THERAGENICS CORPORATION
5325 OAKBROOK PARKWAY
NORCROSS, GEORGIA 30093
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
You are cordially invited to attend the Annual Meeting of Stockholders
of Theragenics Corporation (the "Company") to be held at 10:00 A.M., Atlanta
time, on Friday, June 6, 1997, at the Gwinnett Civic & Cultural Center, 6400
Sugarloaf Pkwy., Duluth, Georgia 30155 for the following purposes:
1. To elect two directors;
2. To consider and vote on a proposal to ratify the
appointment of Grant Thornton as independent public
accountants;
3. To approve an amendment to the Company's 1995 Stock Option
Plan to limit individual annual awards thereunder;
4. To consider and act upon a proposal to approve the
adoption of the Company's 1997 Stock Incentive Plan;
and
5. To transact such other business as may properly come
before such meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on April 11,
1997, as the record date for the determination of the stockholders entitled to
notice of, and to vote at, the meeting.
Sincerely,
/s/ Bruce W. Smith
Bruce W. Smith,
Secretary
Norcross, Georgia
April 30, 1997
YOUR VOTE IS IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING OF STOCKHOLDERS, YOU ARE
REQUESTED TO FILL IN AND SIGN THE ENCLOSED FORM OF PROXY AND MAIL IT IN THE
ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IT
IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. IF YOU DO ATTEND THE MEETING AND
DECIDE THAT YOU WISH TO VOTE IN PERSON, YOU MAY WITHDRAW YOUR PROXY.
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THERAGENICS CORPORATION
5325 Oakbrook Parkway
Norcross, Georgia 30093
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Theragenics Corporation (the "Company")
to be voted at the Annual Meeting of Stockholders of the Company to be held on
Friday, June 6, 1997, at the Gwinnett Civic & Cultural Center, 6400 Sugarloaf
Pkwy., Duluth, Georgia 30155, at 10:00 A.M., Atlanta time, for the purposes set
forth in the accompanying Notice of Annual Meeting of Stockholders.
The Board of Directors has fixed the close of business on April 11,
1997, as the record date for the determination of stockholders entitled to
receive notice of, and to vote at, the forthcoming Annual Meeting of
Stockholders or any adjournment thereof. Any person giving a proxy in the form
accompanying this statement has the power to revoke it at any time prior to its
exercise. A proxy may be revoked by attending and voting at the meeting, by
giving a later proxy or by written notice to the Secretary of the Company
received at the Company's offices at 5325 Oakbrook Parkway, Norcross, Georgia,
30093 prior to the date of the Annual Meeting. When proxies are returned
properly executed, the shares represented thereby will be voted as directed in
the executed proxy. If the Proxy is signed and returned but no choice is
specified therein, it will be voted FOR the election of the nominees named
therein and FOR each of the listed proposals.
The expenses for soliciting proxies for the forthcoming Annual Meeting
of Stockholders are to be paid by the Company. Solicitation of proxies may be
made by means of personal calls upon, or telephonic or telegraphic
communications with, stockholders or their personal representatives by
directors, officers and employees of the Company, who will not be specially
compensated for such services. The Company may or may not engage a proxy service
to assist the Company in the solicitation of proxies. The Company will reimburse
brokers and other nominees for their reasonable expenses incurred in forwarding
soliciting material to beneficial owners. It is anticipated that this Proxy
Statement and enclosed Proxy will first be mailed to stockholders entitled to
notice of and to vote at the Annual Meeting on or about April 30, 1997.
VOTING SECURITIES AND PRINCIPAL SECURITY HOLDERS
As of April 11, 1997, the Company had outstanding and entitled to vote
at the Annual Meeting 14,144,003 shares of Common Stock, par value $.01 per
share ("Common Stock").
The holders of Common Stock are entitled to vote as a single class and
to one vote per share, exercisable in person or by proxy, at all meetings of
stockholders. Holders of Common Stock do not have cumulative voting rights.
Abstentions and "broker non-votes" are counted for purposes of determining the
presence or absence of a quorum for the transaction of business but are not
counted in determining the numbers of shares voted for or against any nominee
for director or any proposal.
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The following table sets forth the ownership of the Company's Common
Stock as of April 11, 1997 by each person known to the Company to be the
beneficial owner of more than 5% of the outstanding Common Stock, by each
executive officer and director and by all executive officers and directors as a
group:
Amount and
Nature of Percentage of
Name and Address Beneficial Common Stock
of Beneficial Owner Ownership(1) Outstanding(2)
Otis W. Brawley, M.D. 32,000 (3) *
9715 Hill Street
Kensington, MD 20895
Orwin L. Carter, Ph.D. 69,000 (4) *
1029 Third Avenue South
Stillwater, MN 55082
John V. Herndon 12,000 (5) *
617 Longview Drive
Waynesville, N.C. 28786
M. Christine Jacobs 264,228 (6) 1.8%
5325 Oakbrook Parkway
Norcross, GA 30093
Mr. Charles Klimkowski 80,400 (7) *
208 South LaSalle Street
Chicago, IL 60604
Peter A.A. Saunders 76,000 (8) *
2 Regents Close
South Croydon, Surrey CR2 7BW
England
Bruce W. Smith 121,619 *
5325 Oakbrook Parkway
Norcross, GA 30093
All Directors and Officers 655,247 (9) 4.5%
as a Group (seven persons)
Non-Management Shareholder Owning Over 5%
- -----------------------------------------
Bellingham Industries Inc. 1,650,000 11.7%
Urraca Building
Frederico Boyd Avenue
Panama City, Panama
- ---------------
* Less than 1%
(1) Each person named in the table has sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by him or
her.
(2) The percentage of shares of Common Stock is calculated assuming that the
beneficial owner has exercised any conversion rights, options or other
rights to subscribe held by such beneficial owner that are currently
exercisable or exercisable within 60 days and that no other conversion
rights, options or other rights to subscribe have been exercised by anyone
else.
(3) Includes 32,000 shares purchasable by Dr. Brawley within 60 days upon
exercise of options.
(4) Includes 68,000 shares purchasable by Dr. Carter within 60 days upon
exercise of options.
(5) Includes 12,000 shares purchasable by Mr. Herndon within 60 days upon
exercise of options.
(6) Includes 160,000 shares purchasable by Ms. Jacobs within 60 days upon
exercise of options.
(7) Includes 68,000 shares purchasable by Mr. Klimkowski within 60 days upon
exercise of options.
(8) Includes 76,000 shares purchasable by Mr. Saunders within 60 days upon
exercise of options.
(9) Includes 416,000 shares purchasable by all executive officers and directors
within 60 days upon exercise of options.
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PROPOSAL NUMBER ONE
ELECTION OF DIRECTORS
The Board of Directors of the Company is divided into three classes
(Class I, Class II and Class III) with two directors in each class. One class of
directors is elected each year for a three-year term. Two directors,
representing the Class II Directors, are to be elected at the Annual Meeting.
These Class II Directors will serve until the Annual Meeting of Stockholders in
2000 or until their successors shall have been elected and qualified. The
current Board of Directors has selected, and will cause to be nominated at the
meeting, Mr. Charles R. Klimkowski and Otis W. Brawley, M.D., who upon election
will comprise the Class II Directors of the Board of Directors.
Provided that a quorum of stockholders is present at the meeting in
person or by proxy, directors will be elected by a plurality of the votes cast
at the meeting. The persons named on the enclosed proxy card or their
substitutes will vote all of the shares that they represent for the above-named
nominees unless instructed otherwise on the proxy card. If at the time of the
Annual Meeting of Stockholders any nominee is unable or declines to serve, the
discretionary authority provided in the proxy will be exercised to vote for a
substitute. Management has no reason to believe that a substitute nominee will
be required.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE
NOMINEES NAMED IN THIS PROPOSAL.
The directors and director nominees have supplied the Company with the
following information concerning their age, principal employment, other
directorships and positions with the Company:
Director/Nominee Principal Occupation and Other Information
Class I Directors
John V. Herndon Mr. Herndon joined the Company in April
Director since 1987 1987 as Executive Vice President and in
Age: 56 July 1989 was appointed President, Chief
Executive Officer and Chairman of the
Board of Directors of the Company. In
August 1993, Mr. Herndon relinquished
his role as Chief Executive Officer
while retaining his position as Chairman
of the Board of Directors of the
Company. Mr. Herndon stepped down as
Chairman of the Board in December 1994,
and currently serves as a Director and
Advisor-to-the-President.
Peter A.A. Saunders Mr. Saunders is manager/owner of PASS
Director since 1989 Consultants, a Great Britain-based
Age: 55 management consulting firm established
in 1988. From April 1991 to April 1993,
Mr. Saunders was also Managing Director
of United Artists Communications in
London, a cable television and telephone
service provider. Mr. Saunders presently
serves as a non-executive director for
several other British companies,
including Coughlan's Patisserie (bakery
shops), Mayday Healthcare Trust
(hospital), and Eurobell (Sussex) Ltd.
(cable TV and telecommunications).
Class II Director Nominees
Charles R. Klimkowski Since 1980, Mr. Klimkowski has been
Director since 1993 employed by The Chicago Corporation,
Age: 61 most recently as a Senior Vice
President and Director, a Portfolio
Manager and a member of the Investment
Policy Committee. Mr. Klimkowski was
elected Chairman of Theragenics' Board
of Directors in December 1994.
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Director/Nominee Principal Occupation and Other Information
Otis W. Brawley, M.D. Since 1990, Dr. Brawley has been Program
Director since 1995 Director of the Community Oncology and
Age: 37 Rehabilitation Branch, Early Detection
and Community Oncology Program, a
Division of Cancer Prevention and
Control of the National Cancer
Institute. Dr. Brawley has also been a
Commissioned Officer of the U.S. Public
Health Service since 1989 and Tenured
with the Research Officer Group since
February 1994. Dr. Brawley's
professional activities have included;
National Cancer Institute (NCI)
Coordinator and Project Officer of the
Prostate Cancer Prevention Trial, NCI
Coordinator of the Minority Based
Community Clinical Oncology Program, and
coauthor and associate investigator in
several protocols approved by the
National Institutes of Health Clinical
Center Investigational Review Committee.
Dr. Brawley has received such
distinguished honors as the Public
Health Service Commendation in 1993 and
the National Cancer Institute and the
Equal Employment Opportunity Officer's
Commendation in 1991 and 1993.
Additionally he has coauthored more than
21 publications. Dr. Brawley also
reviews for several prestigious
publications.
Class III Directors
Orwin L. Carter, Ph.D. Dr. Carter is Vice President of Finance
Director since 1991 and Administration for Hamline
Age: 54 University in St. Paul, Minnesota. Since
March 1995, Dr. Carter has served as a consultant with
INCSTAR Corporation, a manufacturer of in vitro
diagnostic test kits and an affiliate of Sorin
Biomedica. From 1989 to September 1994, Dr. Carter
served INCSTAR in various capacities including
Chairman, Chief Executive Officer and President. Dr.
Carter also currently serves on the Board of Directors
of Lifecore Biomedical, Inc.
M. Christine Jacobs Ms. Jacobs joined the Company as
Director since 1992 National Sales Manager in 1987 and was
Age: 46 subsequently promoted to Vice President
of General Sales and Marketing. Since
1992, Ms. Jacobs has been President and
Chief Operating Officer of the Company,
and in August 1993, Ms. Jacobs was
promoted to the position of Chief
Executive Officer while retaining the
position of President. Ms. Jacobs also
serves as a director of the Georgia
Biomedical Partnership, a nonprofit
organization which promotes economic and
environmental development beneficial to
the growth of biomedical business within
Georgia.
The Board of Directors held four meetings during fiscal 1996, and acted
by unanimous written consent in lieu of one meeting. All members participated in
all meetings with the exception of the February 1996 meeting, which Mr. Herndon
was prevented from attending due to travel restrictions created by severe winter
weather.
The Board of Directors has established four standing committees and has
assigned certain responsibilities to each of those committees.
The Audit Committee, formed in 1991, met three times during fiscal
1996. The Audit Committee reviews the independence, qualifications and
activities of the Company's independent certified public accountants and the
activities of the Company's accounting staff. The Audit Committee also
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recommends to the Board the appointment of the Company's independent certified
public accountants and reviews and approves the Company's annual financial
statements together with other financial reports and related matters. The Audit
Committee is composed of Mr. Saunders and Dr. Carter, each of whom attended all
meetings.
The Compensation Committee, formed in 1990, met three times during
fiscal 1996. The Compensation Committee makes recommendations concerning
remuneration of the Company's Chief Executive Officer. The Compensation
Committee is composed of Dr. Brawley and Mr. Klimkowski, each of whom attended
all meetings.
The Nominating Committee, formed in 1996, met once during fiscal 1996.
The Nominating Committee evaluates and makes recommendations as to individuals
believed to be best qualified and willing to fill vacancies on the Board of
Directors. The Nominating Committee is composed of Mr. Herndon and Ms. Jacobs.
The Stock Option Committee, formed in 1996, met twice during fiscal
1996. The Stock Option Committee administers the Company's stock option plans
and determines the conditions and amounts of options granted under these plans.
The Stock Option Committee is composed of Dr. Brawley, Dr. Carter, Mr.
Klimkowski and Mr. Saunders, who are all non-employee directors of the Company.
Prior to November 1996, directors who were not officers of the Company
received $500 per meeting plus expenses as compensation for attending Board of
Directors and Committee meetings. In recognition of the increased complexities
and time commitment associated with service to Theragenics and the need to
attract and retain qualified directors through a competitive director
compensation package, compensation for Board service was changed effective the
fourth quarter of 1996. Directors who are not officers of the Company receive
$2,500 per quarter, and $1,000 for attending each Board meeting and $500 for
attending each Committee meeting. In addition to cash compensation, each
director will be granted upon his or her election as a director an option to
purchase 24,000 shares of Common Stock at an exercise price equal to the fair
market value of the Common Stock as of the date of election. Each option shall
vest as to 8,000 shares at the end of each year of service in the director's
three-year term.
Executive Officers
The executive officers of the Company and their age, position with the
Company and business experience for the past five years are set forth in the
table below.
Executive Officer Office and Other Information
- ------------------- -----------------------------
M. Christine Jacobs President and Chief Executive Officer
Age: 46 since 1993. See information above under
Class III Director Nominees.
Bruce W. Smith Treasurer and Chief Financial Officer
Age: 44 of the Company and Secretary of the
Board of Directors since 1989. Mr. Smith
has served in financial capacities with
the Company since joining it in January
1987.
5
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REMUNERATION AND OTHER MATTERS
Executive Compensation
The following table summarizes the compensation paid by the Company for
services rendered during the years indicated to each of the Company's executive
officers whose total salary and bonus exceeded $100,000 during fiscal 1996.
Summary Compensation Table
Long-Term
Annual Compensation Compensation
Securities All
Name and Underlying Other
Principal Position Year Salary(1) Bonus Options Compensation(2)
M. Christine Jacobs 1996 $151,445 $170,000 120,000 $357
President & Chief 1995 $100,010 $68,000 --- $174
Executive Officer(3) 1994 $100,010 $28,000 --- $102
(1) Includes amounts deferred under the 401(k) feature of the Company's
Employee Savings Plan.
(2) Represents premiums on a term life insurance policy.
(3) The Company has an agreement with Ms. Jacobs, dated August 1, 1996, which
provides for her employment for the period commencing August 1, 1996 and
expiring July 31, 1999. This agreement provides for a minimum annual base
salary of $200,000 plus an annual bonus determined by the Board of
Directors utilizing certain performance criteria. In addition, in the
event of termination, the agreement provides a severance package of up to
two years' salary and other related benefits.
Options. The following table sets forth certain information concerning grants of
stock options made during fiscal 1996 to Ms. Jacobs.
Option Grants in Fiscal 1996
Individual Grants
% of Potential
Number of Total Realized Value at
Securities Granted to Assumed Annual
Underlying Employees Rate of Stock Price
Options in Base Appreciation
Granted Fiscal Price Expiration for Option Term
Name (#) Year ($/Sh.) Date 5%($) 10%($)
M. Christine
Jacobs 120,000 86% $15.25 08/09/07 $1,299,921 $2,916,549
The following table sets forth information concerning the value of
unexercised options as of December 31, 1996 held by Ms. Jacobs. No stock
appreciation rights have ever been issued by the Company.
Option Exercises in Fiscal 1996
and Fiscal Year-End Option Values Table
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options on Options on
December 31, December 31,
Shares 1996 1996
Acquired Exercisable/ Exercisable/
Name on Value Un- Un-
Exercise Realized exercisable exercisable
M. Christine Jacobs 37,570 $751,540 120,000/ $2,070,000/
120,000 $ 882,000
Board Compensation Committee Report on Executive Compensation. The Compensation
Committee sets only the compensation of the Chief Executive Officer.
Compensation of other executive officers is set by the Chief Executive Officer
based on a structure similar to that established by the Compensation Committee
for compensation of the Chief Executive Officer, except that stock options are
awarded by the Stock Option Committee of the Board of Directors. The
Compensation Committee has a policy that a significant portion of the Chief
Executive Officer's pay should be related to the performance of the Company.
Historically, it has been the Company's policy to establish employee base
salaries at rates below what the Committee believes the officers could command
in the market and to supplement these base salaries with bonuses, if
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justified, based on the Company's and individual's performance. In 1996, the
Compensation Committee determined that, based on the significant contributions
Ms. Jacobs had made to the success of the Company, it was in the best interest
of the Company and its shareholders to ensure that the Company retains her
services. In order to do so the Compensation Committee entered into an agreement
effective August 1, 1996 to pay a compensation package to Ms. Jacobs in line
with those received by chief executive officers of companies of comparable
revenue and asset size.
At the beginning of 1996, the Committee established criteria for the
C.E.O.'s performance bonus based upon a combination of dollar sales levels and
dollar before-tax profitability. A matrix (the "Matrix") was established, with
cells within the Matrix representing specific combinations of sales and profits.
Performance falling within a particular cell would result in a bonus to the
C.E.O. expressed as a percent of the C.E.O.'s base salary. This Matrix, which
allowed for bonuses running from 0% to 137% of the C.E.O.'s base salary, was
constructed to reward the C.E.O. for reaching specific combinations of sales and
profit levels with higher sales and profit resulting in a larger bonus. The
percentages within the Matrix recognize both the benefit to the Company of
reaching certain sales and profit levels and to a lesser extent the Committee's
assessment of the compensation the C.E.O. could obtain in the market. In
addition to the bonus called for in the Matrix, the Committee also has the
option of awarding the C.E.O. an additional bonus of up to 10% of her base
salary. This bonus, which is subjectively determined by the Committee, is based
on less quantifiable measures of performance (i.e., problem resolution,
marketing program development and execution, internal processes and procedures
development, cash management and expense control, and the effective and
efficient application of available resources to ensure both short-term and
long-term Company health). In conjunction with the August 1, 1996 salary
agreement with Ms. Jacobs, the Compensation Committee agreed that the Matrix
percentage would be applied to the base salary in that agreement.
Based upon the above criteria, Ms. Jacobs was awarded an 85% bonus or
$170,000. The 85% represents a 75% bonus called for by the Matrix plus a 10%
bonus for the less quantifiable measures of performance.
It is also the Committee's responsibility to address issues raised by
Section 162(m) of the Internal Revenue Code. The revisions to this section made
certain non-performance-based compensation in excess of $1,000,000 to executives
of public companies nondeductible to the companies beginning in 1994. The
Committee has reviewed these issues and has determined that no portion of
compensation payable to any executive officer for 1997 is nondeductible.
Submitted by the Members of the Compensation Committee:
Otis W. Brawley, M.D.
Charles R. Klimkowski
The Stock Option Committee of the Board of Directors administers the
Company's stock option plans and determines the terms of options granted under
these plans. These plans form the basis of the Company's long-term incentive
compensation plan. The Stock Option Committee believes that placing a portion of
executives' compensation in the form of stock options achieves three objectives.
It aligns the interest of the Company's executives directly with those of the
Company's stockholder's, gives executives a significant long-term interest in
the Company's success and helps the Company retain key executives. In
determining the number and terms of options to grant an executive, the Stock
Option Committee primarily considers the executive's past performance and the
degree to which an incentive for long-term performance would benefit the
Company. Based on these factors, in relatively equal proportions, the Stock
Option Committee awarded the Chief Executive Officer the options shown in the
table headed "Option Grants in Fiscal 1996" during fiscal 1996.
Submitted by Members of the Stock Option Committee:
Otis W. Brawley, M.D.
Orwin L. Carter, Ph.D.
Charles R. Klimkowski
Peter A.A. Saunders
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The following table summarizes the cumulative total return on
investment in the Company's Common Stock for fiscal 1991 through 1996:
Comparison of Five Year - Cumulative Returns
[LINE GRAPH OF FIVE-YEAR RETURNS APPEARS HERE.]
1991 1992 1993 1994 1995 1996
Theragenics Corporation 100 129 100 56 279 532
Nasdaq Stock Market (US Companies) 100 116 134 131 185 227
Nasdaq Pharmaceuticals Stocks 100 83 74 56 102 102
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Mr. Klimkowski and Dr.
Brawley, non-executive directors of the Company. No executive officer of the
Company serves or served on the Compensation Committee of another entity and no
executive officer of the Company serves or served as a director of another
entity who has or had an executive officer serving on the Board of Directors of
the Company.
PROPOSAL NUMBER TWO
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
Stockholders will be asked to vote for a proposal to ratify the appointment
of Grant Thornton as the independent public accountants of the Company for the
fiscal year ending December 31, 1997. Grant Thornton has been the independent
public accountants for the Company since fiscal year 1989. If the stockholders,
by affirmative vote of the holders of a majority of the votes cast, do not
ratify this appointment, the Board of Directors will reconsider its action and
select other independent public accountants without further stockholder action.
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A representative of Grant Thornton is expected to be present at the Annual
Meeting to respond to appropriate questions and will be given the opportunity to
make a statement if such representative desires to do so.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
RATIFICATION OF THE APPOINTMENT OF GRANT THORNTON AS THE INDEPENDENT PUBLIC
ACCOUNTANTS OF THE COMPANY.
PROPOSAL NUMBER THREE:
AMENDMENT OF THE 1995 STOCK OPTION PLAN TO LIMIT
INDIVIDUAL ANNUAL AWARDS THEREUNDER
The Board of Directors has approved and recommends that stockholders
approve an amendment to the Company's 1995 Stock Option Plan to limit to 500,000
the number of shares that may be subject to options awarded to any individual
thereunder in a given fiscal year. The text of the proposed amendment is
attached as Appendix A.
The Board has adorted the proposed amendment in response to the
requirements of Section 162(m) of the Code, which places a $1,000,000 ceiling on
the deductibility to the Company of non-performance based compensation paid to
its executive officers. Options granted at fair market value under a plan that
has been approved by the Company's stockholders and is administered by
"disinterested directors" as defined in Section 162(m) of the Code and Rule
16b-3 promulgated under the Securirites Exchange Act of 1934, as amended, is
generally treated as performance-based compensation. In order for this treatment
to continue, the Plan must restrict the number of shares of Common Stock that
may be awarded to any individual under tha Plan in any given fiscal year. The
Plan will be deemed to satisfy this requirement prior to the 1997 Annual Meeting
of Stockholders. Effective upon the date of such meeting, however, the Plan must
be amended to incorporate this restriction expressly.
The Board of Directors has determined that 500,000 shares represent an
appropriate limit for the number of shares of Common Stock that may be subject
to option grants or restricted stock awards under the Plan for any individual in
any given fiscal year. The Board has therefore adopted, and recommends that the
stockholders approve, the proposed Plan amendment that establishes this limit.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
PROPOSED AMENDMENT TO THIS PLAN.
PROPOSAL NUMBER FOUR:
ADOPTION OF THE THERAGENICS CORPORATION
1997 STOCK INCENTIVE PLAN
Introduction
On February 14, 1997, the Board of Directors approved the Theragenics
Corporation 1997 Stock Incentive Plan (the "Plan"). The Plan provides the
Company with increased flexibility to grant equity-based compensation to key
employees, officers and consultants of the Company. The purpose of the Plan is
to: (i) provide incentives to stimulate individual efforts toward the Company's
long-term growth and profitability; (ii) encourage stock ownership by officers,
key employees and consultants by enabling them to acquire a proprietary interest
in the Company in the form of shares of Common Stock or to receive compensation
based on appreciation in the value of the Common Stock; and (iii) provide a
means of obtaining, rewarding and retaining key personnel. The Company has
reserved 500,000 shares of Common Stock for issuance pursuant to awards that may
be made under the Plan. No awards have yet been granted under the Plan.
The following description of the Plan is qualified in its entirety by
reference to the applicable provisions of the Plan. A copy of the Plan is
available from the Company upon request.
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Terms of the Plan
The nature, terms and conditions of awards under the Plan will be
determined by the Stock Option Committee of the Board of Directors (the
"Committee"). The members of the Committee are selected by the Board of
Directors. The current members of the Committee are Messrs. Klimkowski and
Saunders and Drs. Carter and Brawley.
The Plan permits the Committee to make awards of Common Stock,
incentive or non-qualified stock options, stock appreciation rights ("SARs"),
dividend equivalent rights, performance unit awards and phantom shares
(collectively, "Stock Incentives") with the following terms and conditions:
Terms and Conditions of all Stock Incentives. The number of shares of
Common Stock as to which a Stock Incentive may be granted will be determined by
the Committee in its sole discretion. To the extent required under Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations thereunder relating to compensation to be treated as qualified
performance-based compensation, the maximum number of shares of Common Stock
with respect to which options or SARs may be granted during any one-year period
to any employee may not exceed 500,000. Each Stock Incentive will either be
evidenced by a Stock Incentive Agreement or Stock Incentive Program, in each
case containing such terms, conditions and restrictions as the Committee may
deem appropriate. Stock Incentives are not transferable or assignable except by
will or by the laws of descent and distribution and are exercisable only by the
recipient during his or her lifetime or by the recipient's legal representative
in the event of the recipient's death or disability.
Stock Awards. The number of shares of Common Stock subject to a Stock
Award and restrictions or conditions on such shares, if any, will be determined
by the Committee. The Committee may require a cash payment from the recipient in
an amount no greater than the aggregate fair market value of the shares of
Common Stock awarded, as determined at the date of grant.
Options. Options may be either incentive stock options as described in
Section 422 of the Code or non-qualified stock options. The exercise price of
each option will be determined by the Committee and set forth in a Stock
Incentive Agreement but may not be less than the fair market value of the Common
Stock on the date the option is granted. With respect to incentive stock options
granted to beneficial owners of over 10% of the outstanding Common Stock ("10%
Owners"), the exercise price may not be less than 110% of the fair market value
of the Common Stock on the date the option is granted. The exercise price may
not be changed after the option is granted, and options may not be surrendered
in consideration of, or exchanged for, a grant of a new option with a lower
exercise price. Incentive stock options granted to 10% Owners will expire five
years after the date of grant, while all other incentive stock options will
expire 10 years after the date of grant. Non-qualified stock options will expire
on the date set forth in the Stock Incentive Agreement. Payment for shares of
Common Stock purchased upon exercise of an option may be made in any form or
manner authorized by the Committee in the Stock Incentive Agreement or by
amendment thereto. In the event of a recipient's termination of employment, the
option or unexercised portion thereof will expire no later than three months
after the date of termination, except that in the case of the recipient's death
or disability, such period will be extended to one year. The Committee may set
forth longer time limits in the Stock Incentive Agreement, although in such
cases incentive stock option treatment will not be available under the Code.
Stock Appreciation Rights. SARs entitle the recipient to receive the
excess of: (i) the fair market value of a specified or determinable number of
shares of Common Stock at the time of payment or exercise over (ii) a specified
or determinable price that, in the case of a SAR granted in connection with an
option, may not be less than the exercise price for the number of shares subject
to that option. Upon settlement of a SAR, the Company must pay to the recipient
the appreciation in the form of cash or shares of Common Stock (valued at fair
market value on the date of payment or exercise) in accordance with the terms of
the applicable Stock Incentive Agreement or, in the absence of such provision,
in such form as the Committee may determine. Each SAR will be exercisable or
payable at such time(s), or upon the occurrence of such event(s), and in such
amount(s) as the Committee specifies in the applicable Stock Incentive
Agreement. The Committee may, however, accelerate the time(s) at which SAR may
be exercised or paid in whole or in part at any time prior to the complete
termination of the SAR.
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Dividend Equivalent Rights. A dividend equivalent right entitles the
recipient to receive payments from the Company in an amount determined by
reference to cash dividends paid on a specified number of shares of Common
Stock. The Committee may impose such restrictions and conditions on any dividend
equivalent right as the Committee in its discretion shall determine. The Company
may pay holders of dividend equivalent rights in the form of cash or shares of
Common Stock (valued at fair market value on the date of payment), with specific
payment provisions to be determined by the Committee.
Performance Unit Awards. A performance unit award entitles the
recipient to receive, at a specified future date, an amount equal to all or a
portion of the value of a specified or determinable number of units (stated in
terms of a designated or determinable dollar amount per unit) granted by the
Committee. At the time of the grant, the Committee will determine the face value
of each unit, the number of units subject to the award, the performance factors
applicable to the determination of the ultimate payment value of the award and
the period over which the Company's performance will be measured. The Company
may pay the holders of performance unit awards in the form of cash or shares of
Common Stock (valued at fair market value on the date of payment), with specific
payment provisions to be determined by the Committee.
Phantom Shares. Phantom shares will entitle the recipient to receive,
at a specified future date, an amount equal to all or a portion of the fair
market value of a specified number of shares of Common Stock at the end of a
specified period. At the time of the grant, the Committee will determine the
factors that will govern the amounts to be paid, including, in the discretion of
the Committee, any performance criteria that must be satisfied as a condition to
payment. The Company may pay the holders of phantom shares in the form of cash
or shares of Common Stock (valued at fair market value on the date of payment),
with specific payment provisions to be determined by the Committee.
Termination and Amendment of the Plan
The Board of Directors may amend or terminate the Plan without
stockholder approval at any time; provided, however, that the Board may
condition any amendment on the approval of the stockholders if such approval is
necessary or advisable with respect to tax, securities or other applicable laws.
No such termination or amendment without the consent of the holder of a Stock
Incentive may adversely affect the rights of a holder under the terms of that
Stock Incentive.
Changes in Capitalization
The Plan provides for an adjustment of the number of shares of Common
Stock reserved and subject to awards issued pursuant to the Plan and of the
exercise price of options granted under the Plan in the event of any increase or
decrease in the number of issued shares of Common Stock resulting from a
subdivision or combination of shares or the payment of a stock dividend in
shares of Common Stock or any other increase or decrease in the number of shares
of Common Stock outstanding effected without receipt of consideration by the
Company.
In the event of a merger, consolidation or other reorganization of the
Company or a tender offer for its shares of Common Stock, the Committee may take
such action as it deems necessary or appropriate to reflect the effect of the
applicable transaction, including but not limited to: (i) the substitution,
adjustment or acceleration of awards; (ii) the removal of restrictions on
awards; or (iii) the termination of outstanding awards in exchange for the cash
value of the vested portion of the award.
Federal Income Tax Consequences
The following discussion outlines generally the federal income tax
consequences of the receipt of options under the Plan. Individual circumstances
may vary these results. The federal income tax laws and regulations are
frequently amended, and each participant should rely on his or her own tax
counsel for advice regarding federal income tax treatment under the Plan. If the
recipient is subject to Section 16(b) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), special rules may apply to determine the federal
income tax consequences of certain option exercises. Participants in the Plan
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should consult their own tax advisors as to the specific tax consequences
applicable to them and to the tax consequences applicable to other types of
Stock Incentives that may be awarded under the Plan.
Incentive Stock Options. The recipient of an incentive stock option is
not subject to any federal income tax upon the grant of such an option pursuant
to the Plan, nor does the grant of an incentive stock option result in an income
tax deduction for the Company. Further, a recipient will not recognize income
for federal income tax purposes and the Company normally will not be entitled to
any federal income tax deduction as a result of the exercise of an incentive
stock option and the related transfer of shares of Common Stock to the
recipient. However, the excess of the fair market value of the shares
transferred upon the exercise of the incentive stock option over the exercise
price for such shares generally will constitute an item of alternative minimum
tax adjustment to the recipient for the year in which the option is exercised.
Thus, certain recipients may increase their federal income tax liability as a
result of the exercise of an incentive stock option under the alternative
minimum tax rules under the Code.
If the shares of Common Stock transferred pursuant to the exercise of
an incentive stock option are disposed of within two years from the date the
option is granted or within one year from the date the option is exercised, the
recipient generally will recognize ordinary income equal to the lesser of (1)
the gain recognized (i.e., the excess of the amount realized on the disposition
over the exercise price) or (2) the excess of the fair market value of the
shares transferred upon exercise over the exercise price for such shares. The
balance, if any, of the recipient's gain over the amount treated as ordinary
income on disposition generally will be treated as long- or short-term capital
gain depending upon whether the holding period applicable to long-term capital
assets is satisfied. The Company normally would be entitled to a federal income
tax deduction equal to any ordinary income recognized by the recipient, provided
the Company satisfies applicable federal income tax withholding requirements.
If the shares of Common Stock transferred upon the exercise of an
incentive stock option are disposed of after the holding periods have been
satisfied, such disposition will result in a long-term capital gain or loss
treatment with respect to the difference between the amount realized on the
disposition and the exercise price. The Company will not be entitled to a
federal income tax deduction as a result of a disposition of such shares after
these holding periods have been satisfied.
Non-Qualified Options. A recipient will not recognize income upon the
grant of a non-qualified option or at any time prior to the exercise of the
option or a portion thereof. At the time the recipient exercises a non-qualified
option or portion thereof, he or she will recognize compensation taxable as
ordinary income in an amount equal to the excess of the fair market value of the
Common Stock on the date the option is exercised over the price paid for the
Common Stock, and the Company will then be entitled to a corresponding
deduction.
Depending upon the period for which shares of Common Stock are held
after exercise, the sale or other taxable disposition of shares acquired through
the exercise of a non-qualified option generally will result in a short- or
long-term capital gain or loss equal to the difference between the amount
realized on such disposition and the fair market value of such shares when the
non-qualified option was exercised. Special rules apply to a participant who
exercises a non-qualified option by paying the exercise price in whole or in
part by a transfer of shares of Common Stock to the Company.
The foregoing is a summary discussion of certain federal income tax
consequences to recipients of options under the Code and should not be construed
as legal, tax or investment advice. ALL PARTICIPANTS IN THE PLAN SHOULD CONSULT
THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES APPLICABLE TO THEM,
INCLUDING FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
Vote Required and Recommendation of the Board
The Plan is being submitted for stockholder approval in order to obtain
the benefits provided by Rule 16b-3 under the Securities Exchange Act of 1934,
as amended (the "1934 Act"), and by Section 422 of the Code. Rule 16b-3 exempts
officers and directors engaging in certain stock transactions from short-swing
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trading liability under Section 16(b) of the 1934 Act. Section 422 of the Code
requires stockholder approval in order for options under the Plan to be treated
as incentive stock options. See "Federal Income Tax Consequences - Incentive
Stock Options," above.
The affirmative vote of the holders of a majority of the shares of
Common Stock present and entitled to vote at the Annual Meeting is required to
approve the adoption of the Plan, assuming the presence of a quorum. The Plan
provides that if it has not been approved by the shareholders within 12 months
of its adoption by the Board of Directors, it will terminate and all options
previously granted thereunder will be void and may not be exercised.
RECOGNIZING THE SIGNIFICANT CONTRIBUTIONS OF THE COMPANY'S EMPLOYEES TO
DATE AND THE NEED TO MOTIVATE, COMPENSATE AND ASSURE THEIR RETENTION AS THE
COMPANY GROWS, THE BOARD OF DIRECTORS STRONGLY RECOMMENDS A VOTE "FOR" APPROVAL
OF THE ADOPTION OF THE PLAN.
COMPLIANCE WITH FILING REQUIREMENTS
Pursuant to Section 16(a) of the Securities Exchange Act of 1934, officers,
directors, and beneficial owners of more than ten percent of the outstanding
Common Stock are required to file reports with the Securities and Exchange
Commission reporting their beneficial ownership of the Common Stock at the time
they become subject to the reporting requirements and changes in beneficial
ownership occurring thereafter. Based on a review of the reports submitted to
the Company and written representations from persons known to the Company to be
subject to these reporting requirements, the Company believes that its executive
officers and directors complied with the Section 16(a) requirements during
fiscal 1996.
STOCKHOLDERS PROPOSALS
Stockholders of Theragenics may submit proposals for inclusion in the proxy
materials. These proposals must meet the stockholder eligibility and other
requirements of the Securities and Exchange Commission. In order to be included
in the Company's 1998 proxy material, a stockholder's proposal must be received
not later than December 31, 1997 at Theragenics Corporation offices, 5325
Oakbrook Parkway, Norcross, Georgia 30093, ATTN.: Secretary.
In addition, Theragenics' By-Laws provide that in order for business to be
brought before the Annual Meeting, a stockholder must deliver or mail written
notice to the principal executive offices of the Company, which written notice
is received not less than 60 days nor more than 90 days prior to the date of the
meeting. The notice must state the stockholder's name, address, number and class
of shares of Theragenics stock held, and briefly describe the business to be
brought before the meeting, the reasons for conducting such business at the
Annual Meeting, and any material interest of the stockholder in the proposal.
The By-Laws also provide that if a stockholder intends to nominate a
candidate for election as a Director, the stockholder must deliver written
notice of his or her intention to the Secretary of the Company. The notice must
be received not less than 60 days nor more than 90 days before the date of the
meeting of stockholders. The notice must set forth the name and address of, and
the number of shares owned by, the stockholder (and that of any other
stockholder known to be supporting said nominee). The notice must also set forth
the name of the nominee for election as a Director, the age of the nominee, the
nominee's business address and experience during the past five years, the number
of shares of stock of the Company beneficially held by the nominee, and such
other information concerning the nominee as would be required to be included in
a proxy statement soliciting proxies for the election of the nominee. In
addition, the notice must include the consent of the nominee to serve as a
Director of Theragenics if elected.
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MISCELLANEOUS
THE COMPANY WILL FURNISH WITHOUT CHARGE A COPY OF ITS ANNUAL REPORT ON FORM
10-K FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1996, INCLUDING FINANCIAL STATEMENTS AND SCHEDULES, TO ANY RECORD
OR BENEFICIAL OWNER OF ITS COMMON STOCK AS OF APRIL 11, 1997, WHO REQUESTS A
COPY OF SUCH REPORT. ANY REQUEST FOR THE 10-K REPORT SHOULD BE IN WRITING
ADDRESSED TO: RON WARREN, DIRECTOR OF INVESTOR RELATIONS, THERAGENICS
CORPORATION, 5325 OAKBROOK PARKWAY, NORCROSS, GA 30093. IF THE PERSON REQUESTING
THE REPORT WAS NOT A SHAREHOLDER OF RECORD ON APRIL 11, 1997, THE REQUEST MUST
INCLUDE A REPRESENTATION THAT SUCH PERSON WAS A BENEFICIAL OWNER OF COMMON STOCK
OF THE COMPANY ON THAT DATE. COPIES OF ANY EXHIBITS TO THE FORM 10-K WILL BE
FURNISHED ON REQUEST AND UPON PAYMENT OF THE COMPANY'S EXPENSES IN FURNISHING
SUCH EXHIBITS.
OTHER MATTERS
Management is not aware of any matters to be presented for action at the
meeting other than those set forth in this Proxy Statement. However, should any
other business properly come before the meeting, or any adjournment thereof, the
enclosed Proxy confers upon the persons entitled to vote the shares represented
by such Proxy discretionary authority to vote the same in respect of any such
other business in accordance with their best judgment in the interest of the
Company.
Norcross, Georgia
April 30, 1997
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APPENDIX A
FIRST AMENDMENT TO
THERAGENICS 1995 STOCK OPTION PLAN
THIS FIRST AMENDMENT, made on this 14th day of February, 1997, by
THERAGENICS CORPORATION (the "Company"), a corporation duly organized and
existing under the laws of the State of Delaware;
WITNESSETH:
WHEREAS, the Company maintains the Theragenics Corporation 1995 Stock
Option Plan (the "Plan"); and
WHEREAS, the Company desires to amend the Plan to comply with the
provisions of Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"); and
NOW THEREFORE, the Plan is hereby amended, as follows:
1. Effective as of June 6, 1997, by adding to the end of Section 6.2 the
following:
"In no event shall any person be entitled to grants under the Plan in
any calendar year in excess of 500,000 shares."
2. Effective as of November 1, 1996, by adding to the end of paragraph
(f) of Article 1 the following:
"The Board of Directors should consider the advisability of complying
with the disinterested standards contained in both Code Section 162(m)
and Rule 16b-3 when appointing such Committee members."
3. Effective as of April 3, 1995, al references to "Code Section 422A"
shall be changed to read as "Code Section 422."
Except as specifically amended hereby, the Plan shall remain in full force
and effect as prior to this First Amendment.
IN WITNESS WHEREOF, the Company has caused this First Amendment to be
executed on the day and year first above written.
THERAGENICS CORPORATION
By:/s/Bruce W. Smith
Title: Secretary, Treasurer and
Chief Financial Officer
ATTEST:
By:/s/Ronald A. Warren
Title: Assistant Secretary
[COPRATION SEAL]
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APPENDIX B
THERAGENICS CORPORATION
1997 STOCK INCENTIVE PLAN
<PAGE>
THERAGENICS CORPORATION
1997 STOCK INCENTIVE PLAN
TABLE OF CONTENTS
Page
SECTION 1 DEFINITIONS................................................. 1
1.1 Definitions.......................................... 1
SECTION 2 THE STOCK INCENTIVE PLAN.................................... 3
2.1 Purpose of the Plan.................................. 3
2.2 Stock Subject to the Plan............................ 3
2.3 Administration of the Plan........................... 3
2.4 Eligibility and Limits............................... 4
SECTION 3 TERMS OF STOCK INCENTIVES................................... 4
3.1 Terms and Conditions of All Stock Incentives......... 4
3.2 Terms and Conditions of Options...................... 5
(a) Option Price................................ 5
(b) Option Term................................. 5
(c) Payment..................................... 6
(d) Conditions to the Exercise of an Option..... 6
(e) Termination of Incentive Stock Option....... 6
(f) Special Provisions for Certain Substitute
Options..................................... 7
3.3 Terms and Conditions of Stock Appreciation Rights.
.................................................... 7
(a) Settlement.................................. 7
(b) Conditions to Exercise...................... 7
3.4 Terms and Conditions of Stock Awards................. 7
3.5 Terms and Conditions of Dividend Equivalent Rights.
.................................................... 8
(a) Payment..................................... 8
(b) Conditions to Payment....................... 8
3.6 Terms and Conditions of Performance Unit Awards...... 8
(a) Payment..................................... 8
(b) Conditions to Payment....................... 9
3.7 Terms and Conditions of Phantom Shares............... 9
(a) Payment..................................... 9
(b) Conditions to Payment....................... 9
3.8 Treatment of Awards Upon Termination of Employment
.................................................... 9
SECTION 4 RESTRICTIONS ON STOCK....................................... 10
4.1 Escrow of Shares..................................... 10
4.2 Restrictions on Transfer............................. 10
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SECTION 5 GENERAL PROVISIONS.......................................... 10
5.1 Withholding.......................................... 10
5.2 Changes in Capitalization; Merger; Liquidation....... 11
5.3 Cash Awards.......................................... 12
5.4 Compliance with Code................................. 12
5.5 Right to Terminate Employment........................ 12
5.6 Non-alienation of Benefits........................... 12
5.8 Listing and Legal Compliance......................... 13
5.9 Termination and Amendment of the Plan................ 13
5.10 Stockholder Approval................................. 13
5.11 Choice of Law........................................ 13
5.12 Effective Date of Plan............................... 14
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THERAGENICS CORPORATION
1997 STOCK INCENTIVE PLAN
SECTION 1 DEFINITIONS
1.1 Definitions. Whenever used herein, the masculine pronoun will be
deemed to include the feminine, and the singular to include the plural, unless
the context clearly indicates otherwise, and the following capitalized words and
phrases are used herein with the meaning thereafter ascribed:
(a) "Affiliate" means:
(a) an entity that directly or through one or more
intermediaries is controlled by the Company, and
(b) any entity in which the Company has a significant equity
interest, as determined by the Company.
(b) "Board of Directors" means the board of directors of the
Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the committee appointed by the Board of
Directors to administer the Plan. The Board of Directors shall consider the
advisability of whether the members of the Committee shall consist solely of at
least two members of the Board of Directors who are both "outside directors" as
defined in Treas. Reg. 1.162-27(e) as promulgated by the Internal Revenue
Service and "non-employee directors" as defined in Rule 16b-3(b)(3) as
promulgated under the Exchange Act.
(e) "Company" means Theragenics Corporation, a Delaware
corporation.
(f) "Disability" has the same meaning as provided in the long-term
disability plan or policy maintained or, if applicable, most recently
maintained, by the Company or, if applicable, any Affiliate of the Company for
the Participant. If no long-term disability plan or policy was ever maintained
on behalf of the Participant or, if the determination of Disability relates to
an Incentive Stock Option, Disability means that condition described in Code
Section 22(e)(3), as amended from time to time. In the event of a dispute, the
determination of Disability will be made by the Committee and will be supported
by advice of a physician competent in the area to which such Disability relates.
(g) "Dividend Equivalent Rights" means certain rights to receive
cash payments as described in Section 3.5.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
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(i) "Fair Market Value" with regard to a date means the closing
price at which Stock was sold on the last trading date prior to that date as
reported by the Nasdaq Stock Market (or, if applicable, as reported by a
national securities exchange selected by the Committee on which the shares of
Stock are then actively traded) and published in The Wall Street Journal;
provided that, for purposes of granting awards other than Incentive Stock
Options, Fair Market Value of the shares of Stock may be determined by the
Committee by reference to the average market value determined over a period
certain or as of specified dates, to a tender offer price for the shares of
Stock (if settlement of an award is triggered by such an event) or to any other
reasonable measure of fair market value.
(j) "Option" means a non-qualified stock option or an incentive
stock option.
(k) "Over 10% Owner" means an individual who at the time an
Incentive Stock Option is granted owns Stock possessing more than 10% of the
total combined voting power of the Company or one of its Subsidiaries,
determined by applying the attribution rules of Code Section 424(d).
(l) "Participant" means an individual who receives a Stock
Incentive hereunder.
(m) "Performance Unit Award" refers to a performance unit award as
described in Section 3.6.
(n) "Phantom Shares" refers to the rights described in Section 3.7.
(o) "Plan" means the Theragenics Corporation 1997 Stock Incentive
Plan.
(p) "Stock" means the Company's common stock.
(q) "Stock Appreciation Right" means a stock appreciation right
described in Section 3.3.
(r) "Stock Award" means a stock award described in Section 3.4.
(s) "Stock Incentive Agreement" means an agreement between the
Company and a Participant or other documentation evidencing an award of a Stock
Incentive.
(t) "Stock Incentive Program" means a written program established by
the Committee, pursuant to which Stock Incentives are awarded under the Plan
under uniform terms, conditions and restrictions set forth in such written
program.
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(u) "Stock Incentives" means, collectively, Dividend Equivalent
Rights, Incentive Stock Options, Non-Qualified Stock Options, Phantom Shares,
Stock Appreciation Rights and Stock Awards.
(v) "Subsidiary" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if, with respect to
Incentive Stock Options, 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 the other corporations in the chain.
(w) "Termination of Employment" means the termination of the
employee-employer relationship between a Participant and the Company and its
Affiliates, regardless of whether severance or similar payments are made to the
Participant for any reason, including, but not by way of limitation, a
termination by resignation, discharge, death, Disability or retirement. The
Committee will, in its absolute discretion, determine the effect of all matters
and questions relating to a Termination of Employment, including, but not by way
of limitation, the question of whether a leave of absence constitutes a
Termination of Employment.
SECTION 2 THE STOCK INCENTIVE PLAN
2.1 Purpose of the Plan. The Plan is intended to (a) provide incentive
to officers and key employees of the Company and its Affiliates to stimulate
their efforts toward the continued success of the Company and to operate and
manage the business in a manner that will provide for the long-term growth and
profitability of the Company; (b) encourage stock ownership by officers and key
employees by providing them with a means to acquire a proprietary interest in
the Company, acquire shares of Stock, or to receive compensation which is based
upon appreciation in the value of Stock; and (c) provide a means of obtaining,
rewarding and retaining key personnel and consultants.
2.2 Stock Subject to the Plan. Subject to adjustment in accordance with
Section 5.2, 500,000 shares of Stock (the "Maximum Plan Shares") are hereby
reserved exclusively for issuance pursuant to Stock Incentives. At no time may
the Company have outstanding under the Plan, Stock Incentives subject to Section
16 of the Exchange Act and shares of Stock issued in respect of Stock Incentives
under the Plan in excess of the Maximum Plan Shares. The shares of Stock
attributable to the nonvested, unpaid, unexercised, unconverted or otherwise
unsettled portion of any Stock Incentive that is forfeited or canceled or
expires or terminates for any reason without becoming vested, paid, exercised,
converted or otherwise settled in full will again be available for purposes of
the Plan.
2.3 Administration of the Plan. The Plan is administered by the
Committee. The Committee has full authority in its discretion to determine the
officers and key employees of the Company or its Affiliates to whom Stock
Incentives will be granted and the terms and provisions of Stock Incentives,
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subject to the Plan. Subject to the provisions of the Plan, the Committee has
full and conclusive authority to interpret the Plan; to prescribe, amend and
rescind rules and regulations relating to the Plan; to determine the terms and
provisions of the respective Stock Incentive Agreements and to make all other
determinations necessary or advisable for the proper administration of the Plan.
The Committee's determinations under the Plan need not be uniform and may be
made by it selectively among persons who receive, or are eligible to receive,
awards under the Plan (whether or not such persons are similarly situated). The
Committee's decisions are final and binding on all Participants.
2.4 Eligibility and Limits. Stock Incentives may be granted only to
officers, and key employees and consultants of the Company, or any Affiliate of
the Company; provided, however, that an incentive stock option may only be
granted to an employee of the Company or any Subsidiary. In the case of
incentive stock options, the aggregate Fair Market Value (determined as at the
date an incentive stock option is granted) of stock with respect to which stock
options intended to meet the requirements of Code Section 422 become exercisable
for the first time by an individual during any calendar year under all plans of
the Company and its Subsidiaries may not exceed $100,000; provided further, that
if the limitation is exceeded, the incentive stock option(s) which cause the
limitation to be exceeded will be treated as non-qualified stock option(s).
SECTION 3 TERMS OF STOCK INCENTIVES
3.1 Terms and Conditions of All Stock Incentives.
(a) The number of shares of Stock as to which a Stock Incentive may
be granted will be determined by the Committee in its sole discretion, subject
to the provisions of Section, 2.2 as to the total number of shares available for
grants under the Plan and subject to the limits on Options and Stock
Appreciation Rights in the following sentence. To the extent required under
Section 162(m) of the Code and the regulations thereunder for compensation to
be treated as qualified performance based compensation, the maximum number of
shares of Stock with respect to which Options or Stock Appreciation Rights may
be granted during any one year period to any employee may not exceed 500,000.
(b) Each Stock Incentive will either be evidenced by a Stock
Incentive Agreement in such form and containing such terms, conditions and
restrictions as the Committee may determine to be appropriate, or be made
subject to the terms of a Stock Incentive Program, containing such terms,
conditions and restrictions as the Committee may determine to be appropriate.
Each Stock Incentive Agreement or Stock Incentive Program is subject to the
terms of the Plan and any provisions contained in the Stock Incentive Agreement
or Stock Incentive Program that are inconsistent with the Plan are null and
void.
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(c) The date a Stock Incentive is granted will be the date on which
the Committee has approved the terms and conditions of the Stock Incentive and
has determined the recipient of the Stock Incentive and the number of shares
covered by the Stock Incentive, and has taken all such other actions necessary
to complete the grant of the Stock Incentive.
(d) Any Stock Incentive may be granted in connection with all or any
portion of a previously or contemporaneously granted Stock Incentive. Exercise
or vesting of a Stock Incentive granted in connection with another Stock
Incentive may result in a pro rata surrender or cancellation of any related
Stock Incentive, as specified in the applicable Stock Incentive Agreement or
Stock Incentive Program.
(e) Stock Incentives are not transferable or assignable except by
will or by the laws of descent and distribution and are exercisable, during the
Participant's lifetime, only by the Participant; or in the event of the
Disability of the Participant, by the legal representative of the Participant;
or in the event of death of the Participant, by the legal representative of the
Participant's estate or if no legal representative has been appointed, by the
successor in interest determined under the Participant's will.
3.2 Terms and Conditions of Options. Each Option granted under the Plan
must be evidenced by a Stock Incentive Agreement. At the time any Option is
granted, the Committee will determine whether the Option is to be an incentive
stock option described in Code Section 422 or a non-qualified stock option, and
the Option must be clearly identified as to its status as an incentive stock
option or a non-qualified stock option. Incentive stock options may only be
granted to employees of the Company or any Subsidiary. At the time any incentive
stock option granted under the Plan is exercised, the Company will be entitled
to legend the certificates representing the shares of Stock purchased pursuant
to the Option to clearly identify them as representing the shares purchased upon
the exercise of an incentive stock option. An incentive stock option may only be
granted within ten (10) years from the earlier of the date the Plan is adopted
or approved by the Company's stockholders.
(a) Option Price. Subject to adjustment in accordance with Section
5.2 and the other provisions of this Section 3.2, the exercise price (the
"Exercise Price") per share of Stock purchasable under any Option must be as set
forth in the applicable Stock Incentive Agreement, but in no event may it be
less than the Fair Market Value on the date the Option is granted. With respect
to each grant of an incentive stock option to a Participant who is an Over 10%
Owner, the Exercise Price may not be less than 110% of the Fair Market Value on
the date the Option is granted. The Exercise Price of an Option may not be
amended or modified after the grant of the Option, and an Option may not be
surrendered in consideration of or exchanged for a grant of a new Option having
an Exercise Price below that of the Option which was surrendered or exchanged.
(b) Option Term. Any incentive stock option granted to a
Participant who is not an Over 10% Owner is not exercisable after the expiration
of ten (10) years after the date the Option is granted. Any incentive stock
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option granted to an Over 10% Owner is not exercisable after the expiration of
five (5) years after the date the Option is granted. The term of any
Non-Qualified Stock Option must be as specified in the applicable Stock
Incentive Agreement.
(c) Payment. Payment for all shares of Stock purchased pursuant to
exercise of an Option will be made in any form or manner authorized by the
Committee in the Stock Incentive Agreement or by amendment thereto, including,
but not limited to, cash or, if the Stock Incentive Agreement provides:
(i) by delivery to the Company of a number of shares of Stock
which have been owned by the holder for at least six (6) months prior
to the date of exercise having an aggregate Fair Market Value of not
less than the product of the Exercise Price multiplied by the number of
shares the Participant intends to purchase upon exercise of the Option
on the date of delivery;
(ii) in a cashless exercise through a broker; or
(iii) by having a number of shares of Stock withheld, the Fair
Market Value of which as of the date of exercise is sufficient to
satisfy the Exercise Price.
In its discretion, the Committee also may authorize (at the time an Option is
granted or thereafter) Company financing to assist the Participant as to payment
of the Exercise Price on such terms as may be offered by the Committee in its
discretion. Payment must be made at the time that the Option or any part thereof
is exercised, and no shares may be issued or delivered upon exercise of an
option until full payment has been made by the Participant. The holder of an
Option, as such, has none of the rights of a stockholder.
(d) Conditions to the Exercise of an Option. Each Option granted
under the Plan is exercisable by whom, at such time or times, or upon the
occurrence of such event or events, and in such amounts, as the Committee
specifies in the Stock Incentive Agreement; provided, however, that subsequent
to the grant of an Option, the Committee, at any time before complete
termination of such Option, may accelerate the time or times at which such
Option may be exercised in whole or in part, including, without limitation, upon
a Change in Control and may permit the Participant or any other designated
person to exercise the Option, or any portion thereof, for all or part of the
remaining Option term, notwithstanding any provision of the Stock Incentive
Agreement to the contrary.
(e) Termination of Incentive Stock Option. With respect to an
incentive stock option, in the event of termination of employment of a
Participant, the Option or portion thereof held by the Participant which is
unexercised will expire, terminate, and become unexercisable no later than the
expiration of three (3) months after the date of termination of employment;
provided, however, that in the case of a holder whose termination of employment
-B-6-
<PAGE>
is due to death or Disability, one (1) year will be substituted for such three
(3) month period; provided, further that such time limits may be exceeded by the
Committee under the terms of the grant, in which case, the incentive stock
option will be a nonqualified option if it is exercised after the time limits
that would otherwise apply. For purposes of this Subsection (e), termination of
employment of the Participant will not be deemed to have occurred if the
Participant is employed by another corporation (or a parent or subsidiary
corporation of such other corporation) which has assumed the incentive stock
option of the Participant in a transaction to which Code Section 424(a) is
applicable.
(f) Special Provisions for Certain Substitute Options.
Notwithstanding anything to the contrary in this Section 3.2, any Option issued
in substitution for an option previously issued by another entity, which
substitution occurs in connection with a transaction to which Code Section
424(a) is applicable, may provide for an exercise price computed in accordance
with such Code Section and the regulations thereunder and may contain such other
terms and conditions as the Committee may prescribe to cause such substitute
Option to contain as nearly as possible the same terms and conditions (including
the applicable vesting and termination provisions) as those contained in the
previously issued option being replaced thereby.
3.3 Terms and Conditions of Stock Appreciation Rights. Each Stock
Appreciation Right granted under the Plan must be evidenced by a Stock Incentive
Agreement. A Stock Appreciation Right entitles the Participant to receive the
excess of (1) the Fair Market Value of a specified or determinable number of
shares of the Stock at the time of payment or exercise over (2) a specified or
determinable price which, in the case of a Stock Appreciation Right granted in
connection with an Option, may not be less than the Exercise Price for that
number of shares subject to that Option. A Stock Appreciation Right granted in
connection with a Stock Incentive may only be exercised to the extent that the
related Stock Incentive has not been exercised, paid or otherwise settled.
(a) Settlement. Upon settlement of a Stock Appreciation Right, the
Company must pay to the Participant the appreciation in cash or shares of Stock
(valued at the aggregate Fair Market Value on the date of payment or exercise)
as provided in the Stock Incentive Agreement or, in the absence of such
provision, as the Committee may determine.
(b) Conditions to Exercise. Each Stock Appreciation Right granted
under the Plan is exercisable or payable at such time or times, or upon the
occurrence of such event or events, and in such amounts, as the Committee
specifies in the Stock Incentive Agreement; provided, however, that subsequent
to the grant of a Stock Appreciation Right, the Committee, at any time before
complete termination of such Stock Appreciation Right, may accelerate the time
or times at which such Stock Appreciation Right may be exercised or paid in
whole or in part.
3.4 Terms and Conditions of Stock Awards. The number of shares of Stock
subject to a Stock Award and restrictions or conditions on such shares, if any,
-B-7-
<PAGE>
will be as the Committee determines, and the certificate for such shares will
bear evidence of any restrictions or conditions. Subsequent to the date of the
grant of the Stock Award, the Committee has the power to permit, in its
discretion, an acceleration of the expiration of an applicable restriction
period with respect to any part or all of the shares awarded to a Participant.
The Committee may require a cash payment from the Participant in an amount no
greater than the aggregate Fair Market Value of the shares of Stock awarded
determined at the date of grant in exchange for the grant of a Stock Award or
may grant a Stock Award without the requirement of a cash payment.
3.5 Terms and Conditions of Dividend Equivalent Rights. A Dividend
Equivalent Right entitles the Participant to receive payments from the Company
in an amount determined by reference to any cash dividends paid on a specified
number of shares of Stock to Company stockholders of record during the period
such rights are effective. The Committee may impose such restrictions and
conditions on any Dividend Equivalent Right as the Committee in its discretion
shall determine, including the date any such right shall terminate and may
reserve the right to terminate, amend or suspend any such right at any time.
(a) Payment. Payment in respect of a Dividend Equivalent Right may
be made by the Company in cash or shares of Stock (valued at Fair Market Value
on the date of payment) as provided in the Stock Incentive Agreement or Stock
Incentive Program, or, in the absence of such provision, as the Committee may
determine.
(b) Conditions to Payment. Each Dividend Equivalent Right granted
under the Plan is payable at such time or times, or upon the occurrence of such
event or events, and in such amounts, as the Committee specifies in the
applicable Stock Incentive Agreement or Stock Incentive Program; provided,
however, that subsequent to the grant of a Dividend Equivalent Right, the
Committee, at any time before complete termination of such Dividend Equivalent
Right, may accelerate the time or times at which such Dividend Equivalent Right
may be paid in whole or in part.
3.6 Terms and Conditions of Performance Unit Awards. A Performance Unit
Award shall entitle the Participant to receive, at a specified future date,
payment of an amount equal to all or a portion of the value of a specified or
determinable number of units (stated in terms of a designated or determinable
dollar amount per unit) granted by the Committee. At the time of the grant, the
Committee must determine the base value of each unit, the number of units
subject to a Performance Unit Award, the performance factors applicable to the
determination of the ultimate payment value of the Performance Unit Award and
the period over which Company performance shall be measured. The Committee may
provide for an alternate base value for each unit under certain specified
conditions.
(a) Payment. Payment in respect of Performance Unit Awards may be
made by the Company in cash or shares of Stock (valued at Fair Market Value on
the date of payment) as provided in the applicable Stock Incentive Agreement or
-B-8-
<PAGE>
Stock Incentive Program or, in the absence of such provision, as the Committee
may determine.
(b) Conditions to Payment. Each Performance Unit Award granted under
the Plan shall be payable at such time or times, or upon the occurrence of such
event or events, and in such amounts, as the Committee shall specify in the
applicable Stock Incentive Agreement or Stock Incentive Program; provided,
however, that subsequent to the grant of a Performance Unit Award, the
Committee, at any time before complete termination of such Performance Unit
Award, may accelerate the time or times at which such Performance Unit Award may
be paid in whole or in part.
3.7 Terms and Conditions of Phantom Shares. Phantom Shares shall
entitle the Participant to receive, at a specified future date, payment of an
amount equal to all or a portion of the Fair Market Value of a specified number
of shares of Stock at the end of a specified period. At the time of the grant,
the Committee will determine the factors which will govern the portion of the
rights so payable, including, at the discretion of the Committee, any
performance criteria that must be satisfied as a condition to payment. Phantom
Share awards containing performance criteria may be designated as Performance
Share Awards.
(a) Payment. Payment in respect of Phantom Shares may be made by
the Company in cash or shares of Stock (valued at Fair Market Value on the date
of payment) as provided in the applicable Stock Incentive Agreement or Stock
Incentive Program, or, in the absence of such provision, as the Committee may
determine.
(b) Conditions to Payment. Each Phantom Share granted under the
Plan is payable at such time or times, or upon the occurrence of such event or
events, and in such amounts, as the Committee specify in the applicable Stock
Incentive Agreement or Stock Incentive Program; provided, however, that
subsequent to the grant of a Phantom Share, the Committee, at any time before
complete termination of such Phantom Share, may accelerate the time or times at
which such Phantom Share may be paid in whole or in part.
3.8 Treatment of Awards Upon Termination of Employment. Except as
otherwise provided by Plan Section 3.2(e), any award under this Plan to a
Participant who has experienced a Termination of Employment may be canceled,
accelerated, paid or continued, as provided in the applicable Stock Incentive
Agreement or Stock Incentive Program, or, in the absence of such provision, as
the Committee may determine. The portion of any award exercisable in the event
of continuation or the amount of any payment due under a continued award may be
adjusted by the Committee to reflect the Participant's period of service from
the date of grant through the date of the Participant's Termination of
Employment or such other factors as the Committee determines are relevant to its
decision to continue the award.
-B-9-
<PAGE>
SECTION 4 RESTRICTIONS ON STOCK
4.1 Escrow of Shares. Any certificates representing the shares of Stock
issued under the Plan will be issued in the Participant's name, but, if the
applicable Stock Incentive Agreement or Stock Incentive Program so provides, the
shares of Stock will be held by a custodian designated by the Committee (the
"Custodian"). Each applicable Stock Incentive Agreement or Stock Incentive
Program providing for transfer of shares of Stock to the Custodian must appoint
the Custodian as the attorney-in-fact for the Participant for the term specified
in the applicable Stock Incentive Agreement or Stock Incentive Program, with
full power and authority in the Participant's name, place and stead to transfer,
assign and convey to the Company any shares of Stock held by the Custodian for
such Participant, if the Participant forfeits the shares under the terms of the
applicable Stock Incentive Agreement or Stock Incentive Program. During the
period that the Custodian holds the shares subject to this Section, the
Participant is entitled to all rights, except as provided in the applicable
Stock Incentive Agreement or Stock Incentive Program, applicable to shares of
Stock not so held. Any dividends declared on shares of Stock held by the
Custodian must provide in the applicable Stock Incentive Agreement or Stock
Incentive Program, be paid directly to the Participant or, in the alternative,
be retained by the Custodian or by the Company until the expiration of the term
specified in the applicable Stock Incentive Agreement or Stock Incentive Program
and shall then be delivered, together with any proceeds, with the shares of
Stock to the Participant or to the Company, as applicable.
4.2 Restrictions on Transfer. The Participant does not have the right
to make or permit to exist any disposition of the shares of Stock issued
pursuant to the Plan except as provided in the Plan or the applicable Stock
Incentive Agreement or Stock Incentive Program. Any disposition of the shares of
Stock issued under the Plan by the Participant not made in accordance with the
Plan or the applicable Stock Incentive Agreement or Stock Incentive Program will
be void. The Company will not recognize, or have the duty to recognize, any
disposition not made in accordance with the Plan and the applicable Stock
Incentive Agreement or Stock Incentive Program, and the shares so transferred
will continue to be bound by the Plan and the applicable Stock Incentive
Agreement or Stock Incentive Program.
SECTION 5 GENERAL PROVISIONS
5.1 Withholding. The Company must deduct from all cash distributions
under the Plan any taxes required to be withheld by federal, state or local
government. Whenever the Company proposes or is required to issue or transfer
shares of Stock under the Plan or upon the vesting of any Stock Award, the
Company has the right to require the recipient to remit to the Company an amount
sufficient to satisfy any federal, state and local withholding tax requirements
prior to the delivery of any certificate or certificates for such shares or the
vesting of such Stock Award. A Participant may pay the withholding tax in cash,
or, if the applicable Stock Incentive Agreement or Stock Incentive Program
-B-10-
<PAGE>
provides, a Participant may elect to have the number of shares of Stock he is to
receive reduced by, or with respect to a Stock Award, tender back to the
Company, the smallest number of whole shares of Stock which, when multiplied by
the Fair Market Value of the shares of Stock determined as of the Tax Date
(defined below), is sufficient to satisfy federal, state and local, if any,
withholding taxes arising from exercise or payment of a Stock Incentive (a
"Withholding Election"). A Participant may make a Withholding Election only if
both of the following conditions are met:
(a) The Withholding Election must be made on or prior to the date on
which the amount of tax required to be withheld is determined (the "Tax Date")
by executing and delivering to the Company a properly completed notice of
Withholding Election as prescribed by the Committee; and
(b) Any Withholding Election made will be irrevocable except on six
months advance written notice delivered to the Company; however, the Committee
may in its sole discretion disapprove and give no effect to the Withholding
Election.
5.2 Changes in Capitalization; Merger; Liquidation.
(a) The number of shares of Stock reserved for the grant of Options,
Dividend Equivalent Rights, Performance Unit Awards, Phantom Shares, Stock
Appreciation Rights and Stock Awards; the number of shares of Stock reserved for
issuance upon the exercise or payment, as applicable, of each outstanding
Option, Dividend Equivalent Right, Phantom Share and Stock Appreciation Right
and upon vesting or grant, as applicable, of each Stock Award; the Exercise
Price of each outstanding Option and the specified number of shares of Stock to
which each outstanding Dividend Equivalent Right, Phantom Share and Stock
Appreciation Right pertains must be proportionately adjusted for any increase or
decrease in the number of issued shares of Stock resulting from a subdivision or
combination of shares or the payment of a stock dividend in shares of Stock to
holders of outstanding shares of Stock or any other increase or decrease in the
number of shares of Stock outstanding effected without receipt of consideration
by the Company.
(b) In the event of a merger, consolidation or other reorganization
of the Company or tender offer for shares of Stock, the Committee may make such
adjustments with respect to awards and take such other action as it deems
necessary or appropriate to reflect such merger, consolidation, reorganization
or tender offer, including, without limitation, the substitution of new awards,
or the adjustment of outstanding awards, the acceleration of awards, the removal
of restrictions on outstanding awards, or the termination of outstanding awards
in exchange for the cash value determined in good faith by the Committee of the
vested portion of the award. Any adjustment pursuant to this Section 5.2 may
provide, in the Committee's discretion, for the elimination without payment
therefor of any fractional shares that might otherwise become subject to any
Stock Incentive, but except as set forth in this Section may not otherwise
diminish the then value of the Stock Incentive.
-B-11-
<PAGE>
(c) The existence of the Plan and the Stock Incentives granted
pursuant to the Plan must not affect in any way the right or power of the
Company to make or authorize any adjustment, reclassification, reorganization or
other change in its capital or business structure, any merger or consolidation
of the Company, any issue of debt or equity securities having preferences or
priorities as to the Stock or the rights thereof, the dissolution or liquidation
of the Company, any sale or transfer of all or any part of its business or
assets, or any other corporate act or proceeding.
5.3 Cash Awards. The Committee may, at any time and in its discretion,
grant to any holder of a Stock Incentive the right to receive, at such times and
in such amounts as determined by the Committee in its discretion, a cash amount
which is intended to reimburse such person for all or a portion of the federal,
state and local income taxes imposed upon such person as a consequence of the
receipt of the Stock Incentive or the exercise of rights thereunder.
5.4 Compliance with Code. All incentive stock options to be granted
hereunder are intended to comply with Code Section 422, and all provisions of
the Plan and all incentive stock options granted hereunder must be construed in
such manner as to effectuate that intent.
5.5 Right to Terminate Employment. Nothing in the Plan or in any Stock
Incentive confers upon any Participant the right to continue as an employee or
officer of the Company or any of its Affiliates or affect the right of the
Company or any of its Affiliates to terminate the Participant's employment at
any time.
5.6 Non-alienation of Benefits. Other than as specifically provided
with regard to the death of a Participant, no benefit under the Plan may be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or charge; and any attempt to do so shall be void. No such
benefit may, prior to receipt by the Participant, be in any manner liable for or
subject to the debts, contracts, liabilities, engagements or torts of the
Participant.
5.7 Restrictions on Delivery and Sale of Shares; Legends. Each Stock
Incentive is subject to the condition that if at any time the Committee, in its
discretion, shall determine that the listing, registration or qualification of
the shares covered by such Stock Incentive upon any securities exchange or under
any state or federal law is necessary or desirable as a condition of or in
connection with the granting of such Stock Incentive or the purchase or delivery
of shares thereunder, the delivery of any or all shares pursuant to such Stock
Incentive may be withheld unless and until such listing, registration or
qualification shall have been effected. If a registration statement is not in
effect under the Securities Act of 1933 or any applicable state securities laws
with respect to the shares of Stock purchasable or otherwise deliverable under
Stock Incentives then outstanding, the Committee may require, as a condition of
exercise of any Option or as a condition to any other delivery of Stock pursuant
to a Stock Incentive, that the Participant or other recipient of a Stock
Incentive represent, in writing, that the shares received pursuant to the Stock
Incentive are being acquired for investment and not with a view to distribution
and agree that the shares will not be disposed of except pursuant to an
-B-12-
<PAGE>
effective registration statement, unless the Company shall have received an
opinion of counsel that such disposition is exempt from such requirement under
the Securities Act of 1933 and any applicable state securities laws. The Company
may include on certificates representing shares delivered pursuant to a Stock
Incentive such legends referring to the foregoing representations or
restrictions or any other applicable restrictions on resale as the Company, in
its discretion, shall deem appropriate.
5.8 Listing and Legal Compliance. The Committee may suspend the
exercise or payment of any Stock Incentive so long as it determines that
securities exchange listing or registration or qualification under any
securities laws is required in connection therewith and has not been completed
on terms acceptable to the Committee.
5.9 Termination and Amendment of the Plan. The Board of Directors at
any time may amend or terminate the Plan without stockholder approval; provided,
however, that the Board of Directors may condition any amendment on the approval
of stockholders of the Company if such approval is necessary or advisable with
respect to tax, securities or other applicable laws. No such termination or
amendment without the consent of the holder of a Stock Incentive may adversely
affect the rights of the Participant under such Stock Incentive.
5.10 Stockholder Approval. The Plan must be submitted to the
stockholders of the Company for their approval within twelve (12) months before
or after the adoption of the Plan by the Board of Directors of the Company. If
such approval is not obtained, any Stock Incentive granted hereunder will be
void.
5.11 Choice of Law. The laws of the State of Delaware govern the Plan,
to the extent not preempted by federal law, without reference to the principles
of conflict of laws.
-B-13-
<PAGE>
5.12 Effective Date of Plan. The Plan shall become effective February
14, 1997, the date of its adoption by the Board of Directors, subject, however,
to the approval of the Plan by the Company's shareholders. Stock Incentives
granted hereunder prior to such approval shall be conditioned upon such
approval. Unless such approval is obtained by June 30, 1997 this Plan and any
Stock Incentives awarded hereunder shall become void thereafter.
THERAGENICS CORPORATION
By: /s/ Bruce W. Smith
Title: Secretary, Treasurer &
Chief Financial Officer
ATTEST:
/s/ Ronald A. Warren
Title: Assistant Secretary
[CORPORATE SEAL]
-B-14-
<PAGE>
(Front cover)
THERAGENICS CORPORATION
(The following words each appear once in large type on the cover in various
locations:)
fathers
brothers
HUSBANDS
sons
friends
(Five photographs: an adult holding a child's hand; a man playing basketball; a
man playing golf; individuals in front of a building; and an adult male.)
1996 ANNUAL REPORT
<PAGE>
(Three photographs: a baby; a boy; and a man and a child walking in a wooded
area.)
(Large print unattributed quotes in background: "I watched you grow up.")
(Illustration in Background: Theragenics Corporation's Nuclear Medicine Symbol)
table of contents
The Business of Theragenics
Financial Highlights 1
Our Progress Throughout 1996 2
Our Success Throughout 1996 4
Management's Discussion & Analysis 6
Report of Independent Public Accountants 10
Financial Statements 10
Notes to Financial Statements 13
Supplementary Financial Information inside back cover
Stockholder Information inside back cover
The Business of Theragenics
Theragenics is a leader in the production and marketing of implantable radiation
devices used in the treatment of cancer. The Company produces and markets
TheraSeed(R), a FDA-licensed device that is for use in solid, localized tumors.
The Company's devices are most effective on encapsulated, confined tumors.
TheraSeed(R) is based on established physical principles and has the simple
objective of delivering sufficient radiation to the target cancer to kill it
while minimizing the radiation to surrounding tissue.
The conventional treatments for cancer to date have been surgery, radiation and
chemotherapy. The treatments that have been most successful are those which
remove or kill all of the cancerous tissue while avoiding excessive damage to
the surrounding healthy, normal tissue.
In the treatment of prostate cancer TheraSeeds(R) are implanted into the
prostate in a one-time, minimally invasive procedure. Prostate cancer is the
most common form of cancer, and the second leading cause of cancer deaths, in
men. It is expected to account for approximately 43% of all cancers to be
diagnosed in men during 1997.
TheraSeed(R) has been shown in independent clinical studies to offer success
rates that are comparable to or better than other conventional therapies, while
being associated with a reduced recovery time and incidence of side effects.
i
<PAGE>
FINANCIAL HIGHLIGHTS
Set forth below are selected financial data derived from the statements of
operations of the company for the years ended December 31, 1996, 1995, 1994,
1993 and 1992 and the balance sheets of the Company at December 31, 1996, 1995,
1994, 1993 and 1992.
<TABLE>
<CAPTION>
For the Fiscal Years Ended December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net Sales $12,257,165 $ 7,781,952 $ 4,723,107 $ 4,090,803 $4,379,300
Licensing fee 100,000 85,431 - - -
Costs & expenses:
Cost of sales 3,735,669 2,645,730 1,790,450 1,677,631 1,227,154
Selling, general &
administrative 3,198,663 2,395,846 1,844,239 1,607,288 1,639,334
Research & development 6,952 17,954 15,268 36,181 62,632
Other income (expense) 36,125 64,462 110,215 (85,959) 67,831
Income tax expense 2,067,500 1,100,000 453,000 254,000 582,000
Net profit/(loss) before
extraordinary credit &
change in accounting method 3,384,506 1,772,325 730,365 429,744 936,011
Extraordinary credit - - - - 556,000
Change in accounting method - - - 2,860,000 -
Net profit/(loss) 3,384,506 1,772,325 730,365 3,289,744 1,492,011
Net profit/(loss) per
common share before
extraordinary credit &
change in accounting method $0.28 $0.15 $0.06 $0.04 $0.08
Net profit/(loss) per
common share $.028 $0.15 $0.06 $0.28 $0.13
Weighted average number of
common shares outstanding 12,259,214 11,759,178 11,582,793 11,709,218 11,431,149
Total assets $23,689,421 $16,878,182 $14,168,658 $12,618,869 $ 7,851,056
</TABLE>
(Three vertical bar graphs depicting Revenue, Earnings Per Share and Total
Assets for the years 1992 through 1996 as follows:
Revenues (in millions); 1992-$4,379; 1993-$4,091; 1994-$4,723; 1995-$7,782
1996-$12,257
Earnings Per Share*; 1992-$0.08; 1993-$0.04; 1994-$0.06; 1995-$0.15;
1996-$0.28
* Earnings Per Share Before Extraordinary Credit and Change in Accounting
Methods
Total Assets (in millions); 1992-$7,851; 1993-$12,619; 1994-$14,169;
1995-$16,878; 1996-$23,689.)
1
<PAGE>
Our Progress Throughout 1996
to our shareholders
For Theragenics, 1996 was a year of stellar performance! We exceeded every
previous in-house production record. Sales for 1996 rose to a record high as
TheraSeed(R) was used to treat over 4,000 men. Since our first sales in 1987,
approximately 13,000 men have benefited from TheraSeed(R) - enough to fill
Atlanta's Omni arena. Our achievements are attributable to several factors:
Diligent management of our marketing efforts and capacity expansion to
balance supply and demand;
Proven ability to deliver product at sustainable output levels;
Heightened media attention aimed at early diagnosis of prostate cancer
and treatment alternatives;
Increased patient awareness through dissemination of much needed "second
opinion" information from our Cancer Information Center and Internet
resources.
Clearly, momentum was in our favor in 1996 and that same force continues into
1997.
(Photograph of President and CEO, M. Christine Jacobs)
(Large print quote in background taken from President's letter: "Our seeds gave
hope to patients whose prognosis would have otherwise been dismal.")
the year in review
Along with record breaking production and sales, the Company delivered financial
performance that reflected our conservative management of cash and expenses.
91 percent net income increase, to $3,384,506;
59 percent revenue increase, to $12,357,165;
54 percent earnings per share increase, to $0.28;
$11 million credit facility secured from NationsBank, N.A.
In addition, "Good Morning America" and ABC's "World News Tonight" along with
other media, featured segments about the seeding procedure for treating prostate
cancer. The medical research community supported the growing acceptance of
seeding through the publication of several significant studies showing seed
therapy to be as effective as surgery. These studies also indicated that
complications associated with continence and sexual potency were minimal. At a
presentation to the World Health Organization, seven-year results showed local
disease free rates of 97 percent. While a three-year study published in the
International Journal of Radiation Oncology demonstrated that advanced cancer
patients treated with seeds had outcomes equal to or better than all other
treatments. In that study, our seeds gave hope to patients whose prognoses would
have otherwise been dismal.
Our lobbying efforts to change Medicare reimbursement rates achieved success in
1996. We were able to obtain the support of the Alliance for Aging Research as
well as targeted U.S. senators and representatives in our reimbursement efforts.
As a result, Medicare reimbursement rates for 1996 and 1997 increased
significantly. Since 90 percent of prostate cancer cases occur in
Medicare-eligible men, age 65 and older, the improved reimbursement rates have
resulted in a more level playing field for those physicians wishing to use
seeding as a treatment option.
2
<PAGE>
outlook for 1997
All evidence points to accelerated demand for TheraSeed(R) in the future. To
supply the anticipated increases, we have made arrangements to purchase four
additional cyclotrons. We expect the first of these to be on line around the end
of the first quarter of 1998, with the fourth operational by the end of 1998.
This capital expenditure is the fi rst stage of a major expansion in which we
will relocate production and administrative facilities on 30 acres in Buford,
GA. We expect to complete the expansion by year-end 1998, at an estimated cost
of $20 million.
plans for 1997
Already in 1997, we have taken steps to protect our Company and shareholders
from coercive, hostile or inadequate takeover bids and practices by adopting a
Shareholder Rights Plan. The aim of this plan is to assure a fair price and the
equal treatment to all shareholders in the event of a takeover attempt.
An additional 1997 objective is the automation of various manufacturing
operations. We've talked of automation before and are actively working on it.
However, we refuse to sacrifice quality. The first prototype of the equipment
did not meet our stringent specifications - so we sent it back. We expect a new
system by mid-1997.
Quality has and always will be a top priority at Theragenics. In this arena we
could not be more proud of our 60 employees. They delivered a 1996 inventory
virtually defect-free. We plan to continue our focus on a zero defect product in
1997 with the goal of topping last year's excellent output.
As production volume grows we expect headcount to continue to grow, even with
the efficiencies associated with automation. The additional four cyclotrons are
expected to dictate a need for more and more scientists.
the future
As many of you know, Theragenics has had an exciting and often arduous history.
Looking toward the new millennium, we recognize that only those high tech
companies that are fast, flexible, and responsive will be winners. We see the
urology market as a sleeping giant that is rapidly awakening and we expect it to
be a field of ferocious competition in the future. To that end, we have taken
steps to further strengthen our position in this dynamic environment.
We've taken the first step by signing a letter of intent with a Johnson &
Johnson Company called Indigo Medical, Inc., granting them exclusive worldwide
rights to market and sell TheraSeed(R) for prostate cancer. Under the terms of
the agreement, Indigo will assume responsibility for sales and marketing of
TheraSeed(R). Johnson & Johnson plans to drive seeding treatment for prostate
cancer to unprecedented levels. They are a partner of the size, stature, and
honorable reputation we deserve. They have an appreciation of the fine work
we've done and we believe that together we will be a formidable force in the
fight against prostate cancer.
In April 1997, we completed a secondary offering of 2.3 million shares which
generated approximately $32 million. This recent secondary offering, along with
our $11 million credit facility from NationsBank, will be used to fund facility
expansion efforts, support increased research and development programs and
provide working capital.
These two events were among the most significant undertakings in our history.
They represent aggressive steps taken to position our Company for future growth.
Our coming years will be exciting ones, but please don't expect us to take any
shortcuts. Our employees have shouldered 50 percent plus growth per year for
three years now. They deserve our support, a safe environment and a secure
future. Our shareholders, both old and new, have growth expectations. We will do
our best to meet those expectations through the addition of real value in this
year and the years to come.
Lastly, our ability to position TheraSeed(R) as a cure for cancer and hope to
thousands has been a direct result of the good medicine performed by our
physicians, the hard work of our employees and the support of our shareholders.
Thank you.
Sincerely,
/s/ M. Christine Jacobs
M. Christine Jacobs
President and Chief Executive Officer
3
<PAGE>
FAMILY AND FRIENDS
OF THERAGENICS
(Two photographs: one of man playing golf and another of a man sitting in chair)
(Large print unattributed quotes appearing on the page:)
"Perhaps one day, prostate cancer will be conquered, enabling all of our friends
and loved ones to live longer and reap the benefits of a joyous life."
"With a cure rate comparable to other treatments, seeding is an effective
addition to the cancer fighting arsenal."
4
<PAGE>
(Three photographs: one of a man, one of a boy skating and another of a doctor)
(Large print unattributed quotes appearing on the page:)
"If prostate cancer is detected early, there is a significant chance for a
cure."
"The major advantages of seeding are fewer side effects and lower overall
costs."
"As boys grow into men, their potential is unlimited. They deserve the full
development of that potential - free from the debilitating effects of prostate
cancer."
"Health, happiness, love, and long life."
5
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
overview
Theragenics was founded in 1981 and is engaged in the manufacture and sale of
TheraSeed(R), a rice-sized device used for the treatment of localized prostate
cancer in a one-time, minimally invasive procedure. In 1986, the Company
received FDA clearance for its principal product, TheraSeed(R), for use in any
solid localized tumor. Sales increased 65% in 1995 and 58% in 1996 due to
reliable production from the Company's cyclotrons and increased demand for
TheraSeed(R) as a result of significantly increased marketing efforts and the
release of favorable clinical data relating to the use of TheraSeed(R).
TheraSeed(R) has been used in an estimated 13,000 procedures for prostate cancer
since 1987, including approximately 4,000 procedures in 1996.
Production of Pd-103, the radioisotope supplying the therapeutic radiation of
TheraSeed(R), has always been a controlling factor in the Company's efforts to
generate sales. Until 1993, the Company used a manufacturing process that
required it to contract with third parties for enrichment services that were
necessary to produce a useable feed material for production of Pd-103 in a
nuclear reactor. Additionally, the Company was dependent on a university and a
United States government reactor for the irradiation of this feed material to
yield Pd-103. These factors combined to limit the availability of Pd-103 on a
timely and consistent basis.
To increase its control over the timely and consistent availability, quality and
cost of Pd-103, the Company converted to an alternative means of producing
Pd-103 using a cyclotron. In 1992, the Company contracted for the purchase of a
cyclotron for in-house production of Pd-103. After the cyclotron was delivered
and reliable production of Pd-103 was demonstrated, the Company discontinued its
reliance on outside vendors for enrichment and irradiation services.
In view of the scale of the investment necessary to add cyclotrons and the
Company's limited access to debt and equity capital, the Company undertook a
slow and measured roll-out of its TheraSeed(R) product. Management focused
primarily on the careful development of relationships with the physician
community and on ensuring that the Company's production capabilities could meet
demand for its product. The Company added additional cyclotrons in 1995 and
1996, and a fourth cyclotron is scheduled to become operational in early 1997.
Because a cyclotron does not become available for production until approximately
18 months after it is ordered, the accuracy of the Company's long-term plans can
significantly affect its results of operations. The delivery of cyclotrons prior
to a commensurate increase in demand could adversely impact margins, while
inadequate cyclotron capacity could limit the Company's ability to meet demand
and achieve maximum sales growth.
The Company has recently commenced a $20.0 million capital expansion project
that includes the purchase of four additional cyclotrons and the construction of
new production and administrative facilities. Although no assurances can be
given, management expects that one new cyclotron will become operational during
each quarter of fiscal 1998. Management intends to apply a substantial portion
of the net proceeds from an offering of two million shares of the Company's
Common Stock, planned for completion by the end of March 1997, toward the
purchase of the cyclotrons to be installed in fiscal 1998 and use the remainder
for working capital and other corporate purposes as appropriate. See "Liquidity
and Capital Resources."
On February 24, 1997, the Company entered into a letter of intent with Indigo
Medical, Inc., a subsidiary of Johnson & Johnson, stating the intent to grant to
Indigo the exclusive worldwide right to market and sell Theraseed(R) for the
treatment of prostate cancer. Under the terms of the proposed alliance, the
Company will receive a fixed price per seed sold by Indigo in the United States
and will participate in any unit price increases above a fixed gross sales
price. Indigo would also assume responsibility for the education and training of
urologists, radiation oncologists and other personnel involved in the use of
TheraSeed(R). The Company will continue to be responsible for all manufacturing
and distribution for TheraSeed(R). The terms of international collaboration
would be negotiated in the future.
Should a definitive agreement be reached, management expects that the alliance
would result in higher sales volume that would offset the reduced price received
by the Company for its product and would provide avenues for international
expansion. Based on the Company's ability to utilize Indigo's sales, marketing
and education and training network, management also anticipates that an alliance
with Indigo would significantly reduce the increases in selling, general and
administrative expense that would be necessary to generate and respond to any
future sales increases. In addition, management expects that increased volume
would require the Company to purchase additional cyclotrons and plans to order
additional cyclotrons at a rate commensurate with demand in the event a
definitive agreement with Indigo is reached. No assurance can be given, however,
that the Company and Indigo will successfully negotiate or execute a definitive
agreement or that it will have the anticipated effect on the Company's results
of operations.
6
<PAGE>
results of operations
1996 Revenues - Product sales were $12.3 million in 1996 compared to $7.8
million in 1995, an increase of $4.5 million, or 57.7%. This increase was due to
increased shipments of TheraSeed(R) as a result of reliable production from the
Company's cyclotron-based manufacturing process and increased demand for
TheraSeed(R) as a result of significantly increased marketing efforts and the
release of favorable clinical data. During the periods presented, the Company
engaged in significant marketing efforts to educate both physicians and patients
as to the availability of this treatment option. Sales also reflect that the
Company had two cyclotrons available to meet sales demand throughout 1996 as
compared to only one cyclotron until April 1995.
Licensing fees represent royalty payments with respect to the Company's licensed
TheraSphere(R) technology. Management does not expect licensing fees to become
material in the foreseeable future. See Note F of Notes to Financial Statements.
1996 Costs and Expenses- Cost of product sales was $3.7 million in 1996 compared
to $2.6 million in 1995, an increase of $1.1 million, or 42.3%. This increase
was due primarily to incremental staffing and cyclotron related costs. Staffing
increases were necessary to respond to and anticipate sales growth. Cyclotron
operating costs and depreciation increased as the Company's second cyclotron ran
for the entire year and the third cyclotron was placed in service. The third
cyclotron came on-line behind schedule in the fourth quarter of 1996 and is
experiencing start-up difficulties. As cyclotrons come on-line, margins decline
because each machine represents excess capacity for a period while carrying its
full component of fixed costs, including depreciation. As a percentage of
product sales, cost of product sales decreased from 34.0% in 1995 to 30.5% in
1996. This decrease resulted from economies of scale, offset in part by margin
pressures related to bringing the third cyclotron into production.
Selling, general and administrative expense was $3.2 million in 1996 compared to
$2.4 million in 1995, an increase of $803,000, or 33.5%. This increase reflects
higher expenditures in a number of areas to support increased sales. Marketing
expenditures increased, as did staffing costs in response to increasing
workloads and responsibilities brought on by growth. Some salaries were
increased to maintain competitiveness in the marketplace and thereby retain and
attract key employees. Additionally, as head count grew, space became limited in
the Company's two facilities. The Company rented and outfitted off-site
administrative space at additional expense. Also, an increase in overall asset
size resulted in higher insurance and property tax costs. Other support expenses
grew in direct response to sales and asset size. Despite these increases,
selling, general and administrative expense as a percentage of net sales
decreased from 30.8% in 1995 to 26.1% in 1996 due to economies of scale.
During the periods presented, the Company had no ongoing pure research function.
Development of processes incorporated in the Company's production operations is
incorporated in the manufacturing area and therefore is included in the cost of
goods sold category. Management may choose to develop a research and development
program if and when appropriate opportunities are identified and resources are
in place.
Other income (expense) during the periods presented consist principally of
interest income, interest expense and write off of unamortized loan costs as a
result of loan refinancing.
The Company's effective income tax rate in both 1996 and 1995 was approximately
38%.
historical comparison
1995 Revenues - Product sales were $7.8 million in 1995 compared to $4.7 million
in 1994, an increase of $3.1 million, or 64.8%. This increase was due to
reliable production from the Company's cyclotron-based manufacturing process and
increased demand for TheraSeed(R) as a result of significantly increased
marketing efforts and the release of favorable clinical data. During 1994, sales
efforts remained conservative while the Company addressed the lingering impact
of the 1993 change-over from reactor-produced to cyclotron-produced Pd-103 and a
lengthy period of unexpected downtime on the Company's first cyclotron during
the third quarter of 1993. In 1993 and the first half of 1994, management
delayed increasing marketing efforts until reliable cyclotron production of
Pd-103 was demonstrated. Once demonstrated, the Company instituted a more
aggressive marketing program in mid-1994. Product sales for 1995 reflected the
favorable impact of this increased marketing effort.
1995 Costs and Expenses - Cost of product sales was $2.6 million in 1995
compared to $1.8 million in 1994, an increase of $855,000, or 47.8%. This
increase resulted from the increase in TheraSeed(R) sales. As a percentage of
product sales, cost of product sales decreased from 37.9% in 1994 to 34.0% in
1995, primarily as a result of increased utilization of production capacity and
economies of scale, partially offset by increased depreciation.
7
<PAGE>
Selling, general and administrative expense was $2.4 million in 1995 compared to
$1.8 million in 1994, an increase of $552,000, or 29.9%. This increase was due
primarily to increased advertising and public relations expense to support
activities associated with increased sales. Headcount expenses also increased in
response to the additional workload created by the higher sales. As a percentage
of net sales, selling, general and administrative expense decreased from 39.0%
in 1994 to 30.8% in 1995 due to economies of scale.
1995 Income Taxes - The Company's effective income tax rate in both 1995 and
1994 was approximately 38%.
liquidity and capital resources
During 1994, 1995 and 1996, the Company's principal cash needs related to
capital spending to increase manufacturing capacity. To manufacture
TheraSeed(R), the Company purchases, installs and operates cyclotrons, which
involves significant capital investment. The Company has funded its operations
over this period principally from cash flows from operations and bank
borrowings.
The Company had cash and short-term investments of $2.3 million, $3.3 million
and $3.0 million at December 31, 1994, 1995 and 1996, respectively. Working
capital was $1.3 million at December 31, 1996, including $3.5 million
representing borrowings against the Company's credit facility. This compares to
$3.7 million at year end 1995, which included $511,000 representing the current
portion of long-term obligations. The Company's credit facility allows for the
conversion of, at the Company's option, the entire outstanding balance borrowed
against the credit facility to be converted to a five-year term loan on or
before June 30, 1997, provided the Company equals or exceeds certain financial
ratios. See Note E of Notes to Financial Statements. The Company currently
satisfies these conditions. If the Company were to meet these ratios on June 30,
1997, and choose to convert the December 31, 1996 balance of $3.5 million to a
five-year term loan, the pro forma restated working capital at December 31, 1996
would equal approximately $4.4 million.
Cash provided by operating activities was $1.6 million, $3.4 million and $5.7
million during 1994, 1995 and 1996, respectively. These amounts represent
primarily net income and adjustments for deferred income tax expense and
depreciation and amortization expense, offset in part by adjustments for
increases in accounts receivable related to sales growth.
Cash used in investing activities was $3.1 million, $2.4 million and $8.6
million in 1994, 1995 and 1996, respectively, consisting in each of these years
primarily of purchases of property and equipment. Spending in 1994 primarily
represented progress payments on a project to add a second cyclotron to the
Company's manufacturing facility. This project began in 1993 and was completed
in 1995. Spending in 1995 represents the beginning of a project to add
cyclotrons three and four to the facility, while spending in 1996 represents the
continuation of the project to add cyclotrons three and four to the facility,
the purchase of 30 acres of land for the Company's expansion project and
spending on an assembly automation project. The expansion project for the
addition of cyclotrons three and four that began in 1995 is estimated to cost
approximately $9.0 million and be completed in early 1997. As of January 23,
1997, approximately $8,500,000 has been spent on this expansion project.
On December 27, 1996, the Company entered into agreements for the purchase of
four additional cyclotrons. These four cyclotrons are part of a larger expansion
project that will also include new cyclotron, product assembly and
administrative facilities. Upon completion of the project, the Company plans to
consolidate its entire workforce at this one site. As of January 23, 1997, the
Company had already spent approximately $2.5 million on this project. Management
estimates the total cost of the project to be approximately $20.0 million.
Cash provided (used) by financing activities was $659,000, ($21,000) and $2.6
million in 1994, 1995 and 1996, respectively. Cash flows from financing
activities relates principally to bank borrowings and repayments thereof and, in
1995 and 1996, proceeds from the exercise of stock options and warrants. In the
third quarter of 1994, Theragenics received funding on a $2.1 million loan
secured by the Company's cyclotron facility including a second cyclotron (the
"1994 Term Loan"). The 1994 Term Loan was to mature in 1998 and bore an interest
rate of 8.47% per annum. Of the $2.1 million loan, $1.4 million was used to pay
off an outstanding balance under an existing long-term financing while the
remainder was used to provide partial financing for the purchase of the second
cyclotron and the facility expansion to house it. As of December 8, 1996,
approximately $1.0 million remained outstanding on the 1994 Term Loan.
In December 1995, the Company amended and restated its existing bank credit
facility. The amended and restated bank credit facility (the "Bank Credit
Facility") initially consisted of a $1.0 million receivables credit facility and
an additional $2.0 million revolving credit facility. The Bank Credit Facility
was subsequently increased to $5.0 million. On December 9, 1996, the Company
amended and restated the Bank Credit Facility. The amended and restated Bank
Credit Facility (the "Second Credit Facility") consisted of an $11.0 million
revolving credit facility. Partial proceeds from the Second Credit Facility were
used to pay off the $1.0 million balance on the 1994 Term Loan, while borrowings
under the Bank Credit Facility were rolled over to the Second Credit Facility.
Borrowings under the Second Credit Facility are secured by substantially all of
the Company's assets. The Second Credit Facility contains certain covenants
limiting the payment of dividends, the amount of annual capital expenditures and
8
<PAGE>
the incurrence of additional debt and requires the maintenance of certain
minimum financial ratios. As of December 31, 1996, the Company was in compliance
with all of such covenants. Borrowings under the Second Credit Facility may be
made, at the Company's option, at an interest rate equal to the London Interbank
Offered Rate ("LIBOR") plus 2% or the lender's prime rate as defined. At
year-end, $3.5 million was outstanding against the Second Credit Facility. The
Second Credit Facility terminates on June 30, 1997. At that time, the entire
amount outstanding against the credit facility may, at the Company's option, be
converted to a five-year term loan provided certain financial ratios are
attained. No assurances can be made that the Company will attain these ratios or
if it does that it will choose to convert said balance to the term loan. See
Note E of Notes to Financial Statements.
The Company has filed a registration statement with the Securities and Exchange
Commission with respect to an underwritten public offering of 2,300,000 shares
of Common Stock by the Company (including an option for 300,000 shares that may
be exercised by the underwriters to cover over-allotments, if any). The Company
intends to utilize a portion of the net proceeds for the purchase of four
additional cyclotrons during the next two fiscal years and to construct
facilities to house the cyclotrons, assembly facilities and additional executive
and administrative office space. The remaining proceeds will be used for working
capital and for general corporate purposes, including but not limited to
expenses or capital expenditures incurred in the purchase of additional
cyclotrons, marketing, research and development and automation. Management
believes that the net proceeds of the secondary offering planned for completion
by the end of March, 1997, together with current cash balances, cash from future
operations and the Second Credit Facility, will be sufficient to meet its
working capital and capital expenditure requirements for at least the next 24
months.
This document contains certain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995, including statements
regarding the letter of intent with Indigo Medical, Inc., trends implied by
prostate cancer incidence and treatment data, future costs of sales, selling,
general and administrative expenses, the sufficiency of the Company's liquidity
and capital resources, and statements regarding matters other than historical
facts. These forward-looking statements are subject to certain risks,
uncertainties and other factors which could cause actual results to differ
materially from those anticipated, including risks associated with the
management of growth, government regulation of the therapeutic radiological
pharmaceutical and device business, dependence on health care professionals, and
competition from conventional and newly developed methods of treating localized
cancer.
(Illustration in background: atom symbol)
9
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEETS December 31, 1995 and December 31, 1996
Theragenics Corporation
assets
REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS December 31, December 31,
1995 1996
------------ ------------
<S> <C> <C> <C>
Current Assets:
Cash & short-term investments $ 3,266,338 $ 2,986,123
board of directors Trade accounts receivable...... 1,335,645 2,258,936
Inventories.................... 166,955 229,298
Theragenics Corporation Prepaid expenses & other current
assets....................... 67,521 133,625
We have audited the balance sheets of ---------- -----------
Theragenics Corporation (a Delaware Total current assets........... 4,836,459 5,607,982
corporation) as of December 31, 1995 Property, Plant & Equipment at Cost:
and 1996, and the related statements Building & improvements........ 1,690,045 3,333,728
of earnings, shareholders' equity, and
cash flows for each of the three years Leasehold improvements......... 138,978 138,978
in the period ended December 31, 1996. Machinery & equipment.......... 8,203,256 11,522,064
These financial statements are the Office furniture & equipment... 44,721 65,057
responsibility of the Company's ---------- -----------
management. Our responsibility is to 10,077,000 15,059,827
express an opinion on these financial ---------- -----------
statements based on our audits. Less accumulated depreciation.. 2,194,164 3,237,684
We conducted our audits in accordance ---------- -----------
with generally accepted auditing 7,882,836 11,822,143
standards. These standards require Land........................... 49,485 525,372
that we plan and perform the audit to Construction in progress....... 2,140,894 5,238,056
obtain reasonable assurance about ---------- -----------
whether the financial statements are 10,073,215 17,585,571
free of material misstatement. An
audit includes examining, on a test Other Assets:
basis, evidence supporting the amounts Deferred income tax asset...... 1,810,000 360,000
and disclosures in the financial Patent costs................... 90,704 80,685
statements. An audit also includes Other.......................... 67,804 55,183
assessing the accounting principles ---------- -----------
used and significant estimates made by 1,968,508 495,868
management, as well as evaluating the ---------- -----------
overall financial statement
presentation. We believe our audits $ 16,878,182 $ 23,689,421
provide a reasonable basis for our ========== ===========
opinion. liabilities and shareholders' equity
In our opinion, the financial statements Current Liabilities:
referred to above present fairly, in all Current portion of long-term debt $ 511,362 $ 3,458,436
material respects, the financial position Trade accounts payable......... 348,191 330,375
of Theragenics Corporation as of December Accrued salaries, wages &
31, 1995 and 1996, and the results of its payroll taxes ................. 225,138 459,421
operations and its cash flows for each Other current liabilities...... 15,935 56,677
of the three years in the period ended ---------- ----------
December 31, 1996, in conformity with Total current liabilities...... 1,100,626 4,304,909
generally accepted accounting principles.
Long-Term Debt:.................. 1,008,135 -
/s/Grant Thornton LLP. Commitments & Contingencies...... - -
Grant Thornton LLP. Shareholders' Equity:
Atlanta, Georgia Common stock - authorized 50,000,000
January 16, 1997 shares of $.01 par value; issued &
outstanding, 11,394,785 in 1995 and
11,814,278 in 1996............. 113,948 118,143
Additional paid-in capital..... 16,390,170 17,616,560
Retained earnings (accumulated deficit) (1,734,697) 1,649,809
---------- -----------
Total shareholders' equity... 14,769,421 19,384,512
---------- ----------
$ 16,878,182 $ 23,689,421
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
10
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF EARNINGS For the Three Years Ended December 31, 1996
Theragenics Corporation
Year ended December 31,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Product sales........... $4,723,107 $7,781,962 $12,257,165
Licensing fees.......... -- 85,431 100,000
---------- ---------- ----------
4,723,107 7,867,393 12,357,165
---------- ---------- ----------
Costs & expenses:
Cost of product sales... 1,790,450 2,645,730 3,735,669
Selling, general &
administrative ....... 1,844,239 2,395,846 3,198,663
Research & development.. 15,268 17,954 6,952
---------- ---------- ----------
3,649,957 5,059,530 6,941,284
---------- ---------- ----------
Other income (expense):
Interest income......... 135,888 143,424 126,953
Interest expense........ -- (51,967) (84,517)
Other................... (25,673) (26,995) (6,311)
---------- ---------- ----------
110,215 64,462 36,125
---------- ---------- ----------
Net earnings before
income taxes............. 1,183,365 2,872,325 5,452,006
Income tax expense....... 453,000 1,100,000 2,067,500
---------- ---------- ----------
Net earnings............. $ 730,365 $1,772,325 $3,384,506
========== ========== ==========
Earnings per common share $ .06 $ .15 $ .28
---------- ---------- ----------
Weighted average shares... 11,582,793 11,759,178 12,259,214
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock
------------------------- Retained
Par Additional Earnings
Number of Value Paid-in (accumulated
Shares $.01 Capital deficit) Total
---------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance: December 31, 1993......... 10,912,937 $ 109,129 $15,161,942 $(4,237,387) $11,033,684
Exercise of stock options........ 49,900 499 49,401 -- 49,900
Common stock redeemed............ (950) (10) (3,890) -- (3,900)
Net earnings for the year........ -- -- -- 730,365 730,365
---------- ----------- ------------ ----------- -----------
Balance: December 31, 1994......... 10,961,887 109,618 15,207,453 (3,507,022) 11,810,049
Exercise of stock options.......... 450,000 4,500 576,370 -- 580,870
Common stock redeemed............ (17,102) (170) (106,653) -- (106,823)
Income tax benefit from stock
options exercised................ -- -- 713,000 -- 713,000
Net earnings for the year........ -- -- -- 1,772,325 1,772,325
---------- ----------- ----------- ----------- -----------
Balance: December 31, 1995......... 11,394,785 113,948 16,390,170 (1,734,697) 14,769,421
Exercise of stock options.......... 391,216 3,912 648,242 -- 652,154
Exercise of warrants............. 40,000 400 299,600 -- 300,000
Common stock redeemed............ (11,723) (117) (250,079) -- (250,196)
Income tax benefit from stock
options exercised................ -- -- 528,627 -- 528,627
Net earnings for the year........ -- -- -- 3,384,506 3,384,506
---------- ----------- ------------ ----------- -----------
Balance: December 31, 1996......... 11,814,278 $ 118,143 $17,616,560 $ 1,649,809 $19,384,512
========== =========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
11
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS For the Three Years Ended December 31, 1996
Theragenics Corporation
1994 1995 1996
--------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings....................... $730,365 $1,772,325 $3,384,506
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Deferred income tax expense.... 433,000 1,082,000 1,972,000
Depreciation & amortization.... 571,615 828,072 1,114,919
Loss on disposal of property
& equipment.................... 1,571 1,677 --
Change in assets & liabilities:
Accounts receivable ......... (197,133) (603,221) (923,291)
Inventories.................. (32,834) 25,206 (62,343)
Prepaid expenses & other
current assets............... 22,448 24,280 (66,104)
Other assets................. (200) -- --
Trade accounts payable....... 78,402 121,982 (17,816)
Accrued salaries, wages &
payroll taxes................ 21,400 115,006 234,283
Other current liabilities.... 14,942 (17,214) 47,369
--------- ---------- -----------
Net cash provided by operating
activities..................... 1,643,576 3,350,113 5,683,523
--------- ---------- ----------
Cash flows from investing activities:
Purchase & construction of
property & equipment................ (3,376,967) (2,426,961) (8,555,876)
Maturities of marketable
securities.......................... 309,765 50,000 --
Patent costs........................ (587) (3,632) --
---------- ---------- ----------
Net cash used by investing
activities...................... (3,067,789) (2,380,593) (8,555,876)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from long-term debt........ 2,100,000 -- 2,450,225
Repayment of long-term debt......... (1,441,320) (469,622) (511,286)
Proceeds from exercise of stock
options & warrants ................. 49,900 580,870 952,154
Payment for redemption of common
stock............................... (3,900) (106,823) (250,196)
Debt issue costs.................... (46,025) (25,070) (48,759)
---------- ---------- ----------
Net cash (used) provided by
financing activities............ 658,655 (20,645) 2,592,138
---------- ---------- ----------
Net increase (decrease) in cash &
short-term investments................ (765,558) 948,875 (280,215)
Cash & short-term investments at
beginning of year.................... 3,083,021 2,317,463 3,266,338
---------- ---------- ----------
Cash & short-term investments at
end of year.......................... $2,317,463 $3,266,338 $2,986,123
========== ========== ==========
</TABLE>
Supplemental Schedule of Non Cash Financing Activities:
During 1995 and 1996, the Company realized an income tax benefit from the
exercise and early disposition of certain stock options, resulting in an
increase in the deferred tax asset and additional paid in capital of $713,000
and $528,627, respectively.
<TABLE>
<CAPTION>
Supplementary Cash Flow Disclosure:
<S> <C> <C> <C>
Interest paid, net of
amounts capitalized... $ -- $ 53,843 $ 82,324
Income taxes paid..... 21,500 14,858 98,755
</TABLE>
The accompanying notes are an integral part of these statements.
12
<PAGE>
Notes to Financial Statements December 31, 1995 and 1996
note a
Organization and Description of Business
Theragenics Corporation (the "Company") was organized in November 1981 to
develop, manufacture, and market radiological pharmaceuticals and devices used
in the treatment of cancer. The Company manufactures and markets primarily one
product, which is used in the treatment of cancer. Use of the Company's product
is regulated by the U.S. Food and Drug Administration (FDA). The Company sells
its product primarily to hospitals, physicians and other health service
providers in the United States. The Company therefore is directly affected by
changes in technology, as it may apply to cancer treatment, and by FDA
regulations and the well being of the health care industry.
note b
Summary of Significant Accounting Policies
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows:
1. Use of Estimates - In preparing financial statements in conformity with
generally accepted accounting principles ("GAAP"), management is required to
make certain estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. Accounts Receivable - The Company considers accounts receivable to be fully
collectible; accordingly, no allowance for doubtful accounts is required. If
amounts become uncollectible, they will be charged to operations when that
determination is made.
3. Inventories - Inventories are stated at the lower of cost or market. Cost is
determined using the specific identification method which approximates the
first-in, first-out (FIFO) method. Inventories consist primarily of work in
process.
4. Property, Equipment, Depreciation and Amortization - Property and equipment
are recorded at historical cost. Depreciation is provided for in amounts
sufficient to relate the cost of depreciable assets to operations over their
estimated services lives on a straight-line basis. Depreciation and amortization
expense related to property and equipment charged to operations was
approximately $564,000, $810,000 and $1,044,000 for 1994, 1995 and 1996,
respectively. Estimated services lives are as follows:
Building & improvements..............................30 years
Machinery, leasehold improvements,
furniture & equipment............................. 5-10 years
A significant portion of the Company's depreciable assets are utilized in the
production of its product. Management periodically evaluates the realizability
of its depreciable assets in light of its current industry environment.
Management believes that no impairment of depreciable assets exists at December
31, 1996.
It is possible, however, that management's estimates concerning the
realizability of the Company's depreciable assets could change in the near term
due to changes in the technological and regulatory environment.
5. Patent Costs - The Company capitalizes the costs of patent applications for
its products. Amortization is computed on a straight line basis over the
estimated economic lives of the patents, commencing at the date of grant of the
related patent. Patent costs are net of accumulated amortization of $37,276 and
$47,295 at December 31, 1995 and 1996, respectively. Amortization related to
patent costs charged to operations was approximately $7,800, $8,000 and $10,000
for 1994, 1995 and 1996, respectively.
6. Income Taxes - The Company accounts for income taxes using the asset and
liability method. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates applied to taxable income. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. A valuation allowance is provided for
deferred tax assets when it is more likely than not that the asset will not be
realized.
7. Research and Development Costs - The costs of research and development and
consumable supplies and materials to be used for the development of the
Company's intended products are expensed when incurred.
8. Advertising - The Company expenses the cost of advertising as incurred.
Advertising expense for the years ended December 31, 1994, 1995 and 1996 was
approximately $16,000, $139,000, and $229,000, respectively.
9. Net Earnings Per Common Share - Net earnings per common share is based on the
weighted average number of common shares and common equivalent shares
outstanding during each period.
Fully diluted information is not presented, as fully diluted earnings per share
is not materially different from the primary earnings per share presented.
13
<PAGE>
10. Stock Based Compensation - The Company's stock option plans are accounted
for under the intrinsic value method in which compensation expense is recognized
for the amount, if any, that the fair value of the underlying common stock
exceeds the exercise price at the date of grant.
11. Statements of Cash Flows - For purposes of reporting cash flows, cash and
short-term investments include cash on hand, cash in banks and commercial paper
with original maturities of less than 90 days.
12. Fair Value of Financial Instruments - The Company's financial instruments
include cash, cash equivalents and long-term debt. The carrying value of cash
and cash equivalents approximates fair value due to the relatively short period
to maturity of the instruments. The carrying value of the Company's long-term
obligations approximates fair value based upon borrowing rates currently
available to the Company for borrowings with comparable maturities.
note c
Construction in Progress
Construction in progress represents payments made for construction of
manufacturing equipment and facilities expansion. Total cost of this project is
expected to be approximately $20,000,000 and is expected to be completed in
various stages through 1998.
Construction of equipment and facilities totaling approximately $3,800,000 and
$4,900,000 were completed and placed in service during 1995 and
1996,respectively.
note d
Income Taxes
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------- ---------- ----------
<S> <C> <C> <C>
Current tax expense $ 20,000 $ 18,000 $ 95,500
Deferred tax expense 433,000 1,082,000 1,972,000
-------- ---------- ----------
$453,000 $1,100,000 $2,067,500
======== ========== ==========
</TABLE>
The Company's temporary differences result in a deferred income tax asset,
summarized as follows:
<TABLE>
<CAPTION>
December 31,
1995 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......... $2,240,000 $ 870,000
Tax credit carryforwards.................. 90,000 174,000
Nondeductible accruals & allowances....... 38,000 50,000
Other..................................... 7,000 14,000
--------- ----------
Gross deferred tax asset............. 2,375,000 1,108,000
Deferred tax liabilities:
Depreciation.............................. 565,000 748,000
---------- ----------
Net deferred tax asset............... $1,810,000 $ 360,000
========== ==========
</TABLE>
The significant portion of the net operating loss carryforwards were incurred
while the Company was in the development stage. Upon receiving clearance to
market its "Theraseed(R)" product from the U.S. Food and Drug Administration
(FDA) in 1986, the Company commenced manufacturing and distribution of its
product in 1987. Since emerging from the development stage in 1989, the Company
has utilized approximately $7,500,000 of these net operating loss carryforwards
through December 31, 1996 by generating taxable income. In order to realize the
income tax benefit from the remaining net operating loss carryforwards at
December 31, 1996, it will be necessary for the Company to generate future
taxable income of approximately $2,300,000, prior to the expiration of the net
operating loss carryforward periods. Based on the Company's results of
operations subsequent to receiving FDA clearance to market its product, and on
expected future results of operations, management believes that currently it is
more likely than not that the income tax benefits of the net operating loss
carryforwards will be realized within the carryforward period. The amount of the
deferred tax asset considered realizable, however, could be reduced in the near
term if estimates of future taxable income during the carryforward period are
reduced.
The provision for income taxes differs from the amount of income tax determined
by applying the applicable federal rates due to the following:
<TABLE>
<CAPTION>
Year ending December 31,
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Tax at applicable federal rate of 34%. $402,000 $ 977,000 $1,854,000
State tax, net........................ 47,000 115,000 208,000
Other................................. 4,000 8,000 5,500
-------- ---------- ---------
$453,000 $1,100,000 $2,067,500
======== ========== ==========
</TABLE>
The Tax Reform Act of 1986 enacted an alternative minimum tax system for
corporations (the "AMT"). AMT is imposed at a 20% rate on the Company's AMT
income which is determined by making statutory adjustments to regular taxable
income. A company pays the greater of the taxes computed under the "regular" tax
system or the AMT system. Because AMT net operating loss carryforwards may only
be utilized to offset 90% of the AMT income, the Company was subject to the AMT
in 1994, 1995 and 1996, resulting in an alternative minimum tax of $20,000,
$18,000 and $95,500, respectively. These amounts will be allowed as a credit
carryover to reduce the regular tax liability in future years, but not below the
AMT of such years.
At December 31, 1996, the Company had approximate net federal operating loss
carryforwards for regular tax and AMT purposes as follows:
<TABLE>
<CAPTION>
Net operating Net operating
Year of expiration loss (regular) loss (AMT)
-------------- -------------
<S> <C> <C>
2004........................ $1,698,000 $234,000
2005........................ 591,000 554,000
-------------- -------------
$2,289,000 $788,000
============== =============
</TABLE>
14
<PAGE>
note e
Notes Payable
In December 1996, the Company entered into an amended and restated loan and
security agreement (the "loan agreement") with a financial institution. This
loan agreement incorporated the Company's existing term loan and line of credit
(the "1995 loan agreement") with the same financial institution, which had an
outstanding balance of approximately $1,050,000. The 1995 loan agreement
required monthly payments of $51,862, including interest at 8.47%.
The loan agreement provides for a revolving credit facility of up to
$11,000,000. Interest on outstanding borrowings is payable monthly at the prime
rate or at the LIBOR rate plus 2% (effective rate of 8.25% at December 31,
1996). At December 31, 1996, $3,458,436 was outstanding under the revolving
credit facility.
All outstanding borrowings under the loan agreement are due on June 30, 1997.
However, the outstanding principal can be repaid over sixty equal consecutive
monthly installments, commencing July 31, 1997, provided that the Company meets
the term-out requirements as specified in the agreement. The term-out
requirements include, among other things, the attainment of a certain minimum
net worth and other financial ratios for the quarter ending March 31, 1997.
Commencing on June 30, 1997 the interest rate on outstanding borrowings will be
the prime rate or, at the Company's option, the LIBOR rate plus 1.75%-2.25% or a
rate based on U.S. Treasury bills plus 2%-2.5%. The rate margin on the LIBOR and
Treasury rates are based upon the Company's debt service coverage ratio, as
defined in the loan agreement.
Outstanding borrowings under the loan agreement are collateralized by
substantially all of the Company's assets. Provisions of the loan agreement
limit the amount of annual capital expenditures, the incurrence of additional
debt and, among other things, require the maintenance of certain minimum
financial ratios. The loan agreement also limits the number of manufacturing
systems the Company can order and purchase, based upon quarterly revenues. As of
December 31, 1996, the Company was in compliance with the provisions of the loan
agreement.
note f
Commitments and Contingencies
Licensing Agreement - The Company holds a worldwide exclusive license from the
University of Missouri for the use of technology, patented by the University,
used in the Company's "TheraSphere(R)" product. The licensing agreement provides
for the payment of royalties based on the level of sales and on lump sum
payments received pursuant to a licensing agreement with Nordion International,
Inc. (see following).
The Company has granted certain of its worldwide rights under the licensing
agreement with the University of Missouri to Nordion International, Inc.
("Nordion"), a Canadian company which is a producer, marketer and supplier of
radioisotope products and related equipment. Under the Nordion agreement,
entered into on March 23, 1995, the Company has received certain lump sum
payments and will receive a licensing fee for each geographic area in which
Nordion receives new drug approval. The Company will also be entitled to a
percentage of future revenues earned by Nordion as royalties under the
agreement. Royalties from this agreement for each of the three years in the
period ended December 31, 1996 were not significant.
In 1995 and 1996, the Company received approximately $85,000 and $100,000,
respectively, from Nordion for the right to use certain patents and to
manufacture, distribute, and sell "TheraSphere(R)" for all applications
worldwide.
Letter of Credit - The Company has a letter of credit outstanding for
approximately $315,000 relating to regulatory requirements.
Lease Commitment - The Company leases space under two noncancelable leases which
expire in December 1998 and February 1999. Approximate minimum lease payments
under the leases are as follows: 1997, $112,000; 1998, $114,000; 1999, $7,500.
Rent expense was approximately $61,000, $61,500 and $76,000 for the years ended
December 31, 1994, 1995 and 1996, respectively.
note g
Stock Options and Warrants
Stock Options - The Company's board of directors has approved three stock option
plans which in aggregate cover up to 2,200,000 shares of common stock. The plans
provide for the expiration of options ten years from the date of grant and
requires the exercise price of the options granted to be at least equal to 100%
of market value on the date granted. Stock option transaction for each of the
three years in the period ended December 31, 1996 are summarized below: <TABLE>
<CAPTION>
Weighted
Average
Exercise
1994 Shares Price
--------- --------
<S> <C> <C>
Outstanding
beginning
of year........ 1,258,116 $2.05
Granted........ 40,000 2.50
Exercised...... (49,900) 1.00
Forfeited...... (21,500) 2.74
---------- -----
Outstanding end
of year....... 1,226,716 $2.09
========== =====
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Weighted
Average
Exercise
1995 Shares Price
--------- --------
<S> <C> <C>
Outstanding
beginning
of year........ 1,226,716 $2.09
Granted........ 221,000 5.38
Exercised...... (450,000) 1.29
Forfeited...... - -
---------- -----
Outstanding end
of year....... 997,716 $3.11
========== =====
</TABLE>
<TABLE>
<CAPTION>
Weighted
Average
Exercise
1996 Shares Price
--------- --------
<S> <C> <C>
Outstanding
beginning
of year........ 997,716 $ 3.11
Granted........ 220,000 15.92
Exercised...... (391,216) 2.21
Forfeited...... - -
---------- -----
Outstanding end
of year....... 826,500 $ 7.22
========== =====
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding
Number
Range of Outstanding at Weighted Average
Exercise December 31, Remaining
Price 1996 Contractual Life
-------- -------------- ----------------
<S> <C> <C>
$ 1.00 - 3.50 245,000 3.9
$ 5.38 - 6.38 361,500 8.7
$15.25 -16.88 220,000 10.0
------- ----
826,500 7.6
======= ====
</TABLE>
<TABLE>
<CAPTION>
Options Exercisable
Weighted Number Weighted
Average Exercisable at Average
Exercise December 31 Exercise
Price 1996 Price
-------- -------------- --------
<C> <C> <C>
$ 1.83 232,600 $ 1.75
5.54 189,500 5.56
15.99 12,000 16.88
------ ------- ------
$ 7.22 434,100 $ 3.83
====== ======= ======
</TABLE>
The Company follows the practice of recording amounts received upon the exercise
of options by crediting common stock and additional capital. No charges are
reflected in the statements of operations as a result of the grant or exercise
of options. The Company realizes an income tax benefit from the exercise or
early disposition of certain stock options. This benefit results in an increase
to the deferred tax asset and an increase in additional paid-in capital.
The Company uses the intrinsic value method in accounting for its stock option
plans. In applying this method, no compensation cost has been recognized. Had
compensation cost for the Company's stock option plans been determined based on
the fair value at the grant dates for awards under those plans, the Company's
net earnings and earnings per share would have resulted in the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Net earnings
As reported.....................................$1,772,325 $3,384,506
Pro forma....................................... 1,750,736 3,015,123
Primary earnings per share
As reported..................................... $.15 $.28
Pro forma....................................... .15 .25
</TABLE>
Fully diluted information is not presented, as reported and pro forma fully
diluted earnings per share is not materially different from the primary earnings
per share presented.
For purposes of the pro forma amounts above, the fair value of each option grant
was estimated on the date of grant using the Black-Scholes options-pricing model
with the following weighted-average assumptions used for grants in 1995 and
1996, respectively; expected volatility of 70% for each year, risk-free interest
rates of 5.86%, and 6.15%-6.46%; and expected lives of 5-7 years and 7 years.
Warrants - During 1996, 40,000 warrants were exercised, resulting in proceeds to
the Company of $225,000. The Company also has warrants outstanding at December
31, 1996 covering 60,000 shares of common stock. The warrants are exercisable at
a price of $7.50 per share and expire in May 1999.
note h
Major Customers - During 1994, there were sales to one major customer that
equaled approximately 10% of sales. During 1995 and 1996, there were no
customers which individually comprised 10% of sales.
note i
Employee Benefit Plan - The Company sponsors a defined contribution 401(k) Plan
covering all employees with at least six months of service and at least 21 years
of age. The Plan permits participants to defer a portion of their compensation
through payroll deductions. The Company may, at its discretion, contribute to
the Plan on behalf of participating employees. Company discretionary
contributions were approximately $27,700, $39,700 and $14,100 for 1994, 1995 and
1996, respectively.
16
<PAGE>
Supplementary Financial Information
quarterly results (Dollars in thousands, except per share data)
1995 1996
------------------------------ ------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
------ ------ ------ ------ ------ ------ ------ ------
Net sales $1,834 $1,912 $1,926 $2,195 $2,798 $2,727 $3,144 $3,688
Net earnings $ 382 $ 385 $ 421 $ 584 $ 854 $ 678 $ 918 $ 935
Net earnings
per common
share $ .03 $ .03 $ .04 $ .05 $ .07 $ .06 $ .07 $ .08
Stockholder Information
investor community information
Stockholders, registered representatives, professional investment managers and
financial analysts wanting additional information about Theragenics Corporation
are invited to contact:
Mr. Ronald A. Warren
Director of Investor Relations and Assistant Secretary
Theragenics Corporation
5325 Oakbrook Parkway
Norcross, Georgia 30093
800.998.8479 or 770.381.8338
availability of form 10-k
The Company will furnish without charge a copy of its Annual Report on Form 10-K
filed with the Securities and Exchange Commission for the fiscal year ended
December 31, 1996, including financial statements and schedules, to any record
or beneficial owner of its Common Stock as of March 28, 1997, who requests a
copy of such Report. Any request for the 10-K Report should be in writing
addressed to:
Mr. Ronald A. Warren
Director of Investor Relations and Assistant Secretary
Theragenics Corporation
5325 Oakbrook Parkway
Norcross, Georgia 30093
transfer agent and registrar
Stockholders wishing to change the name on their certificates, or to report a
lost certificate, should contact the transfer agent:
SunTrust Bank
Stock Transfer Department
P.O. Box 4625, Mail Code 008
Atlanta, Georgia 30302
404.588.7817
dividend policy
Theragenics has never paid cash dividends on the common stock, and has no
current plans to begin paying cash dividends.
common shareholders of record
As of March 28, 1997, Theragenics had 734 record holders of common stock.
directors and executive officers
Charles Klimkowski*: Chairman, Theragenics Corporation
Senior Vice President, The Chicago Corporation
M. Christine Jacobs*: President and Chief Executive Officer
Otis Brawley, M.D.*: Director of Oncology and Rehabilitation
Branch, Early Detection and Community Oncology
Program, National Cancer Institute
Dr. Orwin L. Carter, Ph.D.*: Consultant, INCSTAR Corporation
John V. Herndon*: Advisor-to-the-President, Theragenics
Corporation
Peter A.A. Saunders*: Consultant, PASS Consultants
Bruce W. Smith: Treasurer, Chief Financial Officer and Secretary
* Director of Theragenics Corporation
independent public accountant
Grant Thornton, Atlanta, Georgia
general counsel
Powell, Goldstein, Frazer & Murphy, Atlanta, Georgia
common stock price ranges
Theragenics Corporation's common stock is traded on the national market system
under the Nasdaq Symbol "THRX." The following table sets forth the quarterly
high and low sales prices for the periods indicated as reported by Nasdaq. The
prices shown represent actual sales prices without retail markups, markdowns or
commissions.
Share Price of Common Stock:
1995 High Low 1996 High Low
------- ------ ------- -------
1st quarter $ 3 3/4 $2 1/4 1st quarter $12 1/4 $ 7
2nd quarter $ 6 1/2 $3 1/8 2nd quarter $18 5/8 $ 8 5/8
3rd quarter $ 6 3/8 $4 7/8 3rd quarter $19 1/4 $11 3/4
4th quarter $12 1/2 $4 7/8 4th quarter $25 5/8 $16
Design by Gill Design, Photography by Terry Teague Photography, Executive Photo
by William R. Davis Photography
<PAGE>
(Center of back cover)
THERAGENICS CORPORATION
(Bottom of back cover)
5325 Oakbrook Parkway, Norcross, Georgia 30093 Telephone: 770.381.8338
THERAGENICS CORPORATION
5325 OAKBROOK PARKWAY
NORCROSS, GEORGIA 30093 PROXY - Annual Meeting of
Stockholders - June 6, 1997.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Ms. M. Christine Jacobs and Mr. Bruce W.
Smith, or either of them (the "Proxies"), as the undersigned's proxy or proxies,
each with the power to appoint her/his substitute, and hereby authorizes them to
represent and to vote, as designated below, all shares of Common Stock of
Theragenics Corporation (the "Company") which the undersigned is entitled to
vote at the Annual Meeting of Stockholders of the Company to be held on June 6,
1997, or any adjournment thereof.
1.ELECTION OF DIRECTORS.
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary) to vote for all nominees listed below
(INSTRUCTION: To withhold authority to vote for any individual nominee, strike a
line through the nominee's name in the list below.)
CHARLES R. KLIMKOWSKI OTIS W. BRAWLEY, M.D.
2.PROPOSAL TO RATIFY THE APPOINTMENT OF GRANT THORNTON AS THE INDEPENDENT PUBLIC
ACCOUNTANTS OF THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 1997.
FOR AGAINST ABSTAIN
3.PROPOSAL TO APPROVE AN AMENDMENT TO THE COMPANY'S 1995 STOCK OPTION PLAN.
FOR AGAINST ABSTAIN
(CONTINUED ON REVERSE SIDE)
<PAGE>
4.PROPOSAL TO ADOPT THE COMPANY'S 1997 STOCK OPTION PLAN.
FOR AGAINST ABSTAIN
5.In their discretion, the Proxies, or either of them, are authorized to vote
upon such other business as may properly come before the meeting or any
adjournment thereof.
This proxy when properly executed will be voted in the manner directed herein by
the undersigned stockholder. If no direction is made, this proxy will be voted
in favor of Charles R. Klimkowski and Otis W. Brawley M.D. for election as
directors and FOR Proposals 2, 3 and 4.
DATE______________________________
----------------------------------
Signature
----------------------------------
Signature, if held jointly
Please sign exactly as your name or
names appear at left. When shares
are held by joint tenants, both
should sign. If signing in any
fiduciary or representative
capacity, give full title as such.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
ENVELOPE.
