SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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 0-13634
MACROCHEM CORPORATION
(Exact name of registrant as
specified in its charter)
DELAWARE 04-2744744
-------- ----------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
110 HARTWELL AVENUE, LEXINGTON, MASSACHUSETTS 02173
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(Address of principal executive offices, Zip Code)
(617) 862-4003
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
As of June 30, 1997, there were 16,150,375 shares of Common Stock, $.01 par
value per share, of the Registrant outstanding.
<PAGE>
MACROCHEM CORPORATION
INDEX
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PAGE NUMBER
-----------
PART I Financial Information
Item 1 Financial Statements (Unaudited)
Balance Sheets
June 30, 1997 and December 31, 1996 3-4
Statements of Operations
Three Months and Six Months Ended
June 30, 1997 and 1996 5
Statements of Cash Flows
Six Months Ended June 30, 1997 and 1996 6-7
Notes to Financial Statements 8-9
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-12
PART II Other Information
Item 4 Submission of Matters to a Vote of Security Holders 13
Item 6 Exhibits and Reports on Form 8-K 14
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. UNAUDITED FINANCIAL STATEMENTS
------------------------------
MACROCHEM CORPORATION
BALANCE SHEETS
(UNAUDITED)
ASSETS
June 30, December 31,
1997 1996
---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 6,772,064 $ 7,329,881
Marketable securities - 21,824
Accounts receivable 34,850 43,977
Prepaid expenses and other
current assets 125,886 100,033
------------ ------------
TOTAL CURRENT ASSETS 6,932,800 7,495,715
------------ ------------
PROPERTY AND EQUIPMENT,
net of accumulated depreciation:
1997-$527,303; 1996-$472,651 306,027 345,343
------------ ------------
OTHER ASSETS:
Patents, net of accumulated
amortization: 1997-$52,457;
1996-$46,933 245,751 218,232
Deposits 4,460 4,460
------------ ------------
TOTAL ASSETS $ 7,489,038 $ 8,063,750
============ ============
(CONTINUED)
<PAGE>
MACROCHEM CORPORATION
BALANCE SHEETS
UNAUDITED
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
June 30, December 31,
1997 1996
---- ----
CURRENT LIABILITIES:
Current portion of capitalized
lease obligations $ 28,669 $ 38,630
Accounts payable and accrued
expenses 276,219 281,769
Accrued compensation 47,050 47,050
Deferred rent --- 1,014
Deferred income 34,850 ---
------------ ------------
TOTAL CURRENT LIABILITIES 386,788 368,463
CAPITALIZED LEASE OBLIGATIONS,
net of current portion 9,483 18,408
------------ ------------
TOTAL LIABILITIES 396,271 386,871
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock --- ---
Common stock, $.01 par value;
authorized 60,000,000 shares;
issued and outstanding,
16,150,375 shares and 15,601,274
shares at June 30, 1997 and
December 31, 1996,
respectively. 161,504 156,013
Additional paid-in capital 27,246,300 25,839,675
Unearned compensation (402,396) (222,674)
Accumulated deficit (19,912,641) (18,096,135)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 7,092,767 7,676,879
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 7,489,038 $ 8,063,750
------------ ------------
The accompanying notes are an integral part of these unaudited financial
statements.
(Concluded)
<PAGE>
MACROCHEM CORPORATION
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Research contracts $ --- $ 82,905 $ 50,000 $ 82,905
Product sales --- --- 650 ---
----------- ----------- ----------- -----------
TOTAL REVENUES --- 82,905 50,650 82,905
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Marketing, general and
administrative 478,101 846,409 879,908 1,244,678
Research and development 723,703 505,820 1,168,521 909,709
Consulting fees with related
parties 3,000 2,000 6,000 12,000
----------- ----------- ----------- -----------
TOTAL OPERATING
EXPENSES 1,204,804 1,354,229 2,054,429 2,166,387
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (1,204,804) (1,271,324) (2,003,779) (2,083,482)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income 102,558 129,184 191,419 196,508
Interest expense (1,943) (4,811) (4,145) (8,372)
Other --- 198 --- (3)
----------- ----------- ----------- ----------- --------------------
TOTAL OTHER INCOME 100,615 124,571 187,274 188,133
----------- ----------- ----------- -----------
NET LOSS $(1,104,189) $(1,146,753) $(1,816,505) $(1,895,349)
=========== =========== =========== ===========
NET LOSS PER SHARE $ (0.07) $ (0.07) $ (0.11) $ (0.13)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 16,049,370 15,476,934 15,892,009 14,939,219
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these unaudited financial
statements.
<PAGE>
MACROCHEM CORPORATION
STATEMENTS OF CASH FLOWS (UNAUDITED)
For the six months ended June 30,
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(1,816,505) $(1,895,349)
----------- -----------
Adjustments to reconcile net loss
to net cash used by operating
activities:
Depreciation and amortization 61,274 50,897
Stock-based compensation 113,404 453,884
Loss on disposal of equipment 1,900 ---
Amortization of discounts on
marketable securities (176) (38,047)
Increase (decrease) in cash from:
Accounts receivable 9,127 (41,453)
Prepaid expenses and other current
assets (25,853) (23,790)
Accounts payable and accrued expenses (5,550) 9,190
Accrued compensation --- (50,000)
Deferred rent (1,014) (2,964)
Deferred income 34,850 ---
----------- -----------
Total adjustments 187,962 357,717
----------- -----------
Net cash used by operating activities (1,628,543) (1,537,632)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities --- (6,478,487)
Proceeds from maturities of
marketable securities 22,000 3,440,000
Expenditures for property and equipment (18,335) (81,232)
Additions to patents (33,042) ---
----------- -----------
Net cash used for investing activities (29,377) (3,119,719)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital leases (18,886) (16,938)
Proceeds from exercise of common
stock options 139,689 396,157
Proceeds from exercise of common
stock warrants 454,300 2,170,064
Proceeds from exercise of unit
purchase options 525,000 2,581,250
----------- -----------
Net cash provided by financing
activities 1,100,103 5,130,533
----------- -----------
The accompanying notes are an integral part of these unaudited financial
statements.
(Continued)
<PAGE>
MACROCHEM CORPORATION
STATEMENTS OF CASH FLOWS (UNAUDITED)
(CONTINUED)
For the six months ended June 30,
1997 1996
---- ----
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ (557,817) $ 473,182
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 7,329,881 3,591,779
----------- -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 6,772,064 $ 4,064,961
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
During the six months ended June 30, 1997 and 1996, cash paid for interest
was $2,815 and $6,892, respectively.
The Company did not pay any income taxes during those periods.
The accompanying notes are an integral part of these unaudited financial
statements.
(Concluded)
<PAGE>
MACROCHEM CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(1) As permitted by the rules of the Securities and Exchange Commission (the
"Commission") applicable to quarterly reports on Form 10-Q, these notes are
condensed and do not contain all disclosures required by generally accepted
accounting principles. Reference should be made to the financial statements
and related notes included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
In the opinion of management of the Company, the accompanying unaudited
financial statements reflect all adjustments which were of a normal
recurring nature necessary for a fair presentation of the Company's
financial position, results of operations and cash flows for the three and
six months ended June 30, 1997 and 1996.
The results disclosed in the Statements of Operations for the three and six
months ended June 30, 1997 are not necessarily indicative of the results to
be expected for the full year.
(2) Certain prior year amounts have been reclassified to conform to their
current presentation.
(3) During 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 addresses the financial accounting and
reporting standards for stock or other equity-based compensation
arrangements.
The Company has elected to continue to use the intrinsic value based method
to account for employee stock option plans and provide disclosures based on
the fair value method in the notes to the annual financial statements as
permitted by SFAS No. 123.
Stock or other equity based compensation for non-employees must be
accounted for under the fair value based method as required by SFAS No.
123. Under this method, the equity based instrument is valued at either the
fair value of the consideration received or equity instrument issued on the
date of grant. The resulting compensation cost is recognized and charged to
operations over the service period, which is usually the vesting period.
During the six months ended June 30, 1997, the Company recorded unearned
compensation of approximately $293,126 net of a forfeiture of $144,629. The
unearned compensation will be amortized over the remaining service period
of the stock-based compensation arrangements. Of the $293,126, $134,918 is
related to the issuance of 16,000 shares of common stock and $158,208 is
related to the grant of stock options to consultants.
For the six months ended June 30, 1997 and 1996, stock-based compensation
expense of $113,404 and $453,884, respectively, was amortized and charged
to operations. For the three months ended June 30, 1997 and 1996, stock
based compensation expense of $72,091 and $453,884, respectively, was
amortized and charged to operations.
(4) In March 1997, the Financial Accounting Standards Board released Statement
of Financial Accounting Standards No. 128, "Earnings Per Share", which is
effective for fiscal 1997. SFAS No. 128 will require the Company to restate
amounts previously reported as earnings per share to comply with the
requirements of SFAS No. 128. The Company has determined that the adoption
of SFAS No. 128 will have no effect on previously reported earnings per
share since the results would be anti-dilutive.
(5) In June 1997, the FASB issued FAS No. 130, "Reporting Comprehensive
Income," and FAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information", both of which will be effective for the Company in
fiscal year 1999. FAS No. 130 establishes standards for the reporting and
display of comprehensive income and its components (revenues, expenses,
gains and losses) in a full set of general purpose financial statements.
FAS No. 131 establishes standards for the way that public business
enterprises report selected information about operating segments. FAS No.
131 also establishes standards for related disclosures about products and
services, geographic areas, and major customers. The implementation of FAS
No. 130 and FAS No. 131 are not expected to have a material effect on the
Company's financial statements.
(6) The Company granted 186,000 common stock options under the 1994 Equity
Incentive Plan during the six months ended June 30, 1997. During this same
period, 15,000 options under the 1984 Non-Qualified Stock Option Plan,
12,000 options under the 1984 Incentive Stock Option Plan and 26,001
options under the 1994 Equity Incentive Plan were exercised. In addition,
during this period, 56,000 options under the 1994 Equity Incentive Plan
were forfeited. All options were granted with an exercise price at the fair
market value of the underlying common stock determined on the date of
grant.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS.
----------------------
GENERAL
MacroChem Corporation's primary business is the development and
commercialization of transdermal drug delivery compounds and systems designed to
promote the delivery of drugs from the surface of the skin into the skin tissues
and bloodstream. The Company currently derives no significant revenue from
product sales, royalties or license fees. The Company plans to develop specific
SEPA(R) (the Company's proprietary transdermal penetration enhancer)
formulations for use with proprietary and non-proprietary drugs manufactured by
pharmaceutical companies, and to commercialize these products through the
formation of partnerships, strategic alliances and license agreements with those
companies. In order to attract strategic partners, the Company is conducting
clinical testing of certain SEPA-enhanced drugs.
The Company's results of operations vary significantly from year to year
and quarter to quarter, and depend, among other factors, on the signing of new
licenses and product development agreements, the timing of revenues recognized
pursuant to license agreements, the achievement of milestones by licensees and
the progress of clinical trials conducted by the licensees and the Company. The
timing of the Company's revenues may not match the timing of the Company's
associated product development expenses. To date, research and development
expenses have generally exceeded revenue in any particular period and/or fiscal
year.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
During the three months ended June 30, 1997, the Company had no revenues as
compared to revenues of $82,905 during the same period in 1996. The 1996 revenue
was derived from research contracts.
Marketing, general and administrative expenses decreased significantly
(44%) from the comparable 1996 period, primarily as a result of a $387,000
decrease in stock-based compensation expense compared to the 1996 period.
Research and development expenses in the 1997 period increased
approximately $218,000 (43%) over the comparable 1996 period due primarily to an
increased effort in the management and execution of the ongoing clinical trials.
Other income decreased approximately $24,000, resulting primarily from
lower levels of cash and cash equivalents in the 1997 period.
<PAGE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Total revenues for the six months ended June 30, 1997 were approximately
$51,000 compared to approximately $83,000 for the same period in 1996. This
revenue is primarily due to completed research contracts.
Marketing, general and administrative expenses decreased approximately
$365,000 (29%) due primarily to a stock-based compensation expense reduction of
approximately $320,000 in 1997 from the comparable 1996 period.
Research and development costs increased approximately $259,000 (28%) for
the first six months of 1997 compared to the same period in 1996. This increase
was due primarily to an increased effort in the management and execution of the
ongoing clinical trials.
Other income remained essentially the same for the six month periods ended
June 30, 1997 and 1996. Lower interest income was mostly offset by lower
interest expense on capital leases.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the primary source of funding for the Company's operations
has been the private and public sale of its securities, and to a lesser extent,
the licensing of its proprietary technology, government grants and research
contracts.
The Company's working capital declined approximately $581,000 from December
31, 1996 to June 30, 1997. Working capital used by operations of approximately
$1.6 million was partially offset by proceeds of approximately $1.1 million
received upon the exercise of common stock options, warrants and unit purchase
options.
Until such time as the Company obtains agreements with third-party
licensees or partners to provide funding for the Company's anticipated business
activities or the Company is able to obtain funds through the private or public
sale of its securities, the Company's working capital will be utilized to fund
its activities.
Capital expenditures and additional patent development costs for the six
months ended June 30, 1997 aggregated approximately $51,000. The Company expects
additional capital expenditures and patent development costs for the remainder
of the year to aggregate approximately $160,000.
The Company's long term capital requirements will depend upon numerous
factors including the progress of the Company's research and development
programs; the resources that the Company devotes to clinical testing of SEPA
enhanced compounds, proprietary manufacturing methods and advanced technologies;
the ability of the Company to enter into additional licensing arrangements or
other strategic alliances; the ability of the Company to manufacture products
under those arrangements and the demand for its products or the products of its
licensees or strategic partners if and when approved for sale by regulatory
authorities. In any event, substantial additional funds will be required before
the Company is able to generate revenues sufficient to support its long term
operations. There is no assurance that the Company will be able to obtain such
additional funds on favorable terms, if at all. The Company's inability to raise
sufficient funds could require it to delay, scale back or eliminate certain
research and development programs.
The Company believes that its existing cash and cash equivalents will be
sufficient to meet its operating expenses and capital expenditure requirements
for at least the next twelve months. The Company's cash requirements may vary
materially from those now planned because of changes in focus and direction of
the Company's research and development programs, competitive and technical
advances, patent developments or other developments. It is not believed that
inflation will have any significant effect on the results of the Company's
operations.
<PAGE>
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS IN THIS REPORT AND IN
FORWARD-LOOKING STATEMENTS MADE FROM TIME TO TIME BY THE COMPANY ON THE BASIS OF
MANAGEMENT'S THEN-CURRENT EXPECTATIONS. FACTORS THAT MIGHT CAUSE SUCH A
DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO THE FOLLOWING: THE COMPANY'S HISTORY
OF OPERATING LOSSES AND NEED FOR CONTINUED WORKING CAPITAL; TECHNOLOGICAL
UNCERTAINTY RELATING TO TRANSDERMAL DRUG DELIVERY SYSTEMS AND THE EARLY STAGE OF
DEVELOPMENT OF THE COMPANY'S PROPOSED PRODUCTS; THE COMPANY'S NEED FOR
SIGNIFICANT ADDITIONAL PRODUCT DEVELOPMENT EFFORTS AND ADDITIONAL FINANCING;
UNCERTAINTIES RELATED TO CLINICAL TRIALS OF THE COMPANY'S PROPOSED PRODUCTS; THE
COMPANY'S DEPENDENCE ON THIRD PARTIES FOR DEVELOPMENT AND LICENSING
ARRANGEMENTS; THE LACK OF SUCCESS OF THE COMPANY'S PRIOR DEVELOPMENT EFFORTS;
THE COMPANY'S LACK OF EXPERIENCED MARKETING PERSONNEL AND DEPENDENCE ON THIRD
PARTIES FOR MARKETING AND DISTRIBUTION; THE COMPANY'S DEPENDENCE ON THIRD
PARTIES FOR MANUFACTURING; THE COMPANY'S RELIANCE ON KEY EMPLOYEES, THE LIMITED
PERSONNEL OF THE COMPANY AND ITS DEPENDENCE ON ACCESS TO SCIENTIFIC TALENT;
UNCERTAINTIES RELATING TO COMPETITION, GOVERNMENT REGULATIONS AND PATENT AND
LICENSE RIGHTS; UNCERTAINTIES RELATING TO AVAILABILITY OF ADEQUATE PRODUCT
LIABILITY AND OTHER INSURANCE; UNCERTAINTIES RELATED TO PHARMACEUTICAL PRICING
AND RELATED MATTERS; AND OTHER FACTORS. ADDITIONAL INFORMATION ON THESE AND
OTHER FACTORS WHICH COULD AFFECT THE COMPANY'S ACTUAL RESULTS AND EXPERIENCE ARE
INCLUDED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER
31, 1996 AND, IN PARTICULAR, THE SECTION ENTITLED "RISK FACTORS".
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
On May 23, 1997, the Company held its Annual Meeting of Stockholders to
vote on the following proposals:
1. To elect six members of the Board of Directors. Nominees for
Director were: a) Carlos M. Samour; b) Alvin J. Karloff;
c) Willard M. Bright; d) Peter G. Martin; e) Stephen J. Riggi;
f) Michael A. Davis ("Proposal No. 1").
2. To ratify the appointment of Deloitte & Touche LLP, as independent
auditors for the Company for the fiscal year ending December 31,
1997.
3. To approve an amendment to the Company's 1994 Equity Incentive
Plan to increase the number of shares of Common Stock that may be
delivered thereunder from 2,500,000 to 4,000,000.
Each of the proposals was adopted with a total vote as follows:
Shares
Shares Voting Against Shares Broker
Proposal Voting For Or Authority Withheld Abstaining Non-votes
No. 1
Carlos M. Samour 13,631,568 158,835
Alvin J. Karloff 13,646,818 143,585
Willard M. Bright 13,631,818 158,585
Peter G. Martin 13,654,818 135,585
Stephen J. Riggi 13,654,818 135,585
Michael A. Davis 13,654,818 135,585
No. 2 13,718,618 46,085 25,700
No. 3 4,529,719 2,167,252 156,050 6,937,382
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) The following exhibits are filed herewith:
10.10.3 1984 Incentive Stock Option Plan as amended
November 15, 1996
11. Statement of Earnings Per Share
27. Financial Data Schedule
99.1 1994 Equity Incentive Plan as amended May 23, 1997.
(b) No reports on Form 8-K were filed during the quarter
for which this report is filed.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
MACROCHEM CORPORATION
---------------------
(Registrant)
August 13, 1997 /S/ ALVIN J. KARLOFF
--------------------
Alvin J. Karloff
Chief Executive Officer and
Principal Financial Officer
As Amended February 11, 1994
and November 15, 1996
MACROCHEM CORPORATION
1984 INCENTIVE STOCK OPTION PLAN
1. PURPOSE. The purpose of the MacroChem Corporation Incentive Stock Option
Plan (hereinafter referred to as the "Plan") is to provide a special incentive
to selected key employees of MacroChem Corporation (hereinafter referred to as
the "Company") or of any future subsidiary of the Company to improve operations
and to increase profits and to encourage such persons to accept or continue
employment with the Company or any subsidiary of the Company. Accordingly, the
Company will offer to sell shares of common stock of the Company, $0.01 par
value, (the "Stock") as hereinafter provided to such employees of the Company or
of any subsidiary as are designated in accordance with the provisions of the
Plan. For purposes of the Plan, a subsidiary is any corporation in which the
Company owns, directly or indirectly, stock possessing 50% or more of the total
combined voting power of all classes of stock.
2. ADMINISTRATION. The Plan shall be administered by the Board of Directors
of the Company (the "Board") which shall (a) determine which of the employees of
the Company and its subsidiaries shall be granted options; (b) determine the
time or times when options shall be granted and the number of shares of stock to
be subject to each option; (c) determine the exercise price of the shares
subject to each option and the method of payment of such price; (d) determine
the times or times when each option becomes exercisable and the duration of the
exercise period; (e) prescribe the form or forms of the instruments evidencing
any options granted under the Plan and of any other instruments required under
the Plan and change such forms from time to time; (f) adopt, amend and rescind
rules and regulations for the administration of the Plan; and (g) interpret the
Plan and decide all questions and settle all controversies and disputes which
may arise in connection with the Plan. All decisions, determinations and
interpretations of the Board of Directors shall be binding on all parties
concerned.
The Board may, in its discretion delegate its powers with respect to the
Plan to a Compensation Committee or any other committee (the "Committee"), in
which event all references to the Board hereunder shall be deemed to refer to
the Committee. The Committee shall consist of at least two directors. A majority
of members of the Committee shall constitute a quorum, and all determinations of
the Committee shall be made by a majority of its members. Any determination of
the Committee under the Plan may be made without notice or meeting of the
Committee by a writing signed by a majority of Committee members. Following
registration of the Common Stock of the Company under the Securities Exchange
Act of 1934, no person shall serve on the Committee unless he is a non-employee
director within the meaning of Rule 16b-3 under that Act.
3. PARTICIPANTS. The Participants in the Plan shall be key salaried
employees of the Company or of any of its subsidiaries.
4. LIMITATIONS ON GRANTING OF OPTIONS. The granting of options under the
Plan shall be subject to the following limitations:
(a) PERIOD OF GRANT. No option shall be granted under the Plan
after the expiration of 10 years from the earlier of the date on which
the Plan is adopted or the date on which it is approved by the
shareholders of the Company.
(b) QUALIFIED PARTICIPANT. Except as hereinafter provided, no
option shall be granted to a Participant if, at the time of the grant,
the Participant owns stock possessing more than 10 percent of the total
combined voting power of all classes of stock of the Company or of its
subsidiaries. For purposes of determining a Participant's ownership of
stock for purposes of the preceding sentence, the ownership attribution
rules of Section 424(d) of the Internal Revenue Code of 1986, as
amended (the "Code") will apply. The foregoing limitations will not
apply if (i) the option price is at least 110 percent of the fair
market value of the stock subject to the option at the time it is
granted and (ii) the period of the option does not exceed five years
from the date of grant.
(c) MAXIMUM ANNUAL LIMIT. The aggregate fair market value,
determined at the time the option is granted, of the stock for which
any Participant may be granted options in any calendar year under the
Plan (and under all other incentive stock option plans of the Company
and of its subsidiaries) may not exceed the sum of (i) $100,000 plus
(ii) any unused limit carryover to such year as determined under the
applicable provisions of the Code and Treasury Regulations for
incentive stock options.
5. TERMS AND CONDITIONS OF OPTIONS. All options granted under the Plan
shall be subject to the following terms and conditions (except as provided in
Sections 7 and 8 below) and to such other terms and conditions consistent with
the applicable provisions of the Internal Revenue Code and Treasury Regulations
for incentive stock options as the Board of Directors shall determine to be
appropriate to accomplish the purposes of the Plan.
(a) OPTION PRICE. The option price under each option shall be
determined by the Board of Directors and shall not be less than 100% of
the fair market value per share at the time the option is granted; nor
shall the option price be less, in the case of an original issue of
authorized stock, than par value. However, if at the time of grant, the
Participant owns stock possessing more than 10 percent of the total
combined voting power of all classes of stock of the Company or of its
subsidiaries, the option price shall not be less than 110% of the fair
market value of the stock subject to the option.
(b) PERIOD OF OPTIONS. An option, by its terms, shall not be
exercisable after the expiration of 10 years from the date of grant of
such option. However, if at the time of grant, the Participant owns
stock possessing more than 10 percent of the total combined voting
power of all classes of stock of the Company or of its subsidiaries,
the option, by its terms, shall not be exercisable after the expiration
of 5 years from the date of grant of such option.
(c) EXERCISE OF OPTIONS.
(1) Each option shall be made exercisable at such
time or times, whether or not in installments, as the Board of
Directors shall prescribe at the time the option is granted.
In the case of an option not immediately exercisable in full,
the Board of Directors may at any time accelerate the time at
which all or any part of the option may be exercised. However,
every option, by its terms, shall not be exercisable while
there is outstanding (within the meaning of Section 422A(c)(7)
of the Internal Revenue Code) any incentive stock option
previously granted to the Participant to purchase stock in the
Company or in a corporation which (at the time of grant of
such option) is a parent or subsidiary of the Company, or is a
predecessor corporation of any such corporation.
(2) A person electing to exercise an option
shall give written notice to the Company, as specified by the
Board of Directors, of his election and of the number of
shares he has elected to purchase, such notice to be
accompanied by:
(i) the instrument evidencing such option;
(ii) payment for all shares then being
purchased thereunder in full in the form of cash, a
certified check or cashier's check or, unless the
Board otherwise determines at the time an option is
granted, through the delivery of shares of Common
Stock (duly owned by the Participant and for which
the Participant has good title free and clear of any
liens and encumbrances which have been held by the
Participant for at least six months (or such shorter
period as the Board may determine) having a fair
market value on the last business day preceding the
date of exercise equal to the purchase price, or a
combination of cash and Common Stock or in such other
form as the Board shall designate at the time an
option is granted;
(iii) payment in cash or by certified or
bank check of an amount equal to all applicable
local, state or federal withholding taxes, if any, or
such other assurance of the payment to the Company of
such amount as shall be satisfactory to the Board of
Directors in their sole discretion, including if the
Board of Directors so determines in the case of an
incentive stock option such provision as the Board
deems appropriate for the payment of any withholding
taxes that may be due upon a later disposition of the
stock acquired upon exercise of the option; and
(iv) any other documents required by the
Board of Directors.
(3) A person exercising an option shall execute and
deliver to the Company any shareholder's agreement or other
agreements which the Board of Directors, in its sole
discretion, may require at the time of exercise, and unless
and until such agreements have been executed and delivered,
the Company shall not be obligated to deliver any shares
hereunder.
(d) DELIVERY OF STOCK. Stock to be delivered under the Plan
may constitute an original issue of authorized stock or may consist of
previously issued stock acquired by the Company, as shall be determined
by the Board. The Board and the proper officers of the Company shall
take any appropriate action required for such delivery. The Company
shall not be obligated to deliver any shares unless and until in the
opinion of the Company's counsel, all applicable federal and state laws
and regulations have been complied with, nor, in the event the Stock is
at the time listed upon any stock exchange, unless and until the shares
to be delivered have been listed or authorized to be added to the list
upon official notice of issuance upon such exchange, nor unless or
until all other legal matters in connection with the issuance and
delivery of shares have been approved by the Company's counsel. Without
limiting the generality of the foregoing, the Company may require from
the person exercising an option such investment representation or such
agreement, if any, as counsel for the Company may consider necessary in
order to comply with the Securities Act of 1933 and may require that
the person agree that any sale of the shares will be made only on the
stock exchange or in such other manner as is permitted by the Board and
that he will notify the Company when he makes any disposition of the
shares whether by sale, gift or otherwise. The Company shall use its
best efforts to effect any such compliance and listing, and the person
exercising the option shall take any action reasonably requested by the
Company in such connection. A person exercising an option shall have
the rights of a shareholder only as to shares actually acquired by him
under the Plan.
(e) NONTRANSFERABILITY OF OPTIONS. Each option, by its terms,
shall not be transferable by the Participant otherwise than by will or
by the laws of descent and distribution, and during the Participant's
lifetime the option shall be exercisable only by him.
(f) TERMINATION OF EMPLOYMENT. Except as otherwise provided in
subparagraphs (g) and (h) below, if the employment of a Participant
terminates for any reason, his option shall expire immediately and he
shall not be entitled to purchase any shares.
(g) DISABILITY AND RETIREMENT. In the event of termination of
employment as a result of disability within the meaning of section
105(d)(4) of the Internal Revenue Code, retirement on or after age 65,
or retirement on or after age 55 after 10 years of continuous
employment by the Company, that portion of a Participant's option that
was exercisable immediately prior to termination will continue to be
exercisable for the original term of the option, and that portion of
the option that was not exercisable immediately prior to termination
will expire, unless otherwise determined by the Board of Directors.
(h) DEATH. If a Participant dies at a time when he is entitled
to exercise an option, then at any time or times within ninety days
after his death such option may be exercised, as to all or any of the
shares which the Participant was entitled to purchase immediately prior
to his death, by his executor or administrator or the person or persons
to whom the option is transferred by will or the applicable laws of
descent and distribution, and except as so exercised such option shall
expire at the end of such period. In no event, however, may any option
be exercised after the expiration of the option period. If any notice
of election to exercise an option is given by the executor or
administrator of a deceased Participant, or by the person or persons to
whom the option has been transferred by the Participant's will or the
applicable laws of descent and distribution, the Company shall be under
no obligation to deliver shares pursuant to such exercise unless and
until the Company is satisfied that the person or persons giving such
notice is or are entitled to exercise the option and unless and until
the persons have executed and delivered any other agreements or
documents which the Board of Directors may require.
6. REPLACEMENT OPTIONS. The Company may grant options under the Plan in
substitution for options held by employees of other corporations who
concurrently become employees of the Company or a subsidiary as the result of a
merger or consolidation of another corporation with the Company or subsidiary,
or the acquisition by the Company or a subsidiary of property or stock of
another corporation.
7. MAXIMUM NUMBER OF SHARES. Subject to adjustment as provided in Section 8
of the Plan, the number of shares of the Stock of the Company which may be
delivered under the Plan shall not exceed 2,000,000 in the aggregate. To the
extent that any options granted under the Plan shall lapse or be terminated, the
shares with respect to which the option has lapsed or been terminated shall
thereafter be available for option under the Plan, within the limit specified
above. The maximum number of shares (subject to adjustment as provided in
Section 8) for which options may be granted to any individual during the term of
the Plan is 160,000 shares. The preceding sentence shall be construed consistent
with the regulations under Section 162(m) of the Code.
8. CHANGES IN STOCK. In the event of a stock dividend, split-up or
combination of shares, recapitalization or merger in which the Company is the
surviving corporation, or other similar capital change, the number and kind of
shares of stock or securities of the Company to be subject to options then
outstanding, the maximum number of shares or securities which may be issued or
sold under the Plan, the option price and other relevant provisions shall be
appropriately adjusted by the Board of Directors of the Company, whose
determination shall be binding on all persons. In the event of a consolidation
or a merger in which the Company is not the surviving corporation, or which
results in the acquisition of substantially all the Company's outstanding stock
by a single person or entity or by a group of persons and/or entities acting in
concert or in the event of the sale or transfer of substantially all the
Company's assets or a complete liquidation of the Company, all outstanding
options shall thereupon terminate, provided that the Board of Directors may, in
its discretion, make all outstanding options immediately exercisable or arrange
to have any surviving corporation grant replacement options to the Participants.
9. EMPLOYMENT RIGHTS. The adoption of the Plan does not confer upon any
employee of the Company or a subsidiary any right to continued employment with
the Company or a subsidiary, as the case may be, nor does it interfere in any
way with the right of the Company or a subsidiary to terminate the employment of
any of its employees at any time.
10. AMENDMENTS. The Board of Directors may at any time discontinue granting
options under the Plan and may at any time amend the Plan or any outstanding
options for the purpose of satisfying the requirements of any changes in
applicable laws or regulations or for any other purpose which may at the time be
permitted by law, provided, however, that (except to the extent required or
permitted under Sections 7 or 8) no amendments shall, without the approval of
the shareholders of the Company (a) increase the maximum number of shares
available under the Plan, (b) change the class of employees eligible for
options, (c) reduce the minimum option price of options thereafter to be granted
below the price provided for in Section 5(a), (d) reduce the option price of
outstanding options, (e) extend the time within which options may be granted,
(f) extend the period of an outstanding option beyond ten years from the date of
grant, (g) alter the restriction on exercising subsequent incentive stock
options which is contained in Section 5(c)(1) or (h) alter the maximum annual
limit of option grants contained in Section 4(c), and no such amendment shall
adversely affect the rights of any Participant (without his consent) under any
option theretofore granted.
11. EFFECTIVE DATE. The Plan shall become effective as of April 1, 1984,
subject to the approval of the Board of Directors and subject to the vote of the
holders of at least a majority of the shares of the outstanding voting stock of
the Company.
MACROCHEM CORPORATION
CALCULATION FOR WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
FOR THE SIX MONTHS ENDED JUNE 30, 1996
CALENDAR DAYS IN THE PERIOD: 182
<TABLE>
<CAPTION>
WEIGHTED
COMMON COMMON AVERAGE
SHARE SHARES DAYS OUT- NUMBER OF
DATE DESCRIPTION ACTIVITY OUTSTANDING STANDING SHARES
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1995 BALANCE 13,129,321
January 22, 1996 Options Exercised 5,000 13,134,321 161 13,133,744
January 31, 1996 Unit Purchase Options
Exercised 810,000 13,944,321 152 13,810,228
February 1, 1996 Unit Purchase Options
Exercised 210,000 14,154,321 151 13,984,458
February 2, 1996 Unit Purchase Options
Exercised 455,000 14,609,321 150 14,359,458
February 2, 1996 A Warrants Exercised 151,667 14,760,988 150 14,484,459
February 2, 1996 Options Exercised 15,000 14,775,988 150 14,496,821
February 5, 1996 Options Exercised 2,861 14,778,849 147 14,499,132
February 7, 1996 A Warrants Exercised 1,000 14,779,849 145 14,499,929
February 8, 1996 Options Exercised 1,000 14,780,849 144 14,500,149
February 9, 1996 AA Warrants Exercised 81,000 14,861,849 143 14,563,792
February 15, 1996 X Warrants Exercised 3,750 14,865,599 137 14,566,615
February 29, 1996 Options Exercised 30,000 14,895,599 123 14,586,890
February 29, 1996 A Warrants Exercised 200,000 15,095,599 123 14,722,060
February 29, 1996 X Warrants Exercised 1,000 15,096,599 123 14,722,736
March 1, 1996 X Warrants Exercised 1,000 15,097,599 122 14,723,406
March 4, 1996 Options Exercised 2,500 15,100,099 119 14,725,041
March 7, 1996 A Warrants Exercised 140,000 15,240,099 116 14,814,272
March 14, 1996 X Warrants Exercised 10,000 15,250,099 109 14,820,261
March 19, 1996 Options Exercised 5,000 15,255,099 104 14,823,118
March 21, 1996 A Warrants Exercised 100,000 15,355,099 102 14,879,162
April 4, 1996 Options Exercised 31,500 15,386,599 87 14,894,219
April 25, 1996 Options Exercised 120,000 15,506,599 66 14,937,736
May 7, 1996 Options Exercised 5,000 15,511,599 54 14,939,219
JUNE 30, 1996 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 14,939,219
NET LOSS $(1,895,349)
NET LOSS PER SHARE $ (0.13)
</TABLE>
(Continued)
<PAGE>
Exhibit 11
(Continued)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
FOR THE SIX MONTHS ENDED JUNE 30, 1997
CALENDAR DAYS IN THE PERIOD: 181
<TABLE>
<CAPTION>
WEIGHTED
COMMON COMMON AVERAGE
SHARE SHARES DAYS OUT- NUMBER OF
DATE DESCRIPTION ACTIVITY OUTSTANDING STANDING SHARES
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1996 BALANCE 15,601,274
January 14, 1997 A Warrants Exercised 100 15,601,374 168 15,601,367
January 23, 1997 Unit Purchase Options
Exercised 30,000 15,631,374 159 15,627,720
January 29, 1997 Unit Purchase Options
Exercised 30,000 15,661,374 153 15,653,080
January 29, 1997 Options Exercised 3,334 15,664,708 153 15,655,898
January 31, 1997 X Warrnts Exercised 1,000 15,665,708 151 15,656,732
February 3, 1997 Options Exercised 13,000 15,678,708 148 15,667,362
February 5, 1997 Options Exercised 2,000 15,680,708 146 15,668,975
February 7, 1997 A Warrants Exercised 1,000 15,681,708 144 15,669,771
February 7, 1997 AA Warrants Exercised 1,000 15,682,708 144 15,670,566
February 7, 1997 Options Exercised 3,000 15,685,708 144 15,672,953
February 10, 1997 Options Exercised 1,000 15,686,708 141 15,673,732
February 10, 1997 X Warrants Exercised 25,000 15,711,708 141 15,693,207
February 14, 1997 A Warrants Exercised 17,000 15,728,708 137 15,706,075
February 18, 1997 Options Exercised 1,500 15,730,208 133 15,707,177
February 19, 1997 Options Exercised 12,000 15,742,208 132 15,715,928
February 24, 1997 Options Exercised 667 15,742,875 127 15,716,396
February 25, 1997 A Warrants Exercised 25,000 15,767,875 126 15,733,799
February 25, 1997 Unit Purchase Options
Exercised 30,000 15,797,875 126 15,754,683
March 4, 1997 Unit Purchase Options
Exercised 30,000 15,827,875 119 15,774,407
March 6, 1997 Options Exercised 1,000 15,828,875 117 15,775,054
March 14, 1997 Options Exercised 5,000 15,833,875 109 15,778,065
March 18, 1997 Unit Purchase Options
Exercised 60,000 15,893,875 105 15,812,871
March 18, 1997 Options Exercised 7,000 15,900,875 105 15,816,932
March 21, 1997 X Warrants Exercised 6,000 15,906,875 102 15,820,313
March 28, 1997 A Warrants Exercised 25,000 15,931,875 95 15,833,435
April 14, 1997 Unit Purchase Options
Exercised 60,000 15,991,875 77 15,858,960
April 18, 1997 A Warrants Exercised 15,000 16,006,875 73 15,865,009
April 23, 1997 X Warrants Exercised 15,000 16,021,875 68 15,870,645
May 12, 1997 X Warrants Exercised 23,000 16,044,875 50 15,876,998
May 15, 1997 A Warrants Exercised 25,000 16,069,875 47 15,883,490
June 5, 1997 Shares Issued for Service 16,000 16,085,875 26 15,885,788
June 10, 1997 A Warrants Exercised 1,000 16,086,875 21 15,885,904
June 13, 1997 Unit Purchase Options
Exercised 60,000 16,146,875 18 15,891,871
June 16, 1997 Options Exercised 1,000 16,147,875 15 15,891,954
June 27, 1997 Options Exercised 2,500 16,150,375 4 15,892,009
JUNE 30, 1997 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 15,892,009
NET LOSS $(1,816,505)
NET LOSS PER SHARE $ (0.11)
</TABLE>
(Continued)
<PAGE>
EXHIBIT 11
(Continued)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
FOR THE THREE MONTHS ENDED JUNE 30, 1996
CALENDAR DAYS IN THE PERIOD: 91
<TABLE>
<CAPTION>
WEIGHTED
COMMON COMMON AVERAGE
SHARE SHARES DAYS OUT- NUMBER OF
DATE DESCRIPTION ACTIVITY OUTSTANDING STANDING SHARES OUTSTANDING
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MARCH 31, 1996 BALANCE 15,355,099
april 4, 1996 Options Exercised 31,500 15,386,599 88 15,385,561
April 25, 1996 Options Exercised 20,000 15,506,599 67 15,473,912
May 7, 1996 Options Exercised 5,000 15,511,599 55 15,476,934
JUNE 30, 1996 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 15,476,934
NET LOSS $ (1,146,753)
NET LOSS PER SHARE $ (0.07)
</TABLE>
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
FOR THE THREE MONTHS ENDED JUNE 30, 1997
CALENDAR DAYS IN THE PERIOD: 91
<TABLE>
<CAPTION>
WEIGHTED
COMMON COMMON AVERAGE
SHARE SHARES DAYS OUT- NUMBER OF
DATE DESCRIPTION ACTIVITY OUTSTANDING STANDING SHARES OUTSTANDING
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MARCH 31, 1997 BALANCE 15,931,875
April 14, 1997 Unit Purchase Options
Exercised 60,000 15,991,875 78 15,983,304
April 18, 1997 A Warrants Exercised 15,000 16,006,875 74 15,995,501
April 23, 1997 X Warrants Exercised 15,000 16,021,875 69 16,006,875
May 12, 1997 X Warrants Exercised 23,000 16,044,875 50 16,019,512
May 15, 1997 A Warrants Exercised 25,000 16,069,875 47 16,032,424
June 5, 1997 Shares Issued for
Services 16,000 16,085,875 26 16,036,996
June 10, 1997 A Warrants Exercised 1,000 16,086,875 21 16,037,227
June 13, 1997 Unit Purchase Options
Exercised 60,000 16,146,875 18 16,049,095
June 16, 1997 Options Exercised 1,000 16,147,875 15 16,049,260
June 27, 1997 Options Exercised 2,500 16,150,375 4 16,049,370
JUNE 30, 1997 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 16,049,370
NET LOSS $ (1,104,189)
NET LOSS PER SHARE $ (0.07)
</TABLE>
(Concluded)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's balance sheet, statement of operations, statement of stockholder's
equity and statement of cash flows and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<CIK> 0000743884
<NAME> MacroChem Corporation
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> $6,772,064
<SECURITIES> 0
<RECEIVABLES> 34,850
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,932,800
<PP&E> 833,330
<DEPRECIATION> 527,303
<TOTAL-ASSETS> 7,489,038
<CURRENT-LIABILITIES> 386,788
<BONDS> 9,483
0
0
<COMMON> 161,504
<OTHER-SE> 6,931,263
<TOTAL-LIABILITY-AND-EQUITY> 7,489,038
<SALES> 650
<TOTAL-REVENUES> 50,650
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,145
<INCOME-PRETAX> (1,816,505)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $(1,816,505)
<EPS-PRIMARY> $(.11)
<EPS-DILUTED> $(.11)
</TABLE>
As amended November 15, 1996
and May 23, 1997
MACROCHEM CORPORATION
1994 EQUITY INCENTIVE PLAN
1. PURPOSE
The purpose of this 1994 Equity Incentive Plan (the "Plan") is to advance
the interests of MacroChem Corporation (the "Company") by enhancing its ability
to attract and retain employees and other persons or entities who are in a
position to make significant contributions to the success of the Company and its
subsidiaries through ownership of shares of the Company's common stock
("Stock").
The Plan is intended to accomplish these goals by enabling the Company to
grant Awards in the form of Options, Stock Appreciation Rights, Restricted Stock
or Unrestricted Stock Awards, Deferred Stock Awards, Performance Awards, Loans
or Supplement Grants, or combinations thereof, all as more fully described
below.
2. ADMINISTRATION
Unless otherwise determined by the Board of Directors of the Company (the
"Board"), the Plan will be administered by a Committee of the Board designated
for such purpose (the "Committee"). The Committee shall consist of at least two
directors. A majority of the members of the Committee shall constitute a quorum,
and all determinations of the Committee shall be made by a majority of its
members. Any determination of the Committee under the Plan may be made without
notice or meeting of the Committee by a writing signed by a majority of the
Committee members. So long as the Stock is registered under the Securities
Exchange Act of 1934 (the "1934 Act"), all members of the Committee shall be
non-employee directors within the meaning of Rule 16b-3 under the 1934 Act. The
Committee will have authority, not inconsistent with the express provisions of
the Plan and in addition to other authority granted under the Plan, to (a) grant
Awards at such time or times as it may choose; (b) determine the size of each
Award, including the number of shares of Stock subject to the Award; (c)
determine the type or types of each Award; (d) determine the terms and
conditions of each Award; (e) waive compliance by a Participant (as defined
below) with any obligations to be performed by the Participant under an Award
and waive any term or condition of an Award; (f) amend or cancel an existing
Award in whole or in part (and if an award is canceled, grant another Award in
its place on such terms as the Committee shall specify), except that the
Committee may not, without the consent of the holder of an Award, take any
action under this clause with respect to such Award if such action would
adversely affect the rights of such holder; (g) prescribe the form or forms of
instruments that are required or deemed appropriate under the Plan, including
any written notices and elections required of Participants, and change such
forms from time to time; (h) adopt, amend and rescind rules and regulations for
the administration of the Plan; and (i) interpret the Plan and decide any
questions and settle all controversies and disputes that may arise in connection
with the Plan. Such determinations and actions of the Committee, and all other
determinations and actions of the Committee made or taken under authority
granted by any provision of the Plan, will be conclusive and will bind all
parties. Nothing in this paragraph shall be construed as limiting the power of
the Committee to make adjustments under Section 7.3 or Section 8.6.
With respect to persons subject to Section 16 of the 1934 Act, transactions
under this plan are intended to comply with all applicable conditions of Rule
16b-3 or its successors under the 1934 Act. To the extent any action by the
Committee or Board fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Committee.
3. EFFECTIVE DATE AND TERM OF PLAN
The Plan will become effective on the date on which it is approved by the
stockholders of the Company. Grants of Awards under the Plan may be made prior
to that date, subject to such approval of the Plan. No Award may be granted
under the Plan after February 11, 2004, but Awards previously granted may extend
beyond that date.
4. SHARES SUBJECT TO THE PLAN
Subject to the adjustment as provided in Section 8.6 below, the aggregate
number of shares of Stock that may be delivered under the Plan will be
4,000,000. If any Award requiring exercise for delivery of Stock terminates
without having been exercised in full, or if any Award payable in Stock or cash
is satisfied in cash rather than Stock, the number of shares of Stock as to
which such Award was not exercised or for which cash was substituted will be
available for future grants. The maximum number of shares (subject to adjustment
as provided in Section 8.6 below) with respect to which Awards may be made to
any one Participant during the term of the Plan shall be 750,000 shares. The
preceding sentence shall be construed consistent with the regulations under
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code").
Stock delivered under the Plan may be either authorized but unissued Stock
or previously issued Stock acquired by the Company and held in treasury. No
fractional shares of Stock will be delivered under the Plan.
5. ELIGIBILITY AND PARTICIPATION
Those eligible to receive Awards under the Plan ("Participants") will be
persons in the employ of the Company or any of its subsidiaries ("Employees")
and other persons or entities (including without limitation non-Employee
directors of the Company or a subsidiary of the Company) who, in the opinion of
the Committee, are in a position to make a significant contribution to the
success of the Company or its subsidiaries. A "subsidiary" for purposes of the
Plan will be a corporation in which the Company owns, directly or indirectly,
stock possessing 50% or more of the total combined voting power of all classes
of stock.
6. TYPES OF AWARDS
6.1. OPTIONS
(a) NATURE OF OPTIONS. An Option is an Award entitling the holder on
exercise thereof to purchase Stock at a specified exercise price.
Both "incentive stock options," as defined in Section 422 of the Code
(any Option intended to qualify as an incentive stock option being hereinafter
referred to as an "ISO"), and Options that are not incentive stock options, may
be granted under the Plan. ISOs shall be awarded only to Employees.
(b) EXERCISE PRICE. The exercise price of an Option will be determined
by the Board subject to the following:
(1) The exercise price of an ISO shall not be less than 100% (110%
in the case of an ISO granted to a ten-percent stockholder) of the fair
market value of the Stock subject to the Option, determined as of the
time the Option is granted. A "ten-percent stockholder" is any person
who at the time of grant owns, directly or indirectly, or is deemed to
own by reason of the attribution rules of section 424(d) of the Code,
stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company or of any of its subsidiaries.
<PAGE>
(2) In no case may the exercise price paid for Stock which is part
of an original issue of authorized Stock be less than the par value per
share of the Stock.
(3) The Committee may reduce the exercise price of an Option at
any time after the time of grant, but in the case of an Option
originally awarded as an ISO, only with the consent of the Participant.
(c) DURATION OF OPTIONS. The latest date on which an Option may be
exercised will be the tenth anniversary (fifth anniversary, in the case of an
ISO granted to a ten-percent stockholder) of the day immediately preceding the
date the Option was granted, or such earlier date as may have been specified by
the Committee at the time the Option was granted.
(d) EXERCISE OF OPTIONS. Options granted under any single Award will
become exercisable at such time or times, and on such conditions, as the
Committee may specify. The Committee may at any time and from time to time
accelerate the time at which all or any part of the Option may be exercised.
Any exercise of an Option must be in writing, signed by the proper
person and delivered or mailed to the Company, accompanied by (1) any documents
required by the Committee and (2) payment in full in accordance with paragraph
(e) below for the number of shares for which the Option is exercised.
(e) PAYMENT FOR STOCK. Stock purchased on exercise of an Option must be
paid for as follows: (1) in cash or by check (acceptable to the Company in
accordance with guidelines established for this purpose), bank draft or money
order payable to the order of the Company or (2) if so permitted by the
instrument evidencing the Option (or in the case of an Option which is not an
ISO, by the Committee at or after grant of the Option), (i) through the delivery
of shares of Stock which have been outstanding for at least six months (unless
the Committee expressly approves a shorter period) and which have a fair market
value on the last business day preceding the date of exercise equal to the
exercise price, or (ii) by delivery of a promissory note of the Option holder to
the Company, payable on such terms as are specified by the Committee, or (iii)
by delivery of an unconditional and irrevocable undertaking by a broker to
deliver promptly to the Company sufficient funds to pay the exercise price, or
(iv) by any combination of the permissible forms of payment; PROVIDED, that if
the Stock delivered upon exercise of the Option is an original issue of
authorized Stock, at least so much of the exercise price as represents the par
value of such Stock must be paid other than by the Option holder's promissory
note.
(f) DISCRETIONARY PAYMENTS. If the market price of shares of Stock
subject to an Option (other than an Option which is in tandem with a Stock
Appreciation Right as described in Section 6.2 below) exceeds the exercise price
of the Option at the time of its exercise, the Committee may cancel the Option
and cause the Company to pay in cash or in shares of Common Stock (at a price
per share equal to the fair market value per share) to the person exercising the
Option an amount equal to the difference between the fair market value of the
Stock which would have been purchased pursuant to the exercise (determined on
the date the Option is canceled) and the aggregate exercise price which would
have been paid. The Committee may exercise its discretion to take such action
only if it has received a written request from the person exercising the Option,
but such a request will not be binding on the Committee.
6.2. STOCK APPRECIATION RIGHTS.
(a) NATURE OF STOCK APPRECIATION RIGHTS. A Stock Appreciation Right is
an Award entitling the recipient on exercise of the Right to receive an amount,
in cash or Stock or a combination thereof (such form to be determined by the
Committee), determined in whole or in part by reference to appreciation in Stock
value.
In general, a Stock Appreciation Right entitles the Participant to
receive, with respect to each share of Stock as to which the Right is exercised,
the excess of the share's fair market value on the date of exercise over its
fair market value on the date the Right was granted. However, the Committee may
provide at the time of grant that the amount the recipient is entitled to
receive will be adjusted upward or downward under rules established by the
Committee to take into account the performance of the Stock in comparison with
the performance of other stocks or an index or indices of other stocks. The
Committee may also grant Stock Appreciation Rights providing that following a
change in control of the Company, as determined by the Committee, the holder of
such Right will be entitled to receive, with respect to each share of Stock
subject to the Right, an amount equal to the excess of a specified value (which
may include an average of values) for a share of Stock during a period preceding
such change in control over the fair market value of a share of Stock on the
date the Right was granted.
(b) GRANT OF STOCK APPRECIATION RIGHTS. Stock Appreciation Rights may
be granted in tandem with, or independently of, Options granted under the Plan.
A Stock Appreciation Right granted in tandem with an Option which is not an ISO
may be granted either at or after the time the Option is granted. A Stock
Appreciation Right granted in tandem with an ISO may be granted only at the time
the Option is granted.
(c) RULES APPLICABLE TO TANDEM AWARDS. When Stock Appreciation Rights
are granted in tandem with Options, the following will apply:
(1) The Stock Appreciation Right will be exercisable only at such
time or times, and to the extent, that the related Option is
exercisable and will be exercisable in accordance with the procedure
required for exercise of the related Option.
(2) The Stock Appreciation Right will terminate and no longer be
exercisable upon the termination or exercise of the related Option,
except that a Stock Appreciation Right granted with respect to less
than the full number of shares covered by an Option will not be reduced
until the number of shares as to which the related Option has been
exercised or has terminated exceeds the number of shares not covered by
the Stock Appreciation Right.
(3) The Option will terminate and no longer be exercisable upon
the exercise of the related Stock Appreciation Right.
(4) The Stock Appreciation Right will be transferable only with
the related Option.
(5) A Stock Appreciation Right granted in tandem with an ISO may
be exercised only when the market price of the Stock subject to the
Option exceeds the exercise price of such option.
(d) EXERCISE OF INDEPENDENT STOCK APPRECIATION RIGHTS. A Stock
Appreciation Right not granted in tandem with an Option will become exercisable
at such time or times, and on such conditions, as the Committee may specify. The
Committee may at any time accelerate the time at which all or any part of the
Right may be exercised.
Any exercise of an independent Stock Appreciation Right must be in
writing, signed by the proper person and delivered or mailed to the Company,
accompanied by any other documents required by the Committee.
6.3. RESTRICTED AND UNRESTRICTED STOCK.
(a) NATURE OF RESTRICTED STOCK AWARD. A Restricted Stock Award entitles
the recipient to acquire, for a purchase price equal to par value, shares of
Stock subject to the restrictions described in paragraph (d) below ("Restricted
Stock").
(b) ACCEPTANCE OF AWARD. A Participant who is granted a Restricted
Stock Award will have no rights with respect to such Award unless the
Participant accepts the Award by written instrument delivered or mailed to the
Company accompanied by payment in full of the specified purchase price, if any,
of the shares covered by the Award. Payment may be by certified or bank check or
other instrument acceptable to the Committee.
(c) RIGHTS AS A STOCKHOLDER. A Participant who receives Restricted
Stock will have all the rights of a stockholder with respect to the Stock,
including voting and dividend rights, subject to the restrictions described in
paragraph (d) below and any other conditions imposed by the Committee at the
time of grant. Unless the Committee otherwise determines, certificates
evidencing shares of Restricted Stock will remain in the possession of the
Company until such shares are free of all restrictions under the Plan.
(d) RESTRICTIONS. Except as otherwise specifically provided by the
Plan, Restricted Stock may not be sold, assigned, transferred, pledged or
otherwise encumbered or disposed of, and if the Participant ceases to be an
Employee or otherwise suffers a Status Change (as defined at Section 7.2(a)
below) for any reason, must be offered to the Company for purchase for the
amount of cash paid for the Stock, or forfeited to the Company if no cash was
paid. These restrictions will lapse at such time or times, and on such
conditions, as the Committee may specify. The Committee may at any time
accelerate the time at which the restrictions on all or any part of the shares
will lapse.
(e) NOTICE OF ELECTION. Any Participant making an election under
Section 83(b) of the Code with respect to Restricted Stock must provide a copy
thereof to the Company within 10 days of the filing of such election with the
Internal Revenue Service.
(f) OTHER AWARDS SETTLED WITH RESTRICTED STOCK. The Committee may, at
the time any Award described in this Section 6 is granted, provide that any or
all the Stock delivered pursuant to the Award will be Restricted Stock.
(g) UNRESTRICTED STOCK. The Committee may, in its sole discretion,
approve the sale to any Participant of shares of Stock free of restrictions
under the Plan for a price which is not less than the par value of the Stock.
6.4. DEFERRED STOCK.
A Deferred Stock Award entitles the recipient to receive shares of
Stock to be delivered in the future. Delivery of the Stock will take place at
such time or times, and on such conditions, as the Committee may specify. The
Committee may at any time accelerate the time at which delivery of all or any
part of the Stock will take place. At the time any Award described in this
Section 6 is granted, the Committee may provide that, at the time Stock would
otherwise be delivered pursuant to the Award, the Participant will instead
receive an instrument evidencing the Participant's right to future delivery of
Deferred Stock.
6.5. PERFORMANCE AWARDS; PERFORMANCE GOALS.
(a) NATURE OF PERFORMANCE AWARDS. A Performance Award entitles the
recipient to receive, without payment, an amount in cash or Stock or a
combination thereof (such form to be determined by the Committee) following the
attainment of Performance Goals. Performance Goals may be related to personal
performance, corporate performance, departmental performance or any other
category of performance deemed by the Committee to be important to the success
of the Company. The Committee will determine the Performance Goals, the period
or periods during which performance is to be measured and all other terms and
conditions applicable to the Award.
(b) OTHER AWARDS SUBJECT TO PERFORMANCE CONDITION. The Committee may,
at the time any Award described in this Section 6 is granted, impose the
condition (in addition to any conditions specified or authorized in this Section
6 or any other provision of the Plan) that Performance Goals be met prior to the
Participant's realization of any payment or benefit under the Award.
6.6. LOANS AND SUPPLEMENTAL GRANTS.
(a) LOANS. The Company may make a loan to a Participant ("Loan"),
either on the date of or after the grant of any Award to the Participant. A Loan
may be made either in connection with the purchase of Stock under the Award or
with the payment of any Federal, state and local income tax with respect to
income recognized as a result of the Award. The Committee will have full
authority to decide whether to make a Loan and to determine the amount, terms
and conditions of the Loan, including the interest rate (which may be zero),
whether the Loan is to be secured or unsecured or with or without recourse
against the borrower, the terms on which the Loan is to be repaid and the
conditions, if any, under which it may be forgiven. However, no Loan may have a
term (including extensions) exceeding ten years in duration.
(b) SUPPLEMENTAL GRANTS. In connection with any Award, the Committee
may at the time such Award is made or at a later date, provide for and grant a
cash award to the Participant ("Supplemental Grant") not to exceed an amount
equal to (1) the amount of any federal, state and local income tax on ordinary
income for which the Participant may be liable with respect to the Award,
determined by assuming taxation at the highest marginal rate, plus (2) an
additional amount on a grossed-up basis intended to make the Participant whole
on an after-tax basis after discharging all the Participant's income tax
liabilities arising from all payments under this Section 6. Any payments under
this subsection (b) will be made at the time the Participant incurs Federal
income tax liability with respect to the Award.
7. EVENTS AFFECTING OUTSTANDING AWARDS
7.1. DEATH.
If a Participant dies, the following will apply:
(a) All Options and Stock Appreciation Rights held by the Participant
immediately prior to death, to the extent then exercisable, may be exercised by
the Participant's executor or administrator or the person or persons to whom the
Option or Right is transferred by will or the applicable laws of descent and
distribution, and all Options originally issued to the Participant and
transferred pursuant to Section 8.5 hereof may be exercised by the person or
persons to whom the Option has been so transferred, at any time within the one
year period ending with the first anniversary of the Participant's death (or
such shorter or longer period as the Committee may determine), and shall
thereupon terminate. In no event, however, shall an Option or Stock Appreciation
Right remain exercisable beyond the latest date on which it could have been
exercised without regard to this Section 7. Except as otherwise determined by
the Committee, all Options originally issued to a Participant and all Stock
Appreciation Rights held by a Participant immediately prior to death that are
not then exercisable shall terminate at death.
(b) Except as otherwise determined by the Committee, all Restricted
Stock held by the Participant must be transferred to the Company (and, in the
event the certificates representing such Restricted Stock are held by the
Company, such Restricted Stock will be so transferred without any further action
by the Participant) in accordance with Section 6.3 above.
(c) Any payment or benefit under a Deferred Stock Award, Performance
Award, or Supplemental Grant to which the Participant was not irrevocably
entitled prior to death will be forfeited and the Award canceled, as of the time
of death, unless otherwise determined by the Committee.
7.2. TERMINATION OF SERVICE (OTHER THAN BY DEATH).
If a Participant who is an Employee ceases to be an Employee for any
reason other than death, or if there is a termination (other than by reason of
death) of the consulting, service or similar relationship in respect of which a
non-Employee Participant was granted an Award hereunder (such termination of the
employment or other relationship being hereinafter referred to as a "Status
Change"), the following will apply:
(a) Except as otherwise determined by the Committee, all Options and
Stock Appreciation Rights originally issued to the Participant that were not
exercisable immediately prior to the Status Change shall terminate at the time
of the Status Change. Any Options or Rights that were exercisable immediately
prior to the Status Change will continue to be exercisable for a period of six
months (or such longer period as the Committee may determine), and shall
thereupon terminate, unless (i) the Award provides by its terms for immediate
termination in the event of a Status Change, (ii) the Status Change results from
(w) retirement of the Participant on or after age 65, (x) retirement on or after
age 55 after 10 years of continuous employment by the Company, (y) disability
(as determined by the Company), or (z) termination of the Participant's service
as a director if the Participant is a non-Employee director, in which cases that
portion of the Options originally issued to the Participant that was exercisable
immediately prior to the Status Change will continue to be exercisable for the
original term of the Option or (iii) unless the Status Change results from a
discharge for cause which in the opinion of the Committee casts such discredit
on the Participant as to justify immediate termination of the Award. In no
event, however, shall an Option or Stock Appreciation Right remain exercisable
beyond the latest date on which it could have been exercised without regard to
this Section 7. For purposes of this paragraph, in the case of a Participant who
is an Employee, a Status Change shall not be deemed to have resulted by reason
of (i) a sick leave or other bona fide leave of absence approved for purposes of
the Plan by the Committee, so long as the Employee's right to reemployment is
guaranteed either by statute or by contract, or (ii) a transfer of employment
between the Company and a subsidiary or between subsidiaries, or to the
employment of a corporation (or a parent or subsidiary corporation of such
corporation) issuing or assuming an option in a transaction to which section
424(a) of the Code applies.
(b) Except as otherwise determined by the Committee, all Restricted
Stock held by the Participant at the time of the Status Change must be
transferred to the Company (and, in the event the certificates representing such
Restricted Stock are held by the Company, such Restricted Stock will be so
transferred without any further action by the Participant) in accordance with
Section 6.3 above.
(c) Any payment or benefit under a Deferred Stock Award, Performance
Award, or Supplemental Grant to which the Participant was not irrevocably
entitled prior to the Status Change will be forfeited and the Award canceled as
of the date of such Status Change unless otherwise determined by the Committee.
7.3. CERTAIN CORPORATE TRANSACTIONS.
7.3.1. MERGERS, SALES ETC.
In the event of a consolidation or merger in which the Company is not
the surviving corporation or which results in the acquisition of substantially
all the Company's outstanding Stock by a single person or entity or by a group
of persons and/or entities acting in concert, or in the event of the sale or
transfer of substantially all the Company's assets or a dissolution or
liquidation of the Company (a "covered transaction"), all outstanding Awards
will terminate as of the effective date of the covered transaction, and the
following rules shall apply:
(a) Subject to paragraphs (b) and (c) below, the Committee shall, at
least twenty (20) days prior to the effective date of the covered transaction,
(1) make each outstanding Option and Stock Appreciation Right exercisable in
full, (2) remove the restrictions from each outstanding share of Restricted
Stock, (3) cause the Company to make any payment and provide any benefit under
each outstanding Deferred Stock Award, Performance Award, and Supplemental Grant
which would have been made or provided with the passage of time had the
transaction not occurred and the Participant not suffered a Status Change (or
died), and (4) forgive all or any portion of the principal of or interest on a
Loan.
(b) If an outstanding Award is subject to performance or other
conditions (other than conditions relating only to the passage of time and
continued employment) which will not have been satisfied at the time of the
covered transaction, the Committee may in its sole discretion remove such
conditions. If it does not do so, however, such Award will terminate as of the
date of the covered transaction notwithstanding paragraph (a) above.
(c) With respect to an outstanding Award held by a participant who,
following the covered transaction, will be employed by or otherwise providing
services to a corporation which is a surviving or acquiring corporation in such
transaction or an affiliate of such a corporation, the Committee may, in lieu of
the action described in paragraph (a) above, arrange to have such surviving or
acquiring corporation or affiliate grant to the Participant a replacement award
which, in the judgment of the Committee, is substantially equivalent to the
Award.
7.3.2. LIQUIDATION AND DISSOLUTION.
In the event of a dissolution or liquidation of the Company, all
outstanding Awards will terminate as of the effective date of such dissolution
or liquidation, and the following rules shall apply:
(a) Subject to paragraphs (b) and (c) below, the Committee may, prior
to the effective date of such liquidation or dissolution, (1) make each
outstanding Option and Stock Appreciation Right exercisable in full, (2) remove
the restrictions from each outstanding share of Restricted Stock, (3) cause the
Company to make any payment and provide any benefit under each outstanding
Deferred Stock Award, Performance Award, and Supplemental Grant which would have
been made or provided with the passage of time had the transaction not occurred
and the Participant not suffered a Status Change (or died), and (4) forgive all
or any portion of the principal of or interest on a Loan.
(b) If an outstanding Award is subject to performance or other
conditions (other than conditions relating only to the passage of time and
continued employment) which will not have been satisfied at the time of such
liquidation or dissolution, the Committee may in its sole discretion remove such
conditions. If it does not do so, however, such Award will terminate as of the
date of such liquidation or dissolution notwithstanding paragraph (a) above.
(c) With respect to an outstanding Award held by a participant who,
following such liquidation or dissolution, will be employed by or otherwise
providing services to a corporation which is a surviving or acquiring
corporation in such transaction or an affiliate of such a corporation, the
Committee may, in lieu of the action described in paragraph (a) above, arrange
to have such surviving or acquiring corporation or affiliate grant to the
Participant a replacement award which, in the judgment of the Committee, is
substantially equivalent to the Award.
8. GENERAL PROVISIONS
8.1. DOCUMENTATION OF AWARDS.
Awards will be evidenced by such written instruments, if any, as may be
prescribed by the Committee from time to time. Such instruments may be in the
form of agreements to be executed by both the Participant and the Company, or
certificates, letters or similar instruments, which need not be executed by the
Participant but acceptance of which will evidence agreement to the terms
thereof.
8.2. RIGHTS AS A STOCKHOLDER, DIVIDEND EQUIVALENTS.
Except as specifically provided by the Plan, the receipt of an Award
will not give a holder rights as a stockholder; the holder will obtain such
rights, subject to any limitations imposed by the Plan or the instrument
evidencing the Award, upon actual receipt of Stock. However, the Committee may,
on such conditions as it deems appropriate, provide that a holder will receive a
benefit in lieu of cash dividends that would have been payable on any or all
Stock subject to the holder's Award had such Stock been outstanding. Without
limitation, the Committee may provide for payment to the holder of amounts
representing such dividends, either currently or in the future, or for the
investment of such amounts on behalf of the holder.
8.3. CONDITIONS ON DELIVERY OF STOCK.
The Company will not be obligated to deliver any shares of Stock
pursuant to the Plan or to remove restrictions from shares previously delivered
under the Plan (a) until all conditions of the Award have been satisfied or
removed, (b) until, in the opinion of the Company's counsel, all applicable
federal and state laws and regulations have been complied with, (c) if the
outstanding Stock is at the time listed on any stock exchange, until the shares
to be delivered have been listed or authorized to be listed on such exchange
upon official notice of notice of issuance, and (d) until all other legal
matters in connection with the issuance and delivery of such shares have been
approved by the Company's counsel. If the sale of Stock has not been registered
under the Securities Act of 1933, as amended, the Company may require, as a
condition to exercise of the Award, such representations or agreements as
counsel for the Company may consider appropriate to avoid violation of such Act
and may require that the certificates evidencing such Stock bear an appropriate
legend restricting transfer.
If an Award is exercised by the Participant's legal representative, the
Company will be under no obligation to deliver Stock pursuant to such exercise
until the Company is satisfied as to the authority of such representative.
8.4. TAX WITHHOLDING.
The Company will withhold from any cash payment made pursuant to an
Award an amount sufficient to satisfy all federal, state and local withholding
tax requirements (the "withholding requirements").
In the case of an Award pursuant to which Stock may be delivered, the
Committee will have the right to require that the Participant or other
appropriate person remit to the Company an amount sufficient to satisfy the
withholding requirements, or make other arrangements satisfactory to the
Committee with regard to such requirements, prior to the delivery of any Stock.
If and to the extent that such withholding is required, the Committee may permit
the Participant or such other person to elect at such time and in such manner as
the Committee provides to have the Company hold back from the shares to be
delivered, or to deliver to the Company, Stock having a value calculated to
satisfy the withholding requirement. The Committee may make such share
withholding mandatory with respect to any Award at the time such Award is made
to a Participant.
If at the time an ISO is exercised the Committee determines that the
Company could be liable for withholding requirements with respect to a
disposition of the Stock received upon exercise, the Committee may require as a
condition of exercise that the person exercising the ISO agree (a) to inform the
Company promptly of any disposition (within the meaning of section 424(c) of the
Code) of Stock received upon exercise, and (b) to give such security as the
Committee deems adequate to meet the potential liability of the Company for the
withholding requirements and to augment such security from time to time in any
amount reasonably deemed necessary by the Committee to preserve the adequacy of
such security.
8.5. TRANSFERABILITY OF AWARDS.
No Award (other than an Award in the form of an outright transfer of
cash or Unrestricted Stock) may be transferred other than by will or by the laws
of descent and distribution, and during an employee's lifetime an Award
requiring exercise may be exercised only by the Participant (or in the event of
the Participant's incapacity, the person or persons legally appointed to act on
the Participant's behalf), except that Options awarded to Employees or members
of the Board which are not ISOs may be transferred by a Participant to (i) the
spouse, children or grandchildren of the Participant ("Immediate Family
Members"), (ii) a trust or trusts for the exclusive benefit of such Immediate
Family Members, or (iii) a partnership in which such Immediate Family Members
are the only partners, provided that (x) there may be no consideration for any
such transfer, and (y) subsequent transfers of Options shall be prohibited
except those in accordance with Section 8.5 hereof. Following any such transfer,
the transferred Option shall continue to be subject to all the terms and
conditions of this Plan, including without limitation the provisions of Section
7 with respect to exercise of the Option following the death or termination of
employment of the Participant to whom the Option was originally granted, and
Section 8.4 with respect to tax withholding.
8.6. ADJUSTMENTS IN THE EVENT OF CERTAIN TRANSACTIONS.
(a) In the event of a stock dividend, stock split or combination of
shares, recapitalization or other change in the Company's capitalization, or
other distribution to common stockholders other than normal cash dividends,
after the effective date of the Plan, the Committee will make any appropriate
adjustments to the maximum number of shares that may be delivered under the
Plan, or with respect to which Awards may be made to any one Participant, under
Section 4 above.
(b) In any event referred to in paragraph (a), the Committee will also
make any appropriate adjustments to the number and kind of shares of stock or
securities subject to Awards then outstanding or subsequently granted, any
exercise prices relating to Awards and any other provision of Awards affected by
such change. The Committee may also make such adjustments to take into account
material changes in law or in accounting practices or principles, mergers,
consolidations, acquisitions, dispositions or similar corporate transactions, or
any other event, if it is determined by the Committee that adjustments are
appropriate to avoid distortion in the operation of the Plan.
8.7. EMPLOYMENT RIGHTS, ETC.
Neither the adoption of the Plan nor the grant of Awards will confer
upon any person any right to continued retention by the Company or any
subsidiary as an Employee or otherwise, or affect in any way the right of the
Company or subsidiary to terminate an employment, service or similar
relationship at any time. Except as specifically provided by the Committee in
any particular case, the loss of existing or potential profit in Awards granted
under the Plan will not constitute an element of damages in the event of
termination of an employment, service or similar relationship even if the
termination is in violation of an obligation of the Company to the Participant.
8.8. DEFERRAL OF PAYMENTS.
The Committee may agree at any time, upon request of the Participant,
to defer the date on which any payment under an Award will be made.
8.9. PAST SERVICES AS CONSIDERATION.
Where a Participant purchases Stock under an Award for a price equal to
the par value of the Stock the Committee may determine that such price has been
satisfied by past services rendered by the Participant.
9. EFFECT, DISCONTINUANCE, CANCELLATION, AMENDMENT AND TERMINATION
Neither adoption of the Plan nor the grant of Awards to a Participant will
affect the Company's right to grant to such Participant awards that are not
subject to the Plan, to issue to such Participant Stock as a bonus or otherwise,
or to adopt other plans or arrangements under which Stock may be issued to
Employees.
The Committee may at any time or times amend the Plan or any outstanding
Award for any purpose which may at the time be permitted by law, or may at any
time terminate the Plan as to any further grants of Awards, provided that
(except to the extent expressly required or permitted by the Plan) no such
amendment will, without the approval of the stockholders of the Company,
effectuate a change for which stockholder approval is required in order for the
Plan to continue to qualify for the award of ISOs under section 422 of the Code.
