SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 0-14656
REPLIGEN CORPORATION
Delaware 04-2729386
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
117 Fourth Avenue
Needham, Massachusetts 02194
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617)-449-9560
-----------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [CHECK] No ____.
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of November 5, 1996:
Common Stock, par value $.01 per share 15,602,542
Class Number of Shares
1
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REPLIGEN CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1996 and
March 31, 1996 3
Condensed Consolidated Statements of Operations for the Three and Six Months
Ended September 30, 1996 and March 31, 1996 4
Condensed Consolidated Statement of Cash Flow for the Six Months Ended
September 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submissions of Matters to a Vote of Security Holders 11
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K 11
(a) Exhibits
4.1 The Amended 1992 Repligen Corporation Stock Option Plan, adopted by
the Stockholders on September 10, 1996.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
Signature 12
Exhibit Index 13
Exhibits 14
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
REPLIGEN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1996 March 31, 1996
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,295,855 $ 6,944,140
Marketable securities 101,766 278,115
Accounts receivable 232,607 421,254
Amounts due from affiliates 4,766 42,284
Inventories 604,735 701,224
Prepaid expenses and other current assets 83,352 188,554
------------- ------------
Total current assets 4,323,081 8,575,571
Property, plant and equipment, at cost:
Equipment 688,091 688,091
Furniture and fixtures 25,939 20,422
Leasehold improvements 46,214 2,000
------------- ------------
760,244 710,513
Less: accumulated depreciation and amortization 254,163 176,946
------------- ------------
506,081 533,567
Restricted cash 229,056 --
Other assets, net 114,474 121,389
------------- ------------
$ 5,172,692 $ 9,230,527
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 27,926 $ 546,129
Accrued expenses 503,778 3,720,881
Unearned income 33,315 154,998
------------- ------------
Total current liabilities 565,019 4,422,008
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value -- -- --
authorized -- 5,000,000 shares --
outstanding -- none
Common stock, $.01 par value -- 156,025 156,025
authorized -- 30,000,000 shares--
outstanding -- 15,602,542 shares
Additional paid-in capital 127,704,145 127,694,145
Accumulated deficit (123,252,497) (123,041,651)
------------- ------------
Total stockholders' equity 4,607,673 4,808,519
------------- ------------
$ 5,172,692 $ 9,230,527
============= ============
</TABLE>
3
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REPLIGEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Research and development $ 193,376 $ 3,775,943 $ 450,460 $ 5,859,629
Product 394,679 981,646 620,778 1,373,737
Investment income 75,596 191,009 107,799 462,717
Other 317,719 70,520 642,587 159,351
------------ ----------- ----------- ------------
981,370 5,019,118 1,821,624 7,855,434
------------ ----------- ----------- ------------
Costs and expenses:
Research and development 370,697 3,552,624 694,460 7,330,659
Selling, general and administrative 352,505 1,696,083 1,186,361 3,043,462
Cost of goods sold -- 699,530 151,649 989,677
Interest -- 5,101 -- 64,476
------------ ----------- ----------- ------------
723,202 5,953,338 2,032,470 11,428,274
------------ ----------- ----------- ------------
Net income (loss) $ 258,168 $ (934,220) $ (210,846) $ (3,572,840)
============ =========== =========== ============
Net income (loss) per common share $ .02 $ (0.06) $ (0.01) $ (0.23)
============ =========== =========== ============
Weighted average common shares outstanding 15,602,542 15,358,938 15,602,542 15,358,364
============ =========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
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REPLIGEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended September 30,
----------------------------------------------------
1996 1995
----------------------- ------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (210,846) $(3,572,840)
Adjustments to reconcile net loss to net cash
used in operating activities -
Depreciation and amortization 84,132 776,536
Compensation from stock options 10,000 --
Equity in net loss of an affiliate -- 227,636
Net proceeds from sales of property, plant & equipment
-- 30,000
Changes in assets and liabilities -
Accounts receivable 188,647 202,936
Amounts due from affiliates 37,518 920,473
Inventories 96,489 (51,617)
Prepaid expenses and other current assets 105,202 236,618
Accounts payable (518,203) (394,141)
Accrued expenses (3,217,103) (1,623,067)
Unearned income (121,683) 494,471
----------- ----------
Net cash used in operating activities (3,545,847) (2,752,995)
----------- ----------
Cash flows from investing activities:
Decrease in marketable securities 176,349 85,551
Purchases of property, plant and equipment, net (49,731) (118,027)
(Increase) decrease in restricted cash (229,056) 276
----------- ----------
Net cash used in investing activities (102,438) (32,200)
----------- ----------
Cash flows from financing activities:
Proceeds from sales of common stock -- 382,773
Proceeds from note receivable due from affiliate -- 4,620,000
Payment of term loan to bank -- (4,620,000)
----------- ----------
Net cash provided by financing activities -- 382,773
----------- ----------
Net decrease in cash and cash equivalents (3,648,285) (2,402,422)
Cash and cash equivalents, beginning of period 6,944,140 13,821,387
----------- ----------
Cash and cash equivalents, end of period $ 3,295,855 $11,418,965
=========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest $ -- $ 276,680
=========== ==========
Supplemental disclosure of non-cash financing activities:
Restricted cash released to lessor of certain equipment
$ -- $ 1,000,000
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
5
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REPLIGEN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The condensed consolidated financial statements included herein have
been prepared by Repligen Corporation (the "Company" or "Repligen"),
pursuant to the rules and regulations of the Securities and Exchange
Commission for quarterly reports on Form 10Q and do not include all of
the information and footnote disclosures required by generally accepted
accounting principles. These financial statements should be read in
conjunction with the audited financial statements and notes thereto
included in the Company's Form 10-K.
In the opinion of management, the accompanying unaudited financial
statements include all adjustments consisting of only normal, recurring
adjustments necessary to present fairly, the consolidated financial
position, results of operations and cash flows. The results of operations
for the interim periods presented are not necessarily indicative of
results to be expected for the entire year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period.
Actual results could differ from those estimates.
2. Net Income(Loss) Per Common Share
Net income(loss) per common share has been computed by dividing net
income(loss) by the weighted average number of shares outstanding during
the period. Common stock equivalents have not been included for any loss
period as the effect would be antidilutive and as the company anticipates
a loss for fiscal 1997 no common stock equivalents are used for the net
income per share calculation. Fully diluted net income(loss) per common
share calculated for the quarter ending September 30, 1996 has not been
presented as it is not significantly different.
3. Cash Equivalents and Marketable Securities
The Company considers all highly liquid investments with an original
maturity of three months or less at the time of acquisition to be cash
equivalents. Included in cash equivalents at September 30, 1996 are
$666,000 of money market funds and $2,139,000 of commercial paper.
Investments with a maturity period of greater than three months are
classified as marketable securities and consist of $35,000 of marketable
securities and approximately $67,000 of collateralized mortgage
obligations at September 30, 1996. These collarateralized mortgage
obligations are reported at amortized cost, which approximates fair
market value at September 30, 1996.
4. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following:
September 30, March 31,
1996 1996
----------------- ---------------------
Raw materials and work-in-process $129,372 $ 1,955
Finished goods 475,363 699,269
-------- --------
Total $604,735 $701,224
======== ========
6
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Work in process and finished goods inventories consist of material,
labor and manufacturing overhead.
5. Restructuring of Operations
During the fiscal year ended March 31, 1996, the Company completed a
major downsizing and consolidation of its operations in an effort to
stabilize its financial condition and preserve its cash resources. The
restructuring included a substantial reduction in the Company's work
force, the termination of several research programs and the closing of
its Cambridge research and manufacturing facility. During the fourth
quarter of fiscal 1996, the Company recorded a charge of $3,567,000 to
cover severance costs and related benefits, the settlement of operating
equipment lease and facility lease obligations, the write-off of certain
leasehold improvements and equipment no longer being utilized, reduced in
part by cash received from the sale of assets and the reversal of certain
accruals no longer required.
During the first quarter of fiscal 1997, ended June 30, 1996, the
Company paid approximately $300,000 and $3,033,000 in settlement fees to
the facility landlord and equipment lessors, respectively. The settlement
fees with respect to the operating equipment lease agreements represent
discounted remaining lease obligations and the purchase price of certain
leased equipment from the equipment lessors. In May 1996, a substantial
amount of this equipment originally on lease as well as certain surplus
Company owned equipment was sold at public auction for approximately
$1,314,000, net of selling expenses.
In addition to the settlement payment of $300,000 made to the
facility landlord, the Company was also required to set aside $250,000 of
restricted cash in an escrow account. These funds are to be invested by
the Company, with the landlord's prior approval, in leasehold
improvements, primarily refurbishment of laboratory spaces at its
Needham, Massachusetts headquarters. As of September 30, 1996, the
balance in this escrow account was $229,056.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement Regarding Forward-Looking Statements
Statements in this Quarterly Report on Form 10-Q under this caption,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as oral statements that may be made by the Company or by
officers, directors or employees of the Company acting on the Company's behalf,
that are not historical facts constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that could cause the actual results of the Company to be
materially different from the historical results or from any results expressed
or implied by such forward-looking statements.
Fiscal 1996 Restructuring
During the 1996 fiscal year ended March 31,1996, the Company completed a
major downsizing and consolidation of its operations in an effort to stabilize
its financial condition and preserve its cash resources. The restructuring
included a substantial reduction in the Company's work force, the termination of
several research programs and the closing of its Cambridge research and
manufacturing facility. The Company's research and development programs are now
primarily focused on the development of new therapies for chronic and acute
inflammation and immunosuppression and the development of enabling technologies
for discovery of new drugs by rapid screening of combinatorial chemical
libraries. The Company's strategy is to use internal resources for research and
preclinical studies and to use pharmaceutical companies or third party
contractors to provide manufacturing and clinical development support and for
certain administrative functions. Significant expansion of the Company's
research or product development efforts is dependent on increased product sales,
future financing or new partnerships with pharmaceutical companies.
Certain Factors That May Affect Future Results
The Company's future operating results are subject to risks and
uncertainties and are dependent upon many factors, including, without
limitation, the Company's ability to (i) meet its working capital and future
liquidity needs, (ii) successfully implement its restructuring and strategic
growth strategies, (iii) understand, anticipate and respond to rapidly changing
technologies and market trends, (iv)develop, manufacture and deliver high
quality, technologically advanced products on a timely basis to withstand
competition from competitors which may have greater financial, information
gathering and marketing resources than the Company, (v) obtain and protect
licensing and intellectual property rights necessary for the Company's
technology and product development on terms favorable to the Company, and (vi)
recruit and retain highly talented professionals in a competitive job market.
Each of these factors, and others, are discussed from time to time in the
filings made by the Company with the Securities and Exchange Commission.
Results of Operations
Revenues
Total revenues for the three month periods ended September 30, 1996
and 1995 were $981,000 and $5,019,000, respectively, a decrease of
approximately 80%. Year to date total revenues decreased approximately
77% to $1,822,000 at September 30, 1996 from $7,855,000 at September 30,
1995.
8
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Research and development revenues for the three month period ended
September 30, 1996 were $193,000 compared to $3,776,000 in the comparable
fiscal 1996 period. The decrease in the second quarter of fiscal 1997
from the comparable fiscal 1996 period is due primarily to the loss of
significant revenues from Eli Lilly and Company ("Lilly") and from
Repligen Clinical Partners, L.P. (the "Partnership"). In the first six
months of fiscal 1997, the Company recorded research and development
revenues totaling $450,000 consisting primarily of $360,000 from
contracted research and development programs and $90,000 from licensing
revenues. In the first six months of fiscal 1996, research and
development revenues were $5,860,000.
Product revenues for the three months ended September 30, 1996 and
1995 were $395,000 and $982,000, respectively, and were $621,000 and
$1,374,000 for the six months ended September 30, 1996 and 1995,
respectively. The decrease in product sales is attributable to the
discontinuance by Repligen of contract manufacturing that took place
during fiscal 1996, partially offset by an increase in sales of the
Protein A product line.
Investment income decreased in fiscal 1997 over the comparable three
and six month periods in fiscal 1996 primarily due to lower average funds
available for investment.
Other revenues for the three and six month periods ended September
30, 1996 increased from the comparable fiscal 1996 periods primarily due
to the one-time sale of equipment and furnishings by the Company for
$205,000 and the one-time sale of non-investment securities held by the
Company for approximately $300,000.
Expenses
During fiscal 1996, the Company substantially restructured its
operations, resulting in a significant reduction in its current rate of
expenditures. In May 1996, the Company relocated its headquarters
operations from Cambridge, Massachusetts to approximately 13,000 square
feet of subleased office and laboratory space in Needham, Massachusetts.
This move has resulted in a substantial savings in rent and related
facility costs. If the move had been effective as of April 1, 1996,
facility related expenses during the six months ended September 30, 1996
would have been lower by approximately $436,000.
Total expenses for the three month periods ended September 30, 1996
and 1995 decreased 88% to $723,000 from $5,953,000 and decreased 82% to
$2,032,000 from $11,428,000 for the six months ended September 30, 1996
and 1995, respectively. The decrease in expenses reflects lower operating
costs as a result of the fiscal 1996 restructuring efforts, including
significantly lower headcount.
Research and development expenses for the three months ended
September 30, 1996 and 1995 were $371,000 and $3,553,000 and for the six
months ended September 30, 1996 and 1995 were $694,000 and $7,331,000.
The decrease in expenses in fiscal 1997 from the comparable period in
fiscal 1996 reflect the discontinuation of activities pursuant to the
contract with Lilly and the Partnership and the Company's efforts to
reduce costs.
Selling, general and administrative expenses for the three month and
six month periods ended September 30, 1996 were $353,000 and $1,186,000,
respectively, which reflects a decrease of $1,343,000 and $1,857,000 from
the comparable 1996 periods. These decreases resulted from the reduction
of administrative personnel and related expenses as part of the Company's
cost reduction efforts.
Cost of goods sold for the three month and six month periods ended
September 30, 1996 were $0 and $152,000 respectively, as compared to
$700,000 and $990,000 for the three and six months ended September 30,
1995. Cost of goods sold in the three month and six month periods ended
September 30, 1996 and 1995 were 0% and 24% of product revenues and were
71% and 72% in the comparable 1996 periods. The decreases in cost of
sales as a percentage of revenue are primarily
9
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a result of the realization of inventory that had previously been
reserved for and the discontinuation of contract manufacturing activity
in fiscal 1996.
Capital Resources and Liquidity
The Company's total cash, cash equivalents and marketable securities
decreased to $3,398,000 at September 30, 1996 from $7,222,000 at March
31, 1996, a decrease of $3,824,000 or 53%. The decrease reflects net
losses during the six month period ended September 30, 1996 of
approximately $211,000, the reduction of accounts payable and accrued
expenses of $3,735,000 including the net payment of accrued restructuring
expenses of $2,469,000, offset in part by the reduction in receivables,
inventories, and prepaid expenses of $428,000. Working capital decreased
to $3,758,000 at September 30, 1996 from $4,154,000 at March 31, 1996.
The Company has funded operations primarily with cash derived from
the sales of its equity securities, research and development contracts,
product sales, investment income and the sale of the Company's share of a
joint venture. The Company believes it has sufficient cash equivalents
and marketable securities to satisfy working capital and capital
expenditure requirements for the next twelve months. Should the Company
need to secure additional financing to meet its future liquidity
requirements, there can be no assurances that the Company will be able to
secure such financing, or that such financing, if available, will be on
terms favorable to the Company. Management believes that the Company's
current operations are not materially impacted by the effects of
inflation.
10
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PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's Annual Meeting of Stockholders (the "Annual Meeting") was
held on September 10, 1996. At the Annual Meeting, the stockholders of the
Company (i) elected Alexander Rich, M.D., Paul Schimmel, Ph.D., Walter C.
Herlihy, Ph. D., and G. William Miller to serve as Directors of the Company
until the 1997 Annual Meeting of Stockholders, (ii) ratified the selection of
Arthur Andersen LLP as auditors for the fiscal year ending March 31, 1997 and
(iii) approved an amendment to the Company's 1992 Stock Option Plan to increase
the number of options the Company may grant its newly appointed non-employee
directors to 24,000 shares vesting equally over a three-year period. Existing
directors will receive 5,000 options annually with the overall limitation of
Board Options permissible for grant to an individual be 50,000.
The Company had 15,602,542 shares of Common Stock of the Company issued and
outstanding and entitled to vote as of July 18, 1996, the record date for the
Annual Meeting. At the Annual Meeting, holders of a total of 13,910,871 shares
of Common Stock or approximately 89.2% were present in person or represented by
proxy. The following sets forth the information regarding the results of the
voting of the Annual Meeting:
Proposal 1. Election of Directors:
Directors Shares Voting Shares Voting
In Favor Against
------------- -------------
Alexander Rich, M.D. 13,660,753 250,118
Paul Schimmel, Ph. D. 13,682,103 228,768
Walter C. Herlihy, Ph. D. 13,688,562 222,309
G. William Miller 13,605,917 304,954
Proposal 2. Ratification of Selection of Arthur Andersen LLP as independent
auditors:
Votes in favor: 13,750,168
Votes against: 56,607
Abstention: 77,096
No Votes 27,000
Proposal 3. Approval of an Amendment to the Company's 1992 Stock Option Plan:
Votes in favor: 12,321,473
Votes against: 915,129
Abstention: 113,451
No Votes: 560,818
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT DESCRIPTION
------- -----------
4.1 The Amended 1992 Repligen Corporation Stock Option Plan,
adopted by the stockholders on September 10, 1996.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No current reports on Form 8-K were filed by the Company during the
quarter covered by this report.
11
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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.
REPLIGEN CORPORATION
(Registrant)
Date: November 5, 1996 By: /S/ Walter C. Herlihy
-----------------------------------
Chief Executive Officer
Signing on behalf of the Registrant
and as Principal Financial and
Accounting Officer
12
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REPLIGEN CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
4.1 The Amended 1992 Repligen Corporation Stock Option Plan,
adopted by the stockholders on September 10, 1996 14
27.1 Financial Data Schedule 21
13
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Exhibit 4.1
1992 REPLIGEN CORPORATION STOCK OPTION PLAN
1. Purpose of the Plan; Compliance with Rule 16b-3.
(a) The 1992 Repligen Corporation Stock Option Plan (the "Plan") is
intended as an incentive to, and to encourage ownership of the stock of Repligen
Corporation, a Delaware corporation (the "Company") by, qualified employees,
outside directors and consultants of the Company and its subsidiaries. It is
intended that certain options granted thereunder will qualify as incentive stock
options (the "Incentive Stock Options") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code") and that other options
granted thereunder will not qualify as Incentive Stock Options. Of such latter
options, certain options (the "Non-Qualified Options") will be granted in the
sole discretion of the Committee referred to in Section 4 hereof (the
"Committee") and certain other options (the "Board Options") will be granted to
non-employee members of the Board of Directors of the Company (the "Board of
Directors") in accordance with the provisions of Section 5 hereof.
(b) With respect to persons subject to Section 16 of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), transactions thereunder are
intended to comply with all applicable conditions of Rule 16b-3 or its
successors under the 1934 Act. To the extent that any provision of the Plan or
action of the Committee fails to so comply, it shall be deemed null and void, to
the extent permitted by law and (in the case of Incentive Stock Options and
Non-Qualified Options) deemed advisable by the Committee.
2. Common Stock Subject to the Plan.
(a) Two million (2,000,000) shares of the authorized but unissued
Common Stock, $0.01 par value per share, of the Company have been allocated to
the Plan and will be reserved for issuance upon the exercise of options granted
under the Plan.
(b) In addition, shares authorized and reserved for issuance under
the Company's 1982 Incentive Stock Option Plan, as amended, and 1987
Non-Statutory Stock Option Plan (collectively, the "Prior Plans") which are not
used thereunder will also be reserved for issuance upon the exercise of options
granted under this Plan. If any option granted under either of the Prior Plans
shall expire or terminate for any reason without having been exercised in full,
the unpurchased shares subject thereto shall again be available for issuance
pursuant to the provisions of the Plan. The maximum number of shares of Common
Stock which may be issued in accordance with the provisions of this Section 2(b)
shall be 1,382,125.
(c) The Company may, in its discretion, use shares held in the
treasury in lieu of authorized but unissued shares.
3. Administration.
The Plan shall be administered by the Committee; provided, that with
respect to the Board Options, the price, amount and timing of such options shall
be solely as set forth below:
4. The Committee; Issuance of Incentive Stock Options and
Non-Qualified Options.
(a) The Committee shall at all times be constituted to permit
transactions thereunder to comply with Rule 16b-3 under the 1934 Act, or any
successor to such Rule, which, as of the date hereof requires that it consist of
two or more members of the Board of Directors who do not receive Incentive Stock
Options or Non-Qualified Options and who do not receive, and have not at any
time within one year prior to their appointment as Committee members received,
discretionary grants or awards under any other stock plan of the Company or its
subsidiaries. The Committee shall be appointed by the Board of Directors, which
may from time to time appoint members of the Committee in substitution for
14
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members previously appointed and may fill vacancies, however caused, in the
Committee. The Committee may select one of its members as its Chairman, and
shall hold its meetings at such times and places as it may determine. A majority
of its members (or both of its members, if there are only two) shall constitute
a quorum. All determinations of the Committee shall be made by a majority of its
members, or, if there are only two members, by unanimous vote. Any decision or
determination reduced to writing and signed by a majority (or if there are only
two, both) of the members shall be fully as effective as if it had been made by
a majority (or unanimous, as the case may be) vote at a meeting duly called and
held. The Committee may appoint a secretary, shall keep minutes of its meetings
and shall make such rules and regulations for the conduct of its business as it
shall deem advisable.
(b) Subject to the express provisions of the Plan, the Committee
shall have plenary authority, in its discretion, to determine the individuals to
whom, and the time or times at which, Incentive Stock Options and Non-Qualified
Options shall be granted, the number of shares to be subject to each such
option, the duration of each such option, the option price and method of payment
and the times or time within which (during the term of the option) all or
portions of each such option may be exercised. In making such determinations the
Committee may take into account the nature of the services rendered by the
respective individuals, their present and potential contributions to the
Company's success and such other factors as the Committee, in its discretion,
shall deem relevant. Subject to the express provisions of the Plan, the
Committee shall also have plenary authority to interpret the Plan to prescribe,
amend and rescind rules and regulations relating thereto, to determine the terms
and provisions of the respective stock option agreements in accordance with
Section 9 hereof and to make all other determinations necessary or advisable for
the administration of the Plan. The Committee's determinations on the matters
referred to in this Section 4(b) shall be conclusive. The Committee shall not
have any discretionary authority with respect to the award or terms and
conditions of the Board Options.
5. Issuance of Board Options
Subject to the limitations set forth in this Section 5(a), (i) each
non-employee director of the Company, for so long as such person remains a
non-employee director of the Company, shall be entitled to receive an annual
option to purchase 5,000 shares of Common Stock to vest in full on the first
anniversary of the date of the grant, provided such person is still a director
on such anniversary, and (ii) each person who becomes a member of the Board of
Directors who is not employed by the Company after the effective date of the
Plan shall receive at the time such person first becomes a member of the Board
of Directors an option to purchase 24,000 shares of Common Stock, vesting
equally over a three-year period from the date of grant. Notwithstanding
anything to the contrary contained herein, no person shall be entitled to
receive Board Options pursuant to the Plan covering more than an aggregate
50,000 shares.
6. Eligibility.
(a) Incentive Stock Options may be granted only to employees of the
Company or a subsidiary.
(b) Non-Qualified Options may be granted only to (i) officers (who
may also be directors) and full or part-time employees employed on a salaried or
commission basis by the Company or its subsidiaries, (ii) members of the Board
of Directors of the Company who are not included within the group of individuals
referenced in the foregoing clause, and (iii) any individual performing services
for the Company or any subsidiary as an independent contractor pursuant to a
written or oral agreement with the Company or a subsidiary.
(c) Board Options may be granted only to members of the Board of
Directors of the Company who are not employees of either the Company or its
subsidiaries.
(d) For purposes of the Plan, the term "subsidiary "shall mean any
corporation (other than the Company) in an unbroken chain of corporations
beginning with the Company if, at the time of the granting of the option, each
of the corporations other than the last corporation in the unbroken chain owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of
15
<PAGE>
the other corporations in such chain, or such other meaning as may be hereafter
ascribed to it in Section 424 of the Code.
7. Option Prices.
(a) The purchase price of the Common Stock under each Incentive Stock
Option shall not be less than 100% of the fair market value of the stock at the
time of the granting of the option. For purposes hereof, fair market value shall
be equal to the NASDAQ National Market closing price (or the closing price on an
exchange if the Common Stock is then traded on an exchange) per share of Common
Stock for the day as of which an Incentive Stock Option is granted, or such
other amounts (which may be different amounts as between the various types of
options) as shall be determined from time to time in good faith by the Committee
pursuant to such criteria as it may determine to be appropriate.
(b) The purchase price of the Common Stock under each Non-Qualified
Option shall not be less than the par value of the Common Stock.
(c) The purchase price of the Common Stock under each Board Option
shall be equal to the average NASDAQ National Market System closing price (or
the average closing price on an exchange if the Common Stock is then traded on
an exchange) per share of Common Stock for the thirty (30) trading days
immediately preceding the date of the grant of such Board Option.
(d) Incentive Stock Options and Non-Qualified Options may be
exercised, in the discretion of the Committee, by payment of the option price in
full (i) in cash, (ii) by surrender of shares of the capital stock of the
Company having a fair market value equal to the option price on the date of
exercise, or (iii) any combination of the foregoing. Board Options may be
exercised by payment of the option price in full by means of any of the three
methods of payment specified in the preceding sentence.
(e) The proceeds of sale of stock subject to option are to be added
to the general funds of the Company or to the shares of the Common Stock of the
Company held in its treasury, and used for its corporate purposes as the Board
of Directors shall determine.
(f) Notwithstanding any provision herein to the contrary, no
Incentive Stock Option shall be granted to any individual whose ownership of
Common Stock of the Company or one of its subsidiaries exceeds the limitations
set forth in Section 422(b)(6) of the Code unless such option price is at least
110% of the fair market value of the stock at the time of the granting of the
option.
8. Option Amounts.
The maximum aggregate fair market value (determined at the time an
option is granted in the same manner as provided for in Section 7(a) hereof) of
the Common Stock of the Company with respect to which Incentive Stock Options
are exercisable for the first time by any optionee during any calendar year
(under all plans of the Company and its subsidiaries) shall not exceed $100,000.
9. Form of Options.
(a) Incentive Stock Options, Non-Qualified Options and Board Options
shall be in such form conforming to applicable legal requirements as shall be
approved from time to time by the Committee. The form of any such options may
vary among optionees.
10. Term of Options; Exercise of Options.
(a) The term of each option shall be not more than ten (10) years
from the date of granting thereof, provided that no Incentive Stock Option shall
be granted to any individual whose ownership of Common Stock of the Company or
its subsidiaries exceeds the limitations set forth in Section 422(b)(6) of the
Code unless the term of his or her option does not exceed a period of five (5)
years from the date of the grant, or such shorter period as is prescribed in
Section 10 hereof.
16
<PAGE>
(b) Within the limits specified in Section 10(a) hereof, Incentive
Stock Options and Non-Qualified Options will be exercisable at such time or
times, and subject to such restrictions and conditions, as the Committee shall,
in each instance, approve, which need not be uniform for all optionees;
provided, however, that except as provided in Sections 11 and 12 hereof, no such
option granted to an employee of the Company or a subsidiary may be exercised at
any time unless the optionee is then an employee of the Company or a subsidiary
and has been so employed continuously since the granting of the option.
(c) The Board Options shall be exercisable upon the grant thereof
with respect to twenty percent (20%) of the shares subject thereto; at any time
after the first anniversary of the grant thereof with respect to an aggregate
forty percent (40%) of the shares subject thereto; at any time after the second
anniversary of the grant thereof, with respect to an aggregate sixty percent
(60%) of the shares subject thereto; at any time after the third anniversary of
the date of the grant thereof, with respect to an aggregate eighty percent (80%)
of the shares subject thereto; and at any time after the fourth anniversary of
the date of the grant thereof, with respect to one hundred percent (100%) of the
shares subject thereto; provided, however, that notwithstanding any provision to
the contrary contained herein, upon the removal or resignation from the Board of
Directors of a holder of a Board Option, such holder may exercise such Board
Option within three (3) months of his resignation or removal (but in any case
not after ten (10) years from the date of the granting of the option) to the
same extent that he was entitled to exercise it as of the date of such
resignation or removal.
(d) The holder of an option shall have none of the rights of a
stockholder with respect to the shares subject to option until such shares shall
be issued to him upon the exercise of his option.
(e) With respect to persons subject to Section 16 under the 1934 Act,
options granted thereunder must be held by the optionee for at least six (6)
months from the date of grant to the date of disposition of the option (other
than by exercise) or the Common stock underlying such option.
11. Termination of Employment.
(a) Any employee of the Company or a subsidiary who has been issued
an option thereunder must exercise the option prior to his termination of
employment, except that if an employee terminates his employment voluntarily,
such employee shall be permitted to exercise any such option then held by him at
any time within three (3) months after such termination (but in any case not
after ten (10) years from the date of the granting thereof) to the same extent
that he was entitled to exercise it at the date of such termination of
employment.
(b) If the holder of an Incentive Stock Option or a Non-Qualified
Option terminates employment on account of disability he may exercise such
option to the extent he was entitled to exercise it at the date of such
termination at any time within one (1) year of the termination of his employment
(but in any case not after ten (10) years from the date of the granting
thereof). For this purpose a person shall be deemed to be disabled if he is
permanently and totally disabled within the meaning of Section 422(c)(6) of the
Code, which, as of the date hereof, shall mean that he is unable to engage in
any substantial gainful activity by reason of any medically determined physical
or mental impairment which can be expected to result in death or which has
lasted or can be expected to last for a period of not less than 12 months. A
person shall be considered disabled only if he furnishes such proof of
disability as the Committee may require.
(c) If the holder of an Incentive Stock Option or Non-Qualified
Option issued thereunder retires on or after the attainment of age sixty-five
(65), such options may be exercised as determined by the Committee but in no
event more than ten (10) years after the date of granting thereof.
(d) If the employment of the holder of an Incentive Stock Option or
Non-Qualified Option is terminated for "cause," all such options not yet
exercised shall be exercisable within seven (7) days of such termination, and
shall thereafter cease to be of any further force or effect. For purposes of the
17
<PAGE>
foregoing, "cause" shall have the meaning set forth from time to time in the
employee handbook generally distributed by the Company to its employees.
(e) Incentive Stock Option and Non-Qualified Options granted under
the Plan shall not be affected by any change of employment so long as the holder
thereof continues to be an employee of the Company or a subsidiary of the
Company. The option agreements relating to Incentive Stock Options and
Non-Qualified Options may contain such provisions as the Committee shall approve
with reference to the effect of approved leaves of absence. Nothing in the Plan
or in any Incentive Stock Option or Non-Qualified Option granted pursuant to the
Plan shall confer on any individual any right to continue in the employ of the
Company or a subsidiary of the Company or interfere in any way with the right of
the Company or a subsidiary of the Company to terminate such individual's
employment at any time.
12. Death of Holder of Option.
In the event of the death of an individual to whom an Incentive Stock
Option or Non-Qualified Option has been granted under the Plan, while he is
employed by the Company (or a subsidiary of the Company) or within three (3)
months after the termination of his employment (or one (1) year in the case of
the termination of employment of an option holder who is disabled as above
provided), the Incentive Stock Option or Non-Qualified Option heretofore granted
to him may be exercised, to the extent that he was entitled to exercise it at
the date of such death, by a legatee or legatees of the option holder under his
last will, or by his personal representatives or distributees, at any time
within a period of two (2) years after his death (but in any case not after ten
(10) years from the date of granting thereof), and only if and to the extent
that he was entitled to exercise the option at the date of his death.
13. Non-Transferability of Options.
Each option granted under the Plan shall, by its terms, be
non-transferable otherwise than by will or the laws of descentand distribution
and an option may be exercised, during the lifetime of the holder thereof, only
by him.
14. Successive Option Grants.
Successive option grants may be made to any holder of options under
the Plan.
15. Adjustments Upon Changes in Capitalization or Corporate
Acquisitions.
(a) In the event of a consolidation or merger of the Company with
another corporation, or the sale or exchange of all or substantially all of the
assets of the Company, or a separation, reorganization or liquidation of the
Company, each holder of an outstanding option issued in accordance herewith
shall be entitled to receive upon exercise and payment in accordance with the
option's terms the same shares, securities or property as he would have been
entitled to receive upon the occurrence of such event if he had been,
immediately prior to such event, the holder of the number of shares of Common
Stock purchasable under his option, or, if another corporation shall be the
survivor, such corporation shall substitute therefor substantially equivalent
shares, securities or property of such other corporation; provided, however, in
lieu of the foregoing the Committee may upon written notice to each holder of an
outstanding Incentive Stock Option or Non-Qualified Option provide that such
option (but not a Board Option) shall terminate on a date not less than 20 days
after the date of such notice unless theretofore exercised. In connection with
such notice, the Committee may in its discretion accelerate or waive any
deferred exercise period.
(b) In the event the Company or a subsidiary of the Company enters
into a transaction described in Section 424(a) of the Code with any other
corporation, the Committee may grant options to employees or former employees of
such corporation in substitution of options previously granted to them upon such
terms and conditions as shall be necessary to qualify such grant as a
substitution described in Section 424(a) of the Code.
18
<PAGE>
(c) The number of shares of Common Stock for which options may be
granted thereunder and any references to specific amounts of shares (including
but not limited to those references set forth in Section 5 hereof) shall be
appropriately adjusted if the number of outstanding shares of Common Stock of
the Company is increased or reduced by split-up, reclassification, stock
dividend or the like. The number of shares previously optioned thereunder and
not theretofore delivered and the option price per share shall likewise be
adjusted whenever the number of outstanding shares of Common Stock is increased
or reduced by any such procedure.
16. Amendment and Termination.
(a) The Board of Directors may at any time terminate the Plan, or
make such modifications of the Plan as it shall deem advisable; provided,
however, that the Board of Directors may not, without further approval by the
holders of Common Stock: increase the maximum number of shares as to which
options may be granted under the Plan (except under the anti-dilution provisions
contained in Section 15 hereof); change the class of persons to whom options may
be granted; withdraw the authority to administer the Plan(insofar as it relates
to Incentive Stock Options and Non-Qualified Options) from the Committee; extend
the duration of the Plan; provide for any discretion to be vested in the
Committee or any other entity with respect to the award of the Board Options; or
materially increase the benefits accruing to persons subject to Section 16 of
the 1934 Act. No termination or amendment of the Plan may, without the consent
of the optionee to whom any option shall theretofore have been granted,
adversely affect the rights of such optionee under such option.
(b) The provisions of this Plan relating to the Board Options shall
not be amended 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 the respective rules thereunder.
17. Effectiveness of the Plan.
The Plan shall become effective upon adoption by the Board of
Directors subject, however, to its further approval by the stockholders of the
Company given within twelve months of the date the Plan is adopted by the Board
of Directors at a regular meeting of the stockholders or at a special meeting
duly called and held for such purpose. Grants of options may be made prior to
such stockholder approval but all option grants made prior to stockholder
approval shall be subject to the obtaining of such approval and if such approval
is not obtained, such options shall not be effective for any purpose.
18. Withholding of Applicable Taxes.
The Company shall be entitled to withhold the amount of any tax
attributable to any shares deliverable under this Plan after giving the person
entitled to receive such shares notice as far in advance as practicable, and the
Company may defer making delivery if any such tax may be pending unless and
until indemnified to its satisfaction. Alternatively, the Company shall have the
right to reduce the number of shares otherwise required to be delivered upon
exercise of an option granted thereunder by an amount which would have a fair
value on the date of such exercise equal to all taxes required to be withheld by
the Company with respect to such exercise. In connection with such withholding,
the Company may make any such arrangements as are consistent with this Plan as
it may deem appropriate.
19. Time of Granting of Options.
(a) A grant of an Incentive Stock Option or Non-Qualified Option
under the Plan shall be deemed to be made on the date on which the Committee, by
formal action of its members duly recorded in the records thereof, makes an
award of an option (but in no event prior to the adoption of the Plan by the
Board of Directors); provided, that such option is evidenced by a written option
agreement duly executed on behalf of the Company and on behalf of the optionee
within a reasonable time after the date of the Committee action.
19
<PAGE>
(b) A grant of a Board Option shall be deemed to be made on the
applicable dates provided in Section 5 hereof.
20. Term of Plan.
This Plan shall terminate ten (10) years after the date on which it
is approved and adopted by the Board of Directors and no option shall be granted
thereunder after the expiration of such ten-year period. Options outstanding at
the termination of the Plan shall continue in full force and effect and shall
not be affected thereby.
* * *
The foregoing Plan was approved and adopted by the Board of Directors
of the Company on April 17, 1992. Amendments were approved on April 14, 1994 and
on September 10, 1996.
20
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