<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED DECEMBER 31, 1996.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period
from ______ to _______.
COMMISSION FILE NUMBER: 0-19801
_______________________________________________________________________________
TARGET THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-3962471
(State of incorporation) (I.R.S. Employer Identification No.)
47201 LAKEVIEW BOULEVARD, FREMONT, CALIFORNIA 94538
(Address of principal executive offices)
Registrant's telephone number, including area code: (510) 440-7700
_______________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.0025 PAR VALUE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods as the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- -----
As of January 26, 1997, there were 14,948,549 shares of Common Stock
outstanding.
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INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements (unaudited)
- -----------------------------------------
Condensed Consolidated Balance Sheets as of December 31, 1996 and March 31, 1996 . . . . . . . . . . . . . . 3
Consolidated Statements of Operations for the three and nine months ended December 31, 1996 and 1995. . . . 4
Consolidated Statements of Cash Flows for the nine months ended December 31, 1996 and 1995 . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . 10
PART II. OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 5. Other Events. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
- ---------
</TABLE>
2
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TARGET THERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
December 31, March 31,
1996 1996
--------- ---------
<S> <C> <C>
Current assets:
Cash, cash equivalents and short-term investments $ 37,233 $ 47,273
Investment in Conceptus, Inc. 14,498 20,493
Accounts receivable 22,139 15,676
Inventories 10,457 6,740
Deferred tax assets 4,231 4,214
Other current assets 1,810 1,235
--------- --------
Total current assets 90,368 95,631
Property and equipment, net 15,116 11,136
Intangibles and other assets 10,265 7,508
-------- --------
$115,749 $114,275
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 2,424 $ 2,062
Accrued compensation 4,355 3,831
Taxes payable 2,250 --
Other accrued liabilities 8,745 6,698
Deferred tax liabilities 7,931 10,311
--------- --------
Total current liabilities 25,705 22,902
Long-term obligations 416 128
Minority interest 519 407
Commitments and contingencies
Stockholders' equity:
Common stock 38 37
Additional paid-in capital 70,276 50,759
Retained earnings 24,114 27,688
Unrealized gain on available-for-sale securities 8,693 12,265
Accumulated translation adjustments 30 89
--------- --------
103,151 90,838
Treasury stock, at cost (350,000 shares) (14,042) ---
---------- --------
Total stockholders' equity 89,109 90,838
--------- --------
$115,749 $114,275
======== ========
</TABLE>
See accompanying notes.
3
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TARGET THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS; UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
-------------------------- -------------------------
1996 1995 1996 1995
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Revenue $ 23,932 $ 18,980 $ 68,025 $ 48,625
----------- ----------- ----------- ----------
Costs and expenses:
Cost of sales 7,510 5,560 20,852 14,952
Research and development 4,873 3,426 14,768 9,081
Acquired in-process research and development --- --- 14,000 ---
Selling, general and administrative 6,479 5,248 19,041 14,247
----------- ----------- ----------- ----------
Total costs and expenses 18,862 14,234 68,661 38,280
----------- ----------- ----------- ----------
Income/(loss) from operations 5,070 4,746 (636) 10,345
Interest income, net 380 453 1,171 1,323
Other income 418 133 1,289 644
Minority interest (356) (159) (714) (243)
------------ ------------ ------------ ------------
Income before income taxes 5,512 5,173 1,110 12,069
Provision for income taxes 1,709 1,552 4,684 3,615
----------- ----------- ----------- ----------
Net income/(loss) $ 3,803 $ 3,621 $ (3,574) $ 8,454
=========== =========== ============ ==========
Net income/(loss) per share $ .25 $ .24 $ (.24) $ .56
=========== =========== =========== ==========
Shares used in calculation of net income/(loss)
per share 15,517 15,408 14,828 15,156
=========== =========== =========== ==========
</TABLE>
See accompanying notes.
4
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TARGET THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended December 31,
----------------------------------
1996 1995
------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income/(loss) $ (3,574) $ 8,454
Adjustments to reconcile net income/(loss) to net cash
provided by operations:
Depreciation and amortization 4,031 2,220
Acquired in-process research and development expense 14,000 ---
Gain on sales of Conceptus Inc. stock (1,745) ---
Changes in assets and liabilities:
Accounts receivable (6,016) (1,302)
Inventories (2,815) (1,032)
Other current assets (576) (898)
Accounts payable 40 (166)
Accrued compensation 523 259
Taxes payable 2,239 1,441
Accrued product replacement costs --- (755)
Other accrued liabilities (888) 1,790
-------------- -------------
Total adjustments 8,793 1,557
------------- -------------
Net cash provided by operating activities 5,219 10,011
------------- -------------
Cash flows from investing activities:
Capital expenditures, net (6,981) (3,998)
Purchase of securities available-for-sale (29,866) (27,127)
Maturities of securities available-for-sale 39,931 29,821
Net proceeds from sales of Conceptus Inc. stock 1,745 ---
Change in other assets 596 (1,554)
Net cash acquired from purchase of Interventional
Therapeutics Corporation 87 ---
------------- -------------
Net cash provided by (used in) investing activities 5,512 (2,858)
------------- -------------
Cash flows from financing activities:
Issuance of common stock 3,519 2,759
Borrowings from bank --- 791
Purchase of treasury shares (14,042) ---
Principal payments under capital leases (21) (32)
Repayment of note payable (202) ---
-------------- -------------
Net cash provided by (used in) financing activities (10,746) 3,518
-------------- -------------
Net increase(decrease) in cash and cash equivalents (15) 10,671
Cash and cash equivalents, beginning of period 13,693 6,839
------------- -------------
Cash and cash equivalents, end of period $ 13,678 $ 17,510
============= =============
</TABLE>
See accompanying notes.
5
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TARGET THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
In the opinion of management, the accompanying unaudited condensed
consolidated balance sheets, consolidated statements of operations and
statements of cash flows reflect all adjustments which are of a normal
recurring nature considered necessary to present a fair statement of
the consolidated financial position at December 31, 1996 and the
consolidated statements of operations and cash flows for the interim
nine-month periods ended December 31, 1996 and 1995.
Certain information and footnote disclosures required by generally
accepted accounting principles for complete financial statements have
been omitted pursuant to the rules and regulations of the Securities
and Exchange Commission ("SEC"). These financial statements should be
read in conjunction with the audited financial statements and
footnotes included in the Company's 1996 Annual Report to Stockholders
and Annual Report on Form 10-K as filed with the SEC for the fiscal
year ended March 31, 1996. The condensed consolidated balance sheet as
of March 31, 1996 was derived from those audited financial statements.
Results for the interim period ended December 31, 1996 are not
necessarily indicative of the results expected for future interim
periods or for the full year.
Fiscal year. Effective April 1, 1996, the Company changed its fiscal
year end from March 31 to a 52/53 week year ending on the Sunday
nearest the end of March. Fiscal 1997 year will comprise 52 weeks.
For purposes of presentation, the Company has indicated its financial
statements as ending on calendar month ends. The impact on the
current year of one less day of operations is not anticipated to be
material.
6
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2. Balance Sheet Information
<TABLE>
<CAPTION>
(In thousands) December 31, March 31,
1996 1996
----------- -----------
<S> <C> <C>
Cash, cash equivalents and short-term investments:
Cash and cash equivalents $ 13,678 $ 13,693
Short-term investments 23,555 33,580
----------- ----------
$ 37,233 $ 47,273
=========== ==========
Accounts receivable:
Trade receivables $ 22,752 $ 16,760
Less allowances (613) (1,084)
------------ ----------
$ 22,139 $ 15,676
=========== ==========
Inventories:
Raw materials $ 3,315 $ 1,887
Work-in-process 2,661 1,959
Finished goods 4,481 2,894
----------- ----------
$ 10,457 $ 6,740
=========== ==========
Property and equipment:
Machinery and equipment $ 12,347 $ 8,303
Office equipment 9,908 7,527
Leasehold improvements 2,304 1,644
----------- ----------
24,559 17,474
Less accumulated depreciation and amortization (9,443) (6,338)
------------ ----------
$ 15,116 $ 11,136
=========== ==========
Other assets:
Cost in excess of net assets acquired, net $ 2,596 $ 1,610
Patents and trademarks, net 4,253 2,979
Intangibles acquired upon purchase of ITC, net 2,505 ---
Investments in entities accounted for on the equity method 248 2,315
Other 663 604
----------- ----------
$ 10,265 $ 7,508
=========== ==========
</TABLE>
3. Supplemental Cash Flow Information
<TABLE>
<CAPTION>
Nine months ended
(In thousands) December 31,
-------------------------
1996 1995
----------- ----------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 3,590 $ 2,960
Cash paid during the period for interest 44 5
Other non-cash activity
Common stock issued in connection with ITC acquisition 16,000 ---
Increase in notes receivable from stockholders --- 31
</TABLE>
4. Net income/(loss) per share and stock split
Net income per share is computed using the weighted average number of
common and dilutive common equivalent shares outstanding. Net loss
per share is computed using the weighted average number of common
shares outstanding. Common share equivalents are not used in the
calculation of the per share loss since they are antidilutive. On
November 8, 1995, the Company's Board of Directors authorized a
two-for-one stock split effected in the form of a stock dividend on
December 18, 1995. All presentations of shares outstanding, options
and amounts per share for prior periods have been restated to reflect
the stock split.
7
<PAGE> 8
5. Acquisition of Interventional Therapeutics, Inc.
On April 29, 1996, the Company signed a definitive agreement with
Interventional Therapeutics Corporation ("ITC") to acquire all the
securities of ITC and its subsidiary, ITC International, in exchange
for shares of Target common stock. The Company completed the closing
of the acquisition of ITC on May 23, 1996, at which time
approximately 331,000 shares of Target stock (inclusive of options to
purchase such shares) were exchanged for all of the outstanding shares
(and options to purchase shares) of ITC stock.
ITC is a developer and manufacturer of vascular occlusion devices used
in neurovascular and peripheral embolization. These devices include
detachable and non-detachable silicone balloons and CONTOUR(TM)
embolization particulates designed for selective placement through an
angiographic catheter. As part of Target, ITC will focus on the
radiology market and the combined company plans to offer physicians an
increased range of minimally invasive treatment options for vascular
diseases.
The acquisition of ITC, which was accounted for as a purchase, has
been recorded based upon available information and upon certain
assumptions that Target believes were reasonable under the
circumstances. Estimated acquisition costs include approximately $1.4
million of investment banking, legal and accounting costs and
approximately $1.5 million of exit costs primarily associated with
termination of distributor and international lease arrangements. The
purchase price was allocated to the acquired assets and liabilities
based on their relative fair values. These allocations were based on
valuations and other studies as of their date of acquisition.
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Purchase price $ 16,000
Estimated acquisition expenses 2,920
----------
Total estimated acquisition cost $ 18,920
==========
Historic net book value at May 23, 1996 $ 474
Write-up of inventories 367
Write-off of plant and equipment (76)
Goodwill 1,315
In-process research and development 14,000
Developed technology 2,000
Non-compete agreement 600
Assembled workforce 200
Trademark/tradename 40
----------
Total allocated purchase price $ 18,920
==========
</TABLE>
In accordance with generally accepted accounting principles, the
Company has allocated $14 million of the purchase price to in-process
research and development (in-process R&D). This amount was recorded
as a charge to operations for the quarter ended June 30, 1996.
The Company's results of operations for the nine months ended December
31, 1996, include the results of ITC from May 23, 1996 through
December 31, 1996. The unaudited pro forma results of operations of
the Company for the three months ended December 31, 1995 and nine
months ended December 31, 1996 and 1995, respectively, assuming the
acquisition of ITC occurred on April 1, 1995, on the basis described
below with all material intercompany transactions eliminated, are as
follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
-------------------------- -------------------------
1995 1996 1995
----------- ----------- ----------
(In thousands, except income per share)
<S> <C> <C> <C>
Total Revenues $ 19,549 $ 68,467 $ 50,485
Net income 3,572 10,367 8,544
Net income per share .23 .67 .55
</TABLE>
8
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The unaudited pro forma net income and per share amounts above do not
include the charge for in-process R&D of $14 million arising from the
acquisition of ITC. The pro forma results reflect amortization of
acquired goodwill and other intangible assets, which are being
amortized over their estimated useful lives of five to ten years.
The unaudited pro forma information is not necessarily indicative of
the actual results of operations had the transaction occurred at the
beginning of the periods indicated, nor should it be used to project
the Company's results of operations for any future dates or periods.
6. Stock Repurchase Program
On May 16, 1996, the Company's Board of Directors authorized a stock
repurchase program in which up to 350,000 shares of its common stock
may be purchased in the open market from time to time. During the
three months ended September 30, 1996, the Company completed the
repurchase of the 350,000 shares of its common stock at an overall
average acquisition price of approximately $40. The Company currently
plans to keep the repurchased shares as treasury stock and may use this
stock in various Company stock benefit plans. In addition, in August
1996, the Board of Directors authorized the repurchase of up to 500,000
additional shares of the Company's common stock under the repurchase
program. Through December 31, 1996, none of the 500,000 shares have
been repurchased.
7. Income Taxes
For the three and nine months ended December 31, 1996 and 1995, the
Company's income tax provision has been calculated based upon the
estimated annual effective tax rate of 31 percent (excluding the impact
of the acquired in-process research and development charge for which no
tax benefit is available) and 30 percent, respectively. The higher
effective tax rate for the fiscal 1997 is primarily due to anticipated
reductions in the benefit derived from foreign tax credits generated in
Japan with respect to the Company's ownership interest in its Japanese
joint venture. The effective tax rate may be adversely affected as a
result of the Company's entering into the Merger Agreement.
8. Subsequent Event
On January 20, 1997, Target and Boston Scientific Corporation ("BSC")
jointly announced the execution of an Agreement and Plan of Merger
(the "Merger Agreement") pursuant to which a wholly owned subsidiary
of BSC will be merged with and into the Company (the "Merger").
Pursuant to the Merger Agreement, each outstanding share of
common stock of the Company will be exchanged for 1.07 shares of
common stock of BSC in a tax-free stock-for-stock exchange. It is
anticipated that the combination will be accounted for as a
pooling-of-interests. Consummation of the Merger is subject to
certain closing conditions, including approval by the stockholders of
the Company and regulatory approval. The Merger is expected to close
during the second calendar quarter of 1997. Pursuant to the Merger
Agreement, the Company has agreed not to renew its distributor
agreements with certain of its international distributors, which may
have a material adverse affect on the Company's business, results of
operations and financial condition in the event the Merger is not
consummated. In addition, the Company has agreed to certain
restrictions on the conduct of its business during the pendency of the
Merger which may have a material adverse effect on the Company's
business, results of operations and financial condition in the event
the Merger is not consummated. There can be no assurance that the
Merger will be consummated, or that any actions taken or not taken in
contemplation of the Merger or consummation thereof will not
significantly affect the future financial results of the Company.
9
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the unaudited
financial statements and notes thereto included in Part 1-Item 1 of this
Quarterly Report. In addition, except for the historical statements contained
therein, the following discussion contains forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended.
The Company wishes to alert readers that the factors set forth in the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1996, under the
heading "Factors That May Affect Future Results Of Operations", as well as
those factors set forth in the Company's Form 10-Q for the quarters ended June
30, 1996 and September 30, 1996, and in the discussion below and other factors,
could in the future affect, and in the past have affected, the Company's actual
results and could cause the Company's results for future periods to differ
materially from those expressed in any forward-looking statements by or on
behalf of the Company.
RESULTS OF OPERATIONS
Overview
The Company develops, manufactures and markets specialized disposable
micro-catheters, guidewires, micro-coils, silicone balloons, embolics and
angioplasty products. These therapeutic devices are used in minimally-invasive
procedures to reach disease sites throughout the body via the circulatory
system. The Company's products allow highly targeted treatment of diseased,
ruptured or blocked vessels of the brain responsible for stroke, as well as
other disease sites in the body that are accessible through small blood
vessels.
Products developed by the Company generally require clearance by the U.S. Food
and Drug Administration ("FDA") prior to commercialization in the United
States. The FDA may require clinical investigation as a prerequisite to such
market clearance.
The Company's revenues have been derived primarily from the sale of its
micro-catheters, guidewires and micro-coils. Target distributes certain
products manufactured by other companies pursuant to distribution agreements.
On April 29, 1996, the Company signed a definitive agreement with
Interventional Therapeutics Corporation ("ITC") to acquire all the securities of
ITC and its subsidiary, ITC International, in exchange for shares of Target
common stock. The Company completed the closing of the acquisition of ITC on
May 23, 1996, at which time approximately 331,000 shares of Target stock
(inclusive of options to purchase such shares) were exchanged for all of the
outstanding shares (and options to purchase shares) of ITC stock.
ITC is a developer and manufacturer of vascular occlusion devices used in
neurovascular and vascular embolization. These devices include detachable and
non-detachable silicone balloons and CONTOUR(TM) embolization particulates
designed for selective placement through an angiographic catheter. As part of
Target, ITC will focus on the radiology market and the combined company plans
to offer physicians an increased range of minimally invasive treatment options
for vascular diseases.
The acquisition of ITC was accounted for as a purchase. In accordance with
generally accepted accounting principles, the Company allocated $14 million of
the purchase price to in-process R&D. This amount was recorded as a charge to
operations for the quarter ended June 30, 1996.
On January 20, 1997, Target and Boston Scientific Corporation ("BSC") jointly
announced the execution of an Agreement and Plan of Merger (the "Merger
Agreement") pursuant to which a wholly owned subsidiary of BSC will be merged
with and into the Company (the "Merger"). Pursuant to the Merger Agreement,
each outstanding share of common stock of the Company will be exchanged
for 1.07 shares of common stock of BSC in a tax-free stock-for-stock exchange.
It is anticipated that the combination will be accounted for as a
pooling-of-interests. Consummation of the Merger is subject to certain closing
conditions, including approval by the stockholders of the Company and
regulatory approval. The Merger is expected to close during the second calendar
period of 1997 Pursuant to the Merger Agreement, the Company has agreed
not to renew its distributor agreements with certain of its international
distributors, which may have a material adverse affect on the Company's
business, results of operations and financial condition in the event the Merger
is not consummated. In addition, the Company has agreed to certain
restrictions on the conduct of its business during the pendency of the Merger
which may have a material adverse effect on the Company's business, results of
operations and financial condition in the event the Merger is not consummated.
There can be no assurance that the Merger will be
10
<PAGE> 11
consummated, or that any actions taken or not taken in contemplation of the
Merger or consummation thereof will not significantly affect the future
financial results of the Company.
The following table sets forth certain selected statement of operation
information of the Company as a percentage of product sales for the periods
indicated.
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
-------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Product sales 100% 100% 100% 100%
Cost of sales 31 29 31 31
Research and development 20 18 22 19
Acquired in-process research and development expense --- --- 21 ---
Selling, general and administrative 27 28 28 29
Net income/(loss (1) 16 19 (5) 17
</TABLE>
(1) Includes a $14 million write-off of acquired in-process R&D during the nine
months ended December 31, 1996. Exclusive of the write-off, net income as a
percentage of product sales would have been 15%.
Revenues
Product sales for the three months ended December 31, 1996 (third quarter) were
$23.9 million, an increase of $4.9 million, or 26 percent, from $19.0 million
for the prior-year period. For the nine-month period ended December 31, 1996,
product sales were $68.0 million, a 40 percent increase from $48.6 million for
the same period of the prior year. The increases were primarily attributable
to recent product introductions and additional unit sales in each of Target's
product lines resulting from an increased number of treatment sites, training
of additional physicians and the continued acceptance of the Company's
products.
In September 1995, the Company obtained clearance by the FDA to market its
Guglielmi Detachable Coil ("GDC") system in the United States. The Company has
launched a training program to facilitate the roll out of the product to
treatment centers in addition to those involved in the clinical trials. In
conjunction with becoming a GDC treatment site, each hospital is required to
purchase a minimum stocking order of the product. The Company's revenues
include approximately $1.2 million and $4.0 million in the three and nine
months ended December 31, 1996, respectively, and $1.4 million and $1.6 million
in sales of initial stocking orders of its GDC system in the three and nine
months ended December 31, 1995, respectively. As of December 31, 1996, a
portion of the revenue attributable to initial stocking orders, totaling
$134,000, has been deferred into future periods. Initial stocking order
revenue should not be viewed as indicative of future sales, as repeat orders
and future revenue streams will be driven largely by the number of procedures
performed by physicians which cannot accurately be predicted given the short
period during which the GDC system has been commercially available and which
will remain subject to numerous factors outside the Company's control. During
the second quarter, the Company received clearance from the Ministry of Health
and Welfare in Japan to market the first generation of GDC. The Company did
not begin marketing upon such approval, and has submitted an amended
application for clearance to market the most up-to-date version of GDC, which
is now in its third generation. The Company expects to begin marketing the
product upon receipt of such approval. There can be no assurance that the
clearance will be obtained or that the marketing will be successful. As
previously announced and further discussed below under "Cost of Sales," the
Company instituted a partial recall of certain lots of its GDC products during
the second quarter of fiscal 1997, which has not materially affected its
results of operations.
The increase in the Company's product sales is also attributable to the
continued growth in the European and Japanese markets for Target's products.
Export product sales increased to $16.3 million in the third quarter of fiscal
1997 from $13.0 million in the same period of fiscal 1996. Export sales for
the nine-month period ended December 31, 1996 were $47.2 million compared to
$35.1 million in the prior-year period. Export sales as a percentage of
product sales were 68 percent and 69 percent for the three and nine-month
periods ended December 31, 1996, respectively, as compared with 68 percent and
72 percent in each of the prior year periods, respectively. Target sells
products in Japan through a joint venture formed with Century Medical, Inc.
("CMI"). Sales by the Company to
11
<PAGE> 12
CMI accounted for approximately 33 and 34 percent in the three and nine months
ended December 31, 1996, respectively, and 34 and 37 percent of the Company's
product sales in the three and nine months ended December 31, 1995,
respectively. The decreases are due primarily to the increased level of
domestic GDC sales as a percent of sales. In April 1995, Target implemented a
price increase of approximately seven percent to its distributor in Japan. No
other significant price increases were effected during the balance of fiscal
1996 or fiscal 1997 to date. Revenues for the three and nine months ended
December 31, 1996 include revenues of ITC products from May 23, 1996, the date
of acquisition of ITC. Furthermore, the future rate of Target's revenue
growth, if any, may be below that experienced in prior annual and quarterly
periods.
Revenue may be adversely affected as a result of the Company's entering into the
Merger Agreement. In particular, Target cannot predict the effect of the
proposed Merger on ordering rates by certain international distributors, with
whom selling relationships are not being renewed in anticipation of the
consummation of the Merger.
The Company's continued revenue growth is subject to a number of factors,
including new product introductions, the availability of suitable alternative
products manufactured by competitors, the timeliness and availability of
regulatory clearance and the continued expansion of its customer base. Target
continues to research and develop new applications for its products in an
effort to expand its practitioner customer base. As more companies become aware
of the market potential of such products, Target anticipates an increase of
competitive forces which have had and may continue to have an adverse effect on
revenues of the Company. Several companies in the United States have introduced
products that are being used in the interventional neuroradiology market.
Target is also aware of other companies that may pursue commercialization of
products which may compete with the Company's products and may result in future
pricing and margin pressures within this market. Prior to commercialization in
the United States, sales of certain of Target's products are limited to
clinical settings pursuant to Investigational Device Exemptions ("IDE"s)
granted by the FDA which limit the number of patients treatable with such
products. Target must obtain clearance from the FDA to market these products
for other than clinical investigation, and the overall review time of such
regulatory process may be lengthy. Regulatory requirements vary in other
countries in which Target markets its products. Failure to develop new products
successfully, to obtain regulatory clearance for such products in a timely
manner or to maintain regulatory clearance may have an adverse effect on
Target's revenues in the future. Target's revenue growth may also be adversely
affected by the limited number of teaching hospitals that train practitioners
in fields in which the Company's products are utilized. The Company continues
to obtain a significant amount of its revenues from CMI in Japan. Should this
customer continue to represent a significant portion of revenues, significant
changes in this customer's ordering rates will likely cause similar changes in
Target's revenues. It is Target's understanding that physicians use certain
devices, products and materials manufactured by other companies in conjunction
with the use of certain of Target's products. Reductions in the availability or
the elimination of such complementary products have had, and may continue to
have, an adverse effect on sales of the Company's products. Currently,
products sold commercially in the United States pursuant to 510(k) clearance
received from the FDA may generally be marketed in Europe. However, political
and regulatory changes, particularly in Western Europe in connection with the
evolution of the European Union, as well as the Company's ability to achieve
and maintain IS09001 standards, may adversely affect the Company's product
sales in Europe. Similarly, changes in the United States and foreign national
health care policies, including third-party reimbursement issues, may have a
significant adverse effect on revenues of Target. As the Company expands its
direct international sales operations, increased amounts of its revenues will
be subject to the risks of foreign currency fluctuations. If the Merger is
not consummated, revenues and profitability could be adversely impacted.
Cost of Sales
Cost of sales as a percentage of product sales was 31 percent for the three
months ended December 31, 1996, compared to 29 percent for the same period of
the prior year. For the nine-month periods ended December 31, 1996 and 1995,
cost of sales as a percentage of product sales was 31 percent for both periods.
Included in the prior-year periods is the reversal of approximately $500,000 of
a larger charge recorded in fiscal 1994 to provide for the anticipated costs
associated with exchanging GDC system inventory as a result of the Company's
changes to the original design of that product. Excluding this reversal, cost
of sales as a percentage of product sales was 32 percent for the three and
nine-month periods ending December 31, 1995. The Company's increased
manufacturing efficiency, primarily due to increased production volume,
contributed to these reductions.
Cost of sales as a percentage of product sales for the nine months ended
December 31, 1996 was unfavorably impacted by a recall of certain lots of the
GDC products initiated on July 30, 1996, due to a problem related to difficulty
in the fluoroscopic visualization of the marker on the delivery wires of these
lots of GDC devices. The partial recall was completed during the quarter ended
September 30, 1996 at a cost of approximately $200,000.
12
<PAGE> 13
Although the Company does not anticipate a recurrence of such a partial recall,
no assurance can be given that similar incidents will not occur in the future
with respect to the GDC system or other Target products.
Generally, there can be no assurance that cost of sales as a percentage of
product sales will remain at current levels or show improvement in future
periods over current or prior periods due to the distribution by Target of
certain products at lower gross margins, fluctuation in manufacturing
production levels due to product mix, potential increases in certain costs
associated with the use of third-party technology, contractual arrangements for
minimum purchase levels and potential pressure on product prices as a result of
competition or governmental regulation. Although no significant supply issues
have arisen in the past, there can be no assurance that current or future
suppliers of the Company's raw materials will be able to continue to meet the
quality and quantity demands of the Company at current suppliers' prices. In
addition, cost of sales as a percentage of product sales may be adversely
affected by the proposed Merger between the Company and Boston Scientific
Corporation.
Research and Development Expense
Research and development ("R&D") expense, which includes expenditures for
regulatory compliance and quality assurance, increased 42 percent to $4.9
million in the third quarter of fiscal 1997 compared to $3.4 million in the
same period of the prior year. Spending for the first nine months of fiscal
1997 was $14.8 million compared to $9.1 million in the prior year, representing
a 63 percent increase. Target attributes the increased amounts expended for
R&D primarily to the expenses incurred in collecting clinical data and
preparing regulatory filings for new products and increased personnel related
expenses incurred in connection with the expansion of its research activities
and operation of the pilot manufacturing line. The pilot manufacturing line was
developed to aid in the transition between the new product development and
manufacturing stages of production. As a percentage of product sales, R&D
expense was 20 percent and 22 percent for the three and nine months ended
December 31, 1996, respectively, and 18 percent and 19 percent for the three
and nine months ended December 31, 1995, respectively. The increases in R&D as
a percentage of sales is primarily attributable to increases in the levels of
R&D expenditures, primarily personnel and personnel related costs, at a rate
that exceeds the rate of increase in revenues.
The Company believes that its investments in product development and
engineering and manufacturing processes are essential in its efforts to
maintain its competitive position and continue the development of future
products. Furthermore, the Company believes that its ability to attract
qualified engineers in the future is critical to the continued success of the
Company. Accordingly, Target expects to continue to make substantial
expenditures on new product development and to increase the dollar amount
expended for R&D. In addition, research and development expenses may be
adversely affected by actions taken by the company in contemplation of the
proposed Merger.
Acquired In-Process Research and Development Expense
The charge for acquired in-process R&D of $14 million in the nine months ended
December 31, 1996, was a non-recurring charge related to the acquisition of
ITC. The value attributed to the in-process R&D was determined by an
independent appraisal.
Selling, General and Administrative Expense
Selling, general and administrative ("SG&A") expense for the quarter ended
December 31, 1996 increased to $6.5 million from $5.2 million for the quarter
ended December 31, 1995. SG&A expense for the nine-month periods ended
December 31, 1996 and 1995 was $19.0 million and $14.2 million, respectively.
The increases in fiscal 1997 were primarily due to costs associated with
investments in worldwide marketing, sales and training efforts to support
current and anticipated product introductions, costs incurred to further the
Company's expansion of overseas operations and the improvement of internal
information systems. The nine months ended December 31, 1996 also reflect
increased expenses associated with a legal action filed by Target to protect
certain of its proprietary assets compared to prior years. Other increases are
attributable to additional staffing, including sales and management personnel,
to expand the corporate infrastructure to support the growth in Target's
product sales. In addition, the Company incurred increased personnel and
personnel related costs resulting from the May 23, 1996, acquisition of ITC.
The Company currently anticipates that the dollar amount expended for SG&A will
continue to increase, primarily due to expanding international operations,
additional expenses associated with the legal action filed described above and
planned increases in sales and support staff to introduce, market and support
anticipated new
13
<PAGE> 14
products (including the GDC system in Japan) for which increased physician
training and education, clinical field work and sales support will be required.
These expenses may also increase if Target pursues additional operations
overseas, the feasibility of which it is currently investigating. The Company
also expects SG&A expense to increase as a result of expenses, including filing
fees and professional services, incurred in connection with the proposed Merger.
As a percentage of product sales, SG&A expense was 27 percent and 28 percent in
the third quarters of fiscal 1997 and 1996, respectively, and 28 percent and 29
percent for the nine months ended December 31, 1996 and 1995, respectively. The
decreases were primarily attributable to improved economies of scale.
Income/(loss) from Operations
Income from operations was $5.1 million for the third quarter of fiscal 1997
compared to income from operations of $4.7 million in the prior- year period, a
9 percent increase. The loss from operations for the nine months ended
December 31, 1996 was $(636,000) compared to income from operations of $10.3
million in the prior year period. The loss from operations is due to a $14
million write-off of in-process R&D related to the Company's acquisition of
ITC. Exclusive of this write-off, income from operations increased 29 percent
to $13.4 million in the nine months ended December 31, 1996 compared to $10.3
million in the same period of the prior year. The increases are primarily
attributable to increased sales, as a result of both additional unit sales
(including the GDC system and ITC products). These increases were partially
offset by the impact of increased R&D expenditures.
Income (loss) from operations may be adversely affected by the proposed Merger.
In particular, Target cannot predict the effect of the proposed Merger on
ordering rates by distributors, with whom selling relationships are not being
renewed in anticipation of the consummation of the Merger. If the Merger is
not consummated, revenues and profitability could be adversely impacted.
Although Target has experienced revenue growth since its inception and has been
profitable on a quarterly basis (exclusive of the non-recurring write-off of
in-process R&D due to the acquisition of ITC on May 23, 1996) since the quarter
ended December 31, 1990, no assurance can be given that revenue growth or
profitability on a quarterly or annual basis will be sustained. The Company's
results of operations have varied significantly from quarter to quarter, and
revenue growth rates have been inconsistent. Future operating results will
depend upon several factors in addition to those discussed above, including the
timing and amount of expenses associated with expanding Target's operations
both domestically and internationally, increased revenues and expenses in
conjunction with Target's direct sales operations in Germany and France,
increased costs associated with product launches, the Company's ability to
successfully meet new product development plans, success in achieving
regulatory clearance for new products in a timely manner, maintaining
regulatory clearance, the acceptance of new product introductions both in the
United States and internationally, the mix between pilot production of new
products and full-scale manufacturing of existing products, the mix between
domestic and export sales, the availability of complementary products and the
effects this may have particularly on domestic sales, possible changes in
ordering patterns of its customers due to changes in the healthcare environment
or to potential variations in foreign exchange rates, Target's ability to
continue to attract qualified engineers to further the development of future
products, potential future partnering arrangements, changes in domestic and
foreign health care policies (including third-party reimbursement issues),
increased competitive forces, developments in the Company's ongoing
intellectual property litigation, increased expenses associated with protecting
Target's proprietary assets and the general litigious nature of the medical
device industry. Target also believes that seasonal patterns, including a
reduction in the number of procedures performed by physicians using the
Company's products during summer and holiday periods, may affect its quarterly
revenue stream. As a result of these and other factors, the Company expects to
continue to experience significant fluctuations in its quarterly operating
results.
The Company's common stock price has been and may continue to be subject to
significant volatility, particularly on a quarterly basis. Any shortfall in
revenues or earnings from levels expected by securities analysts could have an
immediate and significant adverse effect on the trading price of Target's
common stock in any given period. Due to the proposed Merger between the
Company and BSC, Target's common stock price is likely to be impacted by
movements in BSC's common stock price. If the Merger is not consummated,
Target's common stock price will be adversely affected. Finally, the Company
participates in a highly dynamic industry, which often results in significant
volatility of Target's common stock price.
14
<PAGE> 15
Interest and Other Income
Net interest income decreased to $380,000 for the three months ended December
31, 1996 compared to $453,000 in the prior-year period. Net interest income
was $1,171,000 and $1,323,000 in the nine-month periods ended December 31, 1996
and 1995, respectively. These decreases are primarily attributable to
decreased amounts of funds available for investment during the second quarter
due to the treasury stock repurchase program discussed below.
Other income increased to $418,000 in the third quarter of fiscal 1997 from
$133,000 in the same period of the prior year. Other income for the first
three quarters of fiscal 1997 was $1,289,000 compared to $644,000 in the
prior-year period. These increases are primarily due to pre-tax gains of
$550,000 and $1,745,000 resulting from the sale of 63,769 and 178,769 shares
of Conceptus, Inc. common stock by the Company during the three and nine months
ended December 31, 1996, respectively. The Company makes investment decisions
with respect to Conceptus stock on a case by case basis, and there can be no
assurance that the Company will realize any gain from the sale of Conceptus
stock in any future period. In addition, the increase is due to a reduction in
equity losses of $338,000 and $883,000 resulting from investments by Target in
its affiliates to further the development of these companies' products during
the three and nine months ended December 31, 1996, respectively. These
increases to other income were partially offset by reduced earnings in the
Company's Japanese joint venture of approximately $339,000 and $1,053,000 for
the three and nine month periods ended December 31, 1996, respectively. The
decreases are primarily due to reduced margins on products sold in Japan. The
reduced margins are primarily the result of increased costs of product sold,
which are sourced in the United States, and as a result of the weakening of the
yen against the dollar compared to prior year periods. In addition, the joint
venture experienced reduced selling prices on certain products in fiscal 1997
compared to fiscal 1996 as a result of price ceilings being imposed by the
Japanese government during the fourth quarter of fiscal 1996 (March 1996).
There can be no assurance that the yen will not weaken further against the
dollar or that further price ceilings will not be imposed by the Japanese
government. The Company anticipates that other income may decrease during the
remainder of the fiscal year due to a reduction of earnings in the Japanese
joint venture and the recognition of further equity losses resulting from the
investments made by Target in its affiliates for which Target's interest is
accounted for on the equity method. Other income from the joint venture with
Japan may also be significantly affected as a result of the Company's entering
into the Merger Agreement.
Minority Interest
In June 1995, the Company and its former distributor in France formed a joint
venture to market the Company's products in France. Target holds a 51 percent
ownership interest in the joint venture. The results of the operations in
France, net of the minority interest, are included in the consolidated results
of the Company beginning in the second quarter of fiscal 1996. Minority
interest before taxes is reflected as a separate component of the Company's
Consolidated Statements of Operations for the quarter and nine months ended
December 31, 1996.
Provision for Income Taxes
For the three and nine months ended December 31, 1996, the Company's income tax
provision has been calculated based upon the estimated annual effective tax
rate of 31 percent (excluding the impact of the acquired in-process research
and development charge for which no tax benefit is available) as compared with
30 percent for the three and nine months ended December 31, 1995. The higher
effective tax rate for the fiscal 1997 is primarily due to anticipated
reductions in the benefit derived from foreign tax credits generated in Japan
with respect to the Company's ownership interest in its Japanese joint venture.
The effective tax rate may be adversely affected as a result of the Company's
entering into the Merger Agreement.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had working capital of approximately $64.7
million and its principal sources of liquidity consisted of approximately $37.2
million in cash, cash equivalents and short-term investments and $3.0 million
available under a line of credit which expires in October 1998. At December 31,
1996, no amounts were outstanding under this line of credit.
Prior to February 1996, the Company accounted for its greater-than-20 percent
ownership interest in Conceptus, Inc. under the equity method. In February
1996, Conceptus completed an initial public offering of common stock which
15
<PAGE> 16
reduced the Company's ownership position. During the nine months ended December
31, 1996, the Company sold certain Conceptus Inc. common stock, further
reducing its ownership position to approximately 16 percent. Consequently, the
portion of the investment which will be available for sale, subject to certain
market trading restrictions, is accounted for in accordance with FASB Statement
115. The unrealized gain of $8.7 million at December 31, 1996 is recorded, net
of deferred taxes, as a component of stockholders' equity. The remaining
investment is recorded at cost. The estimated fair value of the entire
investment as of December 31, 1996 is approximately $14.5 million. Conceptus'
common stock price has been and may continue to be subject to significant
volatility, particularly on a quarterly basis. Any shortfall in revenues or
earnings from levels expected by securities analysts could have an immediate and
significant adverse effect on the trading price of Conceptus' common stock in
any given period. In addition, Conceptus participates in a highly dynamic
industry, which often results in significant volatility of the common stock
price. Any changes in the Conceptus common stock price could have a significant
impact on the value of the Company's investment, resulting in a change to the
Company's working capital, deferred tax liabilities, stockholders equity and
total assets and liabilities.
Accounts receivable increased to $22.0 million at December 31, 1996 compared to
$15.7 million at March 31, 1996. The increase is due primarily to a greater
proportion of sales occurring in the latter part of the third quarter of fiscal
1997 as compared to the quarter ended March 31, 1996, and due to consolidating
the accounts receivable of ITC. In addition, accounts receivable may increase
and cash may decrease as a result of the Company's non-renewal of certain
international distributor agreements in connection with the proposed Merger
with Boston Scientific. Inventories increased to $10.4 million at December 31,
1996 from $6.7 million at March 31, 1996. The increase is attributable to
increased inventory levels of certain products to support anticipated increases
in sales, particularly of the GDC system in the United States, and to the
consolidation of inventory held by ITC. In addition, GDC inventory levels
increased partially to support anticipated sales that may result from obtaining
regulatory clearance in Japan for the GDC system. If such approval is not
obtained, there can be no assurance that such inventory can be fully absorbed
through alternative sales channels.
Other assets increased to $10.3 million at December 31, 1996 from $7.5 million
at March 31, 1996, primarily due to the intangibles acquired upon the
acquisition of ITC, the net effect of equity accounting for the Company's
Japanese joint venture and affiliate companies and increased investments in
proprietary assets.
Property and equipment, net, increased from $11.1 million at March 31, 1996 to
$15.1 million at December 31, 1996 due primarily to the investment in machinery
and equipment to expand manufacturing lines and research and development
laboratories. In addition, the Company continues to upgrade the Company's
management information systems "MIS" infrastructure which is expected to
improve customer service turnaround times, and allow for better materials
planning and improved management information. There can be no assurance that
these upgrades will be completed successfully or in a timely manner, or that
the upgrades will not result in disruptions in the Company's operations, and it
is unlikely that these improvements will result in materially increased
revenues or profits in the near term, if at all. In addition, in March 1996,
the Company expanded its facilities in Fremont, California by moving into an
additional 36,000 square-foot facility. The Company is utilizing this facility
for research and development, manufacturing and corporate administrative
purposes.
On May 16, 1996, the Company's Board of Directors authorized a stock repurchase
program in which up to 350,000 shares of its common stock may be purchased in
the open market from time to time. During the three months ended September 30,
1996, the Company completed the repurchase of the 350,000 shares of its common
stock at an overall average acquisition price of approximately $40. The
Company currently plans to keep the repurchased shares as treasury stock and
may use this stock in various Company stock benefit plans. In addition, in
August 1996, the Board of Directors authorized the repurchase of up to 500,000
additional shares of the Company's common stock under the repurchase program.
Through December 31, 1996, none of the 500,000 shares have been repurchased.
Target believes that available cash, cash equivalents and short-term
investments, as well as funds expected to be generated from operations, will be
sufficient to meet the Company's operating expenses and cash requirements for
the foreseeable future.
16
<PAGE> 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In November 1994 the Company filed a lawsuit in the United States District
Court (the "Court") against SciMed Life System, Inc. ("SciMed"), a subsidiary
of Boston Scientific Corporation ("BSC"), and Cordis Endovascular Systems, Inc.
("Cordis"), a subsidiary of Johnson & Johnson, seeking damages and preliminary
and permanent injunctive relief against sales of such companies' products
believed to be infringing the Tracker patent. The defendants responded,
challenging the validity of the Tracker patent, denying infringement, and
raising other defenses. Furthermore, Cordis has filed its own action against
the Company claiming that certain of the Company's products infringe three
Cordis patents. In May 1996, the Court granted the Company's motion for a
preliminary injunction prohibiting Cordis and SciMed from infringing on the
Tracker Patent. Cordis and SciMed requested a stay on the preliminary
injunction during an appeal of that decision. The Court of Appeals has stayed
the preliminary injunction pending the outcome of Cordis and SciMed's appeal
of the decision. As noted in Item 5 below, on January 20, 1997 the Company
and BSC jointly announced the execution of an Agreement and Plan of Merger,
which if consummated would result in the termination of the lawsuit as between
Target and Scimed. Notwithstanding the grant of the Company's motion for a
preliminary injunction, there can be no assurance that the Company will be
ultimately successful in these lawsuits.
In addition, from time to time, the Company may be involved in legal actions,
including product liability claims and the protection of the Company's
proprietary assets, arising in the ordinary course of business. While the
outcome of such matters is currently not determinable, it is management's
opinion that these matters, both individually or in the aggregate, will not
have a material adverse effect on the Company's consolidated financial
position, results of its operations or cash flows.
Item 5. Other Events
On January 20, 1997, Target and Boston Scientific Corporation ("BSC") jointly
announced the execution of an Agreement and Plan of Merger (the "Merger
Agreement") pursuant to which a wholly owned subsidiary of BSC will be merged
with and into the Company (the "Merger"). Pursuant to the Merger Agreement,
each outstanding share of common stock of the Company will be exchanged for
1.07 shares of common stock of BSC in a tax-free stock-for-stock exchange. It is
anticipated that the combination will be accounted for as a
pooling-of-interests. Consummation of the Merger is subject to certain closing
conditions, including approval by the stockholders of the Company and regulatory
approval. The Merger is expected to close during the second calendar quarter of
1997. Pursuant to the Merger Agreement, the Company has agreed not to renew its
distributor agreements with certain of its international distributors, which may
have a material adverse affect on the Company's business, results of operations
and financial condition in the event the Merger is not consummated. In
addition, the Company has agreed to certain restrictions on the conduct of its
business during the pendency of the Merger which may have a material adverse
effect on the Company's business, results of operations and financial condition
in the event the Merger is not consummated. There can be no assurance that the
Merger will be consummated, or that any actions taken or not taken in
contemplation of the Merger or consummation thereof could significantly affect
the future financial results of the Company.
17
<PAGE> 18
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
<TABLE>
<CAPTION>
Exhibit
Number Description
------ ----------------------------------------
<S> <C>
10.60 Change of control agreement with Gary R. Bang
10.61 Form of change of control agreement with certain executive officers
10.62 Change of control agreement with Robert McNamara
11.1 Calculation of net income/(loss) per share
99.1 Press release
</TABLE>
(b) Reports on Form 8-K
(i) Form 8-K
Report date: January 20, 1997
Filing date: January 27, 1997
Item 5: Other events
Item 7c: Exhibits
(ii) Form 8-K
Report date: January 29, 1997
Filing date: January 31, 1997
Item 5: Other events
Item 7c: Exhibits
18
<PAGE> 19
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TARGET THERAPEUTICS, INC.
Date: February 7, 1997
/s/ Robert E. McNamara
-------------------------------------------
Robert E. McNamara
Vice President, Finance & Administration,
Chief Financial Officer and Assistant
Secretary (Principal Financial Officer and
Duly Authorized Officer)
19
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description numbered page
- ------ ---------------------------------------------------------------------------- -------------
<S> <C> <C>
10.60 Change of control agreement with Gary R. Bang
10.61 Form of change of control agreement with certain executive officers
10.62 Change of control agreement with Robert McNamara
11.1 Calculation of net income/(loss) per share 21
27.1 Financial Data Schedule
99.1 Press release
</TABLE>
20
<PAGE> 1
EXHIBIT 10.60
CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement (the "Agreement") is made and entered
into effective as of January 20, 1997, by and between Gary R. Bang (the
"Employee") and Target Therapeutics, Inc., a Delaware corporation (the
"Company").
RECITALS
A. It is expected that another company or other entity may from
time to time consider the possibility of acquiring the Company or that a change
in control may otherwise occur, with or without the approval of the Company's
Board of Directors (the "Board"). The Board recognizes that such consideration
can be a distraction to the Employee and can cause the Employee to consider
alternative employment opportunities. The Board has determined that it is in
the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication and objectivity of the Employee,
notwithstanding the possibility, threat or occurrence of a Change of Control
(as defined below) of the Company.
B. The Board believes that it is in the best interests of the
Company and its shareholders to provide the Employee with an incentive to
continue his or her employment with the Company.
C. The Board believes that it is imperative to provide the
Employee with certain benefits upon a Change of Control and, under certain
circumstances, upon termination of the Employee's employment in connection with
a Change of Control, which benefits are intended to provide the Employee with
financial security and provide sufficient income and encouragement to the
Employee to remain with the Company notwithstanding the possibility of a Change
of Control.
D. To accomplish the foregoing objectives, the Board of Directors
has directed the Company, upon execution of this Agreement by the Employee, to
agree to the terms provided in this Agreement.
E. On May 8, 1996, the Board, for the reasons set forth above,
authorized the Company to enter into Change of Control Agreements
("Agreements") with each of its executive corporate officers pursuant to the
specific terms set forth in the term sheet attached as Exhibit C to the minutes
for such meeting (the "Term Sheet"). The Company subsequently entered into
Agreements with each officer with terms consistent with the Term Sheet.
Thereafter, the Company amended the Agreements in December, 1996, in certain
respects. The Company now desires to amend and restate the Agreements so they
are consistent in all material respects with the specific terms set forth in
the Term Sheet.
F. Certain capitalized terms used in the Agreement are defined in
Section 4 below.
<PAGE> 2
In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of Employee by the Company, the
parties agree as follows:
1. At-Will Employment. The Company and the Employee
acknowledge that the Employee's employment is and shall continue to be at-will,
as defined under applicable law. If the Employee's employment terminates for
any reason, including (without limitation) any termination prior to a Change of
Control, the Employee shall not be entitled to any payments, benefits, damages,
awards or compensation other than as provided by this Agreement, or as may
otherwise be available in accordance with the terms of Employee's offer letter
from the Company dated April 30, 1993 (the "Offer Letter"), the terms of
certain Board resolutions and agreements issued to the Employee with respect to
the grant of stock options for the Company's securities (as described in
Section 2 below) and the Company's established employee plans and written
policies at the time of termination. The terms of this Agreement shall
terminate upon the earlier of (i) the date that all obligations of the parties
hereunder have been satisfied, or (ii) two (2) years after a Change of Control.
A termination of the terms of this Agreement pursuant to the preceding sentence
shall be effective for all purposes, except that such termination shall not
affect the payment or provision of compensation or benefits on account of a
termination of employment occurring prior to the termination of the terms of
this Agreement.
2. Stock Options. In accordance with the terms of
certain resolutions of the Board of Directors of the Company dated April 30,
1993, and the terms of the stock options for the Company's securities granted
to the Employee over the course of his employment with the Company, each such
stock option held by the Employee on the effective date of a Change of Control
shall become immediately vested on such date, and shall be exercisable in full
in accordance with the provisions of the Option Agreement and Plan pursuant to
which such option was granted.
3. Change of Control.
(a) Termination Following A Change of Control.
Subject to Section 5 below, if the Employee's employment with the Company is
terminated at any time within two (2) years after a Change of Control, then the
Employee shall be entitled to receive severance benefits as follows:
(i) Voluntary Resignation. If the
Employee voluntarily resigns from the Company (other than as an Involuntary
Termination (as defined below) or if the Company terminates the Employee's
employment for Cause (as defined below)), then the Employee shall not be
entitled to receive severance payments. The Employee's benefits will be
terminated under the Company's then existing benefit plans and policies in
accordance with such plans and policies in effect on the date of termination or
as otherwise determined by the Board of Directors of the Company.
(ii) Involuntary Termination. If the
Employee's employment is terminated as a result of an Involuntary Termination
other than for Cause, the Employee shall be entitled to receive the following
benefits: (i) monthly severance payments during the period from
-2-
<PAGE> 3
the date of the Employee's termination until the date 24 months after the
effective date of the termination (the "Severance Period") equal to the monthly
salary which the Employee was receiving immediately prior to the Change of
Control; (ii) monthly severance payments during the Severance Period equal to
1/12th of the Employee's "target bonus" (as defined below) for the fiscal year
in which the termination occurs for each month in which severance payments are
made to the Employee pursuant to subsection (i) above; (iii) the pro-rated
amount of the Employee's "target bonus" for the fiscal year in which the
termination occurs, calculated based on the number of months during such fiscal
year in which the Employee was employed by the Company (or a successor
corporation), with such payment being made on the termination date; (iv)
continuation of benefits through the end of the Severance Period substantially
identical to those to which the Employee was entitled immediately prior to the
Change of Control; and (v) outplacement services with a total value not to
exceed $15,000. The severance payments described in subsections (i) and (ii)
above shall be paid during the Severance Period in accordance with the
Company's standard payroll practices. For purposes of this Agreement, the term
"target bonus" shall mean that percentage of the Employee's base salary that is
prescribed by the Company under its Management Bonus Program as the percentage
of such base salary payable to the Employee as a bonus if the Company pays
bonuses at one-hundred percent (100%) of its operating plan.
(iii) Involuntary Termination for Cause.
If the Employee's employment is terminated for Cause, then the Employee shall
not be entitled to receive severance payments. The Employee's benefits will be
terminated under the Company's then existing benefit plans and policies in
accordance with such plans and policies in effect on the date of termination.
(b) Termination Apart from Change of Control. In
the event the Employee's employment terminates for any reason, either prior to
the occurrence of a Change of Control or after the two year period following
the effective date of a Change of Control, then the Employee shall not be
entitled to receive any severance payments under this Agreement. The
Employee's benefits will be terminated under the Company's then existing
benefit plans and policies in accordance with such plans and policies in effect
on the date of termination or as otherwise determined by the Board of Directors
of the Company.
4. Definition of Terms. The following terms referred to
in this Agreement shall have the following meanings:
(a) Change of Control. "Change of Control" shall
mean the occurrence of any of the following events:
(i) Ownership. Any "Person" (as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended) is or becomes the "Beneficial Owner" (as defined in Rule
13d-3 under said Act), directly or indirectly, of securities of the Company
representing fifteen percent (15%) or more of the total voting power
represented by the Company's then outstanding voting securities without the
approval of the Board of Directors of the Company; or
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<PAGE> 4
(ii) Merger/Sale of Assets. A merger or
consolidation of the Company whether or not approved by the Board of Directors
of the Company, other than 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 fifty percent (50%) of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or the shareholders 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.
(iii) Change in Board Composition. A
change in the composition of the Board of Directors of the Company, as a result
of which fewer than a majority of the directors are Incumbent Directors.
"Incumbent Directors" shall mean directors who either (A) are directors of the
Company as of September 3, 1996 or (B) are elected, or nominated for election,
to the Board of Directors of the Company with the affirmative votes of at least
a majority of the Incumbent Directors at the time of such election or
nomination (but shall not include an individual whose election or nomination is
in connection with an actual or threatened proxy contest relating to the
election of directors to the Company).
(b) Cause. "Cause" shall mean (i) gross
negligence or willful misconduct in the performance of the Employee's duties to
the Company where such gross negligence or willful misconduct has resulted or
is likely to result in substantial and material damage to the Company or its
subsidiaries (ii) repeated unexplained or unjustified absence from the Company,
(iii) a material and willful violation of any federal or state law; (iv)
commission of any act of fraud with respect to the Company; or (v) conviction
of a felony or a crime involving moral turpitude causing material harm to the
standing and reputation of the Company, in each case as determined in good
faith by the Board of Directors of the Company.
(c) Involuntary Termination. "Involuntary
Termination" shall include any termination by the Company other than for Cause
and the Employee's voluntary termination, upon 30 days prior written notice to
the Company, following (i) a material reduction or change in job duties,
responsibilities and requirements inconsistent with the Employee's position
with the Company and the Employee's prior duties, responsibilities and
requirements; (ii) any reduction of the Employee's base compensation (other
than in connection with a general decrease in base salaries for most officers
of the successor corporation); or (iii) the Employee's refusal to relocate to a
facility or location more than 30 miles from the Company's current location.
5. Limitation on Payments. To the extent that any of
the payments or benefits provided for in this Agreement to the Employee
constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code") and, but for this
Section 5, would be subject to the excise tax imposed by Section 4999 of the
Code, the Company shall reduce the aggregate amount of such payments and
benefits such that the present value thereof (as determined under the Code and
the applicable regulations) is equal to 2.99 times the Employee's "base amount"
as defined in Section 280G(b)(3) of the Code.
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<PAGE> 5
6. Certain Business Combinations. In the event it is
determined by the Board, upon receipt of a written opinion of the Company's
independent auditors, that the enforcement of any agreement between the
Employee and the Company which allows for the acceleration of vesting of stock
options granted for the Company's securities upon the effective date of a
Change of Control or a Hostile Takeover, would preclude accounting for any
proposed business combination of the Company involving a Change of Control or a
Hostile Takeover as a pooling of interests, and the Board otherwise desires to
approve such a proposed business transaction which requires as a condition to
the closing of such transaction that it be accounted for as a pooling of
interests, then any such Section of this Agreement shall be null and void. For
purposes of this Section 6, the Board's determination shall require the
unanimous approval of the non-employee Board members.
7. Successors. Any successor to the Company (whether
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets shall assume the obligations under this Agreement and agree
expressly to perform the obligations under this Agreement in the same manner
and to the same extent as the Company would be required to perform such
obligations in the absence of a succession. The terms of this Agreement and
all of the Employee's rights hereunder shall inure to the benefit of, and be
enforceable by, the Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
8. Notice. Notices and all other communications
contemplated by this Agreement shall be in writing and shall be deemed to have
been duly given when personally delivered or when mailed by U.S. registered or
certified mail, return receipt requested and postage prepaid. Mailed notices
to the Employee shall be addressed to the Employee at the home address which
the Employee most recently communicated to the Company in writing. In the case
of the Company, mailed notices shall be addressed to its corporate
headquarters, and all notices shall be directed to the attention of its
Secretary.
9. Miscellaneous Provisions.
(a) No Duty to Mitigate. The Employee shall not
be required to mitigate the amount of any payment contemplated by this
Agreement (whether by seeking new employment or in any other manner), nor,
except as otherwise provided in this Agreement, shall any such payment be
reduced by any earnings that the Employee may receive from any other source.
(b) Waiver. No provision of this Agreement shall
be modified, waived or discharged unless the modification, waiver or discharge
is agreed to in writing and signed by the Employee and by an authorized officer
of the Company (other than the Employee). No waiver by either party of any
breach of, or of compliance with, any condition or provision of this Agreement
by the other party shall be considered a waiver of any other condition or
provision or of the same condition or provision at another time.
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<PAGE> 6
(c) Whole Agreement. No agreements,
representations or understandings (whether oral or written and whether express
or implied) which are not expressly set forth in this Agreement have been made
or entered into by either party with respect to the subject matter hereof.
This Agreement supersedes any agreement of the same title and concerning
similar subject matter dated prior to the date of this Agreement, and by
execution of this Agreement both parties agree that any such predecessor
agreement shall be deemed null and void.
(d) Choice of Law. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of California without reference to conflict of laws provisions.
(e) Severability. If any term or provision of
this Agreement or the application thereof to any circumstance shall, in any
jurisdiction and to any extent, be invalid or unenforceable, such term or
provision shall be ineffective as to such jurisdiction to the extent of such
invalidity or unenforceability without invalidating or rendering unenforceable
the remaining terms and provisions of this Agreement or the application of such
terms and provisions to circumstances other than those as to which it is held
invalid or unenforceable, and a suitable and equitable term or provision shall
be substituted therefor to carry out, insofar as may be valid and enforceable,
the intent and purpose of the invalid or unenforceable term or provision.
(f) Arbitration. Any dispute or controversy
arising under or in connection with this Agreement may be settled at the option
of either party by binding arbitration in the County of Santa Clara,
California, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award
in any court having jurisdiction. Punitive damages shall not be awarded.
(g) Legal Fees and Expenses. The parties shall
each bear their own expenses, legal fees and other fees incurred in connection
with this Agreement.
(h) No Assignment of Benefits. The rights of any
person to payments or benefits under this Agreement shall not be made subject
to option or assignment, either by voluntary or involuntary assignment or by
operation of law, including (without limitation) bankruptcy, garnishment,
attachment or other creditor's process, and any action in violation of this
subsection (h) shall be void.
(i) Employment Taxes. All payments made pursuant
to this Agreement will be subject to withholding of applicable income and
employment taxes.
(j) Assignment by Company. The Company may
assign its rights under this Agreement to an affiliate, and an affiliate may
assign its rights under this Agreement to another affiliate of the Company or
to the Company; provided, however, that no assignment shall be made if the net
worth of the assignee is less than the net worth of the Company at the time of
assignment. In the case of any such assignment, the term "Company" when used
in a section of this Agreement shall mean the corporation that actually employs
the Employee.
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<PAGE> 7
(k) Counterparts. This Agreement may be executed
in counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.
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<PAGE> 8
IN WITNESS WHEREOF, each of the parties has executed this Agreement,
in the case of the Company by its duly authorized officer, as of the day and
year first above written.
TARGET THERAPEUTICS, INC. GARY R. BANG
By: /s/John Meyer /s/Gary Bang
------------------------------------- -------------------------
Title: Vice President, Human Resources
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<PAGE> 1
EXHIBIT 10.61
CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement (the "Agreement") is made and entered
into effective as of January 20, 1997, by and between [Employee] (the
"Employee") and Target Therapeutics, Inc., a Delaware corporation (the
"Company").
RECITALS
A. It is expected that another company or other entity may from
time to time consider the possibility of acquiring the Company or that a change
in control may otherwise occur, with or without the approval of the Company's
Board of Directors (the "Board"). The Board recognizes that such consideration
can be a distraction to the Employee, an executive corporate officer of the
Company, and can cause the Employee to consider alternative employment
opportunities. The Board has determined that it is in the best interests of
the Company and its shareholders to assure that the Company will have the
continued dedication and objectivity of the Employee, notwithstanding the
possibility, threat or occurrence of a Hostile Takeover or a Change of Control
(as defined below) of the Company.
B. The Board believes that it is in the best interests of the
Company and its shareholders to provide the Employee with an incentive to
continue his or her employment with the Company.
C. The Board believes that it is imperative to provide the
Employee with certain benefits upon a Hostile Takeover and, under certain
circumstances, upon termination of the Employee's employment in connection with
a Change of Control, which benefits are intended to provide the Employee with
financial security and provide sufficient income and encouragement to the
Employee to remain with the Company notwithstanding the possibility of a
Hostile Takeover or a Change of Control.
D. To accomplish the foregoing objectives, the Board of Directors
has directed the Company, upon execution of this Agreement by the Employee, to
agree to the terms provided in this Agreement.
E. On May 8, 1996, the Board, for the reasons set forth above,
authorized the Company to enter into Change of Control Agreements
("Agreements") with each of its executive corporate officers pursuant to the
specific terms set forth in the term sheet attached as Exhibit C to the minutes
for such meeting (the "Term Sheet"). The Company subsequently entered into
Agreements with each officer with terms consistent with the Term Sheet.
Thereafter, the Company amended the Agreements in December, 1996, in certain
respects. The Company now desires to amend and restate the Agreements so they
are consistent in all material respects with the specific terms set forth in
the Term Sheet.
<PAGE> 2
In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of Employee by the Company, the
parties agree as follows:
1. At-Will Employment. The Company and the Employee
acknowledge that the Employee's employment is and shall continue to be at-will,
as defined under applicable law. If the Employee's employment terminates for
any reason, including (without limitation) any termination prior to a Change of
Control, the Employee shall not be entitled to any payments or benefits, other
than as provided by this Agreement, or as may otherwise be available in
accordance with the Company's established employee plans and written policies
at the time of termination. The terms of this Agreement shall terminate upon
the earlier of (i) the date on which Employee ceases to be employed as an
executive corporate officer of the Company, (ii) the date that all obligations
of the parties hereunder have been satisfied, or (iii) two (2) years after a
Change of Control. A termination of the terms of this Agreement pursuant to
the preceding sentence shall be effective for all purposes, except that such
termination shall not affect the payment or provision of compensation or
benefits on account of a termination of employment occurring prior to the
termination of the terms of this Agreement.
2. Stock Options.
(a) Change of Control. Subject to Sections 5 and
6 below, in the event of a Change of Control and regardless of whether the
Employee's employment with the Company is terminated in connection with the
Change of Control, each stock option granted for the Company's securities held
by the Employee shall become vested on the effective date of the transaction as
to one-half of the Shares that have not otherwise vested as of such date, and
shall be exercisable to the extent so vested in accordance with the provisions
of the Option Agreement and Plan pursuant to which such option was granted.
(b) Hostile Takeover. Subject to Sections 5 and
6 below, in the event of a Hostile Takeover and regardless of whether the
Employee's employment with the Company is terminated in connection with such
takeover, each stock option granted for the Company's securities held by the
Employee shall become immediately vested on the effective date of the Hostile
Takeover, and shall be exercisable in full in accordance with the provisions of
the Option Agreement and Plan pursuant to which such option was granted.
3. Change of Control.
(a) Termination Following A Change of Control.
Subject to Section 5 below, if the Employee's employment with the Company is
terminated at any time within two (2) years after a Change of Control, then the
Employee shall be entitled to receive severance benefits as follows:
(i) Voluntary Resignation. If the
Employee voluntarily resigns from the Company (other than as an Involuntary
Termination (as defined below) or if the Company terminates the Employee's
employment for Cause (as defined below)), then the Employee shall not be
entitled to receive severance payments. The Employee's benefits will be
terminated under the Company's then existing benefit plans and policies in
accordance with such
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<PAGE> 3
plans and policies in effect on the date of termination or as otherwise
determined by the Board of Directors of the Company.
(ii) Involuntary Termination. If the
Employee's employment is terminated as a result of an Involuntary Termination
other than for Cause, the Employee shall be entitled to receive the following
benefits: (i) monthly severance payments during the period from the date of
the Employee's termination until the date 12 months after the effective date of
the termination (the "Severance Period") equal to the monthly salary which the
Employee was receiving immediately prior to the Change of Control; (ii) monthly
severance payments during the Severance Period equal to 1/12th of the
Employee's "target bonus" (as defined below) for the fiscal year in which the
termination occurs for each month in which severance payments are made to the
Employee pursuant to subsection (i) above; (iii) the pro-rated amount of the
Employee's "target bonus" for the fiscal year in which the termination occurs,
calculated based on the number of months during such fiscal year in which the
Employee was employed by the Company (or a successor corporation) with such
payment being made on the termination date; (iv) continuation of benefits
through the end of the Severance Period substantially identical to those to
which the Employee was entitled immediately prior to the Change of Control; (v)
full and immediate vesting of each unvested stock option granted for the
Company's securities held by the Employee on the date of termination so that
each such option shall be exercisable in full on the termination date in
accordance with the provisions of the Option Agreement and Plan pursuant to
which such option was granted; and (vi) outplacement services with a total
value not to exceed $15,000. The severance payments described in subsections
(i) and (ii) above shall be paid during the Severance Period in accordance with
the Company's standard payroll practices. For purposes of this Agreement, the
term "target bonus" shall mean that percentage of the Employee's base salary
that is prescribed by the Company under its Management Bonus Program as the
percentage of such base salary payable to the Company as a bonus if the Company
pays bonuses at one-hundred percent (100%) of its operating plan.
(iii) Involuntary Termination for Cause.
If the Employee's employment is terminated for Cause, then the Employee shall
not be entitled to receive severance payments. The Employee's benefits will be
terminated under the Company's then existing benefit plans and policies in
accordance with such plans and policies in effect on the date of termination.
(b) Termination Apart from A Change of Control.
In the event the Employee's employment terminates for any reason, either prior
to the occurrence of a Change of Control or after the two year period following
the effective date of a Change of Control, then the Employee shall not be
entitled to receive any severance payments under this Agreement. The
Employee's benefits will be terminated under the terms of the Company's then
existing benefit plans and policies in accordance with such plans and policies
in effect on the date of termination or as otherwise determined by the Board of
Directors of the Company.
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<PAGE> 4
4. Definition of Terms. The following terms referred to
in this Agreement shall have the following meanings:
(a) Change of Control. "Change of Control" shall
mean the occurrence of any of the following events:
(i) Ownership. Any "Person" (as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended) is or becomes the "Beneficial Owner" (as defined in Rule
13d-3 under said Act), directly or indirectly, of securities of the Company
representing fifteen percent (15%) or more of the total voting power
represented by the Company's then outstanding voting securities without the
approval of the Board of Directors of the Company; or
(ii) Merger/Sale of Assets. A merger or
consolidation of the Company whether or not approved by the Board of Directors
of the Company, other than 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 fifty percent (50%) of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or the shareholders 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.
(iii) Change in Board Composition. A
change in the composition of the Board of Directors of the Company, as a result
of which fewer than a majority of the directors are Incumbent Directors.
"Incumbent Directors" shall mean directors who either (A) are directors of the
Company as of September 3, 1996 or (B) are elected, or nominated for election,
to the Board of Directors of the Company with the affirmative votes of at least
a majority of the Incumbent Directors at the time of such election or
nomination (but shall not include an individual whose election or nomination is
in connection with an actual or threatened proxy contest relating to the
election of directors to the Company).
(b) Cause. "Cause" shall mean (i) gross
negligence or willful misconduct in the performance of the Employee's duties to
the Company where such gross negligence or willful misconduct has resulted or
is likely to result in substantial and material damage to the Company or its
subsidiaries (ii) repeated unexplained or unjustified absence from the Company,
(iii) a material and willful violation of any federal or state law; (iv)
commission of any act of fraud with respect to the Company; or (v) conviction
of a felony or a crime involving moral turpitude causing material harm to the
standing and reputation of the Company, in each case as determined in good
faith by the Board of Directors of the Company.
(c) Hostile Takeover. "Hostile Takeover" shall
mean a transaction or series of transactions that results in any person
becoming the Beneficial Owner, directly or indirectly, of securities of the
Company representing fifty percent (50%) or more of the total voting power
represented by the Company's then outstanding voting securities without the
approval of the Board of Directors of the Company.
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<PAGE> 5
(d) Involuntary Termination. "Involuntary
Termination" shall include any termination by the Company other than for Cause
and the Employee's voluntary termination, upon 30 days prior written notice to
the Company, following (i) a material reduction or change in job duties,
responsibilities and requirements inconsistent with the Employee's position
with the Company and the Employee's prior duties, responsibilities and
requirements; (ii) any reduction of the Employee's base compensation (other
than in connection with a general decrease in base salaries for most officers
of the Company and any successor corporation); or (iii) the Employee's refusal
to relocate to a facility or location more than 30 miles from the Company's
current location.
5. Limitation on Payments. In the event that the
severance and other benefits provided for in this Agreement to the Employee
constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code") and, but for this
Section 5, would be subject to the excise tax imposed by Section 4999 of the
Code, the Company shall reduce the aggregate amount of such payments and
benefits such that the present value thereof (as determined under the Code and
the applicable regulations) is equal to 2.99 times the Employee's "base amount"
as defined in Section 280G(b)(3) of the Code.
6. Certain Business Combinations. In the event it is
determined by the Board, upon receipt of a written opinion of the Company's
independent auditors, that the enforcement of any Section of this Agreement,
including, but not limited to, Section 2 hereof, which allows for the
acceleration of vesting of stock options granted for the Company's securities
upon the effective date of a Change of Control or a Hostile Takeover, would
preclude accounting for any proposed business combination of the Company
involving a Change of Control or a Hostile Takeover as a pooling of interests,
and the Board otherwise desires to approve such a proposed business transaction
which requires as a condition to the closing of such transaction that it be
accounted for as a pooling of interests, then any such Section of this
Agreement shall be null and void. For purposes of this Section 6, the Board's
determination shall require the unanimous approval of the non-employee Board
members.
7. Successors. Any successor to the Company (whether
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets shall assume the obligations under this Agreement and agree
expressly to perform the obligations under this Agreement in the same manner
and to the same extent as the Company would be required to perform such
obligations in the absence of a succession. The terms of this Agreement and
all of the Employee's rights hereunder shall inure to the benefit of, and be
enforceable by, the Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
8. Notice. Notices and all other communications
contemplated by this Agreement shall be in writing and shall be deemed to have
been duly given when personally delivered or when mailed by U.S. registered or
certified mail, return receipt requested and postage prepaid. Mailed notices
to the Employee shall be addressed to the Employee at the home address which
the Employee most recently communicated to the Company in writing. In the case
of the Company, mailed notices shall be addressed to its corporate
headquarters, and all notices shall be directed to the attention of its
Secretary.
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<PAGE> 6
9. Miscellaneous Provisions.
(a) No Duty to Mitigate. The Employee shall not
be required to mitigate the amount of any payment contemplated by this
Agreement (whether by seeking new employment or in any other manner), nor,
except as otherwise provided in this Agreement, shall any such payment be
reduced by any earnings that the Employee may receive from any other source.
(b) Waiver. No provision of this Agreement shall
be modified, waived or discharged unless the modification, waiver or discharge
is agreed to in writing and signed by the Employee and by an authorized officer
of the Company (other than the Employee). No waiver by either party of any
breach of, or of compliance with, any condition or provision of this Agreement
by the other party shall be considered a waiver of any other condition or
provision or of the same condition or provision at another time.
(c) Whole Agreement. No agreements,
representations or understandings (whether oral or written and whether express
or implied) which are not expressly set forth in this Agreement have been made
or entered into by either party with respect to the subject matter hereof.
This Agreement supersedes any agreement of the same title and concerning
similar subject matter dated prior to the date of this Agreement, and by
execution of this Agreement both parties agree that any such predecessor
agreement shall be deemed null and void.
(d) Choice of Law. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of California without reference to conflict of laws provisions.
(e) Severability. If any term or provision of
this Agreement or the application thereof to any circumstance shall, in any
jurisdiction and to any extent, be invalid or unenforceable, such term or
provision shall be ineffective as to such jurisdiction to the extent of such
invalidity or unenforceability without invalidating or rendering unenforceable
the remaining terms and provisions of this Agreement or the application of such
terms and provisions to circumstances other than those as to which it is held
invalid or unenforceable, and a suitable and equitable term or provision shall
be substituted therefor to carry out, insofar as may be valid and enforceable,
the intent and purpose of the invalid or unenforceable term or provision.
(f) Arbitration. Any dispute or controversy
arising under or in connection with this Agreement may be settled at the option
of either party by binding arbitration in the County of Santa Clara,
California, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award
in any court having jurisdiction. Punitive damages shall not be awarded.
(g) Legal Fees and Expenses. The parties shall
each bear their own expenses, legal fees and other fees incurred in connection
with this Agreement.
(h) No Assignment of Benefits. The rights of any
person to payments or benefits under this Agreement shall not be made subject
to option or assignment, either by
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<PAGE> 7
voluntary or involuntary assignment or by operation of law, including (without
limitation) bankruptcy, garnishment, attachment or other creditor's process,
and any action in violation of this subsection (h) shall be void.
(i) Employment Taxes. All payments made pursuant
to this Agreement will be subject to withholding of applicable income and
employment taxes.
(j) Assignment by Company. The Company may
assign its rights under this Agreement to an affiliate, and an affiliate may
assign its rights under this Agreement to another affiliate of the Company or
to the Company; provided, however, that no assignment shall be made if the net
worth of the assignee is less than the net worth of the Company at the time of
assignment. In the case of any such assignment, the term "Company" when used
in a section of this Agreement shall mean the corporation that actually employs
the Employee.
(k) Counterparts. This Agreement may be executed
in counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.
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<PAGE> 8
IN WITNESS WHEREOF, each of the parties has executed this Agreement,
in the case of the Company by its duly authorized officer, as of the day and
year first above written.
TARGET THERAPEUTICS, INC. EMPLOYEE
By:______________________________ ________________________________
Title:___________________________
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<PAGE> 9
EXECUTIVE OFFICERS WHO ARE PARTIES
TO FORM CHANGE OF CONTROL AGREEMENT
DATED JANUARY 20, 1997
Abhijit Acharya
Richard Cappetta
Hiram Chee
Jeani Delagardelle
William H. Dippel
Ray H. Dormandy, Jr.
Erik Engelson
John Meyer
Timothy Mills
Kevin Riley
Patrick Rivelli
John Shulte
<PAGE> 1
EXHIBIT 10.62
CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement (the "Agreement") is made and entered
into effective as of January 20, 1997, by and between Robert McNamara (the
"Employee") and Target Therapeutics, Inc., a Delaware corporation (the
"Company").
RECITALS
A. It is expected that another company or other entity may from
time to time consider the possibility of acquiring the Company or that a change
in control may otherwise occur, with or without the approval of the Company's
Board of Directors (the "Board"). The Board recognizes that such consideration
can be a distraction to the Employee, an executive corporate officer of the
Company, and can cause the Employee to consider alternative employment
opportunities. The Board has determined that it is in the best interests of
the Company and its shareholders to assure that the Company will have the
continued dedication and objectivity of the Employee, notwithstanding the
possibility, threat or occurrence of a Hostile Takeover or a Change of Control
(as defined below) of the Company.
B. The Board believes that it is in the best interests of the
Company and its shareholders to provide the Employee with an incentive to
continue his or her employment with the Company.
C. The Board believes that it is imperative to provide the
Employee with certain benefits upon a Hostile Takeover and, under certain
circumstances, upon termination of the Employee's employment in connection with
a Change of Control, which benefits are intended to provide the Employee with
financial security and provide sufficient income and encouragement to the
Employee to remain with the Company notwithstanding the possibility of a
Hostile Takeover or a Change of Control.
D. To accomplish the foregoing objectives, the Board of Directors
has directed the Company, upon execution of this Agreement by the Employee, to
agree to the terms provided in this Agreement.
E. On May 8, 1996, the Board, for the reasons set forth above,
authorized the Company to enter into Change of Control Agreements
("Agreements") with each of its executive corporate officers pursuant to the
specific terms set forth in the term sheet attached as Exhibit C to the minutes
for such meeting (the "Term Sheet"). The Company subsequently entered into
Agreements with each officer with terms consistent with the Term Sheet.
Thereafter, the Company amended the Agreements in December, 1996, in certain
respects. The Company now desires to amend and restate the Agreements so they
are consistent in all material respects with the specific terms set forth in
the Term Sheet.
<PAGE> 2
In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of Employee by the Company, the
parties agree as follows:
1. At-Will Employment. The Company and the Employee
acknowledge that the Employee's employment is and shall continue to be at-will,
as defined under applicable law. If the Employee's employment terminates for
any reason, including (without limitation) any termination prior to a Change of
Control, the Employee shall not be entitled to any payments or benefits, other
than as provided by this Agreement, or as may otherwise be available in
accordance with the Company's established employee plans and written policies
at the time of termination. The terms of this Agreement shall terminate upon
the earlier of (i) the date on which Employee ceases to be employed as an
executive corporate officer of the Company, (ii) the date that all obligations
of the parties hereunder have been satisfied, or (iii) two (2) years after a
Change of Control. A termination of the terms of this Agreement pursuant to
the preceding sentence shall be effective for all purposes, except that such
termination shall not affect the payment or provision of compensation or
benefits on account of a termination of employment occurring prior to the
termination of the terms of this Agreement.
2. Stock Options.
(a) Change of Control. Subject to Sections 5 and
6 below, in the event of a Change of Control and regardless of whether the
Employee's employment with the Company is terminated in connection with the
Change of Control, each stock option granted for the Company's securities held
by the Employee shall become vested on the effective date of the transaction as
to one-half of the Shares that have not otherwise vested as of such date, and
shall be exercisable to the extent so vested in accordance with the provisions
of the Option Agreement and Plan pursuant to which such option was granted.
Notwithstanding the above, in the event that the terms of Employee's Offer
Letter from the Company dated March 21, 1995 (the "Offer Letter") would result
in a greater number of Shares becoming vested as of the effective date of a
Change of Control, the terms of the Offer Letter shall control.
(b) Hostile Takeover. Subject to Sections 5 and
6 below, in the event of a Hostile Takeover and regardless of whether the
Employee's employment with the Company is terminated in connection with such
takeover, each stock option granted for the Company's securities held by the
Employee shall become immediately vested on the effective date of the Hostile
Takeover, and shall be exercisable in full in accordance with the provisions of
the Option Agreement and Plan pursuant to which such option was granted.
3. Change of Control.
(a) Termination Following A Change of Control.
Subject to Section 5 below, if the Employee's employment with the Company is
terminated at any time within two (2) years after a Change of Control, then the
Employee shall be entitled to receive severance benefits as follows:
(i) Voluntary Resignation. If the
Employee voluntarily resigns from the Company (other than as an Involuntary
Termination (as defined below) or if the
-2-
<PAGE> 3
Company terminates the Employee's employment for Cause (as defined below)),
then the Employee shall not be entitled to receive severance payments. The
Employee's benefits will be terminated under the Company's then existing
benefit plans and policies in accordance with such plans and policies in effect
on the date of termination or as otherwise determined by the Board of Directors
of the Company.
(ii) Involuntary Termination. If the
Employee's employment is terminated as a result of an Involuntary Termination
other than for Cause, the Employee shall be entitled to receive the following
benefits: (i) monthly severance payments during the period from the date of
the Employee's termination until the date 12 months after the effective date of
the termination (the "Severance Period") equal to the monthly salary which the
Employee was receiving immediately prior to the Change of Control; (ii) monthly
severance payments during the Severance Period equal to 1/12th of the
Employee's "target bonus" (as defined below) for the fiscal year in which the
termination occurs for each month in which severance payments are made to the
Employee pursuant to subsection (i) above; (iii) the pro-rated amount of the
Employee's "target bonus" for the fiscal year in which the termination occurs,
calculated based on the number of months during such fiscal year in which the
Employee was employed by the Company (or a successor corporation) with such
payment being made on the termination date; (iv) continuation of benefits
through the end of the Severance Period substantially identical to those to
which the Employee was entitled immediately prior to the Change of Control; (v)
full and immediate vesting of each unvested stock option granted for the
Company's securities held by the Employee on the date of termination so that
each such option shall be exercisable in full on the termination date in
accordance with the provisions of the Option Agreement and Plan pursuant to
which such option was granted; and (vi) outplacement services with a total
value not to exceed $15,000. The severance payments described in subsections
(i) and (ii) above shall be paid during the Severance Period in accordance with
the Company's standard payroll practices. For purposes of this Agreement, the
term "target bonus" shall mean that percentage of the Employee's base salary
that is prescribed by the Company under its Management Bonus Program as the
percentage of such base salary payable to the Company as a bonus if the Company
pays bonuses at one-hundred percent (100%) of its operating plan.
(iii) Involuntary Termination for Cause.
If the Employee's employment is terminated for Cause, then the Employee shall
not be entitled to receive severance payments. The Employee's benefits will be
terminated under the Company's then existing benefit plans and policies in
accordance with such plans and policies in effect on the date of termination.
(b) Termination Apart from A Change of Control.
In the event the Employee's employment terminates for any reason, either prior
to the occurrence of a Change of Control or after the two year period following
the effective date of a Change of Control, then the Employee shall not be
entitled to receive any severance payments under this Agreement. The
Employee's benefits will be terminated under the terms of the Company's then
existing benefit plans and policies in accordance with such plans and policies
in effect on the date of termination or as otherwise determined by the Board of
Directors of the Company.
-3-
<PAGE> 4
4. Definition of Terms. The following terms referred to
in this Agreement shall have the following meanings:
(a) Change of Control. "Change of Control" shall
mean the occurrence of any of the following events:
(i) Ownership. Any "Person" (as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended) is or becomes the "Beneficial Owner" (as defined in Rule
13d-3 under said Act), directly or indirectly, of securities of the Company
representing fifteen percent (15%) or more of the total voting power
represented by the Company's then outstanding voting securities without the
approval of the Board of Directors of the Company; or
(ii) Merger/Sale of Assets. A merger or
consolidation of the Company whether or not approved by the Board of Directors
of the Company, other than 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 fifty percent (50%) of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or the shareholders 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.
(iii) Change in Board Composition. A
change in the composition of the Board of Directors of the Company, as a result
of which fewer than a majority of the directors are Incumbent Directors.
"Incumbent Directors" shall mean directors who either (A) are directors of the
Company as of September 3, 1996 or (B) are elected, or nominated for election,
to the Board of Directors of the Company with the affirmative votes of at least
a majority of the Incumbent Directors at the time of such election or
nomination (but shall not include an individual whose election or nomination is
in connection with an actual or threatened proxy contest relating to the
election of directors to the Company).
(b) Cause. "Cause" shall mean (i) gross
negligence or willful misconduct in the performance of the Employee's duties to
the Company where such gross negligence or willful misconduct has resulted or
is likely to result in substantial and material damage to the Company or its
subsidiaries (ii) repeated unexplained or unjustified absence from the Company,
(iii) a material and willful violation of any federal or state law; (iv)
commission of any act of fraud with respect to the Company; or (v) conviction
of a felony or a crime involving moral turpitude causing material harm to the
standing and reputation of the Company, in each case as determined in good
faith by the Board of Directors of the Company.
(c) Hostile Takeover. "Hostile Takeover" shall
mean a transaction or series of transactions that results in any person
becoming the Beneficial Owner, directly or indirectly, of securities of the
Company representing fifty percent (50%) or more of the total voting power
represented by the Company's then outstanding voting securities without the
approval of the Board of Directors of the Company.
-4-
<PAGE> 5
(d) Involuntary Termination. "Involuntary
Termination" shall include any termination by the Company other than for Cause
and the Employee's voluntary termination, upon 30 days prior written notice to
the Company, following (i) a material reduction or change in job duties,
responsibilities and requirements inconsistent with the Employee's position
with the Company and the Employee's prior duties, responsibilities and
requirements; (ii) any reduction of the Employee's base compensation (other
than in connection with a general decrease in base salaries for most officers
of the Company and any successor corporation); or (iii) the Employee's refusal
to relocate to a facility or location more than 30 miles from the Company's
current location.
5. Limitation on Payments. In the event that the
severance and other benefits provided for in this Agreement to the Employee
constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code") and, but for this
Section 5, would be subject to the excise tax imposed by Section 4999 of the
Code, the Company shall reduce the aggregate amount of such payments and
benefits such that the present value thereof (as determined under the Code and
the applicable regulations) is equal to 2.99 times the Employee's "base amount"
as defined in Section 280G(b)(3) of the Code.
6. Certain Business Combinations. In the event it is
determined by the Board, upon receipt of a written opinion of the Company's
independent auditors, that the enforcement of any Section of this Agreement,
including, but not limited to, Section 2 hereof, or the terms of the Offer
Letter, which allow for the acceleration of vesting of stock options granted
for the Company's securities upon the effective date of a Change of Control or
a Hostile Takeover, would preclude accounting for any proposed business
combination of the Company involving a Change of Control or a Hostile Takeover
as a pooling of interests, and the Board otherwise desires to approve such a
proposed business transaction which requires as a condition to the closing of
such transaction that it be accounted for as a pooling of interests, then any
such Section of this Agreement or the Offer Letter shall be null and void. For
purposes of this Section 6, the Board's determination shall require the
unanimous approval of the non-employee Board members.
7. Successors. Any successor to the Company (whether
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets shall assume the obligations under this Agreement and agree
expressly to perform the obligations under this Agreement in the same manner
and to the same extent as the Company would be required to perform such
obligations in the absence of a succession. The terms of this Agreement and
all of the Employee's rights hereunder shall inure to the benefit of, and be
enforceable by, the Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
8. Notice. Notices and all other communications
contemplated by this Agreement shall be in writing and shall be deemed to have
been duly given when personally delivered or when mailed by U.S. registered or
certified mail, return receipt requested and postage prepaid. Mailed notices
to the Employee shall be addressed to the Employee at the home address which
the Employee most recently communicated to the Company in writing. In the case
of the Company, mailed notices shall be addressed to its corporate
headquarters, and all notices shall be directed to the attention of its
Secretary.
-5-
<PAGE> 6
9. Miscellaneous Provisions.
(a) No Duty to Mitigate. The Employee shall not
be required to mitigate the amount of any payment contemplated by this
Agreement (whether by seeking new employment or in any other manner), nor,
except as otherwise provided in this Agreement, shall any such payment be
reduced by any earnings that the Employee may receive from any other source.
(b) Waiver. No provision of this Agreement shall
be modified, waived or discharged unless the modification, waiver or discharge
is agreed to in writing and signed by the Employee and by an authorized officer
of the Company (other than the Employee). No waiver by either party of any
breach of, or of compliance with, any condition or provision of this Agreement
by the other party shall be considered a waiver of any other condition or
provision or of the same condition or provision at another time.
(c) Whole Agreement. No agreements,
representations or understandings (whether oral or written and whether express
or implied) which are not expressly set forth in this Agreement have been made
or entered into by either party with respect to the subject matter hereof.
This Agreement supersedes any agreement of the same title and concerning
similar subject matter dated prior to the date of this Agreement, and by
execution of this Agreement both parties agree that any such predecessor
agreement shall be deemed null and void.
(d) Choice of Law. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of California without reference to conflict of laws provisions.
(e) Severability. If any term or provision of
this Agreement or the application thereof to any circumstance shall, in any
jurisdiction and to any extent, be invalid or unenforceable, such term or
provision shall be ineffective as to such jurisdiction to the extent of such
invalidity or unenforceability without invalidating or rendering unenforceable
the remaining terms and provisions of this Agreement or the application of such
terms and provisions to circumstances other than those as to which it is held
invalid or unenforceable, and a suitable and equitable term or provision shall
be substituted therefor to carry out, insofar as may be valid and enforceable,
the intent and purpose of the invalid or unenforceable term or provision.
(f) Arbitration. Any dispute or controversy
arising under or in connection with this Agreement may be settled at the option
of either party by binding arbitration in the County of Santa Clara,
California, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award
in any court having jurisdiction. Punitive damages shall not be awarded.
(g) Legal Fees and Expenses. The parties shall
each bear their own expenses, legal fees and other fees incurred in connection
with this Agreement.
(h) No Assignment of Benefits. The rights of any
person to payments or benefits under this Agreement shall not be made subject
to option or assignment, either by
-6-
<PAGE> 7
voluntary or involuntary assignment or by operation of law, including (without
limitation) bankruptcy, garnishment, attachment or other creditor's process,
and any action in violation of this subsection (h) shall be void.
(i) Employment Taxes. All payments made pursuant
to this Agreement will be subject to withholding of applicable income and
employment taxes.
(j) Assignment by Company. The Company may
assign its rights under this Agreement to an affiliate, and an affiliate may
assign its rights under this Agreement to another affiliate of the Company or
to the Company; provided, however, that no assignment shall be made if the net
worth of the assignee is less than the net worth of the Company at the time of
assignment. In the case of any such assignment, the term "Company" when used
in a section of this Agreement shall mean the corporation that actually employs
the Employee.
(k) Counterparts. This Agreement may be executed
in counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.
-7-
<PAGE> 8
IN WITNESS WHEREOF, each of the parties has executed this Agreement,
in the case of the Company by its duly authorized officer, as of the day and
year first above written.
TARGET THERAPEUTICS, INC. ROBERT MCNAMARA
By: /s/ Gary Bang /s/ Robert McNamara
----------------------------------------- ---------------------------
Title: President and Chief Executive Officer
-8-
<PAGE> 1
TARGET THERAPEUTICS, INC.
CALCULATION OF NET INCOME/(LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS; UNAUDITED)
EXHIBIT 11.1
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
-------------------------- -------------------------
1996 1995 1996 1995
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net income/(loss) $ 3,803 $ 3,621 $ (3,574) $ 8,454
=========== =========== ============ ==========
Weighted average shares outstanding during the period 14,836 14,443 14,828 14,343
Common equivalent shares(1) 681 965 --- 813
----------- ----------- ----------- ----------
Shares used in calculation of net income per share 15,517 15,408 14,828 15,156
=========== =========== =========== ==========
Net income/(loss) per share $ .25 $ .24 $ (.24) $ .56
=========== =========== =========== ==========
</TABLE>
(1) Common share equivalent shares are not used in the calculation of the per
share loss for the nine months ended December 31, 1996 since the effect is
antidilutive.
21
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 13,648
<SECURITIES> 38,053
<RECEIVABLES> 22,752
<ALLOWANCES> (613)
<INVENTORY> 10,457
<CURRENT-ASSETS> 90,368
<PP&E> 15,116
<DEPRECIATION> (9,443)
<TOTAL-ASSETS> 115,749
<CURRENT-LIABILITIES> 25,705
<BONDS> 0
0
0
<COMMON> 26
<OTHER-SE> 89,071
<TOTAL-LIABILITY-AND-EQUITY> 115,749
<SALES> 23,932
<TOTAL-REVENUES> 23,932
<CGS> 7,510
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,873
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44
<INCOME-PRETAX> 5,512
<INCOME-TAX> 1,709
<INCOME-CONTINUING> 3,803
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,803
<EPS-PRIMARY> .25
<EPS-DILUTED> .24
</TABLE>
