UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended September 27, 1996
-----------------------------
Commission File Number 0-19952
CHRONIMED Inc.
(Exact name of registrant as specified in its charter)
Minnesota 41-1515691
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
13911 Ridgedale Drive
Minnetonka, MN 55305
(Address of principal executive offices)
(Zip code)
Registrant's telephone number, including area code (612) 541-0239
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, and (2) has been subject to such filing requirements
for the past 90 days.
Yes __X__ No _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 par value - 12,546,166 shares outstanding as of
October 24, 1996
- --------------------------------------------------------------------------------
INDEX
CHRONIMED INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - September 27, 1996 and June 28,
1996
Consolidated Statements of Income - Three months ended
September 27, 1996 and September 29, 1995
Consolidated Statements of Cash Flows - Three months ended
September 27, 1996 and September 29, 1995
Notes to Consolidated Financial Statements - September 27,
1996
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Items 1 through 5 have been omitted since all items are not
applicable or answers negative.
Item 6. Exhibits
10.27 Chronimed 1997 Stock Option Plan
11.1 Computation of Earnings Per Share
SIGNATURES
Part I. Financial Information
Item I. Financial Statements
<TABLE>
<CAPTION>
CHRONIMED INC.
CONSOLIDATED BALANCE SHEETS
($000s)
SEPT. 27, JUNE 28,
1996 1996
-------- --------
ASSETS (UNAUDITED) (NOTE A)
Current assets:
<S> <C> <C>
Cash and cash equivalents ............................................ $ 3,890 $ 11,434
Available-for-sale securities ........................................ 7,219 12,803
Accounts receivable (net of allowance
of $990,000 and $860,000 at September 27, 1996
and June 28, 1996, respectively) .................................... 21,705 19,843
Income taxes receivable .............................................. 45 49
Inventory ............................................................ 13,626 5,476
Other current assets ................................................. 644 559
Deferred taxes ....................................................... 493 493
-------- --------
Total current assets ............................................. 47,622 50,657
Note receivable ........................................................ 1,384 1,375
Available-for-sale securities .......................................... 9,005 9,069
Property and equipment:
Property and equipment ............................................... 9,528 8,542
Allowance for depreciation ........................................... (3,732) (3,097)
-------- --------
5,796 5,445
Intangible assets, net ................................................... 10,315 1,362
-------- --------
Total assets ............................................................. $ 74,122 $ 67,908
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ................................ 16,246 $ 9,992
Short-term debt ...................................................... 350 404
-------- --------
Total current liabilities .................................... 16,596 $ 10,396
Long-term debt ......................................................... -- 350
Shareholders' equity:
Preferred Stock, $.01 par value;
5,000,000 shares authorized; none
outstanding ........................................................ -- --
Common Stock, $.01 par value --
authorized 20,000,000 shares; issued and
outstanding September 27, 1996 -- 12,431,443 shares;
June 28,1996 -- 12,454,560 shares .................................. 125 125
Additional paid-in capital ........................................... 48,719 49,569
Retained earnings .................................................... 8,723 7,475
-------- --------
57,567 57,169
Unrealized (loss) on available-for-sale securities ................... (41) (7)
-------- --------
Total shareholders' equity ........................................ 57,526 57,162
-------- --------
Total liabilities and shareholders'
equity ............................................................... $ 74,122 $ 67,908
======== ========
</TABLE>
CHRONIMED INC.
CONSOLIDATED STATEMENTS OF INCOME
($000s)
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 27, SEPTEMBER 29,
1996 1995
-------- --------
Revenues
Managed Care ....................... $ 4,933 $ 2,692
Proprietary ........................ 9,210 5,401
Patient Choice/Professional Referral 14,363 10,433
-------- --------
TOTAL REVENUES .............. 28,506 18,526
Cost of Sales ......................... 20,757 13,578
-------- --------
GROSS PROFIT ................ 7,749 4,948
Operating Expenses
Selling and Marketing .............. 1,616 1,467
General and Administrative ......... 4,238 2,679
Research and Development ........... 207 95
-------- --------
TOTAL OPERATING EXPENSES .... 6,061 4,241
Operating Income ...................... 1,688 707
Interest Income ....................... 267 309
Provision for Income Taxes ............ (708) (291)
-------- --------
NET INCOME ............................ $ 1,247 $ 725
======== ========
Income per share .................... $ .09 $ .06
Weighted average number
of shares outstanding (000s) ........ 13,212 12,916
<TABLE>
<CAPTION>
CHRONIMED INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000s)
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 27, SEPTEMBER 29,
1996 1995
-------- --------
<S> <C> <C>
Operating Activities:
Net income ............................................................. $ 1,247 $ 725
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization ................................... 929 365
Changes in operating assets and liabilities:
Accounts and notes receivable ................................ (1,868) (2,041)
Inventory .................................................... (8,150) (2,516)
Other assets ................................................. (95) (36)
Accounts payable and accruals ................................ 6,254 (4,099)
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ............. (1,683) 596
Investing Activities:
Repurchase of common stock ............................................. (1,577) --
Acquisitions, net of cash purchased .................................... (9,234) (84)
Purchases of property and equipment .................................... (985) (548)
Purchase of available-for-sale securities .............................. (2,006) (2,580)
Sale and maturities of available-for-sale securities ................... 7,619 3,051
-------- --------
NET CASH (USED IN) INVESTING ACTIVITIES ......................... (6,183) (161)
Financing Activities:
Net proceeds from sale of Common Stock ................................. 322 257
NET CASH PROVIDED BY
FINANCING ACTIVITIES ......................................... 322 257
-------- --------
Increase (decrease) in cash and cash equivalents ........................... (7,544) 692
Cash and cash equivalents at beginning of period ........................... 11,434 2,203
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ...................... $ 3,890 $ 2,895
======== ========
</TABLE>
CHRONIMED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three month period ended September 27, 1996
are not necessarily indicative of the results that may be expected for the year
ending June 27, 1997. For further information, refer to the financial statements
and footnotes thereto for the year ended June 28, 1996.
The balance sheet at June 28, 1996, has been derived from the audited financial
statements at that date, but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
The Company uses a four-week, four-week, five-week (4-4-5) quarterly accounting
cycle with the fiscal year ending on the Friday closest to June 30 and the
fiscal quarters ending on the Friday closest to the last day of the respective
month.
NOTE B--INVENTORIES
Inventories consist primarily of goods held for resale and are valued at the
lower of cost or market under the average cost method.
NOTE C--INVESTMENTS
The Company's investment policy is to invest idle and excess funds in high
grade, fixed income securities generally for no more than two years. These
securities are classified as Available-for-Sale as of September 27, 1996 and
June 28, 1996. The Company considers the net unrealized loss on these
investments of $41,000 and $7,000 at those respective dates to be temporary, and
as such has recorded it through shareholders' equity.
NOTE D--ACQUISITION
Effective July 1, 1996, the Company acquired the assets of StatScript Management
Services, Inc. and its associated specialty pharmacies (StatScript). The
all-cash purchase price was $10,250,000, plus a contingent payment of up to
$2,250,000. StatScript provides pharmacy services to patients with HIV and AIDS.
Part I. Financial Information
Item 2. Management's Discussion
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Chronimed Inc. ("Chronimed" or the "Company") develops, markets and
distributes prescription drugs, medical products and educational materials by
mail and retail pharmacy to specific populations of patients with chronic
conditions. By focusing on specific chronic conditions, the Company believes it
is able to provide valuable services to: the patients affected by chronic
conditions; the insurance companies, health maintenance organizations, preferred
provider organizations, government agencies and other third-party payors
("Payors") that pay a large portion of the related health care costs; the
developers and manufacturers that produce the prescription drugs and other
products needed to manage chronic conditions; and the institutions, foundations
and health care providers working with these patients. The patient populations
for which the Company believes its services are most effective include patients
who:
* Require a costly regimen of maintenance prescription drugs or
other medical products over the course of their lives;
* Are treated by health care specialists; and
* Require a significant amount of self-management and on-going
education.
The Company is currently serving four such populations in the main: patients
with diabetes, patients who have had an organ transplant, patients with
HIV/AIDS, and patients who self- administer injectable medications. Starting
July 1996, Chronimed has increased its efforts in addressing the needs of
HIV/AIDS patients through the Company's acquisition of StatScript Management
Services, Inc., and its nine specialty HIV/AIDS pharmacies. The Company is
investigating programs for a variety of other chronic conditions.
Chronimed provides patients with a convenient, competitively-priced
source of prescription drugs, medical and clinical nutrition products and a
variety of educational materials designed to help patients achieve maximum
control over their chronic conditions. Often, the greater the effort a patient
makes to stabilize or control his or her chronic condition, the lower the
incidence of complications and the better the patient's quality of life.
Historically, the Company has obtained patients primarily through
referrals from health care providers and direct patient contacts. As employers
have attempted to control their escalating health care costs, Payors have
increasingly adopted various specialized managed care techniques in order to
limit the costs of health care. The specialty managed care industry has
developed principally in response to the demand from employers and Payors for
more effective control of cost increases in certain sectors, such as patients
with chronic conditions. In 1994, an estimated 63% of employees in the United
States who were covered by a healthcare plan were enrolled in a managed care
program, up from 53% in 1993. Chronimed seeks to adapt managed care techniques
or to develop new techniques to manage the particular delivery systems, cost
structures, and utilization characteristics of patients with chronic conditions.
As a result of the increasing role of managed care, coupled with the Company's
experience in managing specific patient groups, patient referrals are
increasingly coming from the Company's Payor programs.
The Company has developed relationships with certain treatment centers,
foundations and associations which specialize in the treatment or support of
patients with chronic conditions. These relationships provide the Company with
access to a large number of individuals with chronic conditions and to the
health care providers treating these conditions.
Chronimed believes that its system is well-suited for developers and
manufacturers of pharmaceutical and medical products designed for small or
hard-to-identify patient populations. Chronimed provides these companies with
assistance in the design and rapid introduction of their products, a cost
effective means for distributing these products to specific patient populations,
and a method for monitoring the use of these products as well as outcomes.
Chronimed has increased its emphasis on the development and licensing
of proprietary products suitable for distribution through its system. Through
its agreement with Orphan Medical, Inc., the Company has the right to sell a
number of proprietary drugs. Additionally, Chronimed has exchanged rights to
sell other Orphan Medical drugs for future royalties, some of which are expected
to be received in fiscal 1997. Pursuant to exclusive distribution agreements,
the Company currently markets diabetes-related products, including the Supreme
blood glucose monitor and reagent strip, generic reagent strips, infusion sets
and a lancing device.
REVENUES
The Company's revenues are derived from three principal sources: (1)
customers who are part of a managed care network ("Managed Care"); (2) revenues
generated primarily from sales of proprietary products ("Proprietary Products");
and (3) referrals from healthcare providers or patients who choose to purchase
from the Company ("Patient Choice"), which now includes the new StatScript
Pharmacy business acquired in July, 1996.
Total revenues increased 54%, from $18,526,000 to $28,506,000, for the
three months ended September 29, 1995, and September 27, 1996, respectively.
Price increases have not been a significant reason for these revenue increases.
Revenue from Managed Care contracts grew 83%, from $2,692,000 to
$4,933,000 for the three months ended September 29, 1995, and September 27,
1996, respectively. Strong growth in managed care sales for distribution of self
injectable medications accounted for this increase. Revenue from Proprietary
Products grew 71%, from $5,401,000 to $9,210,000 due to strong sales growth in
both the Quick Check and Supreme reagent strips. Patient Choice revenue
increased 38%, from $10,433,000 to $14,363,000, due primarily to the addition of
our new StatScript Pharmacy business in July, 1996, which closed the quarter
with $4,232,000 in revenue. Specialty Pharmacy, the largest business unit in
Patient Choice, closed the quarter down 7% in revenue due mainly to the decision
by the Company to suspend serving patients insured by low margin payors.
Overall revenue growth for Chronimed is expected to remain strong
through the remainder of fiscal 1997. The Company predicates its high growth
managed care revenue projections on a business model which relates the number of
converted patients for the Company's self injectables program to the number of
members of health insurance plans under agreements with the Company. Because the
Company has had limited time with the programs to develop statistically sound
patient conversion rates, its projections may be subject to inaccuracy. As to
proprietary products' projections, sales and production rates of reagent strips,
if continued, coupled with new and updated products to be offered this fiscal
year, should provide for high growth rates through fiscal 1997 compared to
fiscal 1996. The Company believes its production rates are sustainable but may
be subject to unforeseen shortfalls.
COST OF SALES AND GROSS PROFIT
The increase in cost of sales in the first quarter of fiscal 1997
compared to the first quarter of fiscal 1996 reflects the Company's 54% revenue
growth. The gross margin percentage improved from 26.7% to 27.2% for the three
months ended September 29, 1995 and September 27, 1996, respectively. This
improvement is due primarily to profitable growth in the reagent strip business,
increased margins in the Managed Care self-injectables program, and the addition
of StatScript Pharmacy at better-than-average margins.
The average order size for all businesses increased from $374 to $475
for the three months ended September 29, 1995 and September 27, 1996,
respectively. The increase in order size has generally resulted in higher gross
margin dollars per order. These increases were due to continued growth in
higher-priced prescription drugs and volume sales through distributors of
medical products.
SELLING AND MARKETING EXPENSES
Selling and marketing expenses increased 10% over the prior year's
first quarter, primarily as a result of increased spending in preparation for
product releases, additional sales personnel, and increased promotional
activities. As a percent of revenues, selling and marketing expenses decreased
from 7.9% to 5.7% in the three months ended September 29, 1995 and September 27,
1996, respectively.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative (G&A) expenses increased 58% over the prior
year's first quarter. As a percent of revenues, these expenses increased from
14.5% to 14.9%. The Company's G&A expenses include customer service and
fulfillment, and thus vary with order activity. These increases reflect
additional people and systems to build an appropriate infrastructure for
continued revenue growth. These increases also reflect goodwill amortization
associated with the StatScript acquisition as well as StatScript's normal
general and administrative expenses. For the full 1997 fiscal year, the Company
expects G&A expenses to be approximately 13% of revenue.
OPERATING INCOME
Operating income increased from $707,000 to $1,688,000 for the three
months ended September 29, 1995 and September 27, 1996, respectively. This
increase reflects 54% revenue growth, improved margins, and controlled selling,
general and administrative expenses.
INTEREST INCOME
Interest income decreased primarily as a result of the decrease in
total investment balances. Net interest income after a provision for taxes
accounted for approximately 40% and 20% of net income for the three months ended
September 29, 1995 and September 27, 1996, respectively.
INCOME TAXES
The Company's income tax rate was approximately 28.7% and 36.2% in the
three months ended September 29, 1995 and September 27, 1996, respectively.
These rates differ from the statutory rate due to favorable tax treatment on
municipal bond interest income. The rate increase in the comparable quarters is
due to a lower percentage of income from interest in the fiscal 1997 period.
LIQUIDITY AND CAPITAL RESOURCES
As of September 27, 1996, the Company had working capital of
$31,026,000, with no long-term debt, and $57.5 million of shareholders' equity.
The Company believes that its current working capital, together with
existing sources of liquidity and cash generated by operations, will satisfy its
working capital requirements through at least fiscal 1997.
The Company's accounts receivable are generally with Payors for which
the collection periods vary depending on the practices of the individual Payor.
Because of the complexities involved in the reimbursement process, typically as
much as one third of the Company's receivables are outstanding for more than 90
days on an ongoing basis. The average collection period for the Company's
accounts receivable increased up until the beginning of fiscal 1995 as the
Company became more involved in the reimbursement process through its specialty
pharmacy programs for patients with chronic conditions, including organ
transplant and HIV/AIDS. Additionally, the Company has obtained an increasing
number of patients with benefits from Medicaid and special state programs which
tend to pay claims more slowly. The advent of electronic billing is a recent
positive trend that has begun to shorten cash collection periods and improve
cash flow. Nonetheless, the Company expects working capital requirements to
increase as revenues increase.
The days sales outstanding (DSO) of the Company's accounts receivable
improved to 64 at September 27, 1996, compared to 76 at September 29, 1995. The
decrease reflects improved collection efforts and the mix of business. Growth in
revenue from Payors which are billed electronically and increased sales to large
institutions have both contributed to the decrease in DSO as these groups pay
claims in a more timely manner.
The reserve for bad debts increased from $860,000 to $990,000 from June
28, 1996, to September 27, 1996, supporting the Company's significant revenue
growth, favorably offset by the improving quality of receivables.
Inventory increased $8.2 million from June 1996 to September 1996 due
to large buys to secure favorable pricing and to general business growth.
Effective July 1, 1996, the Company acquired the assets of StatScript
Management Services, Inc. and its associated specialty pharmacies (StatScript).
The all-cash purchase price was $10,250,000, plus a contingent payment of up to
$2,250,000. StatScript provides pharmacy services to patients with HIV and AIDS.
On September 6, 1996, the Company approved a stock repurchase plan of
up to 1 million shares at times and prices to be determined by management.
Through September 27, 1996, the Company has repurchased 113,000 shares at a cost
of $1,575,000 with plans to acquire more shares in fiscal 1997.
The Company has no material commitments for capital expenditures for
fiscal 1997. The Company's capital plan for fiscal 1997 is $2.7 million.
The Company has a discretionary line of credit of $2,500,000. There was
no balance outstanding under the line of credit at September 27, 1996.
The Company has a $1.4 million note receivable from Health Craft
International, Inc. (HCI) at September 27, 1996. The note bears interest at a
rate of 8%, payable monthly. Proceeds from the note are being used to fund
development of a new product for diabetes patients. Principal payments on the
note have been restructured to commence in January, 1997, and are payable in
sixty equal monthly installments. The Company has the option of converting this
note into a controlling equity interest in HCI. Alternatively, the Company has
the option to acquire the assets of HCI by forgiving the note, paying a one-time
fee, and agreeing to a revenue-based royalty schedule subject to a maximum
dollar limit. As is always the case with product design and development efforts,
there is a risk that the project will not be completed successfully. If the
underlying HCI project is unsuccessful, the Company's note receivable may become
uncollectible.
HEALTH REFORM/GOVERNMENT REGULATION
Political, economic and regulatory influences are subjecting the health
care industry in the United States to fundamental change. A variety of new
approaches has been proposed, including mandated basic health care benefits,
controls on health care spending through limitations on the growth of private
health insurance premiums and Medicare and Medicaid spending, and the creation
of large purchasing groups and other fundamental changes to the health care
delivery system. In addition, some of the states in which the Company operates
have adopted or are considering various health care reform proposals. The
Company anticipates that both the public and private sectors will continue to
review and assess alternative health care delivery systems and payment methods
and that debate of these issues will likely continue in the future. Because of
uncertainty regarding the ultimate features of reform initiatives and their
enactment and implementation, the Company cannot predict which, if any, of such
reform proposals will be adopted, when they may be adopted, or what impact they
may have on the Company.
The Company's business is subject to substantial governmental
regulation, including laws governing the dispensing of prescription drugs and
laws prohibiting the payment of remuneration for patient referrals. Management
believes that the Company is in substantial compliance with all existing
statutes and regulations materially affecting the conduct of its business.
SEASONALITY
The Company has experienced a significant seasonal pattern in its
operating results. Historically, the Company has had higher revenues in its
second fiscal quarter than in its third fiscal quarter. The Company believes the
seasonality of its revenues and earnings results from the acceleration of
purchases of prescription drugs and medical products by individuals prior to the
beginning of a new calendar year (which is generally when Payors impose new
deductible calculations). As sales through Patient Choice become a less
significant part of the Company's total revenues, the Company believes its
operating results will become somewhat less seasonal.
OUTLOOK
Information contained in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations", other than historical
information, should be considered forward looking and reflects management's
current views of future events and financial performance that involve a number
of risks and uncertainties. The factors that could cause actual results to
differ include, but are not limited to, the following: competition and pricing
pressures; difficulties or delays in the development and marketing of the
Company's products; difficulties in realizing the expected revenues and profits
from the StatScript acquisition; termination of key payor contracts; termination
of key supplier contracts; changes in or unknown violations of various federal,
state, and local regulations governing the business; and management of growth.
Please see Exhibit 99 filed with the Company's Form 10-K on September 12, 1996,
for additional circumstances that could cause actual results to differ from
forecasts.
PART II
Items 1 through 5 required under Part II have been omitted since they are not
applicable or the answers negative.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
10.27 Chronimed 1997 Stock Option Plan
11.1 Computation of Earnings Per Share
(b) Reports on Form 8-K
The Company filed a report on Form 8-K dated July 10, 1996
and an amended report on Form 8-K/A dated September 13,
1996, both related to the acquisition of StatScript
Pharmacy.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHRONIMED INC.
(REGISTRANT)
November 1, 1996 /s/ Maurice R. Taylor, II
Date Maurice R. Taylor, II
Chairman of the Board, President, and
Chief Executive Officer
November 1, 1996 /s/ Norman A. Cocke
Date Norman A. Cocke
Senior Vice President, Chief Financial
Officer and Secretary
CHRONIMED INC.
1997 STOCK OPTION PLAN
Article I. Establishment and Purpose
1.1 Establishment. Chronimed Inc., a Minnesota Corporation ("Company"),
hereby establishes a stock option plan for employees and others providing
services to the Company, as described herein, which shall be known as the "1997
STOCK OPTION PLAN" ("Plan"). The Plan permits the granting of Nonstatutory Stock
Options and Incentive Stock Options.
1.2 Purpose. The purposes of this Plan are to enhance shareholder
investment by attracting, retaining, and motivating employees and consultants of
the Company and to encourage stock ownership by such employees and consultants
by providing them with a means to acquire a proprietary interest in the
Company's success.
Article II. Definitions
2.1 Definitions. Unless the context clearly requires otherwise, the
following terms shall have the respective meanings set forth below, and when
said meaning is intended, the term shall be capitalized.
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean the Committee, as specified in Article
IV hereof, appointed by the Board to administer the Plan, or
the Board if no Committee is appointed.
(d) "Company" means Chronimed Inc., a Minnesota corporation
(including any and all subsidiaries).
(e) "Consultant" means any person or entity, including an officer
or director of the Company who provides services (other than
as an Employee) to the Company.
(f) "Date of Exercise" means the date the Company receives notice
by an Optionee of the exercise of an Option pursuant to
Section 8.1 of this Plan. Such notice shall indicate the
number of shares of Stock as to which the Optionee intends to
exercise an Option.
(g) "Employee" means any person, including an officer or director
of the Company, who is employed by the Company.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(i) "Fair Market Value" means the closing price of the Stock as
reported by NASDAQ on the applicable day, or if there has been
no sale on that date, on the last preceding date on which a
sale occurred, or such other value of the Stock as shall be
specified by the Board.
(j) "Incentive Stock Option" means an Option granted under this
Plan which is designated as an Incentive Stock Option and is
intended to qualify as an "incentive stock option" within the
meaning of Section 422 of the Code.
(k) "Insider" means a person who is, at the time of an Option
grant hereunder, an officer, director or holder of more than
ten percent of the outstanding shares of the Stock, as defined
in Section 16 of the Exchange Act.
(l) "Nonstatutory Option" means an Option granted under this Plan
which is not intended to qualify as an incentive stock option
within the meaning of Section 422 of the Code. Except as
otherwise specified herein, Nonstatutory Options may be
granted at such times and subject to such restrictions as the
Board shall determine without conforming to the statutory
rules of Section 422 of the Code applicable to incentive stock
options.
(m) "Option" means the right, granted under this Plan, to purchase
Stock of the Company at the option price for a specified
period of time. For purposes of this Plan, an Option may be
either an Incentive Stock Option or a Nonstatutory Option.
(n) "Optionee" means a person to whom an Option has been granted
under the Plan.
(o) "Parent Corporation" shall have the meaning set forth in
Section 424(e) of the Code with the Company being treated as
the employer corporation for purposes of this definition.
(p) "Subsidiary Corporation" shall have the meaning set forth in
Section 424(f) of the Code with the Company being treated as
the employer corporation for purposes of this definition.
(q) "Significant Shareholder" means an individual who, within the
meaning of Section 422(b)(6)of the Code, owns Stock possessing
more than ten percent of the total combined voting power of
all classes of stock of the Company or of any Parent
Corporation or Subsidiary Corporation of the Company. In
determining whether an individual is a Significant
Shareholder, an individual shall be treated as owning Stock
owned by certain relatives of the individual and certain Stock
owned by corporations in which the individual is a
shareholder, partnerships in which the individual is a
partner, and estates or trusts of which the individual is a
beneficiary, all as provided in Section 424(d) of the Code.
(r) "Stock" means the common stock of the Company.
2.2 Gender and Number. Except when otherwise indicated by the context,
any masculine terminology when used in this Plan also shall include the feminine
gender, and the definition of any term herein in the singular also shall include
the plural.
2.3 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
Article III. Eligibility and Participation
3.1 Eligibility. All Employees are eligible to participate in this Plan
and receive Incentive Stock Options and/or Nonstatutory Options hereunder. All
Consultants are eligible to participate in this Plan and receive Nonstatutory
Options hereunder.
3.2 Actual Participation. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all Employees and Consultants
those to whom Options shall be granted and shall determine the nature of and
number of shares of Stock subject to each such Option.
Article IV. Administration
4.1 The Committee. The Plan shall be administered by the Committee. If
the entire Board of Directors is not serving as the Committee, the Committee
appointed by the Board shall meet the requirements of Rule 16b-3 so that Options
granted under the Plan may be considered "exempt" under Rule 16b-3 and Section
16(b) of the Exchange Act. If for any reason the Committee does not qualify to
administer the Plan as contemplated by Rule 16b-3 of the Exchange Act, or as may
be required under applicable tax law to permit a deduction with respect to
certain Options issued under the Plan, the Board may appoint a new Committee so
as to comply with the requirements of Rule 16b-3 and such tax law.
4.2 Authority of the Committee. The Committee shall have full power
except as limited by law or by the Articles of Incorporation or Bylaws of the
Company, and subject to the provisions herein, to determine the size and types
of Options; to determine the terms and conditions of such Options in a manner
consistent with the Plan; to construe and interpret the Plan and any agreement
or instrument entered into under the Plan; to establish, amend, or waive rules
and regulations for the Plan's administration; and (subject to the provisions of
Article XII herein) to amend the terms and conditions of any outstanding Option
to the extent such terms and conditions are within the discretion of the
Committee as provided in the Plan. Further, the Committee shall make all other
determinations which may be necessary or advisable for the administration of the
Plan. As permitted by law, the Committee may delegate its authorities as
identified hereunder.
4.3 Decisions Binding. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders or
resolutions of the Board of Directors shall be final, conclusive, and binding on
all persons, including the Company, its shareholders, Employees, Consultants,
Optionees, and their respective successors.
Article V. Stock Subject to the Plan
5.1 Number. Subject to adjustment as provided in Section 5.3 below, the
total number of shares of Stock hereby made available for grant and reserved for
issuance under the Plan shall be 1,000,000. The aggregate number of shares of
Stock available under this Plan shall be subject to adjustment as provided in
Section 5.3 below. The total number of shares of Stock may be authorized but
unissued shares of Stock, or shares acquired by purchase as directed by the
Board from time to time in its discretion, to be used for issuance upon exercise
of Options granted hereunder.
5.2 Lapsed Options. If an Option shall expire or terminate for any
reason without having been exercised in full, the unpurchased shares of Stock
subject thereto shall (unless the Plan shall have terminated) become available
for other Options under the Plan.
5.3 Adjustment in Capitalization. In the event of any change in the
outstanding shares of Stock by reason of a stock dividend or split,
recapitalization, reclassification, or other similar corporate change, the
aggregate number of shares of Stock set forth in Sections 5.1 and 7.1 below
shall be appropriately adjusted by the Committee, whose determination shall be
conclusive; provided, however, that fractional shares shall be rounded to the
nearest whole share. In any such case, the number and kind of shares that are
subject to any Option (including any Option outstanding after termination of
employment) and the Option price per share shall be proportionately and
appropriately adjusted without any change in the aggregate Option price to be
paid therefor upon exercise of the Option.
Article VI. Duration of the Plan
6.1 Duration of the Plan. Subject to shareholder approval, the Plan
shall be in effect for ten years from the date of its adoption by the Committee.
Any Options outstanding at the end of said period shall remain in effect in
accordance with their terms. The Plan shall terminate before the end of said
period if all Stock subject to it has been purchased pursuant to the exercise of
Options granted under the Plan.
Article VII. Terms of Stock Options
7.1 Grant of Options. Subject to Section 5.1, Options may be granted to
Employees or Consultants at any time and from time to time as determined by the
Committee; provided, however, that Consultants may receive only Nonstatutory
Options, and may not receive Incentive Stock Options. The Committee shall have
complete discretion in determining the recipient of options among the Employees
or Consultants, the number of shares of Stock subject to an Option and the
number of Options granted to each Optionee. In making such determinations, the
Committee may take into account the nature of services rendered by such
Employees or Consultants, their present and potential contributions to the
Company, and such other factors as the Committee in its discretion shall deem
relevant. The Committee also shall determine whether an Option is to be an
Incentive Stock Option or a Nonstatutory Option.
The aggregate Fair Market Value (determined at the date of grant) of
shares of Stock with respect to which Incentive Stock Options are exercisable
for the first time by the Optionee during any calendar year under all plans of
the Company under which Incentive Stock Options may be granted (and all such
plans of any Parent Corporations and any Subsidiary Corporations of the Company)
shall not exceed $100,000.
The preceding paragraph shall not be deemed to prevent the grant of
Options in excess of the maximums established by the preceding paragraph where
such excess amount is treated as a Nonstatutory Option; provided, however, no
Optionee may be granted Options in any fiscal year to purchase an aggregate
number of shares of Stock in excess of 250,000 shares per Optionee, subject to
adjustment under Section 5.3 above.
The Committee is expressly given the authority to issue amended Options
with respect to shares of Stock subject to an Option previously granted
hereunder. An amended Option amends the terms of an Option previously granted
and thereby supersedes the previous Option.
No Options granted under the Plan may be exercisable before the
approval of the Plan by the shareholders of the Company pursuant to the Bylaws
of the Company ("Shareholder Approval"). The granting and vesting of an Option
under the Plan by the Committee and the exercise of such Option by the Optionee
shall be subject to Shareholder Approval at the 1996 Annual Meeting of the
Company. If Shareholder Approval of the Plan does not occur at the 1996 Annual
Meeting of the Company any Option or Options held by any Optionee under the Plan
shall terminate immediately and shall be unexercisable.
7.2 No Tandem Options. Where an Option granted under this Plan is
intended to be an Incentive Stock Option, the Option shall not contain terms
pursuant to which the exercise of the Option would affect the Optionee's right
to exercise another Option, or vice versa, such that the Option intended to be
an Incentive Stock Option would be deemed a tandem stock option within the
meaning of the regulations under Section 422 of the Code.
7.3 Option Agreement. As determined by the Committee on the date of
grant, each Option shall be evidenced by an Option agreement (the "Option
Agreement") that includes the nontransferability provisions of Section 10.2
hereof and specifies: whether the Option is an Incentive Stock Option or a
Nonstatutory Option; the Option price; the duration of the Option; the number of
shares of Stock to which the Option applies; any vesting or serial exercise
restrictions which the Committee may impose; and any other terms or conditions
which the Committee may impose.
All Option Agreements shall incorporate the provisions of this Plan by
reference, with certain provisions to apply depending upon whether the Option
Agreement applies to an Incentive Stock Option or to a Nonstatutory Option.
7.4 Option Price. No Incentive Stock Option granted pursuant to this
Plan shall have an Option price that is less than the Fair Market Value of Stock
on the date the Option is granted. Incentive Stock Options granted to
Significant Shareholders shall have an Option price of not less than 110 percent
of the Fair Market Value of Stock on the date of grant. The Option price for
Nonstatutory Options shall be equal to the Fair Market Value of Stock on the
date the Option is granted and shall not be subject to the restrictions
applicable to Incentive Stock Options.
7.5 Term of Options. Each Option shall expire at such time as the
Committee shall determine when it is granted, provided however that no Option
shall be exercisable later than the tenth anniversary date of its grant. By its
terms, an Incentive Stock Option granted to a Significant Shareholder shall not
be exercisable after five years from the date of grant.
7.6 Exercise of Options. Options granted under the Plan shall be
exercisable at such times and be subject to such restrictions and conditions as
the Committee shall in each instance approve, which need not be the same for all
Optionees.
7.7 Payment. Payment for all shares of Stock shall be made at the time
that an Option, or any part thereof, is exercised, and no shares shall be issued
until full payment therefor has been made. Payment shall be made (i) in cash, or
(ii) if acceptable to the Committee, in Stock having a Fair Market Value at the
time of the exercise equal to the exercise price (provided that, in the case of
an Insider, the Stock that is tendered as payment upon exercise of the Option
has been held by the Optionee for at least six months prior to its tender if
such restriction is necessary to maintain the exemption of the Option under Rule
16b-3), or in some other form, including a combination of the above; provided,
however, in the case of an Incentive Stock Option, that said other form of
payment does not prevent the Option from qualifying for treatment as an
"incentive stock option" within the meaning of the Code. In addition, the
Company may establish a cashless exercise program in accordance with Federal
Reserve Board Regulation T.
Article VIII. Written Notice, Issuance of
Stock Certificates, Shareholder Privileges
8.1 Written Notice. An Optionee wishing to exercise an Option shall
give written notice to the Chief Financial Officer of the Company, in the form
and manner prescribed by the Committee. Except for approved "cashless
exercises," full payment for the shares exercised pursuant to the Option must
accompany the written notice.
8.2 Issuance of Stock Certificates. As soon as practicable after the
receipt of written notice and payment, the Company shall deliver to the Optionee
or to a nominee of the Optionee a certificate or certificates for the requisite
number of shares of Stock. Such certificate may bear a legend restricting
transfer if required under Article XVI below.
8.3 Privileges of a Shareholder. An Optionee or any other person
entitled to exercise an Option under this Plan shall not have shareholder
privileges with respect to any Stock covered by the Option until the date of
issuance of a stock certificate for such stock.
Article IX. Termination of Employment
9.1 Death. If an Optionee's employment in the case of an Employee, or
provision of services as a Consultant, in the case of a Consultant, terminates
by reason of death, the Option may thereafter be exercised at any time prior to
the expiration date of the Option or within 12 months after the date of such
death, whichever period is the shorter, by the person or persons entitled to do
so under the Optionee's will or, if the Optionee shall fail to make a
testamentary disposition of an Option or shall die intestate, the Optionee's
legal representative or representatives. The Option shall be exercisable only to
the extent that such Option was exercisable as of the date of death.
9.2 Termination Other Than For Cause Or Due to Death. Unless otherwise
determined by the Board, in the event of an Optionee's termination of
employment, in the case of an Employee, or termination of the provision of
services as a Consultant, in the case of a Consultant, other than by reason of
death or for cause (as defined in Section 9.3 below), the Optionee may exercise
such portion of his Option as was exercisable by the Optionee at the date of
such termination (the "Termination Date") at any time within three (3) months
after the Termination Date; provided, however, that where the Optionee is an
Employee, and is terminated due to disability within the meaning of Code Section
422(c)(6), such Optionee may exercise such portion of any Option as was
exercisable by such Optionee on Optionee's Termination Date within one year
after such Termination Date. In any event, the Option cannot be exercised after
the expiration of the term of the Option. Options not exercised within the
applicable period specified above shall terminate.
In the case of an Employee, a change of duties or position within the
Company or an assignment of employment in a Subsidiary Corporation or Parent
Corporation of the Company, if any, or from such a corporation to the Company,
shall not be considered a termination of employment for purposes of this Plan.
The Option Agreements may contain such provisions as the Committee shall approve
with reference to the effect of approved leaves of absence upon termination of
employment.
9.3 Termination for Cause. In the event of an Optionee's termination of
employment, in the case of an Employee, or termination of the provision of
services as a Consultant in the case of a Consultant, which termination is by
the Company for cause (as defined below), any Option or Options held by such
Optionee under the Plan, to the extent not exercised before such termination,
shall terminate immediately.
The term "cause" means: (i) Optionee's conviction of a felony which
would materially damage the reputation of the Company, (ii) material
misappropriation by Optionee of the Company's property or other material acts of
dishonesty by Optionee against the Company or (iii) Optionee's gross negligence
or willful misconduct in the performance of Optionee's duties, which has a
material adverse effect on the Company.
Article X. Rights of Optionees
10.1 Service. Nothing in this Plan shall interfere with or limit in any
way the right of the Company to terminate any Employee's employment, or any
Consultant's services, at any time, nor confer upon any Employee any right to
continue in the employ of the Company, or upon any Consultant any right to
continue to provide services to the Company.
10.2 Nontransferability. Except as otherwise determined by the
Committee in the case of Nonstatutory Options, all Options granted under this
Plan shall be nontransferable by the Optionee, other than by will or the laws of
descent and distribution, and shall be exercisable during the Optionee's
lifetime only by the Optionee.
Article XI. Optionee-Employee's
Transfer or Leave of Absence
11.1 Optionee-Employee's Transfer or Leave of Absence. For Plan
purposes:
(a) A transfer of an Optionee who is an Employee from the Company
to a Subsidiary Corporation or Parent Corporation, or from one
such corporation to another, or
(b) a leave of absence for such an Optionee (i) which is duly
authorized in writing by the Company, and (ii) if the Optionee
holds an Incentive Stock Option, which qualifies under the
applicable regulations under the Code which apply in the case
of incentive stock options,
shall not be deemed a termination of employment. However, under no circumstances
may an Optionee exercise an Option during any leave of absence, unless
authorized by the Committee.
Article XII. Amendment,
Modification, and Termination of the Plan
12.1 Amendment, Modification, and Termination of the Plan. The Board
may at any time terminate, and from time to time may amend or modify the Plan,
provided, however, that no such action of the Board, without approval of the
shareholders, may:
(a) increase the total amount of Stock that may be purchased
through Options granted under the Plan, except as provided in
Section 5.1 above; or
(b) change the class of Employees or Consultants eligible to
receive Options; or
(c) change the provisions of Section 7.1 above to allow an
Optionee to be granted Options in any fiscal year to purchase
an aggregate number of shares of Stock in excess of 250,000
shares per Optionee, subject to adjustment under Section 5.3
above.
12.2 Options Previously Granted. No amendment, modification, or
termination of the Plan shall in any manner adversely affect any outstanding
Option under the Plan without the consent of the Optionee holding the Option.
Article XIII. Merger, Consolidation or Acceleration Event
13.1 Merger, Consolidation.
(a) Subject to any required action by the shareholders, if the
Company shall be the surviving corporation in any merger or
consolidation, any Option granted hereunder shall pertain to
and apply to the securities to which a holder of the number of
shares of Stock subject to the Option would have been entitled
in such merger or consolidation.
(b) A dissolution or a liquidation of the Company or a merger and
consolidation in which the Company is not the surviving
corporation shall cause every Option outstanding hereunder to
terminate as of the effective date of such dissolution,
liquidation, merger or consolidation. However, unless the
Optionee is offered a firm commitment whereby the resulting or
surviving corporation in a merger or consolidation will tender
to the Optionee an option (the "Substitute Option") to
purchase its shares on terms and conditions as to number of
shares, exercisability and otherwise, which will substantially
preserve to the Optionee the rights and benefits of the Option
outstanding hereunder granted by the Company, then the
Optionee shall have the right immediately prior to such
merger, or consolidation to exercise any unexercised Options
whether or not then exercisable, subject to the provisions of
this Plan. The Board shall have absolute and uncontrolled
discretion to determine whether the Optionee has been offered
a firm commitment and whether the tendered Substitute Option
will substantially preserve to the Optionee the rights and
benefits of the Option outstanding hereunder. In any event,
any Substitute Option for an Incentive Stock Option shall
comply with the requirements of Code Section 424(a).
13.2 Impact of Acceleration Event. Subject to Shareholder Approval of
the Plan, Options granted hereunder will become fully exercisable and vested in
the event of a "Acceleration Event" as defined in Section 13.3 or a "Potential
Acceleration Event" as defined in Section 13.4.
13.3 Definition of "Acceleration Event." For purposes of Section 13.2,
an "Acceleration Event" means the happening of any of the following:
(a) When any "person" as defined in Section 3(a) (9) of the
Exchange Act and as used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d) of the
Exchange Act, but excluding the Company or any subsidiary or
parent or any employee benefit plan sponsored or maintained by
the Company or any subsidiary or parent (including any trustee
of such plan acting as trustee), directly or indirectly,
becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act, as amended from time to time), of securities
of the Company representing 20 percent or more of the combined
voting power of the Company's then outstanding securities;
(b) When, during any period of 24 consecutive months during the
existence of the Plan, the individuals who, at the beginning
of such period, constitute the Board ("Incumbent Directors")
cease for any reason other than death to constitute at least a
majority thereof; provided, however, that a Director who was
not a Director at the beginning of such 24-month period will
be deemed to have satisfied such 24-month requirement (and be
an Incumbent Director) if such Director was elected by, or on
the recommendation or, or with the approval of, at least 60%
of the Directors who then qualified as Incumbent Directors
either actually (because they were Directors at the beginning
of such 24-month period) or by prior operation of this Section
13.3(b); or
(c) The approval by the shareholders of any sale, lease, exchange,
or other transfer (in one transaction or a series of related
transactions) of all or substantially all of the assets of the
Company or the adoption of any plan or proposal for the
liquidation or dissolution of the Company.
13.4 Definition of "Potential Acceleration Event." For purposes of
Section 13.2, a "Potential Acceleration Event" means the approval by the Board
of an agreement by the Company the consummation of which would result in an
Acceleration Event of the Company as defined in Section 13.3.
Article XIV. Securities Registration
14.1 Securities Registration. In the event that the Company shall deem
it necessary or desirable to register under the Securities Act of 1933, as
amended, or any other applicable statute, any Options or any Stock with respect
to which an Option may be or shall have been granted or exercised, or to qualify
any such Options or Stock under the Securities Act of 1933, as amended, or any
other statute, then the Optionee shall cooperate with the Company and take such
action as is necessary to permit registration or qualification of such Options
or Stock.
Unless the Company has determined that the following representation is
unnecessary, each person exercising an Option under the Plan may be required by
the Company, as a condition to the issuance of the shares pursuant to exercise
of the Option, to make a representation in writing (a) that he or she is
acquiring such shares for his or her own account for investment and not with a
view to, or for sale in connection with, the distribution of any part thereof,
(b) that before any transfer in connection with the resale of such shares, he or
she will obtain the written opinion of counsel for the Company, or other counsel
acceptable to the Company, that such shares may be transferred. The Company may
also require that the certificates representing such shares contain legends
reflecting the foregoing. The Company will only require the foregoing investment
representation from an Optionee, inscription of a legend on the Optionee's share
certificate and placement of a stop order with the Company's transfer agent if a
registration statement is not in effect with respect to the shares issued
pursuant to the Plan at the time the Optionee exercises the Option.
Article XV. Tax Withholding
15.1 Tax Withholding. The Company shall have the power and the right to
deduct or withhold, or require an Optionee to remit to the Company, an amount
sufficient to satisfy Federal, state, and local taxes (including the Optionee's
FICA obligation) required by law to be withheld with respect to any grant,
exercise, or payment made under or as a result of the Plan.
15.2 Share Withholding. With respect to withholding required upon the
exercise of Options, or upon any other taxable event hereunder, Optionees may
elect, subject to the approval of the Committee, to satisfy the withholding
requirement, in whole or in part, by having the Company withhold shares having a
Fair Market Value, on the date the tax is to be determined, equal to the minimum
marginal tax which could be imposed on the transaction.
Share withholding upon the exercise of an Option will be done if the
Optionee makes a signed, written election and either of the following occurs:
(a) The Option exercise occurs during a "window period" and the
election to use such share withholding is made at any time
prior to exercise. For this purpose, "window period" means the
period beginning on the third business day following the date
of public release of the Company's quarterly financial
information and ending after the twelfth business day
following such date. An earlier election can be revoked up
until the exercise of the Option during the window period; or
(b) An election to withhold shares is made at least six months
before the Option is exercised. If this election is made, then
the Option can be exercised and shares may be withheld outside
of the window period.
Article XVI. Indemnification
16.1 Indemnification. To the extent permitted by law, each person who
is or shall have been a member of the Committee or of the Board shall be
indemnified and held harmless by the Company against and from any loss, cost,
liability, or expense that may be imposed upon or reasonably incurred by him or
her in connection with or resulting from any claim, action, suit, or proceeding
to which he or she may be a party or in which he or she may be involved by
reason of any action taken or failure to act under the Plan and against and from
any and all amounts paid by him or her in settlement thereof, with the Company's
approval, or paid by him or her in satisfaction of judgment in any such action,
suit, or proceeding against him or her, provided he or she shall give the
Company an opportunity, at its own expense, to handle and defend the same before
he or she undertakes to handle and defend it on his or her own behalf. The
foregoing right of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the Company's
articles of incorporation or bylaws, as a matter of law, or otherwise, or any
power that the Company may have to indemnify them or hold them harmless.
Article XVII. Requirements of Law
17.1 Requirements of Law. The granting of Options and the issuance of
shares of Stock upon the exercise of an Option shall be subject to all
applicable laws, rules, and regulations, and to such approvals by any
governmental agencies or national securities exchanges as may be required.
17.2 Governing Law. To the extent not preempted by federal law, the
Plan, and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of Minnesota.
17.3 Compliance with the Code. Incentive Stock Options granted
hereunder are intended to qualify as "incentive stock options" under Code
Section 422. If any provision of this Plan is susceptible to more than one
interpretation, such interpretation shall be given thereto as is consistent with
Incentive Stock Options granted under this Plan being treated as incentive stock
options under the Code.
Article XVIII. Effective Date of Plan
18.1 Effective Date. Subject to Shareholder Approval of the Plan, the
Plan shall be effective as of July 1, 1996, the date of its adoption by the
Board.
Article XIX. No Obligation to Exercise Option
19.1 No Obligation to Exercise. The granting of an Option shall impose
no obligation upon the holder thereof to exercise such Option.
EXHIBIT 11.1
<TABLE>
<CAPTION>
CHRONIMED INC.
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended
Sept. 27, Sept. 29,
1996 1995
------- -------
<S> <C> <C>
Primary
Average shares outstanding ......................................... 12,462 12,002
Net effect of dilutive stock options
and warrants -- based on the treasury
stock method using average market price ......................... 750 914
------- -------
Total ....................................................... 13,212 12,916
======= =======
Net income ........................................................... $ 1,247 $ 725
======= =======
Net income per share ................................................. $ .09 $ .06
======= =======
Fully Diluted
Average shares outstanding ......................................... 12,462 12,002
Net effect of dilutive stock options
and warrants -- based on the treasury
stock method using the higher of average
or ending market price .......................................... 750 914
------- -------
Total ....................................................... 13,212 12,916
======= =======
Net income ........................................................... $ 1,247 $ 725
======= =======
Net income per share ................................................. $ .09 $ .06
======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-27-1996
<PERIOD-END> SEP-29-1996
<CASH> 3,890,000
<SECURITIES> 7,219,000
<RECEIVABLES> 22,695,000
<ALLOWANCES> 990,000
<INVENTORY> 13,626,000
<CURRENT-ASSETS> 47,622,000
<PP&E> 9,528,000
<DEPRECIATION> 3,732,000
<TOTAL-ASSETS> 74,122,000
<CURRENT-LIABILITIES> 16,596,000
<BONDS> 0
0
0
<COMMON> 125,000
<OTHER-SE> 57,401,000
<TOTAL-LIABILITY-AND-EQUITY> 74,122,000
<SALES> 28,506,000
<TOTAL-REVENUES> 28,506,000
<CGS> 20,757,000
<TOTAL-COSTS> 20,757,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 369,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,955,000
<INCOME-TAX> 708,000
<INCOME-CONTINUING> 1,247,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,247,000
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
