SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1996
Commission File Number: 1-7054
SAGE LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2179082
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
11 Huron Drive, East Natick Industrial Park, Natick, Massachusetts 01760
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 653-0844
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
(Title of Class)
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 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___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X].
As of September 24, 1996 the aggregate market value of the voting stock
held by non-affiliates (based on the average bid and asked prices as reported
by NASDAQ) was $13,674,564.
On June 30, 1996 the Company had outstanding 1,161,265 shares of common
stock, $.10 par value, which is its only class of stock.
DOCUMENTS INCORPORATED BY REFERENCE
See Exhibit Index at page 12.
1
<PAGE>
Item 1. Business.
General Description and History of the Company
Sage Laboratories, Inc. (the "Company") is engaged primarily in the design,
manufacture and sale of specialized microwave components and subsystems. These
products are used in applications such as cellular base stations, point-to-point
radio links, satellite communications, aircraft landing and guidance, medical
diagnostics and treatment, radar and weapons guidance. The types of products
designed and manufactured by Sage are required in each of the basic systems
described herein.
Microwaves have an extremely high frequency and short wave length. A sharp
beam of microwave energy can readily be shaped, focused, concentrated,
reflected, and transmitted in a straight line over infinite distances.
The Company operates exclusively within a single industry (S.I.C. #3829)
for the purposes of Statement of Financial Accounting Standards No. 14 and
Regulation S-K.
The Company has engaged in no transactions or activities outside the
ordinary course of business since June 30, 1995.
The Company's Microwave Products
The amounts of total sales and revenues, operating income and the total
value of assets attributable to the Company's microwave products in the last
three fiscal years are as follows:
(IN THOUSANDS)
Fiscal year ended June 30: 1994 1995 1996
----------------------------
Amount of total sales and revenues $8,167 $9,154 $9,769
Amount of operating income $1,862 $2,158 $2,341
Total assets (year end) $10,359 $11,611 $13,028
The Company's RF/microwave technology is used in components and integrated
assemblies to divide, couple, absorb, attenuate, filter, control, amplify,
detect, process, convert RF/microwave energy. Its products are suitable for all
types of commercial and defense applications, including radar, electronic
warfare, surveillance, and communications systems.
2
<PAGE>
The Company's line of passive microwave devices is extensive, ranging from
caseless hybrids which are used in high volume production of commercial cellular
and wireless products to sophisticated integrated assemblies which switch,
divide, filter and control signals in high performance, space-qualified
satellite communications systems. Caseless wireline hybrids, switches rotary
joints, phase shifters, filters, couplers, power dividers and subsystems have
been among the Company's most important passive components in recent years.
The Company's standard passive components can be sold from the shelf
without special engineering, and such components are the Company's most
profitable products. The Company also negotiates fixed price contracts for the
sale of passive components meeting particular specifications and requiring
varying degrees of engineering design and development. The profit margin on
contracts involving heavy engineering content is lower than on standard items,
but such work often results in a product which may be reordered or which can be
adapted to other purposes with little additional engineering and can therefore
be sold at a higher profit margin. Total sales and contract revenue contributed
by the sale of traditional passive components during the last three fiscal years
are as follows:
(IN THOUSANDS)
Fiscal year ended June 30: 1994 1995 1996
--------------------------------
Catalog items $2,044 $2,101 $2,889
Adaptable or reorderable items 4,283 5,281 3,932
Engineered items 1,690 1,542 2,251
Other 150 113 321
---------------------------------
Total $8,167 $9,037 $9,393
=================================
In addition to passive components, semi-conductor based "active" components
are also needed in microwave systems to amplify, detect, control, convert,
modulate, demodulate and otherwise process RF/microwave signals. The Company
developed the capacity to produce active microwave components through the
formation of a wholly-owned subsidiary, Sage Laboratories Active Microwave, Inc.
("SLAM"), a New Hampshire corporation, during the second half of fiscal 1994.
Active components are used in all types of commercial and defense systems,
including radar, electronic warfare, surveillance, and communications. SLAM uses
modern solid-state circuit technology in the design and manufacture of microwave
mixers, detectors, switches, limiters, variable attenuators, amplifiers, and
complex integrated assemblies consisting of active and passive components. SLAM
offers a standard catalog line of solid-state microwave products, as well as the
capability to produce custom products designed to meet particular customer
specifications. SLAM revenue for fiscal year 1996 and 1995 amounted to $375,000
and $117,000 respectively.
Sources and Availability of Raw Materials
The Company obtains raw materials from a wide variety of suppliers with
alternative sources available for all essential materials with reasonable lead
time. There is no dependence on foreign sources and no relationship with
important suppliers.
3
<PAGE>
Principal Markets and Distribution
The Company's microwave products are sold principally through a group of 40
independent representatives with 54 offices located throughout the United States
and abroad. Their efforts are directed by the Company's Vice President of Sales
and Sales Manager. Catalogs of standard items, advertising in trade
publications, trade shows and periodic visits to customers by the Company's
officers and engineers supplement the work of the representatives. The microwave
products are principally used in communications and radar applications in the
commercial and defense markets.
Importance, Duration and Effect of Patents, Trademarks, Licenses, Franchises and
Concessions
The Company holds various patents, but does not believe such patents to be
material to the Company's business. There are no material trademarks, licenses,
franchises or concessions.
Competition
Many companies manufacture microwave products similar to those of the
Company, some larger and with greater financial resources than the Company. The
Company's experience to date indicates that competition has related primarily to
delivery, price and performance.
Backlog and Customers
The Company's backlog of orders believed to be firm for microwave products
was $4,602,000 as of June 30, 1996, as compared to $4,683,000 as of June 30,
1995. All of the June 30, 1996 backlog is expected to be filled during the
current fiscal year. There is no seasonality to the backlog or to the business
in general.
The Company has not relied on a single customer or a small group of
customers for a substantial proportion of its sales of microwave products,
though at any given time one or more large orders or contracts may represent a
high percentage of the backlog. During the fiscal year ended June 30, 1996,
components were sold to approximately 408 customers.
Practices Relating to Working Capital
There are no special practices followed by the Company relating to working
capital.
Personnel
As of June 30, 1996, the Company employed 51 people, seven of which are
employed by SLAM. The Company also utilized temporary employees throughout the
year. Twenty three of the Company's employees are engineers or other technically
trained people and the balance are engaged in production, administrative and
sales activities.
Research and Development
The Company conducts various research and development activities under
which expenditures of approximately $272,000, $200,000 and $199,000 (including
overhead) were made in each of fiscal 1996, 1995 and 1994, respectively.
4
<PAGE>
Export Sales
Approximately 20% of the Company's revenues for fiscal year 1996 were
attributable to export sales. While competition abroad is generally more
intense, the profitability and attendant risks of sales are not materially
different from those of the balance of the Company's business. Total export
sales for the fiscal years ended June 30, 1996, 1995 and 1994 were $1,954,000,
$2,184,000 and $1,756,000, respectively.
Executive Officers of the Registrant
The following table sets forth information concerning the Company's executive
officers as of the date hereof. Each officer is elected by the Company's Board
of Directors and holds office until the date of the Company's annual meeting of
stockholders and until his successor is elected and qualified.
Offices Held and Business Experience
Name Age During Past Five Years
---- --- ----------------------
Carl A. Marguerite 56 Chairman, Chief Executive Officer
(President until 1996)
and Director of the Company
Louis J. Lanzillo, Jr. 38 President, Chief Operating Officer
and Director of the Company
Anthony J. Cieri 65 Vice President of Sales of the Company.
Janusz J. Majewski 49 Vice President of Engineering of
the Company
(Director of Engineering until 1996)
Item 2. Properties
In 1985 and 1986, the Company constructed a 30,000 square foot facility to
house its offices and principal plant. The facility shares a four acre site in
East Natick, Massachusetts with the 25,000 square foot building which formerly
served as the Company's plant and offices. The Company moved into its current
facility in late August 1986.
The Company occupies approximately 25,000 square feet of its current
facility and leases the balance of 5,000 square feet to others. All of the
Company's rental property is fully occupied.
SLAM leases approximately 6,000 square feet in Hollis, New Hampshire.
The cost of the Company's machinery and equipment owned on June 30, 1996 is
approximately $1,753,000. Such machinery and equipment is in good condition and
is being used to capacity.
Item 3. Legal Proceedings
There are no material pending legal proceedings affecting the Company or
its properties.
5
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
There was nothing submitted during the fourth quarter of fiscal 1996 to a
vote of the Company's security holders.
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's common stock, $.10 par value (which is the Company's only
class of equity securities), is listed with the NASDAQ system for trading in the
over-the-counter market. The quarterly high and low bid prices for the Company's
common stock for the last two fiscal years as reported on NASDAQ were as
follows:
1996 1995
------------------ ------------------
High Low High Low
---- --- ---- ---
First Quarter 23 11 4/5 10 3/10 7 4/5
Second Quarter 22 18 1/10 10 1/5 8 4/5
Third Quarter 20 1/4 14 3/4 9 3/5 8 9/10
Fourth Quarter 18 3/4 15 1/8 12 9 3/5
These over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions. There were approximately 249 holders of record of
the Company's outstanding common stock on June 30, 1996.
The Company paid cash dividends in October of 1994 and 1995 in the amount
of 10 cents per share. On September 4, 1996, the Company's Board of Directors
declared a cash dividend in the amount of ten cents per share payable on October
11, 1996 to holders of record as of September 27, 1996.
Item 6. Selected Financial Data.
The selected financial data called for under this caption is attached to
this report as Appendix A.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
1996 Compared to 1995
Net Sales:
Net sales for fiscal 1996 increased by $615,000, or 7%, from fiscal 1995.
This increase is due in part to an increase in the Company's core sales of
$357,000 and an increase in the Company's subsidiary, Sage Laboratories Active
Microwave, Inc. (SLAM) sales of $258,000. This overall increase in sales was
primarily the result of an increase in the number and size of orders shipped, as
there have been no material increases in the price of the Company's products
during fiscal 1996. Orders received in fiscal 1996 totaled $9,708,000, as
compared to $10,530,000 for 1995. Total orders included $586,000 from SLAM,
compared to $128,000 for the same period a year ago. SLAM's increase in orders
is due to growing recognition in the industry. The decline in Sage core orders
of approximately $1,280,000 is primarily due to customers' delays in placing
orders, as well as certain orders which were received in fiscal 1995 that were
not renewed in fiscal 1996 due to programs coming to closure. Although the
Company's fourth quarter has historically realized a larger sales volume over
other quarters, there is no seasonality to the Company's business. Sales volume
is strictly predicated on customers' requirements for delivery.
6
<PAGE>
Gross Profit:
Gross profit as a percentage of sales decreased to approximately 48% in
fiscal 1996, as compared to 50% for the same period a year ago. The decrease in
gross profit percentage was due to increased research and development expense,
as well as increases in cost overruns on Sage core engineering programs, lower
profit margins on certain programs, and a negative gross profit attributed to
SLAM.
Selling, General and Administrative Expenses:
Selling, General and Administrative Expenses (S G & A) decreased by
approximately $59,000 over the same period a year ago. Selling expense increased
by approximately $32,000. This increase was primarily due to increased
commission expense of approximately $60,000 attributed to increased sales volume
offset by a decrease in marketing expense of approximately $28,000. G & A
expenses decreased by approximately $90,000, due in part to a decrease of
approximately $63,000 in consulting fees associated with the Company's former
Chairman of the Board, as well as a decrease in salaries and related items of
approximately $30,000.
Interest Income:
Interest income for fiscal year 1996 increased by approximately $108,000
over fiscal year 1995. This increase is due to higher average cash balances, as
well as higher interest rates being realized.
Interest Expense:
Interest expense decreased for fiscal year 1996 by $11,000 over the
previous year. This decrease is due to decreases in outstanding principal.
Rental Property:
The Company generated a profit of approximately $48,000 from its rental
property in fiscal 1996 compared to a modest profit of $6,500 in fiscal 1995.
All of the Company's rental property was fully occupied during fiscal 1996. The
Company has taken occupancy of approximately 5,000 square feet of space in its
corporate headquarters that had previously been leased. This space was converted
to a state-of-the-art Clean Room facility and is now occupied by the Company's
Commercial switch and high reliability product lines.
The Company's net book value of property held for rent at June 30, 1996 and
1995 is as follows:
1996 1995
---- ----
3 Huron Drive (old facility) $501,114 $ 579,112
11 Huron Drive (rental portion
of current facility) 283,855* 612,966
------- -------
Total $784,969 $1,192,078
======== ==========
*Change due to Company occupying additional space for its commercial switch and
high reliability product lines.
7
<PAGE>
Provisions for Federal and State Income Taxes:
Federal and State income tax provisions for fiscal years 1996 and 1995 have
been reconciled to the U.S. statutory rate. (See Note No. 5 to Consolidated
Financial Statements).
1995 Compared to 1994
Net Sales:
Net sales for fiscal year 1995 increased by approximately $987,000, or 12%,
as compared to fiscal year 1994. The increase occurred in all markets, including
commercial, government, and space. For the year ended June 30, 1995 commercial
business accounted for more than half of total revenues. Sage Laboratories
received orders during fiscal 1995 totaling $10,530,000, an increase of
$2,870,000, or 37%. Sage Laboratories Active Microwave, Inc. (SLAM) received
orders totaling $182,000 during fiscal 1995. Net sales for SLAM totaled
$117,000.
Gross Profit:
Gross profit as a percentage of sales decreased from 53% in fiscal 1994, to
50% in fiscal 1995. This decrease is primarily attributable to write-offs of
costs associated with a number of engineering programs with very difficult
specifications. These program difficulties have been resolved and the programs
were shipped in the first quarter of fiscal 1996. Included in the cost of sales
was approximately $103,000 of cost overruns of SLAM. Engineering and new product
development costs remained consistent with the previous year. Among the new
products in development during fiscal year 1995 were a 60-75 Ghz Waveguide
Switch, a T-Switch, Top-Through Electromechanical Latching Devices for an SMA
Transfer Switch, and cost reduction development of Hybrids, Couplers and Power
Dividers for the commercial market. Also developed was a line of surface-mounted
couplers. SLAM developed five low-cost/high performance open substrate mixers, a
broadband mixer (1-18 Ghz), a matched detector, and a high-power coax limiter.
Many of these products are now standard catalog products for SLAM.
Selling, General and Administrative Expenses:
Selling, General and Administrative Expenses (S G & A) as a percentage of
sales were 26% for fiscal 1995, as compared to 30% for fiscal 1994. The decrease
is mainly attributed to the higher sales volume, as well as a reduction in
general and administrative expenses of approximately $150,000. This decrease is
comprised of a decrease in salaries and related items, professional expenses,
and a reduction in the former Chairman's consulting fees. The decrease in
general and administrative expenses was somewhat offset by SLAM's general and
administrative expenses, which increased by $43,000, due to a full year of
operations.
Sales and Marketing expense increased by $138,000 at SLAM, as 1995 was
SLAM's first full year of operation. This was offset by other sales and
marketing expense decreases primarily due to lower salaries and related expenses
as a result of personnel changes, as well as a reduction in amortization of the
Company's catalog, which was fully amortized in fiscal 1994.
Interest Income:
Interest income for fiscal year 1995 increased by approximately $69,000,
over fiscal year 1994. This increase is due to a higher cash position, as well
as higher interest rates.
8
<PAGE>
Interest Expense:
Interest expense increased for fiscal year 1995 by $10,000 over the
previous year. This increase is primarily due to an increase in the prime rate
of interest.
Rental Property:
The Company's rental property reported a small profit in fiscal 1995 of
$6,500, compared to a loss of $41,000 for fiscal 1994. All of the Company's
rental property was leased as of November 1, 1994. As part of its expansion
plans in 1996, the Company remodeled 5,000 square feet of this space for its
Commercial Switch and high reliability product lines. The Company's net book
value of its property held for rent at June 30, 1995 and 1994 is as follows:
1995 1994
---- ----
3 Huron Drive (old facility) $ 579,112 $ 597,110
11 Huron Drive (rental portion of
current facility) 612,966 665,590
------- -------
Total $1,192,078 $1,262,700
========== ==========
Provisions for Federal and State Income Taxes:
Federal and State income tax provisions for fiscal years 1995 and 1994 have
been reconciled to the U.S. statutory rate. (See Note No. 5 to Consolidated
Financial Statements).
Liquidity and Capital Resources:
For the twelve months ended June 30, 1996 operating activities generated
$1,647,000 in cash, an increase of $101,000 over the twelve months ended June
30, 1995. Cash used in investing activities amounted to $808,000 and $330,000
for the twelve months ended June 30, 1996 and 1995, respectively, while cash
used for financing activities was $222,000 and $203,000, respectively The
details of these activities are provided in the consolidated statements of cash
flows. The Company invests its excess cash only in short-term, highly liquid
instruments with minimal risk. The Company's new commercial switch product line
is expected to generate revenues of approximately $750,000 and incur a gross
profit of approximately $138,000 in fiscal 1997. In addition, the Company is
expected to increase capital equipment by $290,000 and spend an additional
$140,000 to complete its state-of-the-art clean room during the first quarter of
fiscal 1997 (occupancy took place in September 1996).
Having only the debt relating to the Company's facility, and with surplus
cash, Management believes that the Company will be able to finance its
operations and necessary capital expenditures for the foreseeable future.
Although the Company has a $1,000,000 bank line of credit, the Company does
not presently intend to use the line.
The Company anticipates that total capital expenditures for fiscal year
1996 will be approximately $700,000. Accordingly, no outside funding will be
required.
The foregoing analysis contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, including statements about the Company's new
commercial switch product line and the improving performance at SLAM. Inasmuch
as the results of these activities depend on numerous factors, including
acceptance by third parties, actual results could differ materially from those
projected in the forward-looking statements.
9
<PAGE>
Item 8. Financial Statements and Supplementary Data.
Financial statements and supplementary financial information required to be
filed hereunder may be located through the Index to Financial Statements.
Item 9. Disagreements on Accounting and Financial Disclosure.
The Company has not filed a Form 8-K under the Securities Exchange Act of
1934 reporting a change of accountants.
Item 10. Directors, Executive Officers, Promoters and Control Persons of the
Registrant.
The information called for under this caption is incorporated by reference
from the material captioned "Election of Directors" in the proxy statement for
the Company's annual meeting of shareholders to be held on November 12, 1996.
Additional information required to be reported under this caption may be found
in the last paragraph of Item 1 to this report.
Item 11. Management Remuneration.
The information called for under this caption is incorporated by reference
from the material captioned "Remuneration of Directors and Executive Officers"
in the proxy statement for the Company's annual meeting of shareholders to be
held on November 12, 1996.
Item 12. Security Ownership of Certain Beneficial Owners and Managers.
The information called for under this caption is incorporated by reference
from the material captioned "Principal Holders of Voting Securities" and
"Election of Directors" in the proxy statement for the Company's annual meeting
of shareholders to be held on November 12, 1996.
Item 13. Certain Relationships and Transactions
The information called for under this caption is incorporated by reference
from the material captioned "Election of Directors" in the proxy statement for
the annual meeting of shareholders to be held on November 12, 1996.
Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K
The following documents are filed as a part of this report:
1. Financial Statements
See the Index to Consolidated Financial Statements and Schedules
attached to this report.
2. Exhibits
See the Index to Exhibits attached to this report.
No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, "hereunto duly authorized.
SAGE LABORATORIES, INC.
By /s/ Carl A. Marguerite Chairman September 17, 1996
-------------------------
Carl A. Marguerite
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.
By /s/ Carl A. Marguerite Chairman, Chief September 17, 1996
---------------------------- Executive Officer,
Carl A. Marguerite Principal Executive
Officer, Treasurer
and Director
By /s/ Erich P. Ippen Director September 18, 1996
-----------------------------
Erich P. Ippen
By /s/ Louis J. Lanzillo, Jr. Director September 17, 1996
-----------------------------
Louis J. Lanzillo, Jr.
By /s/ John E. Miller Director September 17, 1996
-----------------------------
John E. Miller
By /s/ C. Duncan Soukup Director September 17, 1996
------------------------------
C. Duncan Soukup
11
<PAGE>
<TABLE>
<CAPTION>
APPENDIX A
ITEM 6. SELECTED FINANCIAL DATA
FISCAL YEARS ENDED JUNE 30,
-----------------------------------------------
1992 1993 1994 1995 1996
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales and Contract Revenues $ 6,467,000 $ 6,627,000 $ 8,167,000 $ 9,154,000 $ 9,769,000
Net Income 992,000 956,000 1,198,000 1,389,000 1,609,000
Net Income Per Commom and
Common Equivalent Share 0.69 0.66 1.00 1.20 1.38
Total Assets 10,173,000 10,821,000 10,359,000 11,611,000 13,028,000
Total Current Assets 7,404,000 7,987,000 7,242,000 8,603,000 9,706,000
Total Current Liabilities 1,880,000 1,820,000 2,046,000 2,083,000 2,075,000
Working Capital 5,524,000 6,167,000 5,196,000 6,520,000 7,631,000
Long Term Debt:
5% Note Payable to an
Insurance Company 16,000 - - - -
Industrial Revenue Bond 1,333,000 1,167,000 999,999 833,333 666,665
------------ ------------ ------------ ------------ ------------
Total Long Term Debt 1,349,000 1,167,000 999,999 833,333 666,665
------------ ------------ ------------ ------------ ------------
Stockholder's Equity 6,735,000 7,526,000 7,075,000 8,488,000 10,096,000
Cash Dividends Declared
Per Common Share 0.10 0.10 0.10 0.10 0.10
Weighted Average Number of
Common and Common Equivalent
Shares Outstanding 1,447,645 1,457,065 1,197,035 1,159,390 1,169,491
=========== ========== =========== =========== ==========
</TABLE>
<PAGE>
D. INDEX TO EXHIBITS
Exhibit
Number Description
------ -----------
3.1 Restated Articles of Organization
as amended October 27, 1987 and
November 14, 1995
3.2 Bylaws of the Company as amended by the
directors on September 4, 1996.
3.3 Mortgage and Trust Agreement (incorporated by
references to Exhibit 3.3 to the Company's
report on Form 10-K for the fiscal year ended
June 30, 1991)
3.4 Bond Purchase and Guaranty Agreement
(incorporated by references to Exhibit 3.4 to
the Company's report on Form 10-K for the
fiscal year ended June 30, 1991)
10.1 Executive Bonus Plan - 1/20/89 (incorporated by
reference to Exhibit 10.1 to the Company's
report on Form 10-K for the fiscal year ended
June 30, 1989)
10.2 Stock Option Plan dated September 2, 1989
(incorporated by reference to Exhibit 10.2 to
the Company's report on Form 10-K for the
fiscal year ended June 30, 1989)
10.3 Restricted Stock Plan dated May 4, 1987
(incorporated by reference to Exhibit 10.3 to
the Company's report on Form 10-K for the
fiscal year ended June 30, 1989)
10.4 Employment Agreement with attached exhibits
between Company and Louis J. Lanzillo, Jr.,
dated September 4, 1996.
22 Subsidiaries
24 Consent of Accountants
12
<PAGE>
List of Financial Statements and Schedules
Page
Appendix AF-O
Report of Independent Public Accountants F-1
Consolidated Balance Sheets as of June 30, 1996 and June 30, 1995 F-2
Consolidated Statements of Income for each
of the three fiscal years in the period ended June 30, 1996 F-3
Consolidated Statements of Stockholders' Investment for each
of the three fiscal years in the period ended June 30, 1996 F-4
Consolidated Statements of Cash Flows for each of the three fiscal years in
the period ended June 30, 1996 F-5
Notes to Consolidated Financial Statements F-6
13
<PAGE>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1996 AND 1995
TOGETHER WITH AUDITORS' REPORT
<PAGE>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
PAGE
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-1
CONSOLIDATED BALANCE SHEETS--JUNE 30, 1996 AND 1995 F-2
CONSOLIDATED STATEMENTS OF INCOME FOR EACH OF THE
THREE YEARS IN THE PERIOD ENDED JUNE 30, 1996 F-3
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1996 F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR EACH OF THE
THREE YEARS IN THE PERIOD ENDED JUNE 30, 1996 F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Sage Laboratories, Inc.:
We have audited the accompanying consolidated balance sheets of Sage
Laboratories, Inc. (a Massachusetts corporation) and subsidiaries as of June 30,
1996 and 1995, and the related consolidated statements of income, stockholders'
investment and cash flows for each of the three years in the period ended June
30, 1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sage Laboratories,
Inc. and subsidiaries as of June 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1996, in conformity with generally accepted accounting principles.
Boston, Massachusetts
August 23, 1996
<PAGE>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
ASSETS 1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,878,691 $ 5,261,978
Accounts receivable, net of reserve of approximately
$50,000 in 1996 and $42,000 in 1995 1,993,452 1,543,964
Inventories 1,348,469 1,296,076
Prepaid expenses and other current assets 485,405 501,147
----------- -----------
Total current assets 9,706,017 8,603,165
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land, buildings and improvements 3,989,760 3,768,658
Machinery and laboratory equipment 1,753,072 1,455,387
Furniture, fixtures and motor vehicles 664,894 471,666
----------- -----------
6,407,726 5,695,711
Less--Accumulated depreciation and amortization 3,302,607 2,840,371
----------- -----------
3,105,119 2,855,340
----------- -----------
OTHER ASSETS:
Notes receivable from an officer/stockholder 55,043 87,039
Other assets 161,536 65,932
----------- -----------
Total other assets 216,579 152,971
----------- -----------
$13,027,715 $11,611,476
=========== ===========
<CAPTION>
June 30,
LIABILITIES AND STOCKHOLDERS' INVESTMENT 1996 1995
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 166,667 $ 166,667
Accounts payable 394,221 300,686
Accrued expenses-
Compensation 762,025 860,626
Commissions 136,364 98,469
Taxes other than federal income taxes 85,259 42,259
Federal income taxes 261,827 292,114
Other 268,191 322,218
----------- -----------
Total current liabilities 2,074,554 2,083,039
----------- -----------
LONG-TERM DEBT, NET OF CURRENT MATURITIES 666,665 833,332
----------- -----------
DEFERRED INCOME TAXES 190,000 207,000
----------- -----------
COMMITMENTS (Notes 6 and 9)
STOCKHOLDERS' INVESTMENT:
Common stock, $.10 par value-
Authorized--10,000,000 shares
Issued--2,678,480 shares in 1996 and
2,650,480 shares in 1995 267,848 265,048
Capital in excess of par value 2,030,182 1,943,802
Retained earnings 13,276,809 11,783,144
----------- -----------
15,574,839 13,991,994
Less--
Cost of 1,517,215 shares of treasury stock in 1996
and 1,515,740 shares of treasury stock in 1995 5,448,988 5,420,078
Deferred compensation 29,355 83,811
----------- -----------
Total stockholders' investment 10,096,496 8,488,105
----------- -----------
$13,027,715 $11,611,476
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
<PAGE>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
--------------Years Ended June 30,-------------
1996 1995 1994
<S> <C> <C> <C>
NET SALES AND CONTRACT REVENUE $ 9,768,809 $ 9,154,059 $ 8,167,307
COST OF SALES AND CONTRACT COSTS 4,812,675 4,394,464 3,629,427
ENGINEERING AND NEW PRODUCT DEVELOPMENT COSTS 272,014 199,918 199,162
----------- ----------- -----------
Gross profit 4,684,120 4,559,677 4,338,718
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,343,222 2,402,174 2,476,657
----------- ----------- -----------
Operating income 2,340,898 2,157,503 1,862,061
INTEREST INCOME 302,901 194,528 125,230
INTEREST EXPENSE (68,922) (79,597) (69,223)
INCOME (LOSS) ON RENTAL PROPERTY 54,614 6,506 (41,104)
----------- ----------- -----------
Income before provision for income taxes 2,629,491 2,278,940 1,876,964
PROVISION FOR INCOME TAXES:
Federal 791,000 680,000 528,000
State 229,000 210,000 151,000
----------- ----------- -----------
Net income $ 1,609,491 $ 1,388,940 $ 1,197,964
=========== =========== ===========
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE $ 1.38 $ 1.20 $ 1.00
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING 1,169,086 1,159,390 1,197,035
=========== =========== ===========
DIVIDENDS PAID $ 115,826 $ 112,725 $ 109,683
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
Common Stock Capital in
Number $.10 Excess of Retained
of Shares Par Value Par Value Earnings
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1993 2,588,480 $ 258,848 $ 1,764,347 $ 9,418,648
Net income -- -- -- 1,197,964
Payment of $.10 per share cash dividend -- -- -- (109,683)
Amortization of deferred compensation -- -- -- --
Exercise of stock options 25,000 2,500 65,290 --
Purchase of treasury stock -- -- -- --
Stock option compensation grants -- -- 3,420 --
------------ ------------ ------------ ------------
BALANCE, JUNE 30, 1994 2,613,480 261,348 1,833,057 10,506,929
Net income -- -- -- 1,388,940
Payment of $.10 per share cash dividend -- -- -- (112,725)
Amortization of deferred compensation -- -- -- --
Exercise of stock options 37,000 3,700 104,685 --
Purchase of treasury stock -- -- -- --
Stock option compensation grants -- -- 6,060 --
------------ ------------ ------------ ------------
BALANCE, JUNE 30, 1995 2,650,480 265,048 1,943,802 11,783,144
Net income -- -- -- 1,609,491
Payment of $.10 per share cash dividend -- -- -- (115,826)
Amortization of deferred compensation -- -- -- --
Exercise of stock options 28,000 2,800 86,380 --
Purchase of treasury stock -- -- -- --
------------ ------------ ------------ ------------
BALANCE, JUNE 30, 1996 2,678,480 $ 267,848 $ 2,030,182 $ 13,276,809
============ ============ ============ ============
<CAPTION>
Total
Treasury Stock, Deferred Stockholders'
at Cost Compensation Investment
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1993 $ (3,723,171) $ (192,772) $ 7,525,900
Net income -- -- 1,197,964
Payment of $.10 per share cash dividend -- -- (109,683)
Amortization of deferred compensation -- 54,456 54,456
Exercise of stock options -- -- 67,790
Purchase of treasury stock (1,665,080) -- (1,665,080)
Stock option compensation grants -- -- 3,420
------------ ------------ ------------
BALANCE, JUNE 30, 1994 (5,388,251) (138,316) 7,074,767
Net income -- -- 1,388,940
Payment of $.10 per share cash dividend -- -- (112,725)
Amortization of deferred compensation -- 54,505 54,505
Exercise of stock options -- -- 108,385
Purchase of treasury stock (31,827) -- (31,827)
Stock option compensation grants -- -- 6,060
------------ ------------ ------------
BALANCE, JUNE 30, 1995 (5,420,078) (83,811) 8,488,105
Net income -- -- 1,609,491
Payment of $.10 per share cash dividend -- -- (115,826)
Amortization of deferred compensation -- 54,456 54,456
Exercise of stock options -- -- 89,180
Purchase of treasury stock (28,910) -- (28,910)
------------ ------------ ------------
BALANCE, JUNE 30, 1996 $ (5,448,988) $ (29,355) $ 10,096,496
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended June 30,
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,609,491 $ 1,388,940 $ 1,197,964
Adjustments to reconcile net income to net cash provided by
operating activities-
Stock option compensation -- 6,060 3,420
Depreciation and amortization 462,236 406,876 257,837
Notes receivable from an officer/stockholder 31,996 31,996 46,262
Amortization of deferred compensation 54,456 54,505 54,456
Deferred income taxes (28,000) (124,000) (176,000)
Changes in assets and liabilities-
Accounts receivable (449,488) 210,475 (247,715)
Inventories (52,393) (482,511) (130,877)
Prepaid expenses and other current assets 26,742 15,773 (56,863)
Accounts payable 93,536 20,295 37,685
Accrued expenses (102,021) 17,198 188,016
----------- ----------- -----------
Net cash provided by operating activities 1,646,555 1,545,607 1,174,185
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net (712,015) (326,639) (604,961)
(Increase) decrease in other assets (95,604) (3,680) 20,914
----------- ----------- -----------
Net cash used in investing activities (807,619) (330,319) (584,047)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options 89,180 108,385 67,790
Purchase of treasury stock (28,910) (31,827) (1,665,080)
Payment of cash dividend (115,826) (112,725) (109,683)
Payments on long-term debt (166,667) (166,667) (166,667)
----------- ----------- -----------
Net cash used in financing activities (222,223) (202,834) (1,873,640)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 616,713 1,012,454 (1,283,502)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 5,261,978 4,249,524 5,533,026
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 5,878,691 $ 5,261,978 $ 4,249,524
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 73,606 $ 77,524 $ 69,131
=========== =========== ===========
Income taxes $ 1,035,000 $ 996,531 $ 830,834
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(1) OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company is engaged primarily in the design, manufacture and sale of
specialized components suitable for the transmission, reception,
modification and utilization of microwave energy.
The accompanying consolidated financial statements reflect the application
of the following major accounting policies.
(a) Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Sage Laboratories, Inc. (the Company) and its wholly owned
subsidiaries, Sage Laboratories Investment Corporation, a
Massachusetts securities corporation; Sage Laboratories Active
Microwave, Inc. (SLAM), a New Hampshire corporation; and Sage
Laboratories Foreign Sales, Inc., a U.S. Virgin Island corporation.
All material intercompany transactions and balances have been
eliminated in consolidation.
(b) Revenue Recognition
With respect to contracts, the Company recognizes revenue on the basis
of shipments by relating the total anticipated costs to total units to
be produced and units actually shipped. Contract losses are recorded
in total as soon as they can be reasonably anticipated. Product sales
are recognized upon shipment.
(c) Research and Development Expenses
Research and development expenses are charged to operations as
incurred. Research and development expenses of approximately $272,000,
$200,000 and 199,000 were incurred in 1996, 1995 and 1994,
respectively. In 1996, 1995 and 1994, $25,000, $62,000 and $119,000,
respectively, of the total research and development costs were related
to new product development by SLAM.
(d) Depreciation and Amortization
The Company provides for depreciation and amortization by charges to
operations to allocate the cost of the assets over their estimated
useful lives as follows:
<TABLE>
<CAPTION>
Method of Depreciation Estimated
Assets Classification and Amortization Useful Life
<S> <C> <C>
Buildings and improvements Straight-line 5-25 Years
Machinery and laboratory equipment Straight-line and declining-balance 3-10 Years
Furniture, fixtures and motor vehicles Straight-line and declining-balance 3-10 Years
</TABLE>
F-6
<PAGE>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(Continued)
(1) OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(e) Warranty Costs
Warranty costs incurred by the Company during the three years in the
period ended June 30, 1996 were not significant, and future warranty
costs are not expected to be significant.
(f) Inventories
Inventories, priced at the lower of cost (first-in, first-out) or
market, are as follows as of June 30, 1996 and 1995:
1996 1995
Raw materials and parts $ 406,581 $ 335,968
Work-in-process 814,776 863,328
Finished goods 127,112 96,780
---------- ----------
$1,348,469 $1,296,076
========== ==========
Work-in-process and finished goods include material, labor and
manufacturing overhead.
(g) Net Income per Common and Common Equivalent Share
Net income per common and common equivalent share was computed based
on the weighted average number of common shares and common share
equivalents outstanding during the year. Common share equivalents
consist of dilutive outstanding stock options computed under the
treasury stock method. Fully diluted net income per common and common
equivalent share has not been presented since the result would not be
materially different.
(h) Postretirement and Postemployment Benefits
The Company has no obligations for postretirement or postemployment
benefits.
(i) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ
from those estimates.
F-7
<PAGE>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(Continued)
(1) OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(j) New Accounting Standards
The Company will adopt Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation, in fiscal
1997. The standard defines a fair value based method of accounting for
employee stock options and other stock-based compensation. The
compensation expense arising from this method of accounting can be
reflected in the financial statements or, alternatively, the pro forma
net income and earnings per share effect of the fair value based
accounting can be disclosed in the financial footnotes. The Company
expects to adopt the disclosure alternative.
(k) Concentration of Credit Risk
SFAS No. 105, Disclosure of Information About Financial Instruments
with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk, requires disclosure of any significant
off-balance sheet and credit risk concentrations. The Company's
accounts receivable credit risk is not concentrated within any
geographic area and does not represent a significant credit risk to
the Company.
During the years ended June 30, 1996, 1995 and 1994, export sales
accounted for approximately 20%, 24% and 22% of revenue, respectively.
During fiscal 1995, two domestic customers accounted for 22% of
revenue. No customer accounted for more than 10% of revenue in fiscal
1996 and 1994.
(l) Fair Value of Financial Instruments
SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires disclosure of an estimate of the fair value of certain
financial instruments. The fair value of financial instruments
pursuant to SFAS No. 107 approximated their carrying values at June
30, 1996 and 1995. Fair values have been determined through
information obtained from market sources and management estimates.
F-8
<PAGE>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(Continued)
(2) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Cash and cash
equivalents, which are recorded at amortized cost, consist of the following
at June 30:
1996 1995
Cash $ 24,208 $ 115,337
Money market mutual fund 4,795,421 3,469,960
Fixed time deposit 1,059,062 1,000,000
Repurchase agreements -- 676,681
---------- ----------
$5,878,691 $5,261,978
========== ==========
(3) LINE OF CREDIT
At June 30, 1996, the Company has available an unsecured revolving line of
credit of $1,000,000 with a bank, expiring on November 30, 1996. Borrowings
under the line bear interest at the borrower's option at either the bank's
prime rate (8.25% at June 30, 1996) or 30-, 60-, 90- or 180-day LIBOR (5.5%
to 5-3/16% at June 30, 1996) plus 1.75%. There were no borrowings under the
line during fiscal 1996.
(4) LONG-TERM DEBT
Long-term debt consists of an Industrial Revenue Bond, payable in quarterly
principal installments of $41,667 through April 2001. The bond bears
interest at 88.6% of the prime rate (8.25% at June 30, 1996), payable
quarterly through April 2001. The bond is collateralized by land and
buildings.
Maturities of long-term debt are as follows:
Fiscal Year
1997 $ 166,667
1998 166,667
1999 166,667
2000 166,667
2001 166,664
---------
Total $ 833,332
=========
F-9
<PAGE>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(Continued)
(5) INCOME TAXES
The Company follows the provisions of SFAS No. 109, Accounting for Income
Taxes. The provision for income taxes for the three years ended June 30,
1996 consists of the following:
1996 1995 1994
Current--
Federal $ 813,000 $ 775,000 $ 705,000
State 235,000 239,000 225,000
---------- ---------- ---------
1,048,000 1,014,000 930,000
---------- ---------- ---------
Deferred (prepaid)--
Federal (22,000) (95,000) (177,000)
State (6,000) (29,000) (74,000)
---------- ---------- ---------
(28,000) (124,000) (251,000)
---------- ---------- ---------
$1,020,000 $ 890,000 $ 679,000
========== ========== =========
The provision for income taxes for each of the three years in the period
ended June 30, 1996 is reconciled to the U.S. statutory rate as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Provision at statutory rate $ 894,000 $775,000 $638,000
Increase (decrease) in income taxes resulting from--
State income taxes, net of federal benefit 151,000 137,000 100,000
Tax benefit of foreign sales corporation (25,000) (22,000) --
Other -- -- (59,000)
---------- -------- --------
Provision for income taxes $1,020,000 $890,000 $679,000
========== ======== ========
</TABLE>
Under SFAS No. 109, the Company records a deferred tax asset or liability
based on the enacted tax rates that are expected to be in place when any
differences between the financial statement and tax bases of liabilities or
assets reverse. The approximate income tax effect of each temporary
difference
F-10
<PAGE>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(Continued)
(5) INCOME TAXES (Continued)
constituting the deferred tax asset (included in prepaid expenses and other
current assets) and the deferred tax liability in the accompanying
consolidated balance sheets as of June 30, 1996 and 1995 are as follows:
1996 1995
Deferred tax assets--
Nondeductible accruals $ 210,000 $ 261,000
Receivable reserves 20,000 17,000
Inventory reserves 216,000 157,000
--------- ---------
$ 446,000 $ 435,000
========= =========
Deferred tax liabilities--
Depreciation $(151,000) $(149,000)
Deferred compensation (13,000) (34,000)
Other (26,000) (24,000)
--------- ---------
$(190,000) $(207,000)
========= =========
(6) COMMITMENTS
SLAM conducts its operations in leased facilities under an operating lease
agreement that expires in March 1999.
Future minimum lease commitments under this operating lease are as follows:
Fiscal Year
1997 $23,000
1998 23,000
1999 17,000
-------
Total $63,000
=======
The Company has the option to terminate this lease during 1997 for a
termination fee of $5,000. Rent expense under the operating lease for the
years ended June 30, 1996, 1995 and 1994 was approximately $23,000, $23,000
and $3,000, respectively.
F-11
<PAGE>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(Continued)
(7) STOCKHOLDERS' INVESTMENT
(a) Stock Split
On September 5, 1995, the Board of Directors declared a 5-for-1 stock
split, effective December 1, 1995 to stockholders of record on
November 14, 1995. In addition, the par value of the Company's common
stock was changed from $1.00 to $.10 per share. Stockholders'
investment has been restated to give retroactive recognition to both
the stock split and change in par value.
(b) Stock Option Plan
The Company has an incentive stock option plan under which key
employees may be granted options to purchase common stock at not less
than fair market value at the date of grant. Options are exercisable
as determined by the compensation committee of the Board of Directors
and expire no later than 10 years form the date of grant.
No accounting recognition is given to incentive stock options until
they are exercised, at which time the par value is credited to the
common stock account, and the difference between the proceeds received
and the par value is credited to the capital in excess of the par
value account. An employee may exercise an outstanding stock option by
delivering to the Company shares of common stock previously acquired
by the employee rather than paying cash. The number of shares that the
employee must surrender to the Company is equal to the aggregate
exercise price of the stock options divided by the fair market value
of the Company's common stock on the exercise date.
F-12
<PAGE>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(Continued)
(7) STOCKHOLDERS' INVESTMENT (Continued)
(b) Stock Option Plan (Continued)
The following table summarizes incentive stock option activity for the
three years ended June 30, 1996:
Price Range
Shares per Share
Options outstanding, June 30, 1993 111,500 $ 2.55-$ 2.90
Exercised (24,000) 2.55- 2.90
Expired (14,500) 2.65
------- -------------
Options outstanding, June 30, 1994 73,000 2.55- 2.90
Exercised (33,000) 2.55- 2.90
Expired (5,000) 2.90
------- -------------
Options outstanding, June 30, 1995 35,000 2.55- 2.90
Granted 101,500 19.78- 21.75
Exercised (25,000) 2.90
------- -------------
Options outstanding, June 30, 1996 111,500 $ 2.55-$21.75
======= =============
Options exercisable, June 30, 1996 43,835 $ 2.55-$21.75
======= =============
At June 30, 1996, 250,000 shares of common stock were reserved for
issuance under the plan, of which 138,500 were available for
additional grants.
(c) Director Stock Option Plan
The Company has a Director Stock Option Plan (the Plan), the purpose
of which is to attract and retain highly qualified nonemployee
directors and to encourage their ownership of common stock. The Plan
automatically provides for the annual grant of options to purchase
1,000 shares of common stock to each director who is serving on the
Board at the time of such grant and who is not also an employee of the
Company or any subsidiary. The exercise price of the options was equal
to 80% of the fair market value of the shares on the date of the
grant. During fiscal 1996, the Plan was amended to provide for the
annual automatic grant of 2,500 shares of the Company's common stock
to each eligible director at an exercise price equal to 100% of the
fair market value of the shares on the date of grant.
F-13
<PAGE>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(Continued)
(7) STOCKHOLDERS' INVESTMENT (Continued)
(c) Director Stock Option Plan (Continued)
The following table summarizes director's stock option activity for
the three years ended June 30, 1996:
Price Range
Shares per Share
Options outstanding, June 30, 1993 3,000 $4.04
Granted 3,000 4.56
Exercised (1,000) 4.04
------ -------------
Options outstanding, June 30, 1994 5,000 4.04- 4.56
Granted 3,000 8.08
Exercised (4,000) 4.04- 8.08
------ -------------
Options outstanding, June 30, 1995 4,000 4.04- 8.08
Granted 10,000 20.00
Exercised (3,000) 4.04- 8.08
------ -------------
Options outstanding, June 30, 1996 11,000 $ 8.08-$20.00
------ =============
Options exercisable, June 30, 1996 11,000 $ 8.08-$20.00
====== =============
At June 30, 1996, 47,000 shares of common stock were reserved for
issuance under the Plan, of which 36,000 shares were available for
additional grants.
(d) Deferred Compensation
During 1992, the Company issued 50,000 shares of its common stock to
an officer as additional compensation. The stock is subject to
forfeiture by the officer under certain conditions. However, the
forfeiture restriction lapses in February 2002. At the discretion of
the Company's Board of Directors, the forfeiture restriction on 10,000
shares may be lapsed each year if the officer achieves certain
predefined goals. The Company recorded deferred compensation equal to
the fair market value of the stock on the date of the grant and has
been amortizing the cost over five years, which is the anticipated
vesting period of the stock. During each of fiscal 1996, 1995 and
1994, the Board of Directors approved the lapse of restrictions on
10,000 shares in accordance with this agreement. During each of 1996,
1995 and 1994, approximately $54,000 was charged to operations as
compensation expense.
F-14
<PAGE>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(Continued)
(7) STOCKHOLDERS' INVESTMENT (Continued)
(d) Deferred Compensation (Continued)
In connection with the stock grant, the Company made certain loans to
the officer. The loans are evidenced by interest-free notes
receivable, payable in five equal annual installments beginning in
December 1993. Interest is imputed on the notes at the appropriate
Internal Revenue Service rate and included in compensation to the
officer.
(e) Put-and-Call Agreement
The Company has a put-and-call agreement with a relative of the former
chairman of the Company's Board of Directors providing that, in the
event of the relative's death prior to August 31, 1998, the relative's
estate could require the Company to acquire all of the relative's
Company common stock (65,000 shares as of June 30, 1996) at the
average market value, as defined, if the Company has achieved certain
defined financial results. The Company also has the option to require
the relative's estate to sell to the Company all of the relative's
stock at the average market value, as defined, in the event of the
relative's death prior to August 31, 1998.
(8) BONUS AND PROFIT-SHARING PLANS
(a) Bonus Plan
The Company maintains a discretionary executive bonus plan that is
based on a formula established by the Board of Directors. Expenses
charged to operations under this plan were approximately $136,000,
$208,000 and $254,000 in 1996, 1995 and 1994, respectively.
(b) Employee Profit-Sharing Plan
The Company has a profit-sharing plan in which each qualified
employee, as defined, becomes eligible to receive benefits to the
extent of his or her vested interests upon retirement or other
termination of employment. Contributions to the plan are determined by
the Board of Directors. The Company provided approximately $173,000,
$199,000 and $220,000 for this plan in 1996, 1995 and 1994,
respectively.
F-15
<PAGE>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(Continued)
(9) CONSULTING AND NONCOMPETE AGREEMENTS
During 1993, the Company entered into a consulting agreement with a former
officer/stockholder of the Company. Under the terms of the agreement, the
former officer/stockholder provided consulting services to the Company for
a three-year period, ending in December 1995. The Company incurred $57,000,
$122,000 and $146,000 in consulting expense under this agreement during the
years ended June 30, 1996, 1995 and 1994, respectively.
During 1994, the Company entered into a noncompete agreement with its
founder and former chairman of the Board of Directors. Under the terms of
the noncompete agreement, the former chairman agreed not to compete with
the Company directly or indirectly through August 1998. The Company
incurred $80,000, $80,000 and $67,000 in expense under this agreement
during the years ended June 30, 1996, 1995 and 1994, respectively. The
Company's future commitment under the noncompete agreement will be as
follows:
Fiscal Year
1997 $ 80,000
1998 80,000
1999 13,000
--------
$173,000
========
(10) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table presents a summary of quarterly results of operations
for the years ended June 30, 1996 and 1995.
<TABLE>
<CAPTION>
1996
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Net sales and contract revenues $2,216,056 $2,680,312 $2,089,982 $2,782,459
Gross profit 938,782 1,178,416 1,098,717 1,468,205
Net income 183,090 351,459 415,330 659,612
Net income per common and common
equivalent share $ .16 $ .30 $ .36 $ .56
</TABLE>
F-16
<PAGE>
SAGE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(Continued)
(10) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (Continued)
<TABLE>
<CAPTION>
1995
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Net sales and contract revenues $1,493,154 $2,273,759 $2,816,498 $2,570,648
Gross profit 796,139 1,114,277 1,420,517 1,228,744
Net income 114,310 274,181 401,803 598,646
Net income per common and common
equivalent share $ .10 $ .24 $ .35 $ .51
</TABLE>
F-17
The Commonwealth of Massachusetts
Kevin H. White
Secretary of the Commonwealth
STATE HOUSE, BOSTON, MASS.
RESTATED ARTICLES OF ORGANIZATION
General Laws, Chapter 156B, Section 74
This certificate must be submitted to the Secretary of the Commonwealth within
sixty days after the date of the vote of stockholders adopting the restated
articles of organization. The fee for filing this certificate is prescribed by
General Laws, Chapter 156B, Section 114. Make check payable to the Commonwealth
of Massachusetts.
----------
We, Theodore S. Saad, President and
Robert P. Moncreiff, Clerk of
SAGE LABORATORIES, INC.
(Name of Corporation)
located at 3 Huron Drive, East Natick Industrial Park, Natick, Massachusetts do
hereby certify that the following restatement of the articles of organization of
the corporation was duly adopted at a meeting held on September 21, 1967, by
vote of
16,250 shares of Class 3 Common Stock out of 16,250 shares outstanding,
- --------------------------------------------------------------------------------
(Class of Stock)
shares of out of shares outstanding,
- --------------------------------------------------------------------------------
(Class of Stock)
shares of out of shares outstanding,
- --------------------------------------------------------------------------------
(Class of Stock)
being at least two-thirds of each class of stock outstanding and entitled to
vote and of each class or series of stock adversely affected thereby:
1. The name by which the corporation shall be known as: Sage
Laboratories, Inc.
2. The purposes for which the corporation is formed are as follows:
See page 2A
NOTE: Provisions for which the space provided under articles 2, 4, 5, and 6
is not sufficient should be set out on continuation sheets to be
numbered 2A, 2B, etc. Indicate under each article where the provision
is set out. Continuation sheets shall be on 8-1/2" wide x 11" high
paper and must have a left-hand margin 1 inch wide for binding. Only
one side should be used.
<PAGE>
3. The total number of shares and the par value, if any, of each class of
stock which the corporation is authorized to issue is as follows:
WITHOUT PAR VALUE WITH PAR VALUE
----------------- --------------
CLASS OF STOCK NUMBER OF SHARES NUMBER OF SHARES PAR VALUE
- -------------- ---------------- ---------------- ---------
Preferred
Common 650,000 $1.00
*4. If more than one class is authorized, a description of each of the
different classes of stock with, if any, the preferences, voting
powers, qualifications, special or relative rights or privileges as to
each class thereof and any series now established:
Not applicable.
*5. The restrictions, if any, imposed by the articles of organization upon
the transfer of shares of stock of any class are as follows:
None
*6. Other lawful provision, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary
dissolution, or for limiting, defining, or regulating the powers of
the corporation, or of its directors or stockholders, or of any class
of stockholders:
None
* If there are no such provisions, state "None".
<PAGE>
Page 2A
To carry on the trade or business of engineers, founders, smiths,
machinists, manufacturers and patentees of lawful products of any description
and to carry on any business incident thereto; to acquire by purchase, lease or
otherwise such real estate, machinery, fixtures, and all kinds of personal
property which may appropriately be acquired and lawfully used in the conduct of
any or all of such business enterprises; to acquire by purchase or otherwise,
and to own, use, sell, grant, assign and license others to use, letters patent,
patent rights, inventions, processes and contrivances relating to any or all of
such business enterprises; to purchase, lease or otherwise acquire as a going
concern or otherwise all or any part of the rights, stock, property, business
and good will of any person, firm, association, trust or other corporation
engaged in whole or in part in any business in which this corporation is
empowered to engage; to pay for the same in whole or in part in cash, stocks,
bonds, notes, securities or assets of this corporation or in any manner to
assume as part of the consideration or otherwise any or all of the debts,
contracts, liabilities and obligations of any such person, firm, association,
trust or other corporation; to operate, manage, develop and generally carry on
the whole or any part of such business either under the name of the person,
firm, association, trust or other corporation from whom acquired or under the
name of this corporation.
<PAGE>
"We further certify that the foregoing restated articles of organization
effect no amendments to the articles of organization of the corporation as
heretofore amended, except amendments to the following articles 3 & 5.
- --------------------------------------------------------------------------------
(*If there are no such amendments, state "None".)
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our
names this 20th day of November in the year 1967.
/s/ Theodore S. Saad President
- ---------------------------------------------------
/s/ Robert P. Moncreiff Clerk
- ---------------------------------------------------
<PAGE>
RECEIVED
NOV 20, 1967
CORPORATION DIVISION
SECRETARY'S OFFICE
THE COMMONWEALTH OF MASSACHUSETTS
RESTATED ARTICLES OF ORGANIZATION
(General Laws, Chapter 156B, Section 74)
I hereby approve the within restated articles of
organization and, the filing fee in the amount of $375.00
having been paid, said articles are deemed to have been
filed with me this 20th day of Nov, 1967.
/s/ Kevin H. White
-------------------
KEVIN H. WHITE
Secretary of the Commonwealth
State House, Boston, Mass.
James L. Terry
53 State St
Boston
11-22-67
<PAGE>
* *
FORM CD-72-30M-4/88-70881
[Initialed]
- -----------
Examiner
The Commonwealth of Massachusetts
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL JOSEPH CONNOLLY, Secretary
ONE ASHBURTON PLACE, BOSTON, MASS 02108
FEDERAL IDENTIFICATION
NO. 04-2179082
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
This certificate must be submitted to the Secretary of the Commonwealth
within sixty days after the date of the vote of stockholders adopting the
amendment. The fee for filing this certificate is prescribed by General Laws,
Chapter 156B, Section 114. Make check payable to the Commonwealth of
Massachusetts.
----------
We, Theodore S. Saad, President and
Robert P. Moncreiff, Clerk of
SAGE LABORATORIES, INC.
(Name of Corporation)
Located at 11 Huron Drive, Natick, Massachusetts 01760
- -----------
Name
Approved
do hereby certify that the following amendment to the articles of organization
of the corporation was duly adopted at a meeting held on October 27, 1987, by
vote of 306,471 shares of Common Stock out of 417,405 shares outstanding.
CROSS OUT being at least two-thirds of each class outstanding and entitled
INAPPLICABLE to vote thereon and of each class or series of stock whose rights
CLAUSE are adversely affected thereby:(2)
Voted to add the following provision to Section 6 of the corporation's
Restated Articles of Organization:
C [ ]
P [ ]
M [ ]
"A Director of this corporation shall not be liable to the corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent that the elimination of liability is not
permitted under the Massachusetts Business Corporation Law as in effect when
such breach occurred. No amendment or repeal of this provision shall deprive a
director of the benefits hereof with respect to any act or omission occurring
prior to such amendment or repeal."
(1) For amendments adopted pursuant to Chapter 156B, Section 70.
(2) For amendments adopted pursuant to Chapter 156B, Section 71.
4
- -----------
PC
Note: If the space provided under any Amendment or item on this form is
insufficient, additions shall be set forth in separate 8-1/2 x 11 sheets of
paper leaving a left hand margin of at least 1 inch for binding. Additions to
more than one Amendment may be continued on a single sheet so long as each
Amendment requiring such addition is clearly indicated.
<PAGE>
TO CHANGE the number of shares and the par value, if any, of each class of stock
within the corporation fill in the following:
The total presently authorized is:
- ------------------ ---------------------- ----------------------- -------------
NO PAR VALUE WITH PAR VALUE PAR
KIND OF STOCK NUMBER OF SHARES NUMBER OF SHARES VALUE
- ------------------ ---------------------- ----------------------- -------------
COMMON
- ------------------ ---------------------- ----------------------- -------------
- ------------------ ---------------------- ----------------------- -------------
- ------------------ ---------------------- ----------------------- -------------
PREFERRED
- ------------------ ---------------------- ----------------------- -------------
- ------------------ ---------------------- ----------------------- -------------
- ------------------ ---------------------- ----------------------- -------------
CHANGE the total to:
- ------------------ ---------------------- ----------------------- -------------
NO PAR VALUE WITH PAR VALUE PAR
KIND OF STOCK NUMBER OF SHARES NUMBER OF SHARES VALUE
- ------------------ ---------------------- ----------------------- -------------
COMMON
- ------------------ ---------------------- ----------------------- -------------
- ------------------ ---------------------- ----------------------- -------------
- ------------------ ---------------------- ----------------------- -------------
PREFERRED
- ------------------ ---------------------- ----------------------- -------------
- ------------------ ---------------------- ----------------------- -------------
- ------------------ ---------------------- ----------------------- -------------
<PAGE>
The foregoing amendment will become effective when these articles of
amendment are filed in accordance with Chapter 156B, Section 6 of the General
Laws unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our
names this 27th day of October, in the year 1987
/s/ Theodore S. Saad President
- ---------------------------------------------------
/s/ Robert P. Moncreiff Clerk
- ---------------------------------------------------
<PAGE>
SECRETARY OF THE
COMMONWEALTH
1987 OCT 20 PM 2:12
CORPORATION DIVISION
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
I hereby approve the within articles of amendment and the filing fee in the
amount of $75.00 have been paid, said articles are deemed to have been filed
with me this 29th day of October 1987.
/s/ Michael Joseph Connolly
-------------------------------
MICHAEL JOSEPH CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF AMENDMENT TO BE SENT
TO: John A. Frescotti, Esquire
Palmer & Dodge
--------------------------------------------------
One Beacon Street
--------------------------------------------------
Boston, MA 02108
--------------------------------------------------
Telephone: (617) 227-4400
---------------------------------------
<PAGE>
NO. 04-2179082
- --------
Examiner
THE COMMONWEALTH OF MASSACHUSETTS
William Francis Gavin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
- --------
Name
Approved
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
We, Carl A. Marguerite , *President
---------------------------------------------------
and George M. Hughes , Assistant Clerk
---------------------------------------------------
of Sage Laboratories, Inc.
----------------------------------------------------------------------------
(Exact name of corporation)
located at 11 Huron Drive, Natick MA 01760-1338
---------------------------------------------------------------------
(Street address of corporation in Massachusetts)
certify that these Articles of Amendment affecting articles numbered:
3
- --------------------------------------------------------------------------------
(Number those articles 1,2,3,4 and/or 6 being amended)
of the Articles of Organization were duly adopted at a meeting held on November
14, 1995 by vote of:
175,450 shares of Common Stock $1.00 par value of 231,365 shares outstanding.
(type, class & series, if any)
_______ shares of ________________________________ of _______ shares outstanding
and
(type, class & series, if any)
_______ shares of _______________________________ of _______ shares outstanding.
(type, class & series, if any)
C []
P []
M []
R.A. []
1** being at least a majority of each type, class or series outstanding and
entitled to vote thereon:/or
* Delete the inapplicable words. ** Delete the inapplicable clause.
1 For amendments adopted pursuant to Chapter 156B, Section 70.
2 For amendments adopted pursuant to Chapter 156B, Section 71.
Note: if the space provided under any article or items on this form is
insufficient, additions shall be set forth on one side only of separate 8 1/2 x
11 sheets of paper with a left margin of at lease 1 inch. Additions to more than
one article may be made on a single sheet so long as each article requiring each
addition is clearly indicated.
- --------
P.C.
<PAGE>
To change the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fill in the
following:
The total presently authorized is:
- --------------------------------------------------------------------------------
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- --------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- --------------------------------------------------------------------------------
Common: Common: 650,000 $ 1.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Preferred: Preferred:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Change the total authorized to:
- --------------------------------------------------------------------------------
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- --------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- --------------------------------------------------------------------------------
Common: Common: 10,000,000 $.10
-------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Preferred: Preferred:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The above change was approved pursuant to the following vote:
VOTED: To amend the company's Restated Articles of Organization as
amended so as to change the par value of its Common Stock from
$1.00 per share to $.10 per share and increase the number of
authorized shares from 650,000 shares to 10,000,000 shares.
<PAGE>
The foregoing amendment(s) will become effective when these Articles of
Amendment are filed in accordance with General Laws, Chapter 156B, Section 6
unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
Later effective date: ______________________
SIGNED UNDER THE PENALTIES OF PERJURY, this 14th day of November 1995.
/s/ Carl A. Marguerite , *President/.
- -------------------------------------------------
/s/ George M. Hughes , /*Assistant Clerk.
- -------------------------------------------------
* Delete inapplicable words.
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
================================================================================
I hereby approve the within Articles of Amendment and, the filing fees in the
amount of $__________ having been paid, said articles are deemed to have been
filed with me this _________ day of _______________ 19___.
Effective date: ________________________________________________________________
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
Photocopy of document to be sent to:
George M. Hughes, Esquire
Palmer & Dodge
One Beacon Street, Boston, MA 02108-3190
As amended through 9/3/96
BY-LAWS
of
SAGE LABORATORIES, INC.
ARTICLE I
Seal and Fiscal Year
The seal shall be circular in form with the name of the corporation around
the periphery and words and figures "Incorporated 1955 Massachusetts" within.
The fiscal year shall commence on July 1 of each year.
ARTICLE II
Meetings of Stockholders
Section 1. Place. Meetings of the stockholders shall be held at the
principal office of the corporation in Massachusetts or at such other place as
may be named in the call.
Section 2. Annual Meetings. The annual meeting of the stockholders shall
be held on the second Tuesday of November in each year, or on such other date
within six months after the end of the fiscal year of the corporation as the
directors shall determine, at such hour and place as the directors shall
determine. In the event that the annual meeting is not held on such date, a
special meeting in lieu of the annual meeting may be held with all of the force
and effect of an annual meeting.
Section 3. Special Meetings. Special meetings of the stockholders may be
called by the president or by the directors,
<PAGE>
and shall be called by the clerk or, in case of the death, absence, incapacity
or refusal of the clerk, by any other officer, upon written application of one
or more stockholders who hold at least one-tenth part in interest of the capital
stock entitled to vote thereat.
Section 4. Notice. A written notice of the date, place and hour of all
meetings of stockholders stating the purposes of the meeting shall be given by
the clerk or an assistant clerk (or by any other officer who is entitled to call
such a meeting) at least seven (7) days before the meeting to each stockholder
entitled to vote thereat and to each stockholder who is entitled to such notice,
by leaving such notice with him or at his residence or usual place of business,
or by mailing it, postage prepaid, and addressed to such stockholder at his
address as it appears in the records of the corporation. Whenever notice of a
meeting is required to be given a stockholder under applicable law, the articles
of organization or these by-laws, a written waiver thereof, executed before or
after the meeting by such stockholder or his attorney thereunto authorized and
filed with the records of the meeting, shall be deemed equivalent to such
notice.
Section 5. Quorum. A majority in interest of all stock issued, outstanding
and entitled to vote at a meeting shall constitute a quorum, but a smaller
number may adjourn from time to time without further notice until a quorum is
secured.
Section 6. Voting. Stockholders entitled to vote shall have one vote for
each share of stock owned by them and a
<PAGE>
proportionate vote for each fractional share; provided that the corporation
shall not directly or indirectly vote any share of its own stock, and provided
further that stock shall not be voted if any installment of the subscription
therefor has been duly demanded and is overdue and unpaid. Stockholders may vote
in person or by proxy.
Section 7. Action by Consent. Any action required or permitted to be taken
at any meeting of the stockholders may be taken without a meeting if all
stockholders entitled to vote on the matter consent to the action in writing and
the written consents are filed with the records of the meetings of stockholders.
Such consents shall be treated for all purposes as a vote at a meeting.
ARTICLE III
Officers and Directors
Section 1. Enumeration. The corporation shall have a board of not less
than three directors, except that whenever there shall be fewer than three
stockholders, the number of directors may be less than three but in no event
less than the number of stockholders. The number of directors shall be fixed at
the annual meeting, and may be changed at any special meeting, by vote of the
stockholders having the right to vote in the election of directors; provided
that the board of directors may be enlarged at any time by vote of a majority of
the directors then in office. The officers of the corporation shall be a
president, a treasurer, a clerk and such other officers as the directors may
from time to time appoint.
<PAGE>
Section 2. Qualifications. Directors and officers need not be
stockholders. No officer need be a director. Two or more offices may be held by
the same person. The clerk shall be a resident of Massachusetts unless a
resident agent shall have been appointed pursuant to the Massachusetts Business
Corporation Law.
Section 3. Election. The directors shall be elected at the annual meeting
of the stockholders by such stockholders as have the right to vote thereon. The
directors at their annual meeting in each year shall elect a chairman of the
board, a president, a treasurer and a clerk, and may at any time elect such
other officers as they shall determine. Except as hereinafter provided, the
directors, the chairman of the board, the president, the treasurer and the clerk
shall hold office until the next annual meeting of stockholders and until their
respective successors are elected and qualified. Other officers shall serve at
the pleasure of the directors.
Section 4. Removal. Directors may be removed from office at any time for
cause by vote of a majority of the directors then in office, and with or without
cause by vote of the holders of a majority of the shares entitled to vote in the
election of directors. Officers elected or appointed by the directors may be
removed from their respective offices with or without cause by vote of a
majority of the directors then in office. A director or officer may be removed
for cause only after a reasonable notice and opportunity to be heard before the
body proposing to remove him.
<PAGE>
Section 5. Resignation. Resignations by officers or directors shall be
given in writing to the chairman of the board, treasurer, clerk or directors.
Section 6. Vacancies. Continuing directors may act despite a vacancy or
vacancies in the board and shall for this purpose be deemed to constitute the
full board. Any vacancy in the board of directors, however occurring, including
a vacancy resulting from the enlargement of the board, may be filled by the
directors, unless previously filled by the stockholders entitled to vote in the
election of directors. Vacancies in any other office may be filled by the
directors.
ARTICLE IV
Powers and Duties of Directors and Officers
Section 1. Directors. The business of the corporation shall be managed by
the directors, who may exercise all such powers of the corporation as are not by
law, by the articles of organization or by the by-laws required to be otherwise
exercised. The directors may from time to time to the extent permitted by law
delegate any of their powers to committees, officers, attorneys or agents of the
corporation, subject to such limitations as the directors may impose.
Section 2. Chairman of the Board. The chairman of the board shall be the
chief executive officer of the corporation and, subject to the direction of the
directors, have general supervision and control of the business of the
corporation. The chairman shall, when present, preside at all meetings of
stockholders and the directors. The chairman of the board and
<PAGE>
chief executive officer shall perform such other duties and shall have such
other powers as the directors may designate from time to time.
Section 3. President. The president shall be the chief operating officer
of the corporation and shall have such powers and duties as may be designated
from time to time by the directors or by the chairman.
Section 4. Vice Presidents. The vice presidents, if any, shall have such
powers and duties as may be designated from time to time by the directors or by
the president.
Section 5. Treasurer. Except as the directors shall otherwise determine,
the treasurer shall be the chief financial and accounting officer of the
corporation and shall have such other powers and duties as customarily belong to
the office of treasurer or as may be designated from time to time by the
directors or by the chairman of the board.
Section 6. Clerk. The clerk shall record all proceedings of the
stockholders and directors in a book or books to be kept therefor and shall have
custody of the seal of the corporation.
Section 7. Other Officers. Other officers shall have such powers as may be
designated from time to time by the directors.
ARTICLE V
Meeting of the Directors
Section 1. Regular Meetings. Regular meetings may be held at such times
and places within or without the Commonwealth of Massachusetts as the directors
may fix. An annual meeting shall
<PAGE>
be held in each year immediately after and at the place of the meeting at which
the board is elected.
Section 2. Special Meetings. Special meetings may be held at such times
and places within or without the Commonwealth of Massachusetts as may be
determined by the directors or by the president.
Section 3. Notice. No notice need be given for a regular or annual
meeting. Forty-eight hours' notice by mail, telegraph, telephone or word of
mouth shall be given for a special meeting unless shorter notice is adequate
under the circumstances. A notice or waiver of notice need not specify the
purpose of any special meeting. Notice of a meeting need not be given to any
director if a written waiver of notice, executed by him before or after the
meeting, is filed with the records of the meeting, or to any director who
attends the meeting without protesting prior thereto or at its commencement the
lack of notice to him.
Section 4. Quorum. A majority of the directors then in office shall
constitute a quorum, but a smaller number may adjourn finally or from time to
time without further notice until a quorum is secured. If a quorum is present, a
majority of the directors present may take any action on behalf of the board
except to the extent that a larger number is required by law or the articles or
organization or the by-laws.
Section 5. Action by Consent. Any action required or permitted to be taken
at any meeting of the directors may be taken without a meeting if all the
directors consent to the action in writing and the written consents are filed
with the
<PAGE>
records of the meetings of directors. Such consents shall be treated for all
purposes as a vote at a meeting.
ARTICLE VI
Stock and Transfer Books
The corporation shall keep in the Commonwealth of Massachusetts at its
principal office (or at an office of its transfer agent or of its clerk or of
its resident agent) stock and transfer records, which shall contain the names of
all stockholders and the record address and the amount of stock held by each.
The corporation for all purposes may conclusively presume that the registered
holder of a stock be absolute owner of the shares represented thereby and that
his record address is his proper address. The directors may fix in advance a
time, which shall not be more than sixty days before the date of any meeting of
stockholders or the date for the payment of any dividend or the making of any
distribution to stockholders or the last day on which the consent or dissent of
stockholders may be effectively expressed for any purpose, as the record date
for determining the stockholders having the right to notice of and to vote at
such meeting and any adjournment thereof or the right to receive such dividend
or distribution or the right to give such consent or dissent, and in such case
only stockholders of record on such record date shall have such right,
notwithstanding any transfer of stock on the books of the corporation after the
record date; or without fixing such record date the directors may for any of
such purposes close the transfer books for all or any part of such period.
<PAGE>
If no record date is fixed and the transfer books are not closed:
(1) The record date for determining stockholders having the right to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given.
(2) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the board acts with
respect thereto.
<PAGE>
ARTICLE VII
Signature of Checks
All checks drawn on bank accounts of the corporation may be signed on its
behalf as authorized from time to time by the directors.
ARTICLE VIII
Amendment of By-Laws
These by-laws may be amended, altered or repealed in whole or in part, and
new by-laws may be adopted, by vote of the holders of a majority of the shares
of common stock outstanding and entitled to vote. The directors may also amend,
alter or repeal these by-laws in whole or in part, or adopt new by-laws, except
with respect to any provision thereof which by law, the articles of organization
or these by-laws requires action by the stockholders. Not later than the time of
giving notice of the meeting of stockholders next following the amending,
altering, repealing or adopting by the directors of any by-law, notice thereof
stating the substance of such change shall be given to all stockholders entitled
to vote on amending the by-laws. Any by-law adopted by the directors may be
amended or repealed by the stockholders.
ARTICLE IX
Employment Contracts
The corporation may enter into employment contracts authorized by the
directors and the provisions of such contracts shall be valid in accordance with
their terms despite any
<PAGE>
inconsistent provision of these by-laws relating to terms of officers and
removal of officers with or without cause.
ARTICLE X
Indemnification of Directors and Officers
The corporation shall, to the extent legally permissible, indemnify each
person who may serve or who has served at any time as a director or officer of
the corporation or of any of its subsidiaries, or who at the request of the
corporation may serve or at any time has served as a director, officer or
trustee of, or in a similar capacity with, another organization or an employee
benefit plan, against all expenses and liabilities (including counsel fees,
judgments, fines, excise taxes, penalties and amounts payable in settlements)
reasonably incurred by or imposed upon such person in connection with any
threatened, pending or completed action, suit or other proceeding, whether
civil, criminal, administrative or investigative, in which he may become
involved by reason of his serving or having served in such capacity (other than
a proceeding voluntarily initiated by such person unless he is successful on the
merits, the proceeding was authorized by the corporation or the proceeding seeks
a declaratory judgment regarding his own conduct); provided that no
indemnification shall be provided for any such person with respect to any matter
as to which he shall have been finally adjudicated in any proceeding not to have
acted in good faith in the reasonable belief that his action was in the best
interests of the corporation or, to the extent such matter relates to service
with respect to any employee benefit plan, in the best
<PAGE>
interests of the participants or beneficiaries of such employee benefit plan;
and provided, further, that as to any matter disposed of by a compromise payment
by such person, pursuant to a consent decree or otherwise, the payment and
indemnification thereof have been approved by the corporation, which approval
shall not be unreasonably withheld, or by a court of competent jurisdiction.
Such indemnification shall include payment by the corporation of expense
incurred in defending a criminal or action or proceeding in advance of the final
disposition of such action or proceeding, upon receipt of an undertaking by the
person indemnified to repay such payment if he shall be adjudicated to be not
entitled to indemnification under this article, which undertaking may be
accepted without regard to the financial ability of such person to make
repayment.
A person entitled to indemnification hereunder whose duties include
service or responsibilities as a fiduciary with respect to a subsidiary or other
organization shall be deemed to have acted in good faith in the reasonable
belief that his action was in the best interests of the corporation if he acted
in good faith in the reasonable belief that his action was in the best interests
of such subsidiary or organization or of the participants or beneficiaries of,
or other persons with interests in, such subsidiary or organization to whom he
had a fiduciary duty.
Where indemnification hereunder requires authorization or approval by the
corporation, such authorization or approval shall be conclusively deemed to have
been obtained, and in any case
<PAGE>
where a director of the corporation approves the payment of indemnification,
such director shall be wholly protected, if:
(i) the payment has been approved or ratified (1) by a majority vote
of a quorum of the directors consisting of persons who are not at that
time parties to the proceeding, (2) by a majority vote of a committee of
two or more directors who are not at that time parties to the proceeding
and are selected for this purpose by the full board (in which selection
directors who are parties may participate), or (3) by a majority vote of a
quorum of the outstanding shares of stock of all classes entitled to vote
for directors, voting as a single-class, which quorum shall consist of
stockholders who are not at that time parties to the proceeding; or
(ii) the action is taken in reliance upon the opinion of independent
legal counsel (who may be counsel to the corporation) appointed for the
purpose by vote of the directors or in the manner specified in clauses
(1), (2) or (3) of subparagraph (i); or
(iii) the payment is approved by a court of competent jurisdiction;
or
(iv) the directors have otherwise acted in accordance with the
standard of conduct set forth in the Massachusetts Business Corporation
Law.
Any indemnification or advance of expenses under this article shall be
paid promptly, and in any event within 30 days, after the receipt by the
corporation of a written request
<PAGE>
therefor from the person to be indemnified, unless with respect to a claim for
indemnification the corporation shall have determined that the person is not
entitled to indemnification. If the corporation denies the request or if payment
is not made within such 30 day period, the person seeking to be indemnified may
at any time thereafter seek to enforce his rights hereunder in a court of
competent jurisdiction and, if successful in whole or in part, he shall be
entitled also to indemnification for the expenses of prosecuting such action.
Unless otherwise provided by law, the burden of proving that the person is not
entitled to indemnification shall be on the corporation.
The right of indemnification under this article shall be a contract right
inuring to the benefit of the directors, officers and other persons entitled to
be indemnified hereunder and no amendment or repeal of this article shall
adversely affect any right of such director, officer or other person existing at
the time of such amendment or repeal.
The indemnification provided hereunder shall inure to the benefit of the
heirs, executors and administrators of a director, officer or other person
entitled to indemnification hereunder. The indemnification provided hereunder
may, to the extent authorized by the corporation, apply to the directors,
officers and other persons associated with constituent corporations that have
been merged into or consolidated with the corporation who would have been
entitled to indemnification hereunder had they served in such capacity with or
at the request of the corporation.
<PAGE>
The right of indemnification under this article shall be in addition to
and not exclusive of all other rights to which such director or officer or other
persons may be entitled. Nothing contained in this article shall affect any
rights to indemnification to which corporation employees or agents other than
directors and officers and other persons entitled to indemnification hereunder
may be entitled by contract or otherwise under law.
ARTICLE XI
Issue of Authorized Stock
Any unissued capital stock from time to time authorized under the articles
of organization may be issued by vote of the directors.
082196
EMPLOYMENT AGREEMENT
This agreement dated September 4, 1996 is between Sage Laboratories,
Inc. (the " Company"), a Massachusetts corporation and Louis J. Lanzillo,
Jr. (the "Executive"). This agreement relates to the employment of the
Executive by the Company for the period and on the terms hereinafter set
forth.
The parties agree as follows:
1. Employment. The Company will employ the Executive and the Executive
will serve the Company as its President and Chief Operating officer. Executive
shall have duties and responsibilities as are customarily commensurate with such
position and shall perform such other executive duties for the Company as the
Company acting through its Chief Executive Officer and Board of Directors may
from time to time direct. A copy of Executive's initial job description is
attached hereto as Exhibit A. Executive shall report to the Company's Chief
Executive Officer. The Company shall nominate Executive for election by the
Company's shareholders as a member of the Company's Board of Directors at each
meeting of shareholders occurring during the term of this agreement at which
directors are elected Executive will devote substantially his entire business
time, energies and attention to his work for the Company and will not, without
the prior written consent of the Company, render any material services to any
third person, firm or corporation. Executive has advised the Company that he
serves on several boards of directors and is the Chairman and Chief Executive
Officer of Summit Staffing Group, LLP and represents that such activities are
not inconsistent with his commitment to the Company hereunder.
2. Term. The term of this agreement shall commence as of the date
hereof and continue through September 1999, subject to earlier
termination in accordance with paragraph 4.;
3. Compensation and Benefits.
<PAGE>
A. The Company shall pay the Executive an annual base salary during the term
hereof at the rate of $150,000 payable in equal monthly installments or more
frequently in accordance with the Company's usual policy. Salary for a portion
of any period shall be pro rated.
B. Executive shall participate in the Company's current executive bonus plan
under which he shall be eligible for a bonus of not less than 50% of base salary
to the extent consistent with the criteria and provisions of the Company's bonus
plan; provided, however, that for the fiscal year ending June 30,1997, the
Company shall pay Executive a bonus of not less than $40,000, if Executive is
employed by the Company hereunder as of the end of such fiscal year. Amounts
payable under paragraph 3.A. and this paragraph 3.B. may be increased at the
discretion of the Board of Directors of the Company based on their assessment in
their absolute discretion of the attainment by Executive of corporate and
personal goals and objectives established with respect to Executive's
performance from time to time in advance by the Board. The Company is granting
Executive incentive stock options to acquire 100,000 shares of the Company's
common stock in the form of Exhibit B attached hereto.
C. The Company is granting Executive incentive stock options to acquire 100,000
shares of the Company's common stock in the form of Exhibit B attached hereto.
D. The Executive will be eligible to participate in all fringe benefit programs
of the Company which are in effect for its executive personnel from time to time
and certain additional fringe benefits all of which are summarized on Exhibit C
attached hereto.
E. At the end of each twelve month period that Executive is continuously
employed hereunder an amount equal to four month's base salary and an amount
sufficient to pay for four months of the benefits to which Executive is then
entitled under COBRA shall accrue, subject to a maximum total of 12 months' base
pay and 12 months' COBRA benefits.
<PAGE>
4. Termination.
A. Death. This agreement shall terminate upon Executive's death. Upon
such termination, the Company shall pay to Executive's estate (or as
the Executive or his estate shall direct) (i) the Executive's base
salary through the end of the calendar month in which the Executive's
death occurs and (ii) the Executive's bonus for the fiscal year in
which the Executive's death occurs, pro rated for the portion of such
year through the Date of Termination (as defined in paragraph 4F), and
the Company will use its reasonable efforts to assist in the prompt
processing of claims under applicable employee benefits plans. The
amount of the Executive's base salary due pursuant to this paragraph
4A shall be paid in a lump sum promptly after the Date of Termination
and the amount of Executive's bonus due pursuant to this paragraph 4A
shall be paid in a lump sum promptly after the end of the fiscal year
to which it relates in accordance with the Company's bonus plan.
B. Disability. This agreement may be terminated by the Company by
written notice to Executive for "Disability" as defined in this
paragraph 4B. Disability means the Executive's inability to fully
perform his duties hereunder for 90 consecutive days or an aggregate
of 150 days during any period of twelve consecutive months by reason
of a physical or mental illness or injury. If the Company terminates
this agreement for Disability, the Company shall pay Executive his
base salary through the Date of Termination promptly after the Date of
Termination, and the Company will use its reasonable efforts to assist
in the prompt processing of claims under applicable employee benefit
plans.
C. Cause. This agreement may be terminated by the Company by written
notice to Executive for "Cause" as defined in this paragraph 4C. Cause
means (i) the Commission by Executive, in connection with his
employment hereunder, of an act of dishonesty or moral turpitude of a
material nature, (ii) Executive's willful and prolonged absence from
work (other than as a result of Disability) in circumstances that
constitute a substantial abdication of Executive's responsibilities to
the Company after written notice thereof has been given by the
Company's board of directors to Executive or (iii) Executive's
conviction of a felony. If the Company
<PAGE>
terminates this agreement for Cause, the Company shall pay the
Executive his base salary through the Date of Termination promptly
after the Date of Termination.
D. Good Reason Following a Change in Control. This agreement may be
terminated by Executive for Good Reason (as defined in Exhibit D
hereto) at any time following a Change in Control (as defined in
Exhibit E hereto). If the Executive terminates this agreement for Good
Reason following a Change in Control, the Company shall pay Executive
the greater of (i) the sum of (x) the Executive's base salary
through September 1999 and (y) Executive's bonus for the fiscal year
in which the Date of Termination occurs, prorated for the portion of
such year through the Date of Termination, or (ii) the aggregate
amount accrued pursuant to paragraph 3E. If clause (i) applies, the
amount of Executive's base salary due pursuant to clause (i) shall be
paid in a lump sum immediately after the Date of Termination and the
amount of the Executive's bonus due pursuant to clause (i) shall be
paid in a lump sum promptly after the end of the fiscal year to which
it relates in accordance with the Company's bonus plan. If clause (ii)
applies, the amount due pursuant to clause (ii) shall be paid in a
lump sum promptly after the Date of Termination.
E. Other. If the Company terminates this agreement for other than
death, Disability or Cause, which the Company may by written notice to
Executive at any time, the Company shall pay Executive the greater of
(i) the sum of (x) Executive's base salary through September, 1999 and
(y) Executive's bonus for the fiscal year in which the Date of
Termination occurs, prorated for the portion of such year through the
Date of Termination, or (ii) the aggregate amount accrued pursuant to
paragraph 3E. If clause (i) applies, the amount of Executive's base
salary due pursuant to clause (i) shall be paid in a lump sum promptly
after the Date of Termination and the amount of Executive's bonus due
pursuant to clause (i) shall be paid in a lump sum promptly after the
end of the fiscal year to which it relates in accordance with the
Company's bonus plan. If clause (ii) applies, the amount due pursuant
to clause (ii) shall be paid in a lump sum
<PAGE>
promptly after the Date of Termination. If Executive terminates this
agreement for other than Good Reason following a Change in Control,
which the Executive may by written notice to the Company at any time,
the Company shall pay Executive his base salary through the Date of
Termination promptly after the Date of Termination.
F. Date and Effect of Termination. The Date of Termination of this
agreement shall be, (i) in the case of paragraph 4A, the date of
Executive's death or (ii) in the case of a termination of this
agreement pursuant to paragraphs 4B, 4C, 4D or 4E, the date specified
in the Company's notice to Executive or Executive's notice to the
Company, as the case may be, of such termination. Upon any termination
of this agreement pursuant to this paragraph 4, Executive shall not be
entitled to any further payments or benefits of any nature pursuant to
this agreement, or as a result of such termination or election, except
as specifically provided for in this agreement. Paragraphs 6 and 7 (and
to the extent applicable thereto, paragraph 8) shall survive any
termination of this agreement pursuant to this paragraph 4.
<PAGE>
5. Expenses. The Executive is authorized to incur reasonable expenses for
promoting the business of the Company in accordance with the normal policy of
the Company in effect from time to time. The Company will reimburse the
Executive for all such expenses upon the presentation by the Executive, from
time to time, of an itemized account of such expenditures.
6. Disclosure of Information. The Executive agrees to receive confidential
and proprietary information of the Company in confidence, and not to disclose
such information to others, except pursuant to the performance of his duties for
the Company, unless and until such information has become public knowledge or
has come into the possession of such others by legal and equitable means.
7. Covenant Not to Compete. The Executive covenants and that for a period
of two years following the effective date of termination of his employment with
the Company (irrespective of by whom or for what reason) he will not without the
express written consent of the Company, consult or accept employment with, or
render services to, any organization engaged in competition with the Company
with respect to matters worked on by him provided that the Company shall not
unreasonably withhold said consent upon receiving written assurances
satisfactory to the Company from said organization that his employment by it
will not involve any activity which is competitive with the Company with respect
to said matters and that no confidential information of the Company as to any
matter will be disclosed by him to his subsequent employer.
<PAGE>
8. Miscellaneous. This agreement shall be binding on and inure to the
benefit of the Company and its successors and assigns. This agreement shall be
binding upon Executive, and shall inure to the benefit of his successors,
personal representatives and heirs, but shall not be assignable by the
Executive.
All notices or other communication permitted or required under this
agreement shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed (certified or registered mail, postage prepaid,
return receipt requested) the Executive or the Company at the respective
addresses set forth below their signatures, or such other address as may be
furnished in writing by Executive or the Company to the other.
If any provision of this agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remaining provisions
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated. This agreement contains the entire agreement of the parties and
supersedes all prior agreements relating to the subject matter hereof, and may
be changed only by an agreement in writing signed by the party against whom
enforcement of such change is sought. This agreement shall be governed by the
substantive laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties have executed this agreement under seal the day
and year first written above.
<PAGE>
SAGE LABORATORIES, INC.
By: /s/ Carl A. Marguerite
-----------------------
Carl A. Marguerite
President
11 Huron Drive
Natick, MA. 01760-1338
/s/ Louis J. Lanzillo, Jr.
--------------------------
Louis J. Lanzillo, Jr.
<PAGE>
SAGE LABORATORIES, INC.
Incentive Stock Option
Sage Laboratories, Inc. (hereinafter called the Company), a Massachusetts
corporation, as an incentive and inducement to Louis J. Lanzillo,
Jr.(hereinafter called the Optionee), who is presently an employee of the
Company, to devote his best efforts to the affairs of the Company, which
incentive and inducement the Board of Directors of the Company has determined to
be a sufficient consideration for the grant of this Option, hereby grants to the
Optionee the right and option (herein called the Option) to purchase from the
Company up to 100,000 shares of its common stock, $.10 par value. This Option is
granted under, and is subject to the provisions of, the Company's Stock Option
Plan dated September 2, 1987, as amended, and shall be exercisable only on the
following terms and conditions:
1. The price to be paid for each share upon exercise of the whole or any
part of this Option shall be $15.00, which is not less than the fair market
value of a common share of the Company on the granting date or, if the Optionee
owns on the granting date stock representing more than ten percent of the total
combined voting power of all classes of stock of the Company or of its parent or
subsidiary corporation, is not less than 110 percent of the fair market value of
a common share of the Company on the granting date.
2. Except as otherwise provided herein, this Option may be exercised at
any time on or after the date hereof as follows:
33 1/3% exercisable immediately;
66 2/3% exercisable September 3, 1997 and
100% exercisable September 3, 1998.
<PAGE>
Notwithstanding the foregoing, in the event there occurs a "change in
control" of the Company, as defined in that certain employment contract between
the Company and the Optionee dated September 4, 1996, then from and after such
date this Option shall be 100% exercisable. This Option may not be exercised,
however, as to shares after the expiration of seven years from the granting
date.
3. This Option may be exercised at any time and from time to time, subject
to the limitations set forth elsewhere herein, up to the aggregate number of
shares specified herein, but in no event for the purchase of other than full
shares. Notice of exercise shall be delivered to the Company specifying the
number of shares with respect to which the Option is being exercised and
specifying a date not later than fifteen days after the date of the delivery of
such notice as the date on which the Optionee will take up and pay for such
shares. On the date specified in such notice, the Company will deliver to the
Optionee a certificate for the number of shares with respect to which the Option
is being exercised, against payment therefore in cash or by certified check, or
with the consent of the Company, in whole or in part in common stock of the
Company valued at fair market value, in which case the certificates for such
shares shall be delivered to the Company duly endorsed for transfer, free and
clear of all liens, encumbrances, charges or adverse claims and in which case
Optionee shall pay all state and federal taxes imposed upon the transfer of such
shares.
4. The Optionee shall not be deemed, for any purpose, to have any rights
whatever in respect of shares as to which the Option shall not have been
exercised and payment made as aforesaid.
<PAGE>
5. If any change is made in the Company's common stock resulting in
the change of such stock into, or the right to exchange such stock for, a larger
or smaller number of shares or for other stock or property, the Optionee shall
be entitled to receive such shares or such other stock or property in lieu of
the common shares purchasable under this Option without any change in the option
price upon the exercise of this Option as a whole, and a proportionate amount
thereof upon any partial exercise of this Option. The Optionee shall also be
similarly entitled to receive upon the exercise of this Option, in whole or in
part, the equivalent of any and all stock dividends (whether in common stock or
preferred stock of the Company) declared and paid after the granting date of
this Option to the holders of the Company's common shares which he would have
received if on the record date for determination of the stockholders entitled to
receive such dividend or dividends he had been the holder of record of the
shares purchased on such exercise.
6. This Option is not transferable by the Optionee otherwise than by will
or the laws of descent and distribution, or pursuant to a qualified domestic
relations order as defined in the Internal Revenue Code of 1986 or Title I of
the Employment Retirement Income Security Act, or the rules thereunder; and is
exercisable, during the Optionee's lifetime, only by him.
7. If the Optionee's employment with the Company, or a parent or
subsidiary corporation of the Company, or a corporation or a parent or
subsidiary corporation of such corporation issuing or assuming a stock option in
a transaction to which Section 425(a) of the Code applies, is terminated
otherwise than by his death, he may exercise the rights which he had hereunder
at the time of such termination only as follows:
<PAGE>
(a) If the Optionee has retired, he may exercise such rights at any time
within three months from the date of his retirement; and
(b) If the optionee's employment has been terminated for any other reason,
he may exercise such right at any time within 60 days from such termination.
Upon the death of the Optionee, those entitled to do so by the Optionee's will
or the laws of descent and distribution shall have the right, at any time within
twelve months after the date of death, to exercise in whole or in part any
rights which were available to the Optionee at the time of his death.
Notwithstanding the foregoing provisions of this Section 7, the exercise
of this Option is subject to the limitations set forth elsewhere herein.
8. It shall be a condition to the Optionee's right to purchase stock
hereunder that the Optionee shall notify the Company in writing within 30 days
of the disposition of one or more shares of stock which were transferred to him
pursuant to his exercise of this Option if such disposition occurs within two
years from the granting date or within one year after the transfer of such
shares to him. The Company may, in its discretion, require that (i) the shares
of stock reserved for issue upon the exercise of this Option shall have been
duly listed, upon official notice of issuance, upon any national securities
exchange on which the Company's common stock may then be listed, and that either
(ii) a Registration Statement under the Securities Act of 1933, as amended, with
respect to said shares shall have become effective, or (iii) the Optionee shall
have represented in form and substance satisfactory to the Company that it is
his intention to purchase for investment the shares at the time being purchased
under this Option, and such other steps, if any, as counsel for the Company
shall deem necessary to comply with any law applicable to the issue of such
shares by the Company shall have been taken by the Company or the Optionee, or
both.
<PAGE>
9. Any exercise of this Option is conditioned upon the payment, if the
Company so requests, by the Optionee or by his heirs by will or by the laws of
descent and distribution, of all state and federal taxes imposed upon the
exercise of this Option and the issue to the Optionee of the shares covered
hereby.
IN WITNESS WHEREOF, Sage Laboratories, Inc. has caused this Option to be
executed on its behalf and its corporate seal to be hereunto affixed as of
September 4, 1996.
SAGE LABORATORIES, INC.
By /s/ Carl A. Marguerite
-----------------------
Carl A. Marguerite
CEO
<PAGE>
EXHIBIT C
Health Insurance. The Company will pay for Executive's costs under COBRA
until Executive is eligible to participate in the Company's health plan.
Life insurance. $60,000 group; $940,000 individual term.
Disability. Company plan providing short and long term disability. The Company
shall supplement its short term plan so as to fund any differential between the
amounts payable under such plan and Executive's base pay.
Medical reimbursement. $1000 annual allowance under current Company
policy.
Profit sharing. Participation in plan in accordance with its terms.
Vacation. 4 weeks per year to be accrued according to Company policy (10
days of fiscal 1997 vacation to be advanced).
Car Allowance. Lease of Company car within current guidelines for CEO;
Company to pay for repairs, maintenance, insurance, gas and oil; car
phone expense paid for Company business only.
Tax Returns. $1500 annual allowance for tax return preparation in
accordance with Company guidelines.
Professional fees. Reimbursement for up to $1000 annually.
Attorney's fees. One time allowance for attorney's fees in connection with
entering into this agreement of up to $5000.
<PAGE>
EXHIBIT D
"Good Reason" shall mean that the Executive has determined in good faith
that (1) the Company has failed to assign to him on a consistent basis executive
duties performable at the location at which he worked before the change in
control which are commensurate with the level of executive duties performed by
him immediately prior to such change in control, (2) he is prevented by the
Company from continuing to fulfill his responsibilities at a level commensurate
with that prior to the change in control, (3) his salary in effect immediately
prior to the change in control is reduced by the Company, (4) the Company has
failed to continue in effect any health, welfare, retirement, vacation and other
fringe benefit plans of the Company in which the Executive participated at the
time of the change in control (or plans providing substantially equivalent
benefits) other than as a result of the normal expiration of any such plan in
accordance with its terms as in effect at the time of the change in control, or
the Company shall have taken or failed to take any action which would adversely
affect the Executive's continued participation in or the benefits receivable by
the Executive under any such plan as in effect at the time of the change in
control, or (5) the Company shall have failed to obtain, at the Executive's
request, an assent to the Company's performance of its obligations under this
Agreement from any person that succeeds to or has the practical ability to
control (either immediately or with the passage of time), directly or
indirectly, the Company's business.
<PAGE>
EXHIBIT E
"Change in Control" shall mean a change in control of the Company of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), whether or not the Company is in fact
required to comply therewith; provided, that, without Limitation, such a change
in control shall be deemed to have occurred if
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company or a corporation owned,
directly or indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding securities;
(ii) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than (i) a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least 50% of the combined voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation or
(ii) a merger or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no "person" (as hereinabove defined)
acquires 50% or more of the combined voting power of the Company's then
outstanding securities; or
(iii) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets.
Exhibit No. 22
Subsidiaries of Sage Laboratories, Inc.
Names under which
Subsidiary does business State of Organization
------------------------ ---------------------
Sage Laboratories Investment Corp. Massachusetts
Sage Laboratories Active Microwave, Inc. New Hampshire
Sage Laboratories Foreign Sales, Inc U.S. Virgin Islands
Exhibit No. 24
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statement File Nos. 2-77416 and 2-94178.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
September 25, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Jun-30-1996
<PERIOD-START> Jul-01-1995
<PERIOD-END> Jun-30-1996
<CASH> 5,878,691
<SECURITIES> 0
<RECEIVABLES> 2,043,452
<ALLOWANCES> 50,000
<INVENTORY> 1,348,469
<CURRENT-ASSETS> 9,706,017
<PP&E> 6,407,726
<DEPRECIATION> 3,302,607
<TOTAL-ASSETS> 13,027,715
<CURRENT-LIABILITIES> 2,074,554
<BONDS> 666,665
0
0
<COMMON> 267,848
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<SALES> 9,768,809
<TOTAL-REVENUES> 9,768,809
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<OTHER-EXPENSES> 2,343,222
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<INTEREST-EXPENSE> 68,922
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<INCOME-TAX> 1,020,000
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<NET-INCOME> 1,609,491
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