court approved
the settlement of this matter. The settlement did not have a material adverse
effect on the Company's financial condition.
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) The Annual Meeting of Stockholders of the Company was held on July 23, 1996.
b) The result of Stockholders' votes at the Annual Meeting were as follows:
(i) All nominees for director of the Company were elected by the
following vote:
Name Votes For Votes Withheld
---- --------- --------------
Robert J. Gallagher 24,864,441 284,604
Albert L. Greene 24,871,899 277,146
Karl H. Johannsmeier 24,871,431 277,614
Samuel H. Maslak 24,864,006 285,039
Alan C. Mendelson 24,871,099 277,946
(ii) Approval of an amendment to the Company's 1995 Stock Incentive Plan
to increase the number of shares underlying the options automatically
granted to non-employee directors on an annual basis from 5,000 to
7,500.
Broker
Votes For Votes Against Abstain Non-Vote
--------- ------------- ------- --------
21,246,165 3,701,223 201,657 0
(iii) Ratification of appointment of Arthur Andersen LLP as independent
public accountants of the Company.
Broker
Votes For Votes Against Abstain Non-Vote
--------- ------------- ------- --------
25,026,283 64,584 58,178 0
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
--------
10.1 1995 Stock Incentive Plan, as amended
27.1 Financial Data Schedule
b) Reports on Form 8-K
-------------------
The Company filed a report on Form 8-K on October 28, 1996.
________________________________________________________________________________
8
<PAGE>
________________________________________________________________________________
SIGNATURE
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.
ACUSON CORPORATION
(Registrant)
November 11, 1996 By /s/ Stephen T. Johnson
--------------------------------------
Stephen T. Johnson
Vice President, Chief Financial
Officer and Treasurer
(duly authorized Officer and Principal
Financial and Accounting Officer)
9
<PAGE>
ACUSON CORPORATION EXHIBIT 10.1
- -------------------------------------------------------------------------------
ACUSON CORPORATION
1995 STOCK INCENTIVE PLAN
-------------------------
1. Establishment, Purpose, and Definitions.
---------------------------------------
(a) Acuson Corporation (the "Company") hereby adopts the Acuson
Corporation 1995 Stock Incentive Plan (the "Plan").
(b) The purpose of the Plan is to allow the Company to provide
incentives to Eligible Individuals (as defined in Section 4, below) for
employment, increased efforts and successful achievements on behalf of or in the
interests of the Company and its Affiliates and to maximize the rewards due them
for those efforts and achievements. In the case of Employees (including
officers and directors who are Employees) of the Company and of its Affiliates
such incentives include (i) an opportunity to purchase shares of common stock,
par value $.0001 per share, of the Company ("Stock") pursuant to options which
may qualify as incentive stock options (referred to as "incentive stock
options") under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), (ii) an opportunity to purchase shares of Stock pursuant to
options which are not described in Sections 422 or 423 of the Code (referred to
as "nonqualified stock options"), (iii) the sale or bonus of restricted Stock
("Restricted Stock"), and (iv) the grant of stock appreciation rights ("SARs"),
either separately or in relation ("tandem") with stock options, entitling
holders to compensation measured by appreciation in the value of Stock. The Plan
also provides for the grant of similar incentives (other than incentive stock
options) to independent contractors and consultants to the Company and its
Affiliates. Finally, the Plan provides for the automatic, nondiscretionary grant
of nonqualified stock options to directors of the Company who are not Employees
of the Company or any Affiliate ("Non-Employee Directors").
(c) Except for purposes of Section 12, the term "Affiliate" means
parent or subsidiary corporations of the Company, as defined in Sections 424(e)
and (f) of the Code (but substituting "the Company" for "employer corporation"),
including parents or subsidiaries of the Company that become such after adoption
of the Plan.
(d) The term "Employee" means any person, including officers and
directors, who is an employee of the Company or an Affiliate for purposes of
income tax withholding under the Code. Neither service as a director nor payment
of a director's fee by the Company shall be sufficient to constitute a person an
Employee.
2. Administration of the Plan.
--------------------------
(a) If permitted by Rule 16b-3 (or any successor thereto) promulgated
under the Securities Exchange Act of 1934, as amended ("Rule 16b-3"), the Plan
may be administered by different committees with respect to: (i) Non-Employee
Directors; (ii) Eligible Individuals who are (A) officers or directors subject
to Section 16(b) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or (B) "covered employees" within the meaning of Section
162(m)(3) of the Code ("Covered Employees"); and (iii) Eligible Individuals who
are neither officers or directors subject to Section 16(b) of the Exchange Act
nor Covered Employees. Each committee, in addition to satisfying any specific
requirements imposed by this Section 2, shall also satisfy any legal
requirements relating to the administration of stock-based compensation plans
under applicable state corporate and securities laws and the Code ("Applicable
Laws"). References herein to the "Plan Administrator" shall refer to the
applicable committee(s) or, if the Board of Directors of the Company (the
"Board") does not delegate administration of some aspects of the Plan to a
committee, shall be construed to refer to the Board.
-1-
<PAGE>
(b) The Secretary of the Company shall administer the provisions of
Section 5 of the Plan (providing for stock option grants to Non-Employee
Directors). This function shall be limited to matters of interpretation and
administrative oversight.
(c) With respect to awards made to Eligible Individuals who are
officers or directors subject to Section 16(b) of the Exchange Act or Covered
Employees, the Plan shall be administered by a committee of the Board, which
committee shall be constituted to comply with the rules governing a plan
intended to qualify as a discretionary plan under Rule 16b-3 and a "committee
comprised solely of two or more outside directors" for purposes of Section
162(m) of the Code. Once appointed, such committee shall continue to serve in
its designated capacity until otherwise directed by the Board. From time to
time, the Board may increase the size of the committee and appoint additional
members, remove members (with or without cause) and substitute new members, fill
vacancies (however caused), all to the extent permitted by Rule 16b-3, Section
162(m) of the Code, the rules and regulations with respect to each, and
Applicable Laws. The committee shall select one of its members as chair of the
committee and shall hold meetings at such times and places as it may determine.
To the extent permitted by Rule 16b-3, Section 162(m) of the Code, the rules and
regulations with respect to each, and Applicable Laws, a majority of the
committee shall constitute a quorum, and acts of the committee at which a quorum
is present, or acts reduced to or approved in writing by all the members of the
committee, shall be the valid acts of the committee.
(d) With respect to awards made to Eligible Individuals who are
neither officers nor directors subject to Section 16(b) of the Exchange Act nor
Covered Employees, the Plan shall be administered by (i) the Board; or (ii) a
committee of one or more persons (which may be the committee established
pursuant to Section 2(c), above) designated by the Board. Once appointed, such
committee shall continue to serve in its designated capacity until otherwise
directed by the Board. From time to time, the Board may increase the size of the
committee and appoint additional members, remove members (with or without cause)
and substitute new members, fill vacancies (however caused), and remove all
members of the committee and thereafter directly administer the Plan, all to the
extent permitted by Applicable Laws. The committee shall select one of its
members as chair of the committee and shall hold meetings at such times and
places as it may determine. To the extent permitted by Applicable Laws, a
majority of the committee shall constitute a quorum, and acts of the committee
at which a quorum is present, or acts reduced to or approved in writing by all
the members of the committee, shall be the valid acts of the committee.
(e) The Plan Administrator shall determine which Eligible Individuals
shall be granted options under the Plan, the timing of such grants, the terms
thereof (including any restrictions on the Stock), and the number of shares
subject to such options.
(f) The Plan Administrator shall also determine which Eligible
Individuals shall be granted or issued SARs or Restricted Stock (other than
pursuant to the exercise of options) under the Plan, the timing of such grants
or issuances, the terms thereof (including any restrictions and the
consideration, if any, to be paid therefor) and the number of shares or SARs to
be granted.
(g) Except for options granted to Non-Employee Directors pursuant to
Section 5, the Plan Administrator may amend the terms of any outstanding option
or SAR granted under this Plan, but any amendment that would adversely affect
the holder's rights under an outstanding option or SAR shall not be made without
the holder's written consent. The Plan Administrator may, with the holder's
written consent, cancel any outstanding option or SAR or accept any outstanding
option or SAR in exchange for a new option or SAR. The Plan Administrator also
may amend any Restricted Stock purchase agreement or Restricted Stock bonus
agreement relating to sales or bonuses of Restricted Stock under the Plan, but
any amendment that would adversely affect the individual's rights to the
Restricted Stock shall not be made without his or her written consent.
-2-
<PAGE>
(h) The Plan Administrator shall have the sole authority, in its
absolute discretion, to adopt, amend, and rescind such rules and regulations as,
in its opinion, may be advisable for the administration of the Plan, to construe
and interpret the Plan, the rules and the regulations, and the instruments
evidencing options, SARs or Restricted Stock granted or issued under the Plan
and to make all other determinations deemed necessary or advisable for the
administration of the Plan. All decisions, determinations, and interpretations
of the Plan Administrator shall be binding on all participants. Notwithstanding
the foregoing, the Plan Administrator shall not exercise any discretionary
functions with respect to options granted to Non-Employee Directors pursuant to
Section 5.
3. Stock Subject to the Plan.
-------------------------
(a) The maximum aggregate number of shares of Stock available for
issuance under the Plan and during the life of the Plan shall equal 3,500,000
shares, subject to adjustment from time to time in accordance with this Section
3. The Stock subject to the Plan may be unissued shares, treasury shares or
shares purchased by the Company on the open market or otherwise.
(b) For purposes of the limitation specified in Section 3(a), the
following principles shall apply, provided that no Stock shall be treated as
issuable under the Plan to persons subject to Section 16 of the Exchange Act if
otherwise prohibited from issuance under Rule 16b-3:
(1) the following transactions, if granted pursuant to this Plan,
shall count against and decrease the number of shares of Stock that
may be issued for purposes of Section 3(a): (i) shares of Stock
subject to outstanding options, outstanding shares of Restricted
Stock, and shares subject to SARs granted independently of options
(based upon a good faith estimate by the Company or the Plan
Administrator of the maximum number of shares for which the SAR may
be settled (assuming payment in full in shares of Stock), and (ii)
in the case of options granted in tandem with SARs, the greater of
the number of shares of Stock that would be counted if one or the
other alone was outstanding (determined as described in clause (i)
above);
(2) the following shall be added back to the number of shares of
Stock that may be issued for purposes of Section 3(a): (i) shares of
Stock with respect to which options, SARs granted independent of
options, or Restricted Stock awards expire, are cancelled, or
otherwise terminate without being exercised, converted, or vested,
as applicable, and (ii) in the case of options granted in tandem
with SARs, shares of Stock as to which an option has been
surrendered in connection with the exercise of a tandem SAR, to the
extent the number surrendered exceeds the number issued upon
exercise of the SAR; provided that, in any case, the holder of such
-------------
awards did not receive any dividends or other benefits of ownership
with respect to the underlying shares being added back, other than
voting rights and the accumulation (but not payment) of dividends of
Stock;
(3) shares of Stock subject to SARs granted independently of options
(calculated as provided in clause (1) above) that are exercised and
paid in cash shall be added back to the number of shares of Stock
that may be issued for purposes of Section 3(a), provided that the
holder of such SAR did not receive any dividends or other benefits
of ownership, other than voting rights and the accumulation (but not
payment) of dividends, relative to the shares of Stock subject to
the SARs;
(4) shares of Stock that are transferred by a holder of an award (or
withheld by the Company) as full or partial payment to the Company
of the purchase price of shares of Stock subject to an option or the
Company's or any Affiliate's tax withholding obligations
-3-
<PAGE>
shall not be added back to the number of shares of Stock that may be
issued for purposes of Section 3(a) and shall not again be subject
to awards; and
(5) if the number of shares of Stock counted against the number of
shares that may be issued for purposes of Section 3(a) is based upon
an estimate made by the Company or the Plan Administrator as
provided in clause (1) above and the actual number of shares of
Stock issued pursuant to the applicable award is greater or less
than the estimated number, then upon such issuance, the number of
shares of Stock that may be issued pursuant to Section 3(a) shall be
further reduced by the excess issuance or increased by the
shortfall, as applicable.
(c) If there is any change in the Stock through merger, consolidation,
reorganization, recapitalization, reincorporation, stock split, stock dividend
(in excess of 2%), or other change in the capital structure of the Company,
appropriate adjustments shall be made by the Plan Administrator, in order to
preserve but not to increase the benefits to the outstanding options, SARs and
Restricted Stock purchase or Restricted Stock bonus awards under the Plan,
including adjustments to the aggregate number and kind of shares subject to the
Plan, or to outstanding Restricted Stock purchase or Restricted Stock bonus
agreements, or SAR agreements, and the number and kind of shares and the price
per share subject to outstanding options.
(d) The Plan Administrator shall have the discretion, to the extent
permitted by Applicable Law, to include provisions in any agreements evidencing
awards granted under the Plan providing that, in the event of a dissolution,
liquidation, merger or consolidation of the Company, or any other event that the
Plan Administrator deems to have effected a change in control of the Company,
any such awards shall accelerate and become fully vested, and all forfeiture
and/or transfer restrictions with respect thereto shall lapse, regardless of
whether such awards are otherwise to be assumed or replaced in connection with
such event.
4. Eligible Individuals. Individuals who shall be eligible to have the
--------------------
Plan Administrator grant to them options, SARs or Restricted Stock under the
Plan ("Eligible Individuals") shall be such employees, officers (including
officers who are directors of the Company), independent contractors, and
consultants of the Company or an Affiliate as the Plan Administrator, in its
discretion, shall designate from time to time. Notwithstanding the foregoing,
only Employees shall be eligible to receive incentive stock options. Eligible
Individuals shall not include Non-Employee Directors. Non-Employee Directors
shall receive automatic and nondiscretionary option grants pursuant to Section 5
and will not be otherwise eligible to receive any other option grants or awards
of SARs or Restricted Stock under the Plan or any other stock plan of the
Company or any Affiliate.
5. Automatic Option Grants to Non-Employee Directors.
-------------------------------------------------
(a) All grants of options pursuant to this Section 5 shall be
automatic and nondiscretionary and shall be made strictly in accordance with the
provisions of this Section 5. No person shall have any discretion to determine
which Non-Employee Directors shall be granted options, the number of shares of
Stock to be covered by options granted to Non-Employee Directors, the timing of
such option grants or the exercise price thereof.
(b) An option to purchase 7,500 shares of Stock shall be granted to
each Non-Employee Director continuing in office immediately following each
annual meeting of the Company's stockholders which occurs on or after the date
of approval of the Plan by the stockholders of the Company and prior to the
termination of the Plan.
(c) The term of each option granted pursuant to this Section 5 shall
be ten years from the date of grant, unless a shorter period is required to
comply with any Applicable Law, and except for the early
-4-
<PAGE>
termination provisions contained in the written stock option agreement in the
form of Exhibit A hereto, in either of which cases such shorter period shall
apply.
(d) Each option granted pursuant to this Section 5 shall vest and
become fully exercisable as to fifty percent (50%) of the shares subject to the
option on the date which is six (6) months from the date the option is granted,
then daily thereafter as to 1/365th of the total shares subject to the option so
that the option is fully exercisable no later than one year following the date
the option is granted.
(e) Each option grant to an Non-Employee Director pursuant to this
Section 5 shall be evidenced by a written stock option agreement, in the form of
Exhibit A hereto, executed by the Company and the Non-Employee Director to whom
such option is automatically granted.
(f) This Section 5 shall be deemed to contain such additional
conditions and restrictions as may be required for the Plan with respect to
options granted pursuant to this Section 5 to qualify as a "formula plan" under
Rule 16b-3 as then applicable to the Company or any Affiliate.
6. Terms and Conditions of Options.
-------------------------------
(a) Each option granted pursuant to the Plan will be evidenced by a
written stock option agreement executed by the Company and the person to whom
such option is granted.
(b) Except for options granted under Section 5 above, the Plan
Administrator shall determine the term of each option granted under the Plan;
provided, however, that the term of an incentive stock option shall not be for
more than ten years and that, in the case of an incentive stock option granted
to a person possessing more than 10% of the combined voting power of the Company
or an Affiliate on the date the option is granted, the term of each incentive
stock option shall be no more than five years.
(c) In the case of incentive stock options, the aggregate fair market
value (determined as of the time such option is granted) of the Stock with
respect to which incentive stock options are exercisable for the first time by
an Eligible Individual in any calendar year (under this Plan and any other plans
of the Company or its Affiliates) shall not exceed $100,000. If the aggregate
fair market value of the Stock with respect to which incentive stock options are
exercisable by an optionee for the first time in any calendar year exceeds
$100,000, such options shall be treated, to the minimum extent required to
preserve incentive stock option treatment for as many options as possible, as
nonqualified stock options. The rule set forth in the preceding sentence shall
be applied by taking options into account in the order in which they were
granted.
(d) The exercise price of each incentive stock option shall be not
less than the per share fair market value of the Stock subject to such option on
the date the option is granted. The exercise price of each nonqualified stock
option shall be as determined by the Plan Administrator. Notwithstanding the
foregoing, (i) in the case of an incentive stock option granted to a person
possessing more than 10% of the combined voting power of the Company or an
Affiliate on the date the option is granted, the exercise price shall be not
less than 110% of the fair market value of the Stock on the date the option is
granted, and (ii) in the case of an option granted pursuant to Section 5 above,
the exercise price shall be not less than the per share fair market value of the
Stock subject to such option on the date the option is granted. The exercise
price of an option shall be subject to adjustment to the extent provided in
Section 3(c), above.
(e) Except for options granted under Section 5 above, the stock option
agreement may contain such other terms, provisions, and conditions consistent
with this Plan as may be determined by the Plan Administrator. If an option, or
any part thereof, is intended to qualify as an incentive stock option, the stock
option agreement shall contain those terms and conditions which are necessary to
so qualify it.
-5-
<PAGE>
(f) The maximum number of shares of Stock with respect to which SARs
or options to acquire Stock may be granted to any individual during any calendar
year shall not exceed 1,000,000 shares (which number may be increased without
stockholder approval to reflect adjustments under Section 3(c), above, to the
extent such increase does not cause the grant to fail to qualify as remuneration
payable solely on account of one or more performance goals within the meaning of
Section 162(m) of the Code). To the extent required by Section 162(m) of the
Code or the regulations thereunder, in applying the foregoing limitation with
respect to any employee, if any option is cancelled, the cancelled option shall
continue to count against the maximum number of shares for which options may be
granted to the employee under this Section 6(f). For this purpose, the repricing
of an option shall be treated as a cancellation of the existing option and the
grant of a new option to the extent required by Section 162(m) of the Code or
the regulations thereunder.
7. Payment Upon Exercise of Options.
--------------------------------
(a) Payment of the purchase price upon exercise of any option granted
under this Plan shall be made in cash, by optionee's personal check, a certified
check, bank draft, or postal or express money order payable to the order of the
Company in lawful money of the United States (collectively, "Cash
Consideration"); provided, however, that, except for options granted under
Section 5 above, the Plan Administrator, in its sole discretion, may permit an
optionee to pay the option price in whole or in part (i) with shares of Stock
owned by the optionee or with shares of Stock withheld from the shares otherwise
deliverable to the optionee upon exercise of an option; (ii) by delivery on a
form prescribed by the Company of an irrevocable direction to a securities
broker approved by the Company to sell shares of Stock and deliver all or a
portion of the proceeds to the Company in payment for the Stock; (iii) by
delivery of the optionee's promissory note with such recourse, interest,
security, and redemption provisions as the Plan Administrator in its discretion
determines appropriate; or (iv) in any combination of the foregoing. The
exercise price of any options granted under Section 5 above, shall be paid in
Cash Consideration, the consideration specified in clauses (i) or (ii) of the
preceding sentence or in any combination thereof. Any Stock used to exercise
options shall be valued at its fair market value on the date of the exercise of
the option. In addition, the Plan Administrator, in its sole discretion, may
authorize the surrender by an optionee of all or part of an unexercised option
(excluding options granted under Section 5 above) and authorize a payment in
consideration thereof of an amount equal to the difference between the aggregate
fair market value of the Stock subject to such option and the aggregate option
price of such Stock. In the Plan Administrator's discretion, such payment may
be made in cash, shares of Stock with a fair market value on the date of
surrender equal to the payment amount, or some combination thereof.
(b) In the event that the exercise price is satisfied by shares
withheld from the shares of Stock otherwise deliverable to the optionee, the
Plan Administrator may issue the optionee an additional option, with terms
identical to the option agreement under which the option was exercised,
entitling the optionee to purchase additional shares of Stock equal to the
number of shares so withheld but at an exercise price equal to the fair market
value of the Stock on the grant date of the new option; provided, however, that
no such additional options may be granted with respect to options granted
pursuant to Section 5, above.
8. Terms and Conditions of Restricted Stock Purchases and Bonuses
--------------------------------------------------------------
(a) Each sale (other than upon exercise of options) or bonus grant of
Restricted Stock pursuant to the Plan will be evidenced by a written Restricted
Stock purchase or Restricted Stock bonus agreement, as applicable, executed by
the Company and the person to whom such Restricted Stock is sold or granted.
(b) The Restricted Stock purchase agreement or Restricted Stock bonus
agreement may contain such terms, provisions, and conditions consistent with
this Plan as may be determined by the
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<PAGE>
Plan Administrator, including not by way of limitation, payment terms,
restrictions on transfer, forfeiture provisions, repurchase provisions, and
vesting provisions.
(c) The Plan Administrator may condition the award or the exercise of
any right under an award under this Section 8 upon the attainment of one or more
preestablished objective performance goals meeting the requirements of Section
162(m) of the Code and the regulations thereunder.
9. Terms and Conditions of SARs. The Plan Administrator may, under such
----------------------------
terms and conditions as it deems appropriate, authorize the issuance of SARs
evidenced by a written SAR agreement (which, in the case of tandem options, may
be part of the option agreement to which the SAR relates) executed by the
Company and the person to whom the SARs are granted. The SAR agreement shall
specify the term for the SARs covered thereby and contain such other terms,
provisions and conditions consistent with this Plan as may be determined by the
Plan Administrator.
10. Withholding Taxes.
-----------------
(a) No Stock shall be granted or sold under the Plan to any Eligible
Individual, and no SAR may be exercised, until the individual has made
arrangements acceptable to the Plan Administrator for the satisfaction of
federal, state, and local income and employment tax withholding obligations,
including without limitation obligations incident to the receipt of Stock under
the Plan, the lapsing of restrictions applicable to such Stock, the failure to
satisfy the conditions for treatment as incentive stock options under applicable
tax law, or the receipt of cash payments. Upon the exercise of an option or the
lapsing of a restriction on Stock issued under the Plan, the Company (or the
optionee's or stockholder's employer) may withhold from the shares otherwise
deliverable to the optionee upon such exercise, or require the stockholder to
surrender shares of Stock as to which the restriction has lapsed, such number of
shares having a fair market value sufficient to satisfy federal, state and local
income and employment tax withholding obligations.
(b.) In the event that such tax withholding is satisfied by the
Company or the optionee's employer withholding shares of Stock otherwise
deliverable to the optionee, the Plan Administrator may issue the optionee an
additional option, with terms identical to the option agreement under which the
option was exercised, entitling the optionee to purchase additional shares of
Stock equal to the number of shares so withheld but at an exercise price equal
to the fair market value of the Stock on the grant date of the new option;
provided, however, that no such additional options may be granted with respect
to options granted pursuant to Section 5, above.
11. Assignability. To the extent required by Rule 16b-3, no option or SAR
-------------
granted pursuant to this Plan shall be transferable by the holder except by
operation of law or by will or the laws of descent and distribution; provided
that, if Rule 16b-3 is amended after the date of the Board's adoption of the
Plan to permit broader transferability of options or SARs under that Rule, (i)
options granted under Section 5 to Non-Employee Directors shall be transferable
to the fullest extent permitted by Rule 16b-3 as so amended, (ii) any other
option or SAR shall be transferable to the extent provided in the option
agreement or SAR agreement covering the option or SAR, and the Plan
Administrator shall have the discretion to amend any such outstanding option or
SAR to provide for broader transferability of the option or SAR as the Plan
Administrator may authorize within the limitations of Rule 16b-3. Stock subject
to a Restricted Stock purchase agreement or a Restricted Stock bonus agreement
shall be transferable only as provided in such agreement. Notwithstanding the
foregoing, if required by the Code, each incentive stock option under the Plan
shall be transferable by the optionee only by will or the laws of descent and
distribution, and, during the optionee's lifetime, be exercisable only by the
optionee. In the event of any Rule 16b-3 permitted transfer of an option
hereunder, the transferee shall be entitled to exercise the option in the same
manner and only to the same extent as the optionee (or his/her personal
representative or the person who would have acquired the right to exercise the
option by bequest or intestate succession) would have been entitled to exercise
the option under Sections 5, 6 and 7 had the option not been transferred.
-7-
<PAGE>
12. Change in Control.
-----------------
(a) Notwithstanding anything to the contrary contained in the Plan,
each stock option, SAR, Restricted Stock bonus or Restricted Stock purchase
agreement (or an amendment thereto) evidencing an option, SAR, Restricted Stock
bonus or Restricted Stock purchase hereunder shall automatically and without
further action be fully vested, nonforfeitable and become exercisable, and any
Restricted Stock covered by such an agreement shall be released from
restrictions on transfer and repurchase or forfeiture rights, on the twenty-
second day after any Share Acquisition Date, unless prior to such twenty-second
day a majority of the Continuing Directors then in office has determined that
the transaction pursuant to which a Person has become an Acquiring Person is an
Approved Transaction.
(b) Certain Definitions. For purposes of this Section 12, the
-------------------
following definitions shall apply:
"Acquiring Person" means any Person who or which, together with all
----------------
Affiliates and Associates of such Person, shall be the Beneficial Owner
of 20% or more of the Common Shares then outstanding, but shall not
include the Company, any Subsidiary of the Company or any employee
benefit plan of the Company or any Subsidiary of the Company, or any
entity holding Common Shares for or pursuant to the terms of any such
plan. Notwithstanding the foregoing, no Person shall become an
"Acquiring Person" as the result of an acquisition of Common Shares by
the Company which, by reducing the number of shares outstanding,
increases the proportionate number of shares beneficially owned by such
Person to 20% or more of the Common Shares of the Company then
outstanding; provided, however, that if a Person becomes the Beneficial
-------- -------
Owner of 20% or more of the Common Shares of the Company then
outstanding by reason of share purchases by the Company and shall, after
such share purchases by the Company, becomes the Beneficial Owner of any
additional Common Shares of the Company, then such Person shall be
deemed to be an "Acquiring Person".
"Affiliate" and "Associate" have the respective meanings ascribed to
--------- ---------
such terms in Rule 12b-2 of the General Rules and Regulations under the
Exchange Act.
"Approved Transaction" means any transaction that occurs at a time when
--------------------
Continuing Directors are in office and a majority of the Continuing
Directors then in office has determined that the transaction is in the
best interest of the Company and its stockholders.
A Person shall be deemed the "Beneficial Owner" of and shall be deemed
----------------
to "beneficially own" any securities: (i) which such Person or any of
such Person's Affiliates or Associates beneficially owns, directly or
indirectly; (ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant to
any agreement, arrangement or understanding, or upon the exercise of
conversion rights, exchange rights, rights (other than the Rights),
warrants or options, or otherwise; provided, however, that a Person
-------- -------
shall not be deemed the Beneficial Owner of, or to beneficially own,
securities tendered pursuant to a tender or exchange offer made by or on
behalf of such Person or any of such Person's Affiliates or Associates
until such tendered securities are accepted for purchase or exchange; or
(B) the right to vote pursuant to any agreement, arrangement or
understanding; provided, however, that a Person shall not be deemed the
-------- -------
Beneficial Owner of, or to beneficially own, any security if the
agreement, arrangement or understanding to vote such security (1) arises
solely from a revocable proxy or consent given to such person in
response to a public proxy or consent solicitation made pursuant to, and
in accordance with, the applicable rules and regulations of the Exchange
Act and (2) is not also then reportable on Schedule 13D under the
Exchange Act (or any comparable or successor report); or (iii) which are
beneficially owned, directly or indirectly, by any other Person
-8-
<PAGE>
with which such Person or any of such Person's Affiliates or Associates
has any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting (except to the extent contemplated by the
proviso to clause (ii)(B) of this definition) or disposing of any
securities of the Company; provided further, however, that nothing in
this Section 12 shall cause a Person to be the Beneficial Owner of, or
to beneficially own, any securities (x) acquired through such Person's
participation in the business of underwriting securities in good faith
in a firm commitment underwriting until the expiration of forty days
after the date of such acquisition or (y) which such Person has reported
on Schedule 13G under the Exchange Act and has not ceased to be eligible
to report on Schedule 13G pursuant to Rule 13d-1 under the Exchange Act.
"Common Shares" means the shares of common stock, par value $.0001 per
-------------
share, of the Company.
"Continuing Director" means (i) any member of the Board of Directors of
-------------------
the Company, while such Person is a member of the Board, who is not an
Acquiring Person, or an Affiliate or Associate of an Acquiring Person,
or a representative of an Acquiring Person or of any such Affiliate or
Associate, and who was, if applicable, a member of the Board prior to
the time that any Person becomes an Acquiring Person, or (ii) any Person
who subsequently becomes a member of the Board, while such Person is a
member of the Board, who is not an Acquiring Person, or an Affiliate or
Associate of an Acquiring Person, or a representative of an Acquiring
Person or of any such Affiliate or Associate, if such Person's
nomination for election or election to the Board is recommended or
approved by a majority of Continuing Directors.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations promulgated thereunder.
"Person" means any individual, firm, partnership, corporation or other
------
entity, and shall include any successor (by merger or otherwise) of such
entity.
"Rights" means the rights granted to the Company's shareholders to
------
purchase additional Common Shares under certain circumstances, as
described in that certain Rights Agreement, dated as of May 5, 1988, by
and between the Company and The First National Bank of Boston, as rights
agent.
"Share Acquisition Date" means the first date of public announcement by
----------------------
the Company or an Acquiring Person that a Person has become an Acquiring
Person.
"Subsidiary" of any Person means any corporation or other entity of
----------
which a majority of the voting power of the voting equity securities or
equity interest is owned, directly or indirectly, by such Person, or
which is otherwise controlled by such Person.
13. Amendment, Suspension, or Termination of the Plan.
-------------------------------------------------
(a) The Board may at any time amend, suspend or terminate the Plan as
it deems advisable; provided that such amendment, suspension or termination
complies with all applicable requirements of state and federal law, including
any applicable requirement that the Plan or an amendment to the Plan be approved
by the stockholders, and provided further that, except as provided in Section
3(c) above, the Board shall in no event amend the Plan in the following respects
without the consent of stockholders then sufficient to approve the Plan in the
first instance:
(1) To materially increase the benefits accruing to participants
under the Plan ;
-9-
<PAGE>
(2) To materially increase the number of shares of Stock available
under the Plan or to increase the number of shares of Stock
available for grant of incentive stock options under the Plan; or
(3) To materially modify the eligibility requirements for
participation in the Plan or the class of employees eligible to
receive options under the Plan or to change the designation or class
of persons eligible to receive incentive stock options under the
Plan.
(b) No option or SAR may be granted nor may any Stock be issued (other
than upon exercise of outstanding options) under the Plan during any suspension
or after the termination of the Plan, and no amendment, suspension, or
termination of the Plan shall, without the affected individual's consent, alter
or impair any rights or obligations under any option or SAR previously granted
under the Plan.
(c) In addition to the limitations on amendments provided in Sections
13(a) and 13(b) above, the provisions set forth in Section 5 of the Plan (and
any other sections of the Plan that affect the formula award terms of option
grants to Non-Employee Directors required to be specified in the Plan by Rule
16b-3) shall not be amended periodically and in no event more than once every
six months, other than to comport with changes in the Code, the Employee
Retirement Income Security Act of 1974, as amended, or any applicable rules and
regulations thereunder.
14. Term of Plan. The Plan shall terminate with respect to the grant of
------------
additional awards on the tenth anniversary of the date the Plan is approved by
the stockholders, unless previously terminated by the Board pursuant to Section
13.
15. Use of Proceeds. Cash proceeds realized from the exercise of options
---------------
granted under the Plan or from other sales of Stock under the Plan shall
constitute general funds of the Company.
16. Stockholder Approval. The Plan shall become effective, and awards may
--------------------
be granted hereunder, only upon approval by the holders of a majority of the
Company's shares voting (in person or by proxy) at a stockholders' meeting held
within 12 months of the Board's adoption of the Plan.
17. Rule 16b-3 Compliance. Transactions under the Plan are intended to
---------------------
comply with all applicable conditions of Rule 16b-3 or its successors under the
Exchange Act. To the extent any provision of the Plan or action by the Board or
the Plan Administrator fails to so comply, it shall be deemed null and void, to
the extent permitted by law and deemed advisable by the Board or the Plan
Administrator. Moreover, in the event the Plan does not include a provision
required by Rule 16b-3 to be stated therein in order to qualify the grants under
Section 5 hereof as grants under a non-discretionary formula under Rule 16b-3
such provision (other than one relating to eligibility requirements, or the
price and amount of awards) shall be deemed automatically to be incorporated by
reference into the Plan with respect to grants of options to Non-Employee
Directors.
18. No Employment Right. Nothing in this Plan or any instrument executed
-------------------
or any award granted pursuant thereto shall confer upon any employee,
independent contractor, consultant or director any right to continue in the
employ of the Company or any Affiliate (or to continue acting as an independent
contractor, consultant or director) or shall affect the right of the Company or
any Affiliate to terminate the employment, contractual or consulting
relationship or directorship of any person, with or without cause.
-10-
<PAGE>
EXHIBIT A
---------
ACUSON CORPORATION
NON-EMPLOYEE DIRECTORS' NON-QUALIFIED STOCK OPTION AGREEMENT
------------------------------------------------------------
This agreement (the "Agreement") is made as of __________ __, 199__
(the "Grant Date") between Acuson Corporation (the "Company") and
_________________ ("Optionee").
WITNESSETH:
WHEREAS, the Company has adopted the Acuson Corporation 1995 Stock
Incentive Plan (the "Plan"), which Plan is incorporated in this Agreement by
reference and made a part of it (capitalized terms shall have the meaning
ascribed to them in the Plan); and
WHEREAS, the Plan provides for automatic option grants to Non-
Employee Directors of the Company;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, the parties to this Agreement hereby agree as follows:
1. Option Grant. The Company hereby grants to Optionee the right and
------------
option to purchase from the Company on the terms and conditions hereinafter set
forth, all or any part of an aggregate of seven thousand and five hundred (7,500
shares of the Common Stock, $.0001 par value, of the Company (the "Stock"). The
exercise price of the Stock subject to this option shall be $_______ per share,
which is not less than the fair market value per share of the Stock on the Grant
Date. This grant is an automatic option grant under Section 5 of the Plan.
2. Option Period. This option shall be exercisable only during the
-------------
period (the "Option Period") commencing on the Grant Date and, except as
provided in paragraph 3, ending on the date (the "Terminal Date") which shall be
ten years from the Grant Date. During the Option Period, the exercisability of
this option shall be subject to the limitations of paragraph 3 and the vesting
provisions of paragraph 4.
3. Limits on Option Period. The Option Period may end before the
-----------------------
Terminal Date, as follows:
(a) If Optionee ceases to be a director on the Company's Board of
Directors (the "Board") for any reason other than death, disability (within the
meaning of subparagraph (c) below) or cause during the Option Period, the Option
Period shall terminate on the earlier of (i) the last day of the period,
beginning on the day next following the day on which the Optionee ceases to be a
director, which equals in length the most recent period of the Optionee's
continuous service as a director (including all portions of such period prior to
the Grant Date), (ii) three years after the date Optionee ceases to be a
director, or (iii) the Terminal Date. In each case this option shall be
exercisable only to the extent exercisable under paragraph 4 on the date
Optionee ceases to be a director.
(b) If Optionee should die while serving on the Board, the Option
Period shall terminate three years after the date of death or on the Terminal
Date, whichever shall first occur, and this option shall be exercisable only to
the extent exercisable under paragraph 4 on the date of Optionee's
-11-
<PAGE>
death. In the event of Optionee's death, Optionee's executor or administrator or
the person or persons to whom Optionee's rights under this option shall pass by
will or by the applicable laws of descent and distribution may exercise the
entire unexercised portion of this option to the extent exercisable on the date
of Optionee's death.
(c) If Optionee ceases to be a director by reason of disability,
as defined below, the Option Period shall terminate three years after the date
Optionee ceases to be a director or on the Terminal Date, whichever shall first
occur, and this option shall be exercisable only to the extent exercisable under
paragraph 4 on the date Optionee ceases to be a director. For purposes of this
subparagraph (c), an individual is disabled if he or she is unable to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or which
has lasted or can be expected to last for a continuous period of not less than
12 months. An individual shall not be considered to be disabled unless he or she
furnishes proof of the existence thereof in such form and manner, and at such
times, as the Board may require.
(d) If Optionee is removed from the Board for cause during the
Option Period, the Option Period shall terminate on the date of such Optionee's
removal as a director and shall not thereafter be exercisable to any extent.
4. Vesting of Right to Exercise Options.
------------------------------------
(a) This option shall vest as to fifty percent (50%) of the number
of shares originally covered by this option on the date which is six months from
the Grant Date, then daily thereafter in installments of 1/365th of the total
shares subject to this option so that this option will become fully vested and
exercisable no later than one (1) year following the Grant Date.
(b) Vesting of this option will cease prior to this option
becoming fully vested at such time that Optionee ceases to be a director of the
Company, including by reason of death or disability.
(c) Fractional shares shall not vest until such time as additional
fractional shares included in other installments allocated to this option can be
combined with the existing fractional shares to constitute one or more whole
shares.
(d) Notwithstanding the foregoing, this option shall be fully
vested and nonforfeitable and shall become fully exercisable under the
circumstances specified in Section 12 of the Plan.
5. Method of Exercise.
------------------
(a) Optionee may exercise this option with respect to all or any
part of the shares of Stock then subject to such exercise by giving the Company
written notice of such exercise, specifying the number of such shares as to
which this option is exercised. Such notice shall be accompanied by an amount
equal to the exercise price of such shares, in any of the forms permitted under
Section 7 of the Plan.
(b) If required by the Company, Optionee shall give the Company
satisfactory assurance in writing, signed by Optionee or Optionee's legal
representative, as the case may be, that such shares are being purchased for
investment and not with a view to the distribution thereof, provided that such
assurance shall be deemed inapplicable to (i) any sale of such shares by such
Optionee made in accordance with the terms of a registration statement covering
such sale, which has heretofore been (or may hereafter be) filed and become
effective under the Securities Act of 1933, as amended, and with respect to
which no stop order suspending the effectiveness thereof has been issued, and
(ii) any other sale of such shares with respect to which, in the opinion of
counsel for the Company, such assurance is
-12-
<PAGE>
not required to be given in order to comply with the provisions of the
Securities Act of 1933, as amended.
(c) As soon as practicable after receipt of the notice required in
paragraph 5(a) and satisfaction of the conditions set forth in paragraph 5(b),
the Company shall, without transfer or issue tax and without other incidental
expense to Optionee, deliver to Optionee at the office of the Company at 1220
Charleston Road, Mountain View, CA 94043, attention of the Corporate Secretary,
or such other place as may be mutually acceptable to the Company and Optionee, a
certificate or certificates for such shares of Stock; provided, however, that
the time of such delivery may be postponed by the Company for such period as may
be required for it with reasonable diligence to comply with applicable
registration requirements under the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, any applicable listing requirements
of any national securities exchange, and requirements under any other law or
regulation applicable to the issuance or transfer of such shares. If Optionee
fails to accept delivery of and pay for all or any part of the number of shares
specified in such notice upon tender or delivery thereof, Optionee's right to
purchase such shares may be terminated by the Company at its election. In no
event shall the Company be required to issue fractional shares upon the exercise
of this option.
6. Withholding. Optionee agrees to make appropriate arrangements
-----------
with the Company for satisfaction of any applicable federal, state or local
income tax withholding requirements or social security requirements.
7. Changes in Capitalization. If there should be any change in
-------------------------
a class of Stock subject to this option, through merger, consolidation,
reorganization, recapitalization, reincorporation, stock split, stock dividend
(in excess of two percent) or other change in the capital structure of the
Company, appropriate adjustments shall be made in order to preserve, but not to
increase, the benefits to Optionee, including adjustments of the number and kind
of shares of such Stock subject to this option and of the price per share. Any
adjustment made pursuant to this paragraph 7 as a consequence of a change in the
capital structure of the Company shall not entitle Optionee to acquire a number
of shares of such Stock of the Company or shares of stock of any successor
company greater than the number of shares Optionee would receive if, prior to
such change, Optionee had actually held a number of shares of such Stock equal
to the number of shares subject to this option.
8. Limitations on Transfer. To the extent required by Rule 16b-3
-----------------------
under the Securities Exchange Act of 1934, as amended, this option shall not be
transferable by Optionee other than by operation of law or by will or by the
laws of descent or distribution; provided that, if Rule 16b-3 is amended after
the Board's adoption of the Plan to permit greater transferability, this option
shall be transferable to the fullest extent provided by Rule 16b-3 as so
amended. In the event of any Rule 16b-3 permitted transfer of this option, the
transferee shall be entitled to exercise this option in the same manner and only
to the same extent as the Optionee (or his or her personal representative or the
person who would have acquired the right to exercise this option by bequest or
intestate succession) would have been entitled to exercise this option had this
option not been transferred.
9. No Stockholder Rights. Neither Optionee nor any person to whom
---------------------
this option is transferred pursuant to paragraph 8 nor any person entitled to
exercise Optionee's rights in the event of Optionee's death shall have any of
the rights of a stockholder with respect to the shares of Stock subject to this
option except to the extent the certificates for such shares shall have been
issued upon the exercise of this option.
10. No Employment Right. Nothing in the Plan or this Agreement shall
-------------------
confer upon the Optionee any right to continue service as a director of the
Company or any Affiliate or shall affect the right of the Company or any
Affiliate or the shareholders of the Company or any Affiliate, as the case may
be, to terminate the directorship of Optionee, with or without cause.
-13-
<PAGE>
11. Notice. Any notice required to be given to the Company under the
------
terms of this Agreement shall be given in writing and addressed to the Company
in care of its Corporate Secretary at the office of the Company at 1220
Charleston Road, Mountain View, CA 94043, and any notice to be given to Optionee
shall be given in writing and addressed to Optionee at the address given by
Optionee beneath Optionee's signature to this Agreement, or such other address
as either party to this Agreement may hereafter designate in writing to the
other. Any such notice shall be deemed to have been duly given when enclosed in
a properly sealed envelope addressed as aforesaid, registered or certified and
deposited (postage and registration or certification fee prepaid) in a post
office or branch post office regularly maintained by the United States.
12. Successors. This Agreement shall be binding upon and inure to
----------
the benefit of any successor or successors of the Company. Where the context
permits, "Optionee" as used in this Agreement shall include Optionee's executor,
administrator or other legal representative or the person or persons to whom
Optionee's rights pass by will or the applicable laws of descent and
distribution.
13. Applicable Law. The interpretation, performance, and enforcement
--------------
of this Agreement shall be governed by the laws of the State of California.
IN WITNESS WHEREOF, this Agreement has been executed as of the day
and year first written above.
Acuson Corporation
a Delaware corporation
By: ________________________________
Title: _____________________________
Optionee
Signature: _________________________
Address: ___________________________
___________________________
___________________________
-14-
<PAGE>
ATTACHMENT A
------------
CONSENT OF SPOUSE
I, _________________________, spouse of ________________, have
read and approved the foregoing Agreement. In consideration of granting to my
spouse the right to purchase shares of Acuson Corporation as set forth in the
Agreement, I hereby appoint my spouse as my attorney-in-fact with respect to the
exercise of any rights of the Agreement insofar as I may have any rights under
such community property laws or similar laws relating to marital property in
effect in the state of our residence as of the date of the signing of the
foregoing Agreement.
Dated: _______________ By: ___________________________________
-15-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-28-1996
<CASH> 13,168
<SECURITIES> 0
<RECEIVABLES> 90,019
<ALLOWANCES> 2,914
<INVENTORY> 84,072
<CURRENT-ASSETS> 225,129
<PP&E> 177,529
<DEPRECIATION> 116,096
<TOTAL-ASSETS> 303,191
<CURRENT-LIABILITIES> 109,525
<BONDS> 0
0
0
<COMMON> 93,881
<OTHER-SE> 99,785
<TOTAL-LIABILITY-AND-EQUITY> 303,191
<SALES> 189,481
<TOTAL-REVENUES> 252,486
<CGS> 99,575
<TOTAL-COSTS> 130,068
<OTHER-EXPENSES> 138,015
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,387)
<INCOME-PRETAX> (13,210)
<INCOME-TAX> (5,536)
<INCOME-CONTINUING> (7,674)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,674)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> (0.28)
</TABLE>
