<PAGE>
August 10, 1995
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: The Care Group, Inc.
Form 10-Q
Gentlemen:
On behalf of our client The Care Group, Inc. (the "Company") we herewith
electronically file Form 10-Q with an exhibit and a financial data
schedule.
If you have any questions, please call me at (212) 490-6080. Thank you.
Very truly yours,
/s/ Christina Walsh Hope
Christina Walsh Hope
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 10 - Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 1995 Commission file number 0-17821
The Care Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 11-2962027
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1 Hollow Lane, Lake Success, New York, 11042
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 516-869-8383
N/A
(Former name, former address and former fiscal year,
if changed from last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
As of July 27, 1995, the registrant had 8,450,015 shares of common stock,
$.001 par value per share, outstanding.
<PAGE>
THE CARE GROUP, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
4 Financial Information
9 Notes to Consolidated Financial Statements
10-13 Management's Discussion and Analysis of Financial
Condition and Results of Operations
14-15 Other Information
<PAGE>
THE CARE GROUP, INC. AND SUBSIDIARIES
THREE MONTHS & SIX MONTHS ENDED JUNE 30, 1995
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
THE CARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
June 30, December 31, June 30,
1995 1994
(Unaudited) 1994 (Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $607 $577 $1,273
Marketable securities 619 711 770
Accounts receivable, net of
allowances of
$3,272 at June 30, 1995,
$4,186 at December 31,
1994 and $3,613 at
June 30, 1994 15,826 15,585 14,536
Inventories 1,250 1,163 1,062
Prepaid expenses and other 413 593 1,377
Total Current Assets 18,715 18,629 19,018
Property and equipment
- at cost 4,454 3,808 3,170
Less - Accumulated
depreciation 1,453 1,195 1,013
Net property and equipment 3,001 2,613 2,157
INTANGIBLES - Net 13,846 13,851 11,461
OTHER ASSETS 598 315 274
TOTAL ASSETS $36,160 $35,408 $32,910
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of
long-term debt $1,175 $568 $17
Accounts payable 721 1,374 863
Accrued expenses 890 851 909
Income taxes payable - 264 333
Deferred income taxes - - 238
Total Current Liabilities 2,786 3,057 2,360
LONG-TERM LIABILITIES
NOTE PAYABLE TO BANK 6,750 6,000 6,500
DEFERRED INCOME TAXES 336 158 238
LONG-TERM DEBT,
Excluding Current Portion 2,100 2,856 3,009
TOTAL LIABILITIES 11,972 12,071 12,107
<PAGE>
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred Stock, $.001 par
value per share; 1,000
shares authorized;
no shares issued
and outstanding - - -
Common Stock, $.001 par
value per share; 20,000
shares authorized; 8,638,
8,359 and 7,748 shares
issued and outstanding at
June 30, 1995,
December 31, 1994
and June 30, 1994,
respectively 9 8 8
Additional paid-in capital 20,884 20,390 18,412
Retained earnings 4,327 3,858 3,302
25,220 24,256 21,722
Common Stock held in
treasury, at cost-217,
207 and 207 shares at
June 30, 1995, December 31,
1994 and June 30, 1994,
respectively (1,032) (919) (919)
Total Stockholders'
Equity 24,188 23,337 20,803
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $36,160 $35,408 $32,910
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE CARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
For The Six Months Ended
JUNE 30,
1995 1994
(Unaudited) (Unaudited)
<S> <C> <C>
NET REVENUES $21,056 $16,414
COST OF REVENUES 10,390 9,299
GROSS PROFIT 10,666 7,115
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 9,486 5,787
OPERATING INCOME 1,180 1,328
INTEREST:
Interest income 17 10
Interest expense (279) (203)
Net interest expense (262) (193)
INCOME BEFORE PROVISION FOR
INCOME TAXES 918 1,135
PROVISION FOR INCOME TAXES 449 477
NET INCOME $469 $658
INCOME PER COMMON AND COMMON
EQUIVALENT SHARES $.06 $.09
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 8,402 7,595
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE CARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For The Three Months Ended
JUNE 30
1995 1994
(In thousands, except per share data) (Unaudited) (Unaudited)
<S> <C> <C>
NET REVENUES $11,019 $8,815
COST OF REVENUES 5,079 4,830
GROSS PROFIT 5,940 3,985
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 5,196 3,281
OPERATING INCOME 744 704
INTEREST:
Interest income 6 9
Interest expense (140) (138)
Net interest expense (134) (129)
INCOME BEFORE PROVISION FOR
INCOME TAXES 610 575
PROVISION FOR INCOME TAXES 282 215
NET INCOME $328 $360
INCOME PER COMMON AND COMMON
EQUIVALENT SHARES $.04 $.05
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING 8,414 7,675
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE CARE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT
OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(In Thousands)
Additional
Common Paid-In Retained
Stock Capital Earnings
<S> <C> <C> <C>
Balance - January 1, 1994 $7 $16,919 $2,644
Proceeds from exercise
of stock options - 654 -
Stock distributed to
employees pursuant to
employment agreements - 200 -
Stock issued for acquisitions 1 2,708 -
Adjustment for stock distributed
to employees pursuant to
employment agreements - (91) -
Net Income - - 1,214-
Balance - December 31, 1994 8 20,390 3,858
Proceeds from exercise
of stock options 1 552 -
Treasury stock acquired - - -
Treasury stock sold - (58) -
Net Income - - 469
Balance - June 30, 1995 9 20,884 4,327
Treasury
Stock Total
<S> <C> <C>
Balance - January 1, 1994 ($919) $18,651
Proceeds from exercise
of stock options - 654
Stock distributed to
employees pursuant to
employment agreements - (200)
Stock issued for acquisitions - 2,709
Adjustment for stock distributed
to employees pursuant to
employment agreements - (91)
Net Income - 1,214
Balance - December 31, 1994 (919) 23,337
Proceeds from exercise
of stock options - 553
Treasury stock acquired (847) (847)
Treasury stock sold 734 676
Net Income - 469
Balance - June 30, 1995 (1,032) 24,188
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE CARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Six Months Ended June 30,
(In thousands) 1995 1994
(unaudited) (unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $469 $658
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 677 444
Provision for bad debts 533 -
Unrealized (gain) loss on
marketable securities (32) 109
(Gain) loss on sale of marketable securities (29) 15
Provision for deferred income taxes 178 (204)
Changes in assets and liabilities:
Accounts receivable (774) (1,012)
Inventories (87) (359)
Prepaid expenses and other current assets 167 (534)
Other assets (83) (175)
Accounts payable (653) 30
Accrued expenses 39 191
Income taxes payable (264) 266
Net cash provided by (used in)
operating activities 141 (571)
INVESTING ACTIVITIES:
Purchases of property and equipment (646) (157)
Payments for intangible assets acquried (335) (311)
Restrictive covenant (66) -
Investment in certified home health agency (200) -
Net sales (purchases) of marketable securities 153 (42)
Net cash used in investing activities (1,094) (510)
FINANCING ACTIVITIES:
Proceeds from bank loan 750 3,500
Repayments of long-term debt (149) (2,774)
Proceeds from exercise of stock options 553 -
Purchases of treasury stock (847) -
Sales of treasury stock 676 286
Net cash provided by financing activities 983 1,012
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 30 (69)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 577 1,342
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $607 $1,273
Supplemental Disclosure of
Cash Flow Information:
Interest Paid $279 $178
Taxes Paid $642 $386
Supplemental Disclosure of non-cash investing
and financing activities:
Issuance of stock in connection with
acquisition - $1,208
Issuance of note in connection
with acquisition - $3,000
</TABLE>
<PAGE>
THE CARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1994.
NOTE 2- MARKETABLE SECURITIES
Marketable securities consist of widely diversified investments in stocks and
bonds. During 1994, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" ("SFAS No.115"). SFAS No. 115 requires a
positive intent and ability to hold debt securities
to maturity as a precondition for reporting those securities at amortized
cost. Securities not meeting the condition are considered either available
for sale or trading, as defined, and are reported at fair value. Trading
securities are reported at fair value with adjustments recorded through the
consolidated statements of income. The investments owned by the Company
are considered trading securities as they are bought
and held principally for the purpose of selling them in the near term to
generate a profit on short-term differences in price. Gross unrealized
gains and gross unrealized losses related to trading securities are included
in earnings for the six months ended June 30, 1995. Gross unrealized gains
approximated $43,000, and gross unrealized losses approximated $11,000
as of June 30, 1995.
NOTE 3 - INVENTORIES
Inventories consisting of durable medical equipment, supplies and
pharmaceuticals are stated at the lower of cost (first-in, first-out) or
market.
Page 9 of 16 Pages
<PAGE>
2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management's analysis is intended to describe narratively the Company's
consolidated financial condition and its consolidated results of
operations.
It should be read in conjunction with the Company's consolidated financial
statements and the accompanying notes.
Page 10 of 16 Pages
<PAGE>
RESULTS OF OPERATIONS
FOR SIX MONTHS ENDED JUNE 30, 1995
Net revenues for the six months ended June 30, 1995 increased to $21,056,000
as compared to $16,414,000 for the comparable period last year. The increase
of $4,642,000 or 28% is primarily attributable to the acquisition of Advanced
Care Associates, Inc. as well as internal growth in the Company's infusion
division.
The cost of revenues for the six months ended June 30, 1995 as a percentage
of net revenues was 49% as compared to 57% for the comparable period last
year. The decrease is primarily due to the Company increasing its durable
medical equipment ("DME") business which has a lower cost of revenues than
the nursing and Infusion therapy business. Total direct cost as a percentage
of net revenues for the DME operation is 26% for the six months ended
June 30, 1995.
The Company's selling, general and administrative ("SG&A") expenses as a
percentage of net revenues for the six months ended June 30, 1995 was 45%
as compared 35% for the comparable period in 1994. This increase is due in
part to the DME business and costs associated with the establishment of the
Company's new subsidiary, Mail Order Meds, Inc. ("MOM"). The Company's
DME operation has twenty sales people that are included
in the SG&A expenses. In addition, the Company, in an effort to reduce
accounts receivable, wrote off approximately $1,450,000, of accounts
receivable as bad debt expense (bad debt expense is classified as an SG&A
expenses) for the six months ended June 30, 1995.
Net income for the six months ended June 30, 1995 decreased to $469,000 ($.06
per share) as compared with $658,000 ($.09 per share) for the same period in
1994. Net income as a percentage of net revenues for the six months ended
June 30, 1995 was 2.2% as compared to 4.0% for the same period last year. The
decrease in net income is attributable to the establishment of MOM which
began operating in January 1995 and the
reduction of accounts receivable as bad debt expense. MOM sells
pharmaceuticals, vitamins, nutrients, books and video tapes by mail to
patients suffering from the HIV disease. During the six months ended June 30,
1995, the Company recorded an after tax loss of $248,000 or
(.03 per share) on this new subsidiary. Management believes that this
subsidiary will achieve break even by the end of 1995, although there can be
no assurance.
Page 11 of 16 Pages
<PAGE>
RESULTS OF OPERATIONS
FOR THREE MONTHS ENDED JUNE 30, 1995
Net revenues for the three months ended June 30, 1995 increased to
$11,019,000 as compared to $8,815,000 for the comparable period last year.
The increase of $2,204,000 or 25% is attributable to revenues generated from
the Company's subsidiaries Advanced Care Associates, Inc. and Clinical Care
Services, Inc. (the Company acquired these subsidiaries in 1994) and to
increased revenues from the Company's infusion division, and its new
subsidiary, Mail Order Meds ("MOM").
Cost of revenues for the three months ended June 30, 1995 as a percentage
ofnet revenues was 46% as compared to 55% for the same period in 1994. The
decrease in the cost of revenues as a percentage of net revenues was
attributable to the impact of the Company's durable medical equipment ("DME")
business, which has a lower cost of revenues than the nursing and infusion
therapy business. Total direct cost as a percentage of net revenues for the
DME operation is 27% for the three months ended June 30, 1995.
The Company's selling, general and administrative (SG&A) expenses as a
percentage of net revenues for the three months ended June 30, 1995 increased
to 47% as compared to 37% for the same period in 1994. This increase is due
in part to the DME business and costs associated with the establishment of
the Company's new subsidiary, MOM. The Company's DME operation has twenty
sales people that are included in the SG&A expenses. In addition, the
Company, in an effort to reduce accounts receivable, wrote off approximately
$1,150,000 of accounts receivable as bad debt expense, for the three months
ended June 30, 1995. This amount is substantially higher than normal.
Net income for the three months ended June 30, 1995 decreased to $328,000
($.04 per share) as compared with $360,000 ($.05 per share) for the same
period in 1994. Net income as a percentage of net revenues for the three
months ended June 30, 1995 was 3.0% as compared to 4.1% for the same period
last year. The decrease in net income is attributable to the costs associated
with the establishment of MOM, which began operating in January 1995 and the
reduction of accounts receivable as bad debt expense.
Page 12 of 16 Pages
<PAGE>
FINANCIAL CONDITION AND LIQUIDITY
Current assets decreased to $18,715,000 at June 30, 1995 from $19,018,000 at
June 30, 1994. The decrease of $303,000 in current assets is due to the
Company's decrease in cash and prepaid expenses. This was partially offset by
the increase in accounts receivable.
At June 30, 1995, working capital was $15,929,000 as compared to $16,658,000
at June 30, 1994. The decrease of $729,000 is primarily attributable to the
increase in the current portion of long-term debt.
The Company has a term revolving credit agreement with its bank which
provides for borrowings up to $7,500,000, expiring February 14, 1997. The
Company may borrow up to 70% of eligible receivables, as defined pursuant to
the terms of the revolving credit agreement. Interest is charged at prime
(9.0 percent at June 30, 1995) plus one-half percent. The outstanding
balance under this arrangement at June 30, 1995 was $6,750,000.
The average days sales in outstanding receivables decreased from 150 days at
June 30, 1994 to 131 days at June 30, 1995 based upon net sales and net
accounts receivable during the respective quarters. The reduction is the
result of management's continued effort to reduce the accounts receivable
days outstanding through a number of means, one of which includes writing off
accounts receivable classified as bad debt as discussed in pages 11 and 12.
Delays resulting from increased third-party payor scrutiny of invoices,
refusal to pay or an increased proportion of Medicare and Medicaid patients
could in the future have a materially adverse effect on the Company's
liquidity and general financial condition.
During the period January 1, 1995 through June 30, 1995, the Company received
approximately $553,000 from the exercise of 219,000 stock options. The
Company acquired 29,630 shares of its stock for $200,000 pursuant to an
acquisition agreement entered into in June 1991.
Page 13 of 16 Pages
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Change in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of stockholders was held on June 21,
1995. Below is a description of each matter voted upon at the meeting and a
tabulation of votes with respect to these matters:
Broker
Matter Votes for Votes Against Abstentions Non Votes
1. Amendment of
the Company's
Certificate of
Incorporation to
provide for the
directors to be
divided into
three classes,
with each class
to be elected once
three years. 3,852,006 678,190 24,250 2,888,558
2. Election of
Directors:
Class I: For a
term of three years
Ann T. Mittasch 7,026,754 416,250 -0- -0-
Randolph J.
Mittasch 7,026,754 416,250 -0- -0-
Class II: For a
term of two years
Gilda G.
Schechter 7,026,754 416,250 -0- -0-
John J. Lynch 7,026,554 416,450 -0- -0-
Class III: For a
term of one year
Dr. Alex Maurillo 7,026,754 416,250 -0- -0-
3. Amendment of
the Company's
Certificate of
Incorporation to
clarify the Board
of Directors' broad
authority to
determine the
rights, terms and
preferences of
the Company's
preferred stock. 3,679,054 708,175 40,680 2,888,558
4. Ratification of
the selection of
Deloitte & Touche
LLP as independent
public accountants
for the Company. 7,406,475 18,300 18,229 -0-
5. Approval of the
Company's 1995 Stock
Option Plan. 3,837,071 662,625 54,750 2,888,558
Page 14 of 16 Pages
<PAGE>
OTHER INFORMATION (continued)
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits.
10 (a) 1995 Stock Option Plan
b. Reports on Form 8-K.
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Care Group, Inc.
(Registrant)
Dated: August 7, 1995
/s/ Ann T. Mittasch
Ann T. Mittasch
President and Chairman
Dated: August 7, 1995
/s/ Pat H. Celli
Pat H. Celli
Chief Financial Officer
(Principal Financial Officer)
<PAGE>
EXHIBIT 10 (a)
THE CARE GROUP, INC.
1995
STOCK OPTION PLAN
SECTION I
NATURE AND PURPOSE
This Plan shall be known as "The Care Group, Inc. 1995 Stock Option Plan."
This Plan permits the grant of both (i) options intended to qualify as
incentive stock options ("ISOs") under Section 422 of the Internal Revenue
Code of 1986 (the "Code"), and (ii) nonstatutory restricted stock options
("ROs"). This Plan is designed to encourage certain highly talented
officers, directors, employees and consultants of The Care Group, Inc.
(the "Company") and its subsidiaries to help build the Company and its
subsidiaries into a strong, profitable and growing business. This Plan is
in addition to the Company's 1990 Stock Option Plan, 1991 Stock Option
Plan and 1993 Stock Incentive Plan.
SECTION II
GRANT OF OPTIONS
1. GRANT OF OPTIONS. The Board of Directors of the Company is empowered
from time to time to grant (i) ISOs to one or more officers or key
employees of the Company or any of its subsidiaries and (ii) ROs to one or
more of the officers, directors, employees, consultants, advisers or
affiliates of the Company or any of its subsidiaries (ISOs and ROs are
hereinafter collectively referred to as "Company Options" and,
individually, as a "Company Option"). A total of one million (1,000,000)
Company Options may be granted under this Plan. Each Company Option shall
be expressly designated as an ISO or RO.
2. EXERCISE OF COMPANY OPTIONS.
(a) Each Company Option is exercisable for one (1) share of Common
Stock, par value $.001 per share, of the Company (the "Common Stock"),
subject to adjustment as provided below (the share of Common Stock subject
to each Company Option is sometimes hereinafter referred to as a "Company
Option Share," and all such shares are hereinafter sometimes collectively
<PAGE>
referred to as the "Company Option Shares"; the share of Common Stock
subject to an ISO is sometimes hereinafter referred to as an "ISO Share,"
and all such shares are sometimes hereinafter referred to as the "ISO
Shares"; the share of Common Stock subject to an RO is sometimes
hereinafter referred to as an "RO Share," and all such shares are
sometimes hereinafter referred to as the "RO Shares").
(b) Subject to Paragraph 4 of this Section II, each Company Option
(other than an ISO granted to a "Significant Stockholder" (hereinafter
defined)) may be exercised by an optionee upon ten days prior written
notice to the Company at any time during the period commencing upon the
date of grant of such option and expiring on December 31, 2004. At 11:59
p.m. on December 31, 2004, each Company Option (other than an ISO granted
to a Significant Stockholder) will expire. Each ISO granted to a
Significant Stockholder at the date of grant will expire 5 years after
date of grant. Each Company Option shall be nontransferrable by the
optionee to whom it is granted and, except as provided in Subparagraph
4(c) of this Section II, shall be exercisable only by such optionee.
3. PURCHASE PRICE OF COMPANY OPTIONS.
(a) The purchase price of each RO Share shall be at least ninety
percent of the per share fair market value of the Common Stock on the date
of grant (as determined pursuant to paragraph 3(c)).
(b) The purchase price of each ISO Share shall be the fair market
value per share of Common Stock on the date of grant (as determined
pursuant to paragraph 3(c)). In the case of an ISO to be granted to a
person owning stock possessing more than ten percent of the total combined
voting power of all classes of the stock of the Company and all of its
subsidiaries (a "Significant Stockholder"), the purchase price of the ISO
share subject to such option shall be 110% of the fair market value of the
Common Stock on the date of grant (as determined pursuant to paragraph
3(c)). In no event shall the aggregate fair market value (determined at
the time the option is granted) of Common Stock for which ISOs granted to
any employee are exercisable for the first time by such employee during
any calendar year (under all stock option plans of the Company and all its
subsidiaries) exceed $100,000.
(c) For the purpose of this paragraph 3(b), the "fair market value"
of the Common Stock "on the date of grant" shall be determined as of the
last business day for which the prices or quotes of the Common Stock are
available prior to such date of grant and shall mean (i) the closing bid
price (or average of bid prices) last quoted (on the date) by an
established quotation service for over-the-counter securities, if the
Common Stock is reported on neither the NASDAQ National Market System
("NMS") nor a national securities exchange; or (ii) the last reported sale
price (on the date) of the Common Stock on the NMS, if the Common Stock is
then traded on the NMS but not on a national securities exchange; or (iii)
the average (on the date) of the high and low prices of the Common Stock
<PAGE>
on the principal national securities exchange, if the Common Stock is
traded on a national securities exchange. However, if the Common Stock is
not publicly traded at the time a Company Option is granted under this
Plan, "fair market value" shall be deemed to be the fair value of the
Common Stock as determined by the Company's Board of Directors after
taking into consideration all factors which the Board of Directors deems
appropriate, including, without limitation, recent sale and offer prices
of the Common Stock in private transactions negotiated at arm's length.
4. EARLY EXPIRATION OF OPTIONS.
(a) If an optionee ceases to be employed or affiliated with the
Company such that he is no longer an officer, director, employee, adviser,
consultant or affiliate thereof prior to expiration of his Company Options
other than by Disability (hereinafter defined), death or for Cause
(hereinafter defined), his Company Options, if then exercisable, may be
exercised by the optionee only within three months after the date that his
employment or affiliation with the Company ceases (but in no event may his
Company Options be exercised beyond December 31, 2004); provided, however,
that if the optionee dies within such three-month period the provisions of
subparagraph (c) of this paragraph 4 shall govern. A leave of absence for
less than 90 days or where the optionee's return to employment is
guaranteed by contract or statute is not deemed a termination of employment.
(b) If an optionee ceases to be employed or affiliated with the
Company such that he is no longer an officer, director, employee, adviser,
consultant or affiliate thereof prior to the expiration of his Company
Options by Disability, his Company Options, if then exercisable, may be
exercised by the optionee only within one year after the date of such
Disability (but in no event later than December 31, 2004); provided,
however, that if the optionee dies within such one year period the
provisions of subparagraph (c) of this paragraph 4 shall govern.
(c) In the event of the death of an optionee prior to the expiration
of his Company Options, his Company Options, if then exercisable, may be
exercised by his estate, personal representative or beneficiaries who has
acquired the Company Option by will or by the laws of descent or
distribution at any time prior to one year following the optionee's death
but no later than December 31, 2004.
(d) If an optionee ceases to be either an officer, director or
employee of the Company for Cause prior to expiration of his Company
Options, then each of his then outstanding Company Options shall, upon his
so ceasing to be an officer, director or employee, thereupon expire and be
cancelled in full.
(e) As used in this paragraph 5, the following terms shall have the
following meanings:
<PAGE>
(i) "Cause": The grossly negligent or otherwise
unsatisfactory performance of the optionee's duties to the Company as an
officer, director or employee thereof, or the optionee's willfully
engaging in either misconduct materially injurious to, or fraudulent
conduct involving, the Company.
(ii) "Disability": The inability of the optionee, due to total and
permanent physical or mental incapacity, to be able to perform
substantially all of the duties and activities to be performed by such
optionee as an officer, director, employee, consultant or agent of the
Company or any of its subsidiaries performed during the six months prior
to such incapacity or illness.
5. BUY-OUT. If at any time prior to expiration of the Company Options
the Company approves (i) a definitive agreement to merge or consolidate
the Company with or into another corporation or other business entity
whereby the holders of all of the issued and outstanding shares of Common
Stock immediately prior to the merger or consolidation will, immediately
after the merger or consolidation, hold no more than 60% of the aggregate
value of the capital stock of the surviving entity or (ii) the sale of at
least 50% of the assets of the Company based on fair value, then the
Company may, within seven days after the Company so approves such
definitive agreement or asset sale, purchase any or all of the then
outstanding Company Options with respect to which the optionees shall not
have then exercised (whether or not notice of exercise of any such Company
Options shall then have been delivered pursuant to subparagraph 2(b)) at a
per option price equal to $.10; provided, however, that (i) if the Company
shall purchase less than all then outstanding Company Options, the Company
shall purchase Company Options from each optionee on a prorated basis in
accordance with the number of Company Options held by each such optionee
as such number bears to the total number of then issued and outstanding
Company Options, and (ii) the Company shall not have the right under this
paragraph to purchase any outstanding ISOs to the extent that the right to
effect such purchases will disqualify the ISOs granted hereunder as
"incentive stock options" under Section 422A of the Code.
6. RECLASSIFICATION, REORGANIZATION OR MERGER.
(a) In case of any reclassification, capital reorganization or other
change of outstanding shares of the Common Stock of the Company (other
than a change in par value, or from par value to no par value, or from no
par value to par value, or as a result of an issuance of Common Stock by
way of dividend or other distribution or of a subdivision or combination),
or in case of any consolidation or merger of the Company with or into any
corporation or a merger of another corporation with and into the Company
or in case of any sale or conveyance to another corporation of all or
<PAGE>
substantially all of the property of the Company (any of the foregoing
transactions hereinafter being referred to as an "Extraordinary
Transaction"), the Company shall cause effective provision to be made so
that each optionee shall have the right thereafter, upon exercising his
Company Options, to receive the kind and amount of shares of stock and
other securities and property receivable upon such Extraordinary
Transaction as if such optionee had exercised his Company Options
immediately prior to such Extraordinary Transaction. Any such provision
shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Plan and Agreement. The foregoing provisions of this paragraph shall
similarly apply to successive reclassifications, capital reorganizations
and changes of shares of Common Stock and to successive consolidations,
mergers, sales or conveyances.
(b) Notwithstanding the foregoing, any adjustment made pursuant to
paragraph 6(a) with respect to ISOs shall only be made after the Board of
Directors, after consulting with counsel for the Company, determines
whether such adjustments would constitute a "modification" of such ISOs
(as that term is defined in Section 425 of the Code) or would cause any
adverse tax consequences for the holders of such ISOs. If the Committee
determines that such adjustments made with respect to ISOs would
constitute a modification of such ISOs, it may refrain from making such
adjustments.
SECTION III
PROVISIONS GOVERNING
THE GRANT OF ISOs
Notwithstanding anything to the contrary contained herein, each ISO and
each ISO Share subject thereto shall be subject to the following terms and
conditions:
1. No ISO optionee can transfer, sell, pledge, hypothecate, gift or
otherwise dispose of an ISO Share until the expiration of both (i) two
years after the date of grant of the ISO pursuant to which such ISO Share
was issued, and (ii) one year after the optionee acquires the ISO Share.
Provided, however, that the foregoing sentence does not apply to ISOs that
are exercised after the death of the ISO optionee.
2. A Company Option shall be treated as an ISO only if the optionee, at
all times during the period beginning on the date of the granting of the
option and ending on the day 3 months before the date of exercise of the
option, was an employee of either the Company, a subsidiary or parent of
the Company, or a company (or a parent or subsidiary of such company)
issuing or assuming such Company Option.
<PAGE>
3. The Company's Board of Directors, at the written request of any ISO
optionee, may in its discretion take such actions as may be necessary to
convert such optionee's ISOs that have not been exercised on the date of
conversion into ROs at any time prior to the expiration of such ISOs,
regardless of whether the optionee is an employee of the Company or a
subsidiary thereof at the time of such conversion. Such actions may
include, but not be limited to, extending the exercise period or reducing
the exercise price of the appropriate installments of such Options. At the
time of such conversion, the Committee (with the consent of the optionee)
may impose such conditions on the exercise of the resulting ROs as the
Company's Board of Directors in its discretion may determine, provided
that such conditions shall not be inconsistent with this Plan. Nothing in
the Plan shall be deemed to give any ISO optionee the right to have such
option's ISO converted into ROs, and no such conversion shall occur until
and unless the Board of Directors take appropriate action. The Company's
Board of Directors, with the consent of the optionee, may also terminate
any portion of any ISO that has not been exercised at the time of such
termination.
4. In order for the Company to issue any ISOs, this Plan must receive
the approval of the holders of a majority of the Company's Common Stock.
SECTION IV
ERISA; CERTIFICATES;
AMENDMENT OF PLAN; RESERVATION OF SHARES
1. ERISA AND FEDERAL INCOME TAXES. This Plan and Agreement is not
subject to the Employee Retirement Income Security Act of 1974, nor is
this Plan and Agreement qualified under Section 401(a) or the Internal
Revenue Code of 1954, as amended.
2. CERTIFICATES. The Company Options granted hereunder will be
represented by certificates. Upon the exercise of any Company Option the
optionee will submit the certificate representing such option to the
Company at its principal executive offices, and if the exercise is for a
portion of such optionee's Company Options, a new certificate will be
issued to the optionee by the Company representing the remainder of such
optionee's unexercised Company Options.
3. AMENDMENT TO THE PLAN. It is understood that the Board of Directors
of the Company may from time to time amend this Plan except that if any
such amendment shall adversely affect any optionee under this Plan or
<PAGE>
require stockholder vote, such amendment must be consented to in writing
by such optionee or approved by the Company's stockholders, as the case
may be. Provided, however, that the Company may, without receiving the
written consent of any optionee, amend this Plan to permit any or all
transactions to be effectuated under this Plan to be exempt from the
operation of Section 16(b) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), pursuant to Rule 16b-3 under the Exchange
Act or any successor law, rule or regulation thereof. The Board of
Directors may either modify any of the terms of any or all of the Company
Options after they are granted or terminated and reissue any or all
Company Options that may be outstanding from time to time. The Board of
Directors may in its discretion assign and delegate all responsibilities
for administering this Plan and granting Company Options to a compensation
committee of the Board of Directors, and such assignment and delegation
shall not require the consent of any optionee. Nothing in this Plan shall
in any way limit or restrict the Company's right or ability to establish
any other compensation, incentive, pension, stock option or similar plans
or programs or to issue shares of the Company's securities to any person
or entity for any reason whatsoever.
4. RESERVATION OF SHARES. The Company agrees that at all times there
shall be reserved for issuance upon exercise of the Company Options
granted hereby a sufficient number of shares of Common Stock and/or other
securities as shall be required for such issuance.
SECTION IV
ASSIGNMENTS; INVESTMENT INTENTION
1. ASSIGNMENT AND SUCCESSORS AND ASSIGNS. The terms of this Plan shall
bind and inure to the benefit of the respective heirs, appointees,
assigns, executors, administrators and successors of the respective
parties hereto but shall not be assignable by any optionee without the
Company's affirmative consent, except as otherwise expressly provided in
any other section of this Plan.
2. INVESTMENT INTENTION. Each optionee hereby represents, warrants,
covenants and agrees that he is acquiring the Company Options hereunder,
and that upon exercise of such options he will be purchasing the Company
Option Shares, for investment and not with intention of distribution or
resale and that the Company Options and Company Option Shares may not be
offered or sold except in compliance with the provisions of the Securities
Act of 1933, as amended.
<PAGE>
SECTION V
MISCELLANEOUS
1. NOTICES.
(a) Any notice which any party hereto may be required or permitted to
give shall be in writing, or may
be delivered personally or by mail, postage prepaid, or telegram, telecopy
or telex, addressed as follows: to the Company, at 1 Hollow Lane, Lake
Success, New York 11042, or at such other address as the Company, by
written notice to the optionees, may designate from time to time; to each
optionee, at the last address contained in the Company's records for the
optionee or at such other address as the optionee, by written notice to
the Company, may designate from time to time.
2. NO IMPLIED RIGHT OF EMPLOYMENT. The selection of an optionee for
participation in this Plan shall not ipso facto give the optionee any
rights to serve as a director, officer or employee of the Company or any
subsidiary.
3. NO CONTINGENT VOTING RIGHTS. An optionee shall have no voting or
other rights with respect to any Company Option Shares until certificates
representing such Company Option Shares shall actually have been delivered
to him following his exercise of the corresponding Company Options.
4. OTHER BENEFITS. The benefits provided for the optionees under this
Plan and Agreement shall be in addition to and shall in no way preclude
other benefits or forms of compensation from the Company to the optionees.
5. GOVERNING LAW. This Plan shall be construed in accordance with the
substantive laws of the State of New York without regard to its conflict
of law doctrine.
6. CONSOLIDATION CLAUSE; SURVIVAL. This Plan contains the entire
understanding of the parties with respect to its subject matter. All
representations, warranties, covenants and agreements made herein shall
survive the execution of this Plan.
7. EFFECTIVE DATE OF PLAN. This Plan was approved by the Company's
Board of Directors as of April 6, 1995.
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