<PAGE>
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
OR
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-11303
SYNBIOTICS CORPORATION
(Exact name of small business issuer as specified in its charter)
CALIFORNIA 95-3737816
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11011 VIA FRONTERA
SAN DIEGO, CALIFORNIA 92127
(Address of principal executive offices) (Zip Code)
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: (619) 451-3771
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [_]
As of November 8, 1995, 5,816,033 shares of Common Stock were outstanding.
Transitional Small Business Disclosure Format: Yes [_] No [X]
================================================================================
<PAGE>
SYNBIOTICS CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Statement of Operations - Three and
nine months ended September 30, 1995 and 1994 2
Condensed Balance Sheet - September 30, 1995
and December 31, 1994 3
Condensed Statement of Cash Flows - Nine
months ended September 30, 1995 and 1994 4
Notes to Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis or Plan of Operation 6
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 7
Item 2. Changes in Securities 7
Item 3. Defaults Upon Senior Securities 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 9
</TABLE>
-1-
<PAGE>
PART I. FINANCIAL INFORMATION
-----------------------------
ITEM I. FINANCIAL STATEMENTS
--------------------
SYNBIOTICS CORPORATION
CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------ ------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 2,284,000 $ 2,030,000 $10,921,000 $ 9,376,000
License fees and other 92,000 66,000 239,000 171,000
Interest 17,000 27,000 35,000 76,000
------------- ------------ ----------- ------------
2,393,000 2,123,000 11,195,000 9,623,000
------------- ------------ ----------- ------------
Cost and expenses:
Cost of sales 1,651,000 1,080,000 6,138,000 4,700,000
Research and development 274,000 283,000 692,000 802,000
Selling and marketing 965,000 1,096,000 3,324,000 3,875,000
General and administrative 377,000 512,000 1,090,000 1,957,000
------------- ------------ ----------- ------------
3,267,000 2,971,000 11,244,000 11,334,000
------------- ------------ ----------- ------------
Loss before gain on disposition of
investment in affiliated company (874,000) (848,000) (49,000) (1,711,000)
Gain on disposition of investment in
affiliate 2,036,000 931,000 2,036,000
------------- ------------ ----------- ------------
Income (loss) before income taxes (874,000) 1,188,000 882,000 325,000
Provision for income taxes (20,000) 2,000 2,000
------------- ------------ ----------- ------------
Net income (loss) $ (854,000) $ 1,188,000 $ 880,000 $ 323,000
============= ============ =========== ============
Net income (loss) per share $ (.15) $ .20 $ .15 $ .06
============= ============ =========== ============
Weighted average shares outstanding 5,809,000 5,824,000 5,827,000 5,857,000
============= ============ =========== ============
</TABLE>
Net income (loss) per share was computed based upon the weighted average
number of shares outstanding, including common stock equivalents.
See accompanying notes to condensed financial statements.
-2-
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
--------------------
SYNBIOTICS CORPORATION
CONDENSED BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
---- ----
(unaudited) (audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 1,436,000 $ 447,000
Securities available for sale 507,000 502,000
Accounts receivable 849,000 1,444,000
Inventories 2,728,000 2,763,000
Other current assets 677,000 963,000
------------ ------------
Total current assets 6,197,000 6,119,000
Property and equipment, net 979,000 1,329,000
Securities available for sale 3,377,000 942,000
Other assets 1,679,000 1,921,000
------------ ------------
$ 12,232,000 $ 10,311,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,168,000 $ 1,662,000
Other current liabilities 697,000 695,000
------------ ------------
Total current liabilities 1,865,000 2,357,000
------------ ------------
Shareholders' equity:
Common stock, no par value, 24,800,000 shares authorized,
5,815,000 and 5,803,000 shares issued and outstanding at
September 30, 1995 and December 31, 1994, respectively 29,346,000 29,318,000
Unrealized holding losses from securities available for sale (190,000) (1,695,000)
Accumulated deficit (18,789,000) (19,669,000)
------------ ------------
Total shareholders' equity 10,367,000 7,954,000
------------ ------------
$ 12,232,000 $ 10,311,000
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
-3-
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
--------------------
SYNBIOTICS CORPORATION
CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 880,000 $ 323,000
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 761,000 629,000
Inventory reserve 243,000
Gain on disposition of investment in affiliate (931,000) (2,036,000)
Changes in assets and liabilities:
Accounts receivable 595,000 481,000
Receivable from affiliates 105,000
Inventories (208,000) (185,000)
Other assets 243,000 (101,000)
Accounts payable and accrued expenses (494,000) (355,000)
Other liabilities 2,000 (8,000)
----------- -----------
Net cash provided by (used for) operating activities 1,091,000 (1,147,000)
----------- -----------
Cash flows from investing activities:
Acquisition of property and equipment (125,000) (441,000)
Loans to affiliates (450,000)
----------- -----------
Net cash used for investing activities (125,000) (891,000)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock, net 23,000
----------- -----------
Net cash provided by financing activities 23,000
----------- -----------
Net increase (decrease) in cash and equivalents 989,000 (2,038,000)
Cash and equivalents - beginning of year 447,000 3,928,000
----------- -----------
Cash and equivalents - end of period $ 1,436,000 $ 1,890,000
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
-4-
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
--------------------
SYNBIOTICS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1 - INTERIM FINANCIAL STATEMENTS:
The accompanying balance sheet as of September 30, 1995 and the statements of
operations and of cash flows for the nine month periods ended September 30, 1995
and 1994 have been prepared by Synbiotics Corporation (the Company) and have not
been audited. These financial statements, in the opinion of management, include
all adjustments (consisting only of normal recurring accruals) necessary for a
fair presentation of the financial position, results of operations and cash
flows for all periods presented. The financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-KSB filed for the nine month period ended
December 31, 1994. Interim operating results are not necessarily indicative of
operating results for the full year.
NOTE 2 - SECURITIES AVAILABLE FOR SALE:
Included in current assets are securities available for sale which consist of
U.S. Government Treasury bills.
On June 30, 1995, the Company received 573,000 shares of Texas Biotechnology
Corporation ("TBC") common stock resulting from the satisfaction of a certain
contingency on May 31, 1995 related to the acquisition of ImmunoPharmaceutics,
Inc. ("IPI") by TBC in July 1994. Accordingly, the Company recognized a gain
for financial reporting purposes in the amount of $931,000, based on the closing
price of TBC common stock on May 31, 1995 of $1.625 per share as reported on the
American Stock Exchange.
The Company may receive an additional 409,000 shares of TBC common stock (the
"Contingent Shares") pending the outcome of certain remaining contingencies. No
amounts have been recorded related to the Contingent Shares, and no amounts will
be recorded until such time as the contingencies are satisfied.
NOTE 3 - INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
---- ----
<S> <C> <C>
Raw materials $ 534,000 $ 576,000
Work in process 803,000 756,000
Finished goods 1,391,000 1,431,000
------------ -----------
$ 2,728,000 $ 2,763,000
============ ===========
</TABLE>
-5-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
RESULTS OF OPERATIONS
Total revenue for the third quarter of 1995 increased by $270,000 or 13% over
the quarter ended September 30, 1994, and increased for the nine months ended
September 30, 1995 by $1,572,000 or 16% over the nine months ended September 30,
1994. The increases are primarily due to an increase in product sales of
$254,000 or 13% during the third quarter of 1995, and an increase in product
sales of $1,545,000 or 16% during the nine months ended September 30, 1995,
respectively.
The increase in product sales during the third quarter of 1995 and the nine
months ended September 30, 1995 is primarily due to an increase in diagnostic
sales of $228,000 or 17% and $1,467,000 or 25%, respectively. The increased
diagnostic sales are primarily due to sales of ICT GOLD(TM) HW, the Company's
new canine heartworm diagnostic, which was introduced in March 1995. Sales of
this new product more than offset declines in the Company's other canine
heartworm diagnostic products, which were caused (for microwell tests) by
competition from a major competitor's improved product and (for stat tests) by
customer shifts to ICT GOLD(TM) HW. The Company is developing a modified
DiroCHEK(R) canine heartworm diagnostic, with greater ease-of-use to match the
competitor's microwell product modification, to regain unit sales and price
points in this important product line. Vaccine sales increased modestly during
the quarter and nine months ended September 30, 1995, as compared to the quarter
and nine months ended September 30, 1994.
The cost of sales as a percentage of product revenue increased to 56% for the
nine months ended September 30, 1995 as compared to 50% for the nine months
ended September 30, 1994. The cost of sales as a percentage of product revenue
increased even more sharply, to 72%, for the third quarter of 1995 as compared
to 53% for the quarter ended September 30, 1994. The increases are due to
increased unapplied manufacturing overhead, resulting from a larger percentage
of product sales during 1995 being generated from products which are
manufactured for the Company by third parties, and a $243,000 (11% of third
quarter product revenue) write-off of vaccine inventory which became unsalable
because its expiration date occurred during the third quarter of 1995. Among
the Company's major products, DiroCHEK(R) canine heartworm diagnostic products
are manufactured at Company facilities, whereas ICT GOLD(TM) HW and all vaccines
are manufactured by third parties. The cost of sales percentage was worsened by
domestic shipments of bulk feline leukemia vaccine to Rhone Merieux, Inc.
(located in Athens, Georgia) during the first nine months of 1995. The Company
has contracted to sell bulk vaccine to Rhone Merieux, Inc. at cost because the
Company receives a royalty on Rhone Merieux, Inc.'s resulting product sales in
the United States. By contrast, the Company's international sales of bulk
feline leukemia vaccine to Rhone-Merieux of France are at a profit, not at cost.
Cost of sales as a percentage of product revenue would have been 59% and 49%
during the quarters ended September 30, 1995 and 1994, respectively, and 49% and
48% for the nine months ended September 30, 1995 and 1994, respectively, if the
inventory write-off and zero margin bulk sales were not taken into
consideration. The 1995 cost of sales percentage was also hurt by reduced
average selling prices due to increased competition (as to DiroCHEK/(R)/) and
promotional programs accounted for as reductions in revenue; the cost of sales
percentage suffers when more units of product must be manufactured and sold to
achieve the same revenue.
Research and development expenses during the third quarter of 1995 decreased by
$9,000 or 3% from the quarter ended September 30, 1994, and decreased during the
nine months ended September 30, 1995 by $110,000 or 14% from the nine months
ended September 30, 1994. The decreases are primarily due to a decrease in
contracted research and development resulting from the completion of the
development of the Company's ICT GOLD(TM) HW canine heartworm diagnostic test
which was introduced in March 1995, offset by additional research programs with
outside research and development contractors.
-6-
<PAGE>
Selling and marketing expenses during the third quarter of 1995 decreased by
$131,000 or 12% from the quarter ended September 30, 1994, and decreased during
the nine months ended September 30, 1995 by $551,000 or 14% from the nine months
ended September 30, 1994. The decreases are due primarily to the non-recurrence
of significant 1994 advertising and special sales promotion expenses related to
the launch of the Company's new vaccine product line.
General and administrative expenses during the third quarter of 1995 decreased
by $135,000 or 26% from the quarter ended September 30, 1994, and decreased
during the nine months ended September 30, 1995 by $867,000 or 44% from the nine
months ended September 30, 1994. The decreases are due to a decrease in legal
expenses as a result of the settlement of major litigation in December 1994.
On June 30, 1995, the Company received 573,000 shares of Texas Biotechnology
Corporation ("TBC") common stock resulting from the satisfaction of a certain
contingency on May 31, 1995 related to the acquisition of ImmunoPharmaceutics,
Inc. ("IPI") by TBC in July 1994. The Company had been a major shareholder of
IPI, and had previously recognized a $2,036,000 gain on the transaction for
financial reporting purposes. In the second quarter of 1995, the Company
recognized an additional gain for financial reporting purposes in the amount of
$931,000. The Company may receive an additional 409,000 shares of TBC common
stock pending the outcome of certain remaining contingencies. The Company will
recognize additional income when, and if, these contingencies are satisfied.
FINANCIAL CONDITION
Management believes that the Company's present capital resources, which included
working capital of $4,332,000 at September 30, 1995, are sufficient to meet its
current normal working capital needs. The Company intends to try to negotiate
the deferral of payment of approximately $700,000 owed in the fourth quarter of
1995 under a 1992 agreement relating to the purchase of certain canine and
feline vaccine products.
Although TBC is a publicly traded company, the TBC common stock received by the
Company in 1994 and 1995 is subject to certain securities-law and contractual
restrictions against resale. TBC has filed a Registration Statement on Form S-
3, which has not yet been declared effective by the Securities and Exchange
Commission, for the purpose of registering these and other shares for resale to
the public. The Company's present intent is to hold its 1,228,000 TBC shares
for investment unless an unexpected need for large cash outlays arises.
PART II. OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
-----------------
No material developments.
ITEM 2. CHANGES IN SECURITIES
---------------------
None.
-7-
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
The Annual Meeting of Shareholders was held on July 12, 1995. The following
matters were submitted to a vote, with the results indicated below:
(a) Election of directors:
<TABLE>
<CAPTION>
Broker
Nominee For Against Abstain Withheld Non-votes
------- --- ------- ------- -------- ----------
<S> <C> <C> <C> <C> <C>
Patrick Owen Burns 5,103,711 n/a n/a 50,985 0
James C. DeCesare 5,103,011 n/a n/a 51,685 0
Theodor H. Heinrichs 5,102,061 n/a n/a 52,635 0
M. Blake Ingle, Ph.D. 5,100,211 n/a n/a 54,485 0
Donald E. Phillips 5,103,461 n/a n/a 51,235 0
Robert L. Widerkehr 5,104,586 n/a n/a 50,110 0
</TABLE>
(b) Approval of the Company's 1995 Stock Option/Stock Issuance Plan:
For: 3,635,579 Against: 289,203 Abstain: 50,546 Withheld: n/a
Broker Non-votes: 1,179,368
(c) Approval of the amendment to Article I, Section 2 of the Company's
Bylaws:
For: 4,931,625 Against: 49,096 Abstain: 39,536 Withheld: n/a Broker
Non-votes: 134,439
(d) Ratification of selection of Price Waterhouse LLP as the Company's
independent accountants:
For: 5,118,369 Against: 24,341 Abstain: 11,986 Withheld: n/a Broker
Non-votes: 0
ITEM 5. OTHER INFORMATION
-----------------
None.
-8-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
--------
10.50+ 1995 Stock Option/Stock Issuance Plan, as amended.
11.1 Computation of Earnings (Loss) Per Share.
27 Financial Data Schedule (for electronic filing purposes
only).
___________________
+ Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
-------------------
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SYNBIOTICS CORPORATION
Date: November 10, 1995 /s/ Michael K. Green
---------------------------
Michael K. Green
Vice President of Finance and Chief
Financial Officer
(signing both as a duly authorized
officer and as principal financial officer)
-9-
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
EXHIBITS
TO
FORM 10-QSB
UNDER
SECURITIES EXCHANGE ACT OF 1934
SYNBIOTICS CORPORATION
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
- ----------- -------
10.50 1995 Stock Option/Stock Issuance Plan, as amended.
11.1 Computation of Earnings (Loss) Per Share.
27 Financial Data Schedule (for electronic filing purposes only).
<PAGE>
SYNBIOTICS CORPORATION Exhibit 10.50
-------------
1995 STOCK OPTION/STOCK ISSUANCE PLAN
-------------------------------------
ARTICLE ONE
GENERAL PROVISIONS
------------------
I. PURPOSE OF THE PLAN
This 1995 Stock Option/Stock Issuance Plan (the "Plan") is intended to promote
the interests of Synbiotics Corporation, a California corporation, by providing
eligible persons with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in the service of the Corporation.
Capitalized terms not otherwise defined shall have the meanings assigned to such
terms in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into three separate equity programs:
(i) the Discretionary Option Grant Program under which eligible
persons may, at the discretion of the Plan Administrator, be
granted options to purchase shares of common stock of the
Corporation,
(ii) the Stock Issuance Program under which eligible persons may,
at the discretion of the Plan Administrator, be issued
shares of common stock of the Corporation directly, either
through the immediate purchase of such shares or as a bonus
for services rendered the Corporation (or any Parent or
Subsidiary), and
(iii) the Automatic Option Grant Program under which non-employee
directors shall automatically receive option grants at
periodic intervals to purchase shares of common stock of the
Corporation.
B. The provisions of Articles One and Five shall apply to all equity
programs under the Plan and shall accordingly govern the interests
of all persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. This Plan shall be administered by the Board or by a committee
("Committee") consisting of two (2) or more Board members who assume
full responsibility for the administration of the Plan (the "Plan
Administrator"). Members of any Committee shall serve for such
period of time as the Board may determine and shall be subject to
removal by the Board at any time.
B. The Plan Administrator shall have full power and authority (subject
to the express provisions of the Plan) to establish such rules and
regulations as it may deem appropriate for the proper administration
of the Plan and to make such determinations under, and issue such
interpretations of, the Plan and any outstanding option grants or
stock issuances as it may deem necessary or
-1-
<PAGE>
advisable. Decisions of the Plan Administrator shall be final and
binding on all parties who have an interest in the Plan or any
outstanding option or stock issuance.
C. Notwithstanding the above, the administration of the Automatic
Option Grant Program under Article Three shall be self executing in
accordance with the terms and conditions thereof and the Plan
Administrator shall not exercise any discretionary functions in
respect to matters governed by Article Three.
D. The Plan Administrator shall, within the scope of its administrative
jurisdiction under the Plan, have full authority to determine, (i)
with respect to the option grants under the Discretionary Option
Grant Program, which eligible persons are to receive option grants,
the time or times when such option grants are to be made, the number
of shares to be covered by each such grant, the status of the
granted option as either an Incentive Option or a Non-Statutory
Option, the time or times at which each option is to become
exercisable, the vesting schedule (if any) applicable to the option
shares and the maximum term for which the option is to remain
outstanding and (ii) with respect to stock issuances under the Stock
Issuance Program, which eligible persons are to receive stock
issuances, the time or times when such issuances are to be made, the
number of shares to be issued to each Participant, the vesting
schedule (if any) applicable to the issued shares and the
consideration to be paid by the Participant for such shares.
E. The Plan Administrator shall have the absolute discretion either to
grant options in accordance with the Discretionary Option Grant
Program or to effect stock issuances in accordance with the Stock
Issuance Program.
IV. OPTION GRANTS AND STOCK ISSUANCES
A. Subject to Section V.B below, the persons eligible to receive stock
issuances under the Stock Issuance Program ("Participant") and/or
option grants pursuant to the Discretionary Option Grant Program
("Optionee") are as follows:
(i) officers and other employees of the Corporation (or its
parent or subsidiary corporations) who render services which
contribute to the management, growth and financial success
of the Corporation (or its parent or subsidiary
corporations);
(ii) those consultants or other independent contractors who
provide valuable services to the Corporation (or its parent
or subsidiary corporations);
provided that, notwithstanding any other provision of this Plan, no
option grants under the Discretionary Option Grant Program or stock
issuances under the Stock Issuance Program shall be made to any
director hereunder unless, at the time of such option or issuance,
the Plan Administrator is a Committee composed entirely of non-
employee Board members none of whom have received an option grant or
stock issuance under this Plan or any other stock plan of the
Corporation (or any parent or subsidiary corporation) other than
under the Automatic Option Grant Program during the one year prior
to service on the Committee or during such service.
B. The individuals eligible to receive option grants under the
Automatic Option Grant Program shall be those individuals who serve
as non-employee Board members during the term of the Plan.
-2-
<PAGE>
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired common stock of the Corporation ("Common
Stock"), including shares repurchased by the Corporation on the open
market. The maximum number of shares of Common Stock which may be
issued over the term of the Plan shall not exceed 1,300,000 shares.
Such authorized share reserve is comprised of (i) the number of
shares available for issuance under the Predecessor Plan as last
approved by the Corporation's stockholders prior to such date,
including the shares subject to the outstanding options incorporated
into the Plan and any other shares which would have been available
for future option grants under the Predecessor Plan, plus (ii) an
additional increase of 282,055 shares authorized by the Board under
the Plan, subject to stockholder approval.
B. No one person participating in the Plan may receive options and
direct stock issuances for more than 800,000 shares of Common Stock
in the aggregate over the term of the Plan.
C. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i)
the options (including any options incorporated from the Predecessor
Plan) expire or terminate for any reason prior to exercise in full
or (ii) the options are cancelled in accordance with the
cancellation-regrant provisions of Article Two. All shares issued
under the Plan (including shares issued upon exercise of options
incorporated from the Predecessor Plan), whether or not those shares
are subsequently repurchased by the Corporation pursuant to its
repurchase rights under the Plan, shall reduce on a share-for-share
basis the number of shares of Common Stock available for subsequent
issuance under the Plan. In addition, should the exercise price of
an option under the Plan (including any option incorporated from the
Predecessor Plan) be paid with shares of Common Stock or should
shares of Common Stock otherwise issuable under the Plan be withheld
by the Corporation in satisfaction of the withholding taxes incurred
in connection with the exercise of an option or the vesting of a
stock issuance under the Plan, then the number of shares of Common
Stock available for issuance under the Plan shall be reduced by the
gross number of shares for which the option is exercised or which
vest under the stock issuance, and not by the net number of shares
of Common Stock issued to the holder of such option or stock
issuance.
D. Should any change be made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration,
appropriate adjustments shall be made to (i) the maximum number
and/or class of securities issuable under the Plan, (ii) the maximum
number and/or class of securities for which the share reserve is to
increase automatically each year, (iii) the number and/or class of
securities for which any one person may be granted options and
direct stock issuances over the term of the Plan, (iv) the number
and/or class of securities for which automatic option grants are to
be subsequently made under the Automatic Option Grant Program and
(v) the number and/or class of securities and the exercise price per
share in effect under each outstanding option (including any option
incorporated from the Predecessor Plan) in order to prevent the
dilution or enlargement of benefits thereunder. The adjustments
determined by the Plan Administrator shall be final, binding and
conclusive.
-3-
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
----------------------------------
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form approved by
the Plan Administrator; provided, however, that each such document shall comply
--------
with the terms specified below. Each document evidencing an Incentive Option
shall, in addition, be subject to the provisions of the Plan applicable to such
options.
A. Exercise Price.
--------------
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than eighty-five percent
(85%) of the Fair Market Value per share of Common Stock on
the option grant date.
2. The exercise price shall become immediately due upon exercise
of the option and shall, subject to the provisions of Section
I of Article Five and the documents evidencing the option, be
payable in one or more of the forms specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued
at Fair Market Value on the exercise date, or
(iii) to the extent the option is exercised for vested
shares, through a special sale and remittance
procedure pursuant to which the Optionee shall
concurrently provide irrevocable written instructions
to (a) a Corporation-designated brokerage firm to
effect the immediate sale of the purchased shares and
remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to
cover the aggregate exercise price payable for the
purchased shares plus all applicable Federal, state
and local income and employment taxes required to be
withheld by the Corporation by reason of such
exercise and (b) the Corporation to deliver the
certificates for the purchased shares directly to
such brokerage firm in order to complete the sale
transaction.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased
shares must be made on the exercise date.
B. Exercise and Term of Options. Each option shall be exercisable at
----------------------------
such time or times, during such period and for such number of shares
as shall be determined by the Plan Administrator and set forth in
the documents evidencing the option. However, no option shall have a
term in excess of ten (10) years measured from the option grant
date.
C. Effect of Termination of Service.
--------------------------------
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of
Service or death:
-4-
<PAGE>
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain
exercisable for such period of time thereafter as
shall be determined by the Plan Administrator and set
forth in the documents evidencing the option, but no
such option shall be exercisable after the expiration
of the option term.
(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be subsequently
exercised by the personal representative of the
Optionee's estate or by the person or persons to whom
the option is transferred pursuant to the Optionee's
will or in accordance with the laws of descent and
distribution.
(iii) During the applicable post-Service exercise period,
the option may not be exercised in the aggregate for
more than the number of vested shares for which the
option is exercisable on the date of the Optionee's
cessation of Service. Upon the expiration of the
applicable exercise period or (if earlier) upon the
expiration of the option term, the option shall
terminate and cease to be outstanding for any vested
shares for which the option has not been exercised.
However, the option shall, immediately upon the
Optionee's cessation of Service, terminate and cease
to be outstanding to the extent it is not exercisable
for vested shares on the date of such cessation of
Service.
(iv) In the event of a Corporate Transaction,the provisions
of Section III of this Article Two shall govern the
period for which the outstanding options are to remain
exercisable following the Optionee's cessation of
Service and shall supersede any provisions to the
contrary in this section.
2. The Plan Administrator shall have the discretion, exercisable
either at the time an option is granted or at any time while
the option remains outstanding, to:
(i) extend the period of time for which the option is to
remain exercisable following the Optionee's cessation
of Service from the period otherwise in effect for that
option to such greater period of time as the Plan
Administrator shall deem appropriate, but in no event
beyond the expiration of the option term, and/or
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with
respect to the number of vested shares of Common Stock
for which such option is exercisable at the time of the
Optionee's cessation of Service but also with respect
to one or more additional installments in which the
Optionee would have vested under the option had the
Optionee continued in Service.
D. Stockholder Rights. The holder of an option shall have no
------------------
stockholder rights with respect to the shares subject to the option
until such person shall have exercised the option, paid the exercise
price and become a holder of record of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the discretion
-----------------
to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested
shares, the Corporation shall have the right to repurchase, at the
exercise price paid per share, any or all of those unvested shares.
The terms upon which such repurchase right shall be exercisable
(including the period and procedure for exercise and the appropriate
-5-
<PAGE>
vesting schedule for the purchased shares) shall be established by
the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. Limited Transferability of Options. During the lifetime of the
----------------------------------
Optionee, the option shall be exercisable only by the Optionee and
shall not be assignable or transferable other than by will or by the
laws of descent and distribution following the Optionee's death.
However, a Non-Statutory Option may be assigned in accordance with
the terms of a Qualified Domestic Relations Order within the meaning
of Internal Revenue Code Section 414(p). The assigned option may
only be exercised by the person or persons who acquire a proprietary
interest in the option pursuant to such Qualified Domestic Relations
Order. The terms applicable to the assigned option (or portion
thereof) shall be the same as those in effect for the option
immediately prior to such assignment and shall be set forth in such
documents issued to the assignee as the Plan Administrator may deem
appropriate
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive Options. Except
as modified by the provisions of this Section II, all the provisions of Articles
One, Two and Five shall be applicable to Incentive Options. Options which are
specifically designated as Non-Statutory Options when issued under the Plan
shall not be subject to the terms of this Section II.
---
A. Eligibility. Incentive Options may only be granted to Employees.
-----------
B. Exercise Price. The exercise price per share shall not be less than
--------------
one hundred percent (100%) of the Fair Market Value per share of
Common Stock on the option grant date.
C. Dollar Limitation. The aggregate Fair Market Value of the shares of
-----------------
Common Stock (determined as of the respective date or dates of
grant) for which one or more options granted to any Employee under
the Plan (or any other option plan of the Corporation or any Parent
or Subsidiary) may for the first time become exercisable as
Incentive Options during any one (1) calendar year shall not exceed
the sum of One Hundred Thousand Dollars ($100,000). To the extent
the Employee holds two (2) or more such options which become
exercisable for the first time in the same calendar year, the
foregoing limitation on the exercisability of such options as
Incentive Options shall be applied on the basis of the order in
which such options are granted.
D. 10% Stockholder. If any Employee to whom an Incentive Option is
---------------
granted is a 10% stockholder (within the meaning of Internal Revenue
Code Section 424(d)), then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value
per share of Common Stock on the option grant date, and the option
term shall not exceed five (5) years measured from the option grant
date.
III. CORPORATE TRANSACTION
A. In the event of any Corporate Transaction, each outstanding option
shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate
Transaction, become fully exercisable for all of the shares of
Common Stock at the time subject to such option and may be exercised
for any or all of those shares as fully-vested shares of Common
Stock. However, an outstanding option shall NOT so accelerate if and
to the extent: (i) such option is, in connection with the Corporate
Transaction, either to be assumed by the successor corporation (or
-6-
<PAGE>
parent thereof) or to be replaced with a comparable option to
purchase shares of the capital stock of the successor corporation
(or parent thereof), (ii) such option is to be replaced with a cash
incentive program of the successor corporation which preserves the
spread existing on the unvested option shares at the time of the
Corporate Transaction and provides for subsequent payout in
accordance with the same vesting schedule applicable to such option
or (iii) the acceleration of such option is subject to other
limitations imposed by the Plan Administrator at the time of the
option grant. The determination of option comparability under clause
(i) above shall be made by the Plan Administrator, and its
determination shall be final, binding and conclusive.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those
terminated rights shall immediately vest in full, in the event of
any Corporate Transaction, except to the extent: (i) those
repurchase rights are to be assigned to the successor corporation
(or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right
is issued.
C. Immediately following the consummation of the Corporate Transaction,
all outstanding options shall terminate and cease to be outstanding,
except to the extent assumed by the successor corporation (or parent
thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply to the number and class of
securities which would have been issuable to the Optionee in
consummation of such Corporate Transaction had the option been
exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and
class of securities available for issuance under the Plan on both an
aggregate and per Optionee basis following the consummation of such
Corporate Transaction and (ii) the exercise price payable per share
under each outstanding option, provided the aggregate exercise price
--------
payable for such securities shall remain the same.
E. Any options which are assumed or replaced in the Corporate
Transaction and do not otherwise accelerate at that time, shall
automatically accelerate (and any of the Corporation's outstanding
repurchase rights which do not otherwise terminate at the time of
the Corporate Transaction shall automatically terminate and the
shares of Common Stock subject to those terminated rights shall
immediately vest in full) in the event the Optionee's Service should
subsequently terminate by reason of an Involuntary Termination
within eighteen (18) months following the effective date of such
Corporate Transaction. Any options so accelerated shall remain
exercisable for fully-vested shares until the earlier of (i) the
-------
expiration of the option term or (ii) the expiration of the one (1)-
year period measured from the effective date of the Involuntary
Termination.
F. The portion of any Incentive Option accelerated in connection with a
Corporate Transaction or Change in Control shall remain exercisable
as an Incentive Option only to the extent the applicable One Hundred
Thousand Dollar limitation is not exceeded. To the extent such
dollar limitation is exceeded, the accelerated portion of such
option shall be exercisable as a Non-Statutory Option under the
Federal tax laws.
G. The grant of options under the Discretionary Option Grant Program
shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
-7-
<PAGE>
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time and from
time to time, with the consent of the affected option holders, the cancellation
of any or all outstanding options under the Discretionary Option Grant Program
(including outstanding options incorporated from the Predecessor Plan) and to
grant in substitution new options covering the same or different number of
shares of Common Stock but with an exercise price per share based on the Fair
Market Value per share of Common Stock on the new option grant date.
ARTICLE THREE
STOCK ISSUANCE PROGRAM
----------------------
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program through
direct and immediate issuances without any intervening option grants. Each such
stock issuance shall be evidenced by a Stock Issuance Agreement which complies
with the terms specified below.
A. Purchase Price
--------------
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than eighty-five percent
(85%) of the Fair Market Value per share of Common Stock on
the stock issuance date.
2. Subject to the provisions of Section I of Article Five, shares
of Common Stock may be issued under the Stock Issuance Program
for one or both of the following items of consideration which
the Plan Administrator may deem appropriate in each individual
instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any
Parent or Subsidiary).
B. Vesting Provisions
------------------
1. Shares of Common Stock issued under the Stock Issuance Program
may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more
installments over the Participant's period of Service or upon
attainment of specified performance objectives. The elements
of the vesting schedule applicable to any unvested shares of
Common Stock issued under the Stock Issuance Program, namely:
(i) the Service period to be completed by the Participant
or the performance objectives to be attained,
(ii) the number of installments in which the shares are to
vest,
(iii) the interval or intervals (if any) which are to lapse
between installments, and
-8-
<PAGE>
(iv) the effect which death, Permanent Disability or other
event designated by the Plan Administrator is to have
upon the vesting schedule,
shall be determined by the Plan Administrator and incorporated
into the stock issuance agreement.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash
dividend) which the Participant may have the right to receive
with respect to the Participant's unvested shares of Common
Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration shall be
issued subject to (i) the same vesting requirements applicable
to the Participant's unvested shares of Common Stock and (ii)
such escrow arrangements as the Plan Administrator shall deem
appropriate.
3. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to the
Participant under the Stock Issuance Program, whether or not
the Participant's interest in those shares is vested.
Accordingly, the Participant shall have the right to vote such
shares and to receive any regular cash dividends paid on such
shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued
under the Stock Issuance Program or should the performance
objectives not be attained with respect to one or more such
unvested shares of Common Stock, then those shares shall be
immediately surrendered to the Corporation for cancellation,
and the Participant shall have no further stockholder rights
with respect to those shares. To the extent the surrendered
shares were previously issued to the Participant for
consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation
shall repay to the Participant the cash consideration paid for
the surrendered shares and shall cancel the unpaid principal
balance of any outstanding purchase-money note of the
Participant attributable to such surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of
Common Stock (or other assets attributable thereto) which
would otherwise occur upon the non-completion of the vesting
schedule applicable to such shares. Such waiver shall result
in the immediate vesting of the Participant's interest in the
shares of Common Stock as to which the waiver applies. Such
waiver may be effected at any time, whether before or after
the Participant's cessation of Service or the attainment or
non-attainment of the applicable performance objectives.
II. CORPORATE TRANSACTION
A. All of the outstanding repurchase rights under the Stock Issuance
Program shall terminate automatically, and all the shares of Common
Stock subject to those terminated rights shall immediately vest in
full, in the event of any Corporate Transaction, except to the
extent (i) those repurchase rights are assigned to the successor
corporation (or parent thereof) in connection with such Corporate
Transaction or (ii) such accelerated vesting is precluded by other
limitations imposed in the stock issuance agreement.
-9-
<PAGE>
B. Any repurchase rights that are assigned in the Corporate Transaction
shall automatically terminate, and all the shares of Common Stock
subject to those terminated rights shall immediately vest in full, in
the event the Optionee's Service should subsequently terminate by
reason of an Involuntary Termination within eighteen (18) months
following the effective date of such Corporate Transaction.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held in escrow
by the Corporation until the Participant's interest in such shares vests or may
be issued directly to the Participant with restrictive legends on the
certificates evidencing those unvested shares.
ARTICLE FOUR
AUTOMATIC OPTION GRANT PROGRAM
------------------------------
I. OPTION TERMS
A. Grant Dates. Option grants shall be made on the dates specified
-----------
below:
1. Each non-employee director who is who is first elected or
appointed as a non-employee Board member after the effective
date of the Plan shall automatically be granted, on such
initial election or appointment, a Non-Statutory Option to
purchase 7,000 shares of Common Stock.
2. On the date of each Annual Stockholders Meeting, beginning
with the 1995 Annual Meeting, each individual who is to
continue to serve as a non-employee director after such
meeting, shall automatically be granted, whether or not such
individual is standing for re-election as a Board member at
that Annual Meeting, a Non-Statutory Option to purchase an
additional 7,000 shares of Common Stock, provided such
individual has served as a non-employee Board member for at
least six (6) months prior to the date of such Annual Meeting.
There shall be no limit on the number of such 7,000-share
option grants any one non-employee director may receive over
his or her period of Board service.
B. Exercise Price.
--------------
1. The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option
Grant Program. Except to the extent the sale and remittance
procedure specified thereunder is utilized, payment of the
exercise price for the purchased shares must be made on the
exercise date.
C. Option Term. Each option shall have a term of ten (10) years
-----------
measured from the option grant date.
-10-
<PAGE>
D. Exercise and Vesting of Options. Each option shall be immediately
-------------------------------
exercisable for any or all of the option shares. However, any shares
purchased under the option shall be subject to repurchase by the
Corporation, at the exercise price paid per share, upon the
Optionee's cessation of Board service prior to vesting in those
shares. Each grant shall vest, and the Corporation's repurchase
right shall lapse, in a series of four (4) equal and successive
quarterly installments over the Optionee's period of continued
service as a Board member, with the first such installment to vest
upon the Optionee's completion of three (3) months of Board service
measured from the option grant date.
E. Effect of Termination of Board Service. The following provisions
--------------------------------------
shall govern the exercise of any options held by the Optionee at the
time the Optionee ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's death, the
personal representative of the Optionee's estate or the
person or persons to whom the option is transferred pursuant
to the Optionee's will or in accordance with the laws of
descent and distribution) shall have the balance of the
option term in which to exercise each such option.
(ii) Following cessation of service on the Board for other than
death or disability, the option may not be exercised in the
aggregate for more than the number of vested shares of Common
Stock for which the option was exercisable at the time of the
Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board member by
reason of death or Permanent Disability, then all shares at
the time subject to the option shall immediately vest so that
such option may be exercised for all or any portion of such
shares as fully-vested shares of Common Stock.
(iv) Upon expiration of the option term, the option shall
terminate and cease to be outstanding for any vested shares
for which the option has not been exercised. However, the
option shall, immediately upon the Optionee's cessation of
Board service, terminate and cease to be outstanding to the
extent it is not exercisable for vested shares on the date of
such cessation of Board service.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of Common
Stock at the time subject to each outstanding option but not
otherwise vested shall automatically vest in full so that each such
option shall, immediately prior to the effective date of the
Corporate Transaction, become fully exercisable for all of the
shares of Common Stock at the time subject to such option and may be
exercised for all or any portion of such shares as fully-vested
shares of Common Stock. Immediately following the consummation of
the Corporate Transaction, each automatic option grant shall
terminate and cease to be outstanding, except to the extent assumed
by the successor corporation (or parent thereof).
B. In connection with any Change in Control, the shares of Common Stock
at the time subject to each outstanding option but not otherwise
vested shall automatically vest in full so that each such option
shall, immediately prior to the effective date of the Change in
Control, become fully exercisable for all of the shares of Common
Stock at the time subject to such option and may be exercised for
all or any portion of such shares as fully-vested shares of Common
Stock. Each such option shall
-11-
<PAGE>
remain exercisable for such fully-vested option shares until the
expiration or sooner termination of the option term or the surrender
of the option in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have
a thirty (30)-day period in which to surrender to the Corporation
each automatic option held by him or her for a period of at least
six (6) months. The Optionee shall in return be entitled to a cash
distribution from the Corporation in an amount equal to the excess
of (i) the Take-Over Price of the shares of Common Stock at the time
subject to the surrendered option (whether or not the Optionee is
otherwise at the time vested in those shares) over (ii) the
aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five (5) days following the
surrender of the option to the Corporation. No approval or consent
of the Board shall be required in connection with such option
surrender and cash distribution.
D. The grant of options under the Automatic Option Grant Program shall in no
way affect the right of the Corporation to adjust, reclassify, reorganize
or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of
its business or assets.
III. AMENDMENT OF THE AUTOMATIC OPTION GRANT PROGRAM
The provisions of this Automatic Option Grant Program, together with the option
grants outstanding thereunder, may not be amended at intervals more frequently
than once every six (6) months, other than to the extent necessary to comply
with applicable Federal income tax laws and regulations.
IV. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option Grant
Program shall be the same as the terms in effect for option grants made under
the Discretionary Option Grant Program.
ARTICLE FIVE
MISCELLANEOUS
-------------
I. ACCELERATION
A. The Plan Administrator shall have the discretion, exercisable either
at the time an option is granted under the Discretionary Stock
Option Program, at the time that stock is issued under the Stock
Issuance Program or at any time while the option or stock remains
outstanding, to provide for the acceleration of one or more
outstanding options and the termination of repurchase rights on one
or more outstanding shares upon the occurrence of such events as the
Plan Administrator may determine, including upon a Corporate
Transaction regardless or whether or not such options are to be
assumed or replaced or the repurchase rights are to be assigned in
the Corporate Transaction.
B. The Plan Administrator shall not have the discretion to provide for
the acceleration of any options granted under the Automatic Option
Grant Program.
-12-
<PAGE>
II. FINANCING
A. The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant
Program or the purchase price for shares issued under the Stock
Issuance Program by delivering a promissory note payable in one or
more installments. The terms of any such promissory note (including
the interest rate and the terms of repayment) shall be established
by the Plan Administrator in its sole discretion. Promissory notes
may be authorized with or without security or collateral. In all
events, the maximum credit available to the Optionee or Participant
may not exceed the sum of (i) the aggregate option exercise price or
purchase price payable for the purchased shares plus (ii) any
Federal, state and local income and employment tax liability
incurred by the Optionee or the Participant in connection with the
option exercise or share purchase.
B. The Plan Administrator may, in its discretion, determine that one or
more such promissory notes shall be subject to forgiveness by the
Corporation in whole or in part upon such terms as the Plan
Administrator may deem appropriate.
III. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock upon
the exercise of options or upon the issuance or vesting of such
shares under the Plan shall be subject to the satisfaction of all
applicable Federal, state and local income and employment tax
withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock
under the Plan (other than the options granted or the shares issued
under the Automatic Option Grant Program) with the right to use
shares of Common Stock in satisfaction of all or part of the
federal, state and local income or employment taxes incurred by such
holders in connection with the exercise of their options or the
vesting of their shares. Such right may be provided to any such
holder in either or both of the following formats:
(i) Stock Withholding: The election to have the Corporation
-----------------
withhold, from the shares of Common Stock otherwise issuable
upon the exercise of such Non-Statutory Option or the vesting
of such shares, a portion of those shares with an aggregate
Fair Market Value equal to the percentage of such taxes (not
to exceed one hundred percent (100%)) designated by the
holder.
(ii) Stock Delivery: The election to deliver to the Corporation,
--------------
at the time the Non-Statutory Option is exercised or the
shares vest, one or more shares of Common Stock previously
acquired by such holder (other than in connection with the
option exercise or share vesting triggering the taxes) with
an aggregate Fair Market Value equal to the percentage of
such taxes (not to exceed one hundred percent (100%))
designated by the holder.
IV. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective on the date the Plan is adopted by
the Board, and options may be granted under the Discretionary Option
Grant Program from and after the effective date. However, no options
granted under the Plan may be exercised, and no shares shall be
issued under the Plan, until the Plan is approved by the
Corporation's stockholders. If such stockholder approval is not
obtained within twelve (12) months after such effective date, then
all options previously granted
-13-
<PAGE>
under this Plan shall terminate and cease to be outstanding, and no
further options shall be granted and no shares shall be issued under
the Plan.
B. The Plan shall serve as the successor to the Predecessor Plan, and
no further option grants shall be made under the Predecessor Plan
after the effective date of the Plan. All options outstanding under
the Predecessor Plan as of such date shall, immediately upon
approval of the Plan by the Corporations's stockholders, be
incorporated into the Plan and treated as outstanding options under
the Plan. However, each outstanding option so incorporated shall
continue to be governed solely by the terms of the documents
evidencing such option. No provision of the Plan shall be deemed to
adversely affect or otherwise diminish the rights or obligations of
the holders of such incorporated options with respect to their
acquisition of shares of Common Stock which may exist under the
terms of the Predecessor Plan under which such incorporated option
was issued. Subject to the rights of the optionee under the
incorporated option documents and Predecessor Plan, the discretion
delegated to the Plan Administrator hereunder may be exercised with
respect to incorporated options to the same extent as it is
exercisable with respect to options originally granted under this
Plan.
C. The option/vesting acceleration provisions of Article Two relating
to Corporate Transactions and Changes in Control may, in the Plan
Administrator's discretion, be extended to one or more options
incorporated from the Predecessor Plan which do not otherwise
provide for such acceleration.
D. The Plan shall terminate upon the earliest of (i) April 27, 2005,
(ii) the date on which all shares available for issuance under the
Plan shall have been issued pursuant to the exercise of the options
or the issuance of shares (whether vested or unvested) under the
Plan or (iii) the termination of all outstanding options in
connection with a Corporate Transaction. Upon such Plan termination,
all options and unvested stock issuances outstanding on such date
shall thereafter continue to have force and effect in accordance
with the provisions of the documents evidencing such options or
issuances.
V. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, (i) no
such amendment or modification shall adversely affect the rights and
obligations with respect to options or unvested stock issuances at
the time outstanding under the Plan unless the Optionee or the
Participant consents to such amendment or modification, and (ii) any
amendment made to the Automatic Option Grant Program (or any options
outstanding thereunder) shall be in compliance with the limitations
of that program. In addition, the Board shall not, without the
approval of the Corporation's stockholders, (i) materially increase
the maximum number of shares issuable under the Plan, the number of
shares for which options may be granted under the Automatic Option
Grant Program or the maximum number of shares for which any one
person may be granted options and direct stock issuances in the
aggregate over the term of the Plan, except for permissible
adjustments in the event of certain changes in the Corporation's
capitalization, (ii) materially modify the eligibility requirements
for Plan participation or (iii) materially increase the benefits
accruing to Plan participants.
B. Options to purchase shares of Common Stock may be granted under the
Discretionary Option Grant Program and shares of Common Stock may be
issued under the Stock Issuance Program that are in each instance in
excess of the number of shares then available for issuance under the
Plan, provided any excess shares actually issued under those
programs are held in escrow until there is obtained stockholder
approval of an amendment sufficiently increasing the number of
shares of
-14-
<PAGE>
Common Stock available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months after
the date the first such excess issuances are made, then (i) any
unexercised options granted on the basis of such excess shares shall
terminate and cease to be outstanding and (ii) the Corporation shall
promptly refund to the Optionees and the Participants the exercise
or purchase price paid for any excess shares issued under the Plan
and held in escrow, together with interest (at the applicable Short
Term Federal Rate) for the period the shares were held in escrow,
and such shares shall thereupon be automatically cancelled and cease
to be outstanding.
VI. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares of Common
Stock under the Plan shall be used for general corporate purposes.
VII. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option under the
Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any option or (ii) under the Stock Issuance Program
shall be subject to the Corporation's procurement of all approvals
and permits required by regulatory authorities having jurisdiction
over the Plan, the options granted under it and the shares of Common
Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been
compliance with all applicable requirements of Federal and state
securities laws, including the filing and effectiveness of the Form
S-8 registration statement for the shares of Common Stock issuable
under the Plan, and all applicable listing requirements of any stock
exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VIII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant any right
to continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining such person) or of the Optionee or the
Participant, which rights are hereby expressly reserved by each, to terminate
such person's Service at any time for any reason, with or without cause.
-15-
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
-----
B. CHANGE IN CONTROL shall mean a change in ownership or control of the
-----------------
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly, by any person or related
group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under
common control with, the Corporation), of beneficial ownership
(within the meaning of Rule 13d-3 of the Securities Exchange Act of
1934) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding
securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend
such stockholders to accept, or
(ii) a change in the composition of the Board over a period of thirty-
six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections
for Board membership, to be comprised of individuals who either (A)
have been Board members continuously since the beginning of such
period or (B) have been elected or nominated for election as Board
members during such period by at least a majority of the Board
members described in clause (A) who were still in office at the
time the Board approved such election or nomination.
C. CORPORATE TRANSACTION shall mean either of the following stockholder-
---------------------
approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is
to change the State of the Company's incorporation,
(ii) the sale, transfer or other disposition of all or substantially all
of the assets of the Company in liquidation or dissolution of the
Company, or
(iii) any reverse merger in which the Company is the surviving entity but
in which securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities
are transferred to holders different from those who held such
securities immediately prior to such merger.
D. CORPORATION shall mean Synbiotics Corporation, a California corporation.
-----------
E. EMPLOYEE shall mean an individual who is in the employ of the Corporation
--------
(or any Parent or Subsidiary), subject to the control and direction of the
employer entity as to both the work to be performed and the manner and
method of performance.
F. FAIR MARKET VALUE per share of Common Stock on any relevant date shall be
-----------------
determined in accordance with the following provisions:
-A-1-
<PAGE>
(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such
price is reported by the National Association of Securities Dealers
on the Nasdaq National Market or any successor system. If there is
no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for
the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no
closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on
the last preceding date for which such quotation exists.
(iii) If the Common Stock is at the time not traded on the Nasdaq
National Market or listed on any Stock Exchange, the Fair Market
Value shall be determined by the Plan Administrator after taking
into account such factors as the Plan Administrator shall deem
appropriate.
G. HOSTILE TAKE-OVER shall mean a change in ownership of the Corporation
-----------------
effected through acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation) of beneficial ownership (within the meaning
of Rule 13d-3 of the Securities Exchange Act of 1934) of securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities pursuant to a tender or
exchange offer made directly to the Corporation's stockholders which the
Board does not recommend such stockholders to accept.
H. INCENTIVE OPTION shall mean an option which satisfies the requirements of
----------------
Internal Revenue Code Section 422.
I. INVOLUNTARY TERMINATION shall mean the termination of the Service of any
-----------------------
individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a change in
his or her position with the Corporation which materially reduces
his or her level of responsibility, (B) a reduction in his or her
level of compensation (including base salary, fringe benefits and
any non-discretionary and objective-standard incentive payment or
bonus award) by more than fifteen percent (15%) or (C) a relocation
of such individual's place of employment by more than fifty (50)
miles, provided and only if such change, reduction or relocation is
effected by the Corporation without the individual's consent.
J. MISCONDUCT shall mean the commission of any act of fraud, embezzlement or
----------
dishonesty by the Optionee or Participant, any unauthorized use or
disclosure by such person of confidential information or trade secrets of
the Corporation (or any Parent or Subsidiary), or any other intentional
misconduct by such person adversely affecting the business or affairs of
the Corporation (or any Parent or Subsidiary) in a material manner. The
foregoing definition shall not be deemed to be inclusive of all the acts
or omissions which the Corporation (or any Parent or Subsidiary) may
consider as grounds for the dismissal or discharge of any Optionee,
Participant or other person in the Service of the Corporation (or any
Parent or Subsidiary).
-A-2-
<PAGE>
K. NON-STATUTORY OPTION shall mean an option which is not an Incentive
--------------------
Option.
L. PARENT shall mean any corporation (other than the Corporation) in an
------
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at
the time of the determination, stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of
the other corporations in such chain.
M. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the inability
--------------------------------------------
of the Optionee or the Participant to engage in any substantial gainful
activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of
twelve (12) months or more.
N. PREDECESSOR PLANS shall mean the Corporation's existing 1986 Stock Option
-----------------
Plan, 1987 Stock Option Plan, 1988 Stock Option Plan, 1991 Stock Option
Plan, and 1994 Stock Option Plan.
O. SERVICE shall mean the provision of services to the Corporation (or any
-------
Parent or Subsidiary) by a person in the capacity of an Employee, a non-
employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the
documents evidencing the option grant.
P. SUBSIDIARY shall mean any corporation (other than the Corporation) in an
----------
unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain
owns, at the time of the determination, stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
Q. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market Value per
--------------- -------
share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest
reported price per share of Common Stock paid by the tender offeror in
effecting such Hostile Take-Over. However, if the surrendered option is an
Incentive Option, the Take-Over Price shall not exceed the clause (i)
price per share.
-A-3-
<PAGE>
SYNBIOTICS CORPORATION EXHIBIT 11.1
------------
COMPUTATION OF EARNINGS (LOSS) PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
PRIMARY EARNINGS (LOSS) PER SHARE:
Net income (loss) per statement of operations $ (854,000) $ 1,188,000 $ 880,000 $ 323,000
============ ============= ============ ============
Weighted average number of shares outstanding 5,809,000 5,824,000 5,827,000 5,857,000
============ ============= ============ ============
Primary earnings (loss) per share $ (.15) $ .20 $ .15 $ .06
============ ============= ============ ============
FULLY DILUTED EARNINGS (LOSS) PER SHARE:/(1)/
Net income (loss) per statement of operations $ (854,000) $ 1,188,000 $ 880,000 $ 323,000
============ ============= ============ ============
Reconciliation of weighted average number of
shares per primary computation above, to
amount used for fully diluted computation:
Weighted average number of shares outstanding,
per primary computation 5,809,000 5,824,000 5,827,000 5,857,000
------------ ------------ ------------ ------------
Add-effect of outstanding options (as determined
by the application of the treasury method) 54,000 7,000 8,000
------------ ------------ ------------ ------------
Weighted average number of shares, as adjusted 5,863,000 5,824,000 5,834,000 5,865,000
============ ============= ============ ============
Fully diluted earnings (loss) per share $ (.15) $ .20 $ .15 $ .06
============ ============= ============ ============
</TABLE>
/(1)/ This computation is submitted, for the three month period ended September
30, 1995, in accordance with Regulation S-B Item 601(b)(11) although it is
contrary to paragraph 40 of APB Opinion No. 15 because it produces an
anti-dilutive result.
-1-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED BALANCE SHEET AS OF SEPTEMBER 30, 1995 AND THE RELATED CONDENSED
STATEMENTS OF OPERATIONS AND OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1995 INCLUDED ELSEWHERE IN THIS FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,436
<SECURITIES> 507
<RECEIVABLES> 926
<ALLOWANCES> 77
<INVENTORY> 2,728
<CURRENT-ASSETS> 6,197
<PP&E> 4,448
<DEPRECIATION> 3,469
<TOTAL-ASSETS> 12,232
<CURRENT-LIABILITIES> 1,865
<BONDS> 0
<COMMON> 29,346
0
0
<OTHER-SE> (18,979)
<TOTAL-LIABILITY-AND-EQUITY> 12,232
<SALES> 10,921
<TOTAL-REVENUES> 11,195
<CGS> 6,138
<TOTAL-COSTS> 11,244
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 882
<INCOME-TAX> 2
<INCOME-CONTINUING> 880
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 880
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
