-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L/ObdtUDq303fc3nnUZo8QHrV19uzMrov/GjAgK3dCD956QvO87tuWVR3/nOtjco 1xSS7mSGkPhON+BKqZdciw== 0000898430-95-002369.txt : 19951119 0000898430-95-002369.hdr.sgml : 19951119 ACCESSION NUMBER: 0000898430-95-002369 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYNBIOTICS CORP CENTRAL INDEX KEY: 0000719483 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 953737816 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-11303 FILM NUMBER: 95592149 BUSINESS ADDRESS: STREET 1: 11011 VIA FRONTERA CITY: SAN DIEGO STATE: CA ZIP: 92127 BUSINESS PHONE: 6194513771 10QSB 1 FORM 10QSB ================================================================================ U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 __________________ FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995 OR [_] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 0-11303 SYNBIOTICS CORPORATION (Exact name of small business issuer as specified in its charter) CALIFORNIA 95-3737816 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 11011 VIA FRONTERA SAN DIEGO, CALIFORNIA 92127 (Address of principal executive offices) (Zip Code) ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: (619) 451-3771 Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] As of November 8, 1995, 5,816,033 shares of Common Stock were outstanding. Transitional Small Business Disclosure Format: Yes [_] No [X] ================================================================================ SYNBIOTICS CORPORATION INDEX
PAGE ---- PART I - FINANCIAL INFORMATION Item 1. Financial Statements Condensed Statement of Operations - Three and nine months ended September 30, 1995 and 1994 2 Condensed Balance Sheet - September 30, 1995 and December 31, 1994 3 Condensed Statement of Cash Flows - Nine months ended September 30, 1995 and 1994 4 Notes to Condensed Financial Statements 5 Item 2. Management's Discussion and Analysis or Plan of Operation 6 PART II - OTHER INFORMATION Item 1. Legal Proceedings 7 Item 2. Changes in Securities 7 Item 3. Defaults Upon Senior Securities 8 Item 4. Submission of Matters to a Vote of Security Holders 8 Item 5. Other Information 8 Item 6. Exhibits and Reports on Form 8-K 9
-1- PART I. FINANCIAL INFORMATION ----------------------------- ITEM I. FINANCIAL STATEMENTS -------------------- SYNBIOTICS CORPORATION CONDENSED STATEMENT OF OPERATIONS (UNAUDITED) - --------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------ ------------ 1995 1994 1995 1994 ---- ---- ---- ---- Revenues: Product sales $ 2,284,000 $ 2,030,000 $10,921,000 $ 9,376,000 License fees and other 92,000 66,000 239,000 171,000 Interest 17,000 27,000 35,000 76,000 ------------- ------------ ----------- ------------ 2,393,000 2,123,000 11,195,000 9,623,000 ------------- ------------ ----------- ------------ Cost and expenses: Cost of sales 1,651,000 1,080,000 6,138,000 4,700,000 Research and development 274,000 283,000 692,000 802,000 Selling and marketing 965,000 1,096,000 3,324,000 3,875,000 General and administrative 377,000 512,000 1,090,000 1,957,000 ------------- ------------ ----------- ------------ 3,267,000 2,971,000 11,244,000 11,334,000 ------------- ------------ ----------- ------------ Loss before gain on disposition of investment in affiliated company (874,000) (848,000) (49,000) (1,711,000) Gain on disposition of investment in affiliate 2,036,000 931,000 2,036,000 ------------- ------------ ----------- ------------ Income (loss) before income taxes (874,000) 1,188,000 882,000 325,000 Provision for income taxes (20,000) 2,000 2,000 ------------- ------------ ----------- ------------ Net income (loss) $ (854,000) $ 1,188,000 $ 880,000 $ 323,000 ============= ============ =========== ============ Net income (loss) per share $ (.15) $ .20 $ .15 $ .06 ============= ============ =========== ============ Weighted average shares outstanding 5,809,000 5,824,000 5,827,000 5,857,000 ============= ============ =========== ============
Net income (loss) per share was computed based upon the weighted average number of shares outstanding, including common stock equivalents. See accompanying notes to condensed financial statements. -2- ITEM 1. FINANCIAL STATEMENTS (CONTINUED) -------------------- SYNBIOTICS CORPORATION CONDENSED BALANCE SHEET - --------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, 1995 1994 ---- ---- (unaudited) (audited) ASSETS Current assets: Cash and equivalents $ 1,436,000 $ 447,000 Securities available for sale 507,000 502,000 Accounts receivable 849,000 1,444,000 Inventories 2,728,000 2,763,000 Other current assets 677,000 963,000 ------------ ------------ Total current assets 6,197,000 6,119,000 Property and equipment, net 979,000 1,329,000 Securities available for sale 3,377,000 942,000 Other assets 1,679,000 1,921,000 ------------ ------------ $ 12,232,000 $ 10,311,000 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 1,168,000 $ 1,662,000 Other current liabilities 697,000 695,000 ------------ ------------ Total current liabilities 1,865,000 2,357,000 ------------ ------------ Shareholders' equity: Common stock, no par value, 24,800,000 shares authorized, 5,815,000 and 5,803,000 shares issued and outstanding at September 30, 1995 and December 31, 1994, respectively 29,346,000 29,318,000 Unrealized holding losses from securities available for sale (190,000) (1,695,000) Accumulated deficit (18,789,000) (19,669,000) ------------ ------------ Total shareholders' equity 10,367,000 7,954,000 ------------ ------------ $ 12,232,000 $ 10,311,000 ============ ============
See accompanying notes to condensed financial statements. -3- ITEM 1. FINANCIAL STATEMENTS (CONTINUED) -------------------- SYNBIOTICS CORPORATION CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) - --------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, ------------ 1995 1994 ---- ---- Cash flows from operating activities: Net income $ 880,000 $ 323,000 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation and amortization 761,000 629,000 Inventory reserve 243,000 Gain on disposition of investment in affiliate (931,000) (2,036,000) Changes in assets and liabilities: Accounts receivable 595,000 481,000 Receivable from affiliates 105,000 Inventories (208,000) (185,000) Other assets 243,000 (101,000) Accounts payable and accrued expenses (494,000) (355,000) Other liabilities 2,000 (8,000) ----------- ----------- Net cash provided by (used for) operating activities 1,091,000 (1,147,000) ----------- ----------- Cash flows from investing activities: Acquisition of property and equipment (125,000) (441,000) Loans to affiliates (450,000) ----------- ----------- Net cash used for investing activities (125,000) (891,000) ----------- ----------- Cash flows from financing activities: Proceeds from issuance of common stock, net 23,000 ----------- ----------- Net cash provided by financing activities 23,000 ----------- ----------- Net increase (decrease) in cash and equivalents 989,000 (2,038,000) Cash and equivalents - beginning of year 447,000 3,928,000 ----------- ----------- Cash and equivalents - end of period $ 1,436,000 $ 1,890,000 =========== ===========
See accompanying notes to condensed financial statements. -4- ITEM 1. FINANCIAL STATEMENTS (CONTINUED) -------------------- SYNBIOTICS CORPORATION NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- NOTE 1 - INTERIM FINANCIAL STATEMENTS: The accompanying balance sheet as of September 30, 1995 and the statements of operations and of cash flows for the nine month periods ended September 30, 1995 and 1994 have been prepared by Synbiotics Corporation (the Company) and have not been audited. These financial statements, in the opinion of management, include all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the financial position, results of operations and cash flows for all periods presented. The financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-KSB filed for the nine month period ended December 31, 1994. Interim operating results are not necessarily indicative of operating results for the full year. NOTE 2 - SECURITIES AVAILABLE FOR SALE: Included in current assets are securities available for sale which consist of U.S. Government Treasury bills. On June 30, 1995, the Company received 573,000 shares of Texas Biotechnology Corporation ("TBC") common stock resulting from the satisfaction of a certain contingency on May 31, 1995 related to the acquisition of ImmunoPharmaceutics, Inc. ("IPI") by TBC in July 1994. Accordingly, the Company recognized a gain for financial reporting purposes in the amount of $931,000, based on the closing price of TBC common stock on May 31, 1995 of $1.625 per share as reported on the American Stock Exchange. The Company may receive an additional 409,000 shares of TBC common stock (the "Contingent Shares") pending the outcome of certain remaining contingencies. No amounts have been recorded related to the Contingent Shares, and no amounts will be recorded until such time as the contingencies are satisfied. NOTE 3 - INVENTORIES: Inventories consist of the following:
September 30, December 31, 1995 1994 ---- ---- Raw materials $ 534,000 $ 576,000 Work in process 803,000 756,000 Finished goods 1,391,000 1,431,000 ------------ ----------- $ 2,728,000 $ 2,763,000 ============ ===========
-5- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION --------------------------------------------------------- RESULTS OF OPERATIONS Total revenue for the third quarter of 1995 increased by $270,000 or 13% over the quarter ended September 30, 1994, and increased for the nine months ended September 30, 1995 by $1,572,000 or 16% over the nine months ended September 30, 1994. The increases are primarily due to an increase in product sales of $254,000 or 13% during the third quarter of 1995, and an increase in product sales of $1,545,000 or 16% during the nine months ended September 30, 1995, respectively. The increase in product sales during the third quarter of 1995 and the nine months ended September 30, 1995 is primarily due to an increase in diagnostic sales of $228,000 or 17% and $1,467,000 or 25%, respectively. The increased diagnostic sales are primarily due to sales of ICT GOLD(TM) HW, the Company's new canine heartworm diagnostic, which was introduced in March 1995. Sales of this new product more than offset declines in the Company's other canine heartworm diagnostic products, which were caused (for microwell tests) by competition from a major competitor's improved product and (for stat tests) by customer shifts to ICT GOLD(TM) HW. The Company is developing a modified DiroCHEK(R) canine heartworm diagnostic, with greater ease-of-use to match the competitor's microwell product modification, to regain unit sales and price points in this important product line. Vaccine sales increased modestly during the quarter and nine months ended September 30, 1995, as compared to the quarter and nine months ended September 30, 1994. The cost of sales as a percentage of product revenue increased to 56% for the nine months ended September 30, 1995 as compared to 50% for the nine months ended September 30, 1994. The cost of sales as a percentage of product revenue increased even more sharply, to 72%, for the third quarter of 1995 as compared to 53% for the quarter ended September 30, 1994. The increases are due to increased unapplied manufacturing overhead, resulting from a larger percentage of product sales during 1995 being generated from products which are manufactured for the Company by third parties, and a $243,000 (11% of third quarter product revenue) write-off of vaccine inventory which became unsalable because its expiration date occurred during the third quarter of 1995. Among the Company's major products, DiroCHEK(R) canine heartworm diagnostic products are manufactured at Company facilities, whereas ICT GOLD(TM) HW and all vaccines are manufactured by third parties. The cost of sales percentage was worsened by domestic shipments of bulk feline leukemia vaccine to Rhone Merieux, Inc. (located in Athens, Georgia) during the first nine months of 1995. The Company has contracted to sell bulk vaccine to Rhone Merieux, Inc. at cost because the Company receives a royalty on Rhone Merieux, Inc.'s resulting product sales in the United States. By contrast, the Company's international sales of bulk feline leukemia vaccine to Rhone-Merieux of France are at a profit, not at cost. Cost of sales as a percentage of product revenue would have been 59% and 49% during the quarters ended September 30, 1995 and 1994, respectively, and 49% and 48% for the nine months ended September 30, 1995 and 1994, respectively, if the inventory write-off and zero margin bulk sales were not taken into consideration. The 1995 cost of sales percentage was also hurt by reduced average selling prices due to increased competition (as to DiroCHEK/(R)/) and promotional programs accounted for as reductions in revenue; the cost of sales percentage suffers when more units of product must be manufactured and sold to achieve the same revenue. Research and development expenses during the third quarter of 1995 decreased by $9,000 or 3% from the quarter ended September 30, 1994, and decreased during the nine months ended September 30, 1995 by $110,000 or 14% from the nine months ended September 30, 1994. The decreases are primarily due to a decrease in contracted research and development resulting from the completion of the development of the Company's ICT GOLD(TM) HW canine heartworm diagnostic test which was introduced in March 1995, offset by additional research programs with outside research and development contractors. -6- Selling and marketing expenses during the third quarter of 1995 decreased by $131,000 or 12% from the quarter ended September 30, 1994, and decreased during the nine months ended September 30, 1995 by $551,000 or 14% from the nine months ended September 30, 1994. The decreases are due primarily to the non-recurrence of significant 1994 advertising and special sales promotion expenses related to the launch of the Company's new vaccine product line. General and administrative expenses during the third quarter of 1995 decreased by $135,000 or 26% from the quarter ended September 30, 1994, and decreased during the nine months ended September 30, 1995 by $867,000 or 44% from the nine months ended September 30, 1994. The decreases are due to a decrease in legal expenses as a result of the settlement of major litigation in December 1994. On June 30, 1995, the Company received 573,000 shares of Texas Biotechnology Corporation ("TBC") common stock resulting from the satisfaction of a certain contingency on May 31, 1995 related to the acquisition of ImmunoPharmaceutics, Inc. ("IPI") by TBC in July 1994. The Company had been a major shareholder of IPI, and had previously recognized a $2,036,000 gain on the transaction for financial reporting purposes. In the second quarter of 1995, the Company recognized an additional gain for financial reporting purposes in the amount of $931,000. The Company may receive an additional 409,000 shares of TBC common stock pending the outcome of certain remaining contingencies. The Company will recognize additional income when, and if, these contingencies are satisfied. FINANCIAL CONDITION Management believes that the Company's present capital resources, which included working capital of $4,332,000 at September 30, 1995, are sufficient to meet its current normal working capital needs. The Company intends to try to negotiate the deferral of payment of approximately $700,000 owed in the fourth quarter of 1995 under a 1992 agreement relating to the purchase of certain canine and feline vaccine products. Although TBC is a publicly traded company, the TBC common stock received by the Company in 1994 and 1995 is subject to certain securities-law and contractual restrictions against resale. TBC has filed a Registration Statement on Form S- 3, which has not yet been declared effective by the Securities and Exchange Commission, for the purpose of registering these and other shares for resale to the public. The Company's present intent is to hold its 1,228,000 TBC shares for investment unless an unexpected need for large cash outlays arises. PART II. OTHER INFORMATION --------------------------- ITEM 1. LEGAL PROCEEDINGS ----------------- No material developments. ITEM 2. CHANGES IN SECURITIES --------------------- None. -7- ITEM 3. DEFAULTS UPON SENIOR SECURITIES ------------------------------- None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- The Annual Meeting of Shareholders was held on July 12, 1995. The following matters were submitted to a vote, with the results indicated below: (a) Election of directors:
Broker Nominee For Against Abstain Withheld Non-votes ------- --- ------- ------- -------- ---------- Patrick Owen Burns 5,103,711 n/a n/a 50,985 0 James C. DeCesare 5,103,011 n/a n/a 51,685 0 Theodor H. Heinrichs 5,102,061 n/a n/a 52,635 0 M. Blake Ingle, Ph.D. 5,100,211 n/a n/a 54,485 0 Donald E. Phillips 5,103,461 n/a n/a 51,235 0 Robert L. Widerkehr 5,104,586 n/a n/a 50,110 0
(b) Approval of the Company's 1995 Stock Option/Stock Issuance Plan: For: 3,635,579 Against: 289,203 Abstain: 50,546 Withheld: n/a Broker Non-votes: 1,179,368 (c) Approval of the amendment to Article I, Section 2 of the Company's Bylaws: For: 4,931,625 Against: 49,096 Abstain: 39,536 Withheld: n/a Broker Non-votes: 134,439 (d) Ratification of selection of Price Waterhouse LLP as the Company's independent accountants: For: 5,118,369 Against: 24,341 Abstain: 11,986 Withheld: n/a Broker Non-votes: 0 ITEM 5. OTHER INFORMATION ----------------- None. -8- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- (a) Exhibits -------- 10.50+ 1995 Stock Option/Stock Issuance Plan, as amended. 11.1 Computation of Earnings (Loss) Per Share. 27 Financial Data Schedule (for electronic filing purposes only). ___________________ + Management contract or compensatory plan or arrangement. (b) Reports on Form 8-K ------------------- None. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SYNBIOTICS CORPORATION Date: November 10, 1995 /s/ Michael K. Green --------------------------- Michael K. Green Vice President of Finance and Chief Financial Officer (signing both as a duly authorized officer and as principal financial officer) -9- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. EXHIBITS TO FORM 10-QSB UNDER SECURITIES EXCHANGE ACT OF 1934 SYNBIOTICS CORPORATION EXHIBIT INDEX Exhibit No. Exhibit - ----------- ------- 10.50 1995 Stock Option/Stock Issuance Plan, as amended. 11.1 Computation of Earnings (Loss) Per Share. 27 Financial Data Schedule (for electronic filing purposes only). EX-10.50 2 STOCK OPTION PLAN SYNBIOTICS CORPORATION Exhibit 10.50 ------------- 1995 STOCK OPTION/STOCK ISSUANCE PLAN ------------------------------------- ARTICLE ONE GENERAL PROVISIONS ------------------ I. PURPOSE OF THE PLAN This 1995 Stock Option/Stock Issuance Plan (the "Plan") is intended to promote the interests of Synbiotics Corporation, a California corporation, by providing eligible persons with the opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in the Corporation as an incentive for them to remain in the service of the Corporation. Capitalized terms not otherwise defined shall have the meanings assigned to such terms in the attached Appendix. II. STRUCTURE OF THE PLAN A. The Plan shall be divided into three separate equity programs: (i) the Discretionary Option Grant Program under which eligible persons may, at the discretion of the Plan Administrator, be granted options to purchase shares of common stock of the Corporation, (ii) the Stock Issuance Program under which eligible persons may, at the discretion of the Plan Administrator, be issued shares of common stock of the Corporation directly, either through the immediate purchase of such shares or as a bonus for services rendered the Corporation (or any Parent or Subsidiary), and (iii) the Automatic Option Grant Program under which non-employee directors shall automatically receive option grants at periodic intervals to purchase shares of common stock of the Corporation. B. The provisions of Articles One and Five shall apply to all equity programs under the Plan and shall accordingly govern the interests of all persons under the Plan. III. ADMINISTRATION OF THE PLAN A. This Plan shall be administered by the Board or by a committee ("Committee") consisting of two (2) or more Board members who assume full responsibility for the administration of the Plan (the "Plan Administrator"). Members of any Committee shall serve for such period of time as the Board may determine and shall be subject to removal by the Board at any time. B. The Plan Administrator shall have full power and authority (subject to the express provisions of the Plan) to establish such rules and regulations as it may deem appropriate for the proper administration of the Plan and to make such determinations under, and issue such interpretations of, the Plan and any outstanding option grants or stock issuances as it may deem necessary or -1- advisable. Decisions of the Plan Administrator shall be final and binding on all parties who have an interest in the Plan or any outstanding option or stock issuance. C. Notwithstanding the above, the administration of the Automatic Option Grant Program under Article Three shall be self executing in accordance with the terms and conditions thereof and the Plan Administrator shall not exercise any discretionary functions in respect to matters governed by Article Three. D. The Plan Administrator shall, within the scope of its administrative jurisdiction under the Plan, have full authority to determine, (i) with respect to the option grants under the Discretionary Option Grant Program, which eligible persons are to receive option grants, the time or times when such option grants are to be made, the number of shares to be covered by each such grant, the status of the granted option as either an Incentive Option or a Non-Statutory Option, the time or times at which each option is to become exercisable, the vesting schedule (if any) applicable to the option shares and the maximum term for which the option is to remain outstanding and (ii) with respect to stock issuances under the Stock Issuance Program, which eligible persons are to receive stock issuances, the time or times when such issuances are to be made, the number of shares to be issued to each Participant, the vesting schedule (if any) applicable to the issued shares and the consideration to be paid by the Participant for such shares. E. The Plan Administrator shall have the absolute discretion either to grant options in accordance with the Discretionary Option Grant Program or to effect stock issuances in accordance with the Stock Issuance Program. IV. OPTION GRANTS AND STOCK ISSUANCES A. Subject to Section V.B below, the persons eligible to receive stock issuances under the Stock Issuance Program ("Participant") and/or option grants pursuant to the Discretionary Option Grant Program ("Optionee") are as follows: (i) officers and other employees of the Corporation (or its parent or subsidiary corporations) who render services which contribute to the management, growth and financial success of the Corporation (or its parent or subsidiary corporations); (ii) those consultants or other independent contractors who provide valuable services to the Corporation (or its parent or subsidiary corporations); provided that, notwithstanding any other provision of this Plan, no option grants under the Discretionary Option Grant Program or stock issuances under the Stock Issuance Program shall be made to any director hereunder unless, at the time of such option or issuance, the Plan Administrator is a Committee composed entirely of non- employee Board members none of whom have received an option grant or stock issuance under this Plan or any other stock plan of the Corporation (or any parent or subsidiary corporation) other than under the Automatic Option Grant Program during the one year prior to service on the Committee or during such service. B. The individuals eligible to receive option grants under the Automatic Option Grant Program shall be those individuals who serve as non-employee Board members during the term of the Plan. -2- V. STOCK SUBJECT TO THE PLAN A. The stock issuable under the Plan shall be shares of authorized but unissued or reacquired common stock of the Corporation ("Common Stock"), including shares repurchased by the Corporation on the open market. The maximum number of shares of Common Stock which may be issued over the term of the Plan shall not exceed 1,300,000 shares. Such authorized share reserve is comprised of (i) the number of shares available for issuance under the Predecessor Plan as last approved by the Corporation's stockholders prior to such date, including the shares subject to the outstanding options incorporated into the Plan and any other shares which would have been available for future option grants under the Predecessor Plan, plus (ii) an additional increase of 282,055 shares authorized by the Board under the Plan, subject to stockholder approval. B. No one person participating in the Plan may receive options and direct stock issuances for more than 800,000 shares of Common Stock in the aggregate over the term of the Plan. C. Shares of Common Stock subject to outstanding options shall be available for subsequent issuance under the Plan to the extent (i) the options (including any options incorporated from the Predecessor Plan) expire or terminate for any reason prior to exercise in full or (ii) the options are cancelled in accordance with the cancellation-regrant provisions of Article Two. All shares issued under the Plan (including shares issued upon exercise of options incorporated from the Predecessor Plan), whether or not those shares are subsequently repurchased by the Corporation pursuant to its repurchase rights under the Plan, shall reduce on a share-for-share basis the number of shares of Common Stock available for subsequent issuance under the Plan. In addition, should the exercise price of an option under the Plan (including any option incorporated from the Predecessor Plan) be paid with shares of Common Stock or should shares of Common Stock otherwise issuable under the Plan be withheld by the Corporation in satisfaction of the withholding taxes incurred in connection with the exercise of an option or the vesting of a stock issuance under the Plan, then the number of shares of Common Stock available for issuance under the Plan shall be reduced by the gross number of shares for which the option is exercised or which vest under the stock issuance, and not by the net number of shares of Common Stock issued to the holder of such option or stock issuance. D. Should any change be made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration, appropriate adjustments shall be made to (i) the maximum number and/or class of securities issuable under the Plan, (ii) the maximum number and/or class of securities for which the share reserve is to increase automatically each year, (iii) the number and/or class of securities for which any one person may be granted options and direct stock issuances over the term of the Plan, (iv) the number and/or class of securities for which automatic option grants are to be subsequently made under the Automatic Option Grant Program and (v) the number and/or class of securities and the exercise price per share in effect under each outstanding option (including any option incorporated from the Predecessor Plan) in order to prevent the dilution or enlargement of benefits thereunder. The adjustments determined by the Plan Administrator shall be final, binding and conclusive. -3- ARTICLE TWO DISCRETIONARY OPTION GRANT PROGRAM ---------------------------------- I. OPTION TERMS Each option shall be evidenced by one or more documents in the form approved by the Plan Administrator; provided, however, that each such document shall comply -------- with the terms specified below. Each document evidencing an Incentive Option shall, in addition, be subject to the provisions of the Plan applicable to such options. A. Exercise Price. -------------- 1. The exercise price per share shall be fixed by the Plan Administrator but shall not be less than eighty-five percent (85%) of the Fair Market Value per share of Common Stock on the option grant date. 2. The exercise price shall become immediately due upon exercise of the option and shall, subject to the provisions of Section I of Article Five and the documents evidencing the option, be payable in one or more of the forms specified below: (i) cash or check made payable to the Corporation, (ii) shares of Common Stock held for the requisite period necessary to avoid a charge to the Corporation's earnings for financial reporting purposes and valued at Fair Market Value on the exercise date, or (iii) to the extent the option is exercised for vested shares, through a special sale and remittance procedure pursuant to which the Optionee shall concurrently provide irrevocable written instructions to (a) a Corporation-designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable Federal, state and local income and employment taxes required to be withheld by the Corporation by reason of such exercise and (b) the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale transaction. Except to the extent such sale and remittance procedure is utilized, payment of the exercise price for the purchased shares must be made on the exercise date. B. Exercise and Term of Options. Each option shall be exercisable at ---------------------------- such time or times, during such period and for such number of shares as shall be determined by the Plan Administrator and set forth in the documents evidencing the option. However, no option shall have a term in excess of ten (10) years measured from the option grant date. C. Effect of Termination of Service. -------------------------------- 1. The following provisions shall govern the exercise of any options held by the Optionee at the time of cessation of Service or death: -4- (i) Any option outstanding at the time of the Optionee's cessation of Service for any reason shall remain exercisable for such period of time thereafter as shall be determined by the Plan Administrator and set forth in the documents evidencing the option, but no such option shall be exercisable after the expiration of the option term. (ii) Any option exercisable in whole or in part by the Optionee at the time of death may be subsequently exercised by the personal representative of the Optionee's estate or by the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution. (iii) During the applicable post-Service exercise period, the option may not be exercised in the aggregate for more than the number of vested shares for which the option is exercisable on the date of the Optionee's cessation of Service. Upon the expiration of the applicable exercise period or (if earlier) upon the expiration of the option term, the option shall terminate and cease to be outstanding for any vested shares for which the option has not been exercised. However, the option shall, immediately upon the Optionee's cessation of Service, terminate and cease to be outstanding to the extent it is not exercisable for vested shares on the date of such cessation of Service. (iv) In the event of a Corporate Transaction,the provisions of Section III of this Article Two shall govern the period for which the outstanding options are to remain exercisable following the Optionee's cessation of Service and shall supersede any provisions to the contrary in this section. 2. The Plan Administrator shall have the discretion, exercisable either at the time an option is granted or at any time while the option remains outstanding, to: (i) extend the period of time for which the option is to remain exercisable following the Optionee's cessation of Service from the period otherwise in effect for that option to such greater period of time as the Plan Administrator shall deem appropriate, but in no event beyond the expiration of the option term, and/or (ii) permit the option to be exercised, during the applicable post-Service exercise period, not only with respect to the number of vested shares of Common Stock for which such option is exercisable at the time of the Optionee's cessation of Service but also with respect to one or more additional installments in which the Optionee would have vested under the option had the Optionee continued in Service. D. Stockholder Rights. The holder of an option shall have no ------------------ stockholder rights with respect to the shares subject to the option until such person shall have exercised the option, paid the exercise price and become a holder of record of the purchased shares. E. Repurchase Rights. The Plan Administrator shall have the discretion ----------------- to grant options which are exercisable for unvested shares of Common Stock. Should the Optionee cease Service while holding such unvested shares, the Corporation shall have the right to repurchase, at the exercise price paid per share, any or all of those unvested shares. The terms upon which such repurchase right shall be exercisable (including the period and procedure for exercise and the appropriate -5- vesting schedule for the purchased shares) shall be established by the Plan Administrator and set forth in the document evidencing such repurchase right. F. Limited Transferability of Options. During the lifetime of the ---------------------------------- Optionee, the option shall be exercisable only by the Optionee and shall not be assignable or transferable other than by will or by the laws of descent and distribution following the Optionee's death. However, a Non-Statutory Option may be assigned in accordance with the terms of a Qualified Domestic Relations Order within the meaning of Internal Revenue Code Section 414(p). The assigned option may only be exercised by the person or persons who acquire a proprietary interest in the option pursuant to such Qualified Domestic Relations Order. The terms applicable to the assigned option (or portion thereof) shall be the same as those in effect for the option immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Plan Administrator may deem appropriate II. INCENTIVE OPTIONS The terms specified below shall be applicable to all Incentive Options. Except as modified by the provisions of this Section II, all the provisions of Articles One, Two and Five shall be applicable to Incentive Options. Options which are specifically designated as Non-Statutory Options when issued under the Plan shall not be subject to the terms of this Section II. --- A. Eligibility. Incentive Options may only be granted to Employees. ----------- B. Exercise Price. The exercise price per share shall not be less than -------------- one hundred percent (100%) of the Fair Market Value per share of Common Stock on the option grant date. C. Dollar Limitation. The aggregate Fair Market Value of the shares of ----------------- Common Stock (determined as of the respective date or dates of grant) for which one or more options granted to any Employee under the Plan (or any other option plan of the Corporation or any Parent or Subsidiary) may for the first time become exercisable as Incentive Options during any one (1) calendar year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee holds two (2) or more such options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability of such options as Incentive Options shall be applied on the basis of the order in which such options are granted. D. 10% Stockholder. If any Employee to whom an Incentive Option is --------------- granted is a 10% stockholder (within the meaning of Internal Revenue Code Section 424(d)), then the exercise price per share shall not be less than one hundred ten percent (110%) of the Fair Market Value per share of Common Stock on the option grant date, and the option term shall not exceed five (5) years measured from the option grant date. III. CORPORATE TRANSACTION A. In the event of any Corporate Transaction, each outstanding option shall automatically accelerate so that each such option shall, immediately prior to the effective date of the Corporate Transaction, become fully exercisable for all of the shares of Common Stock at the time subject to such option and may be exercised for any or all of those shares as fully-vested shares of Common Stock. However, an outstanding option shall NOT so accelerate if and to the extent: (i) such option is, in connection with the Corporate Transaction, either to be assumed by the successor corporation (or -6- parent thereof) or to be replaced with a comparable option to purchase shares of the capital stock of the successor corporation (or parent thereof), (ii) such option is to be replaced with a cash incentive program of the successor corporation which preserves the spread existing on the unvested option shares at the time of the Corporate Transaction and provides for subsequent payout in accordance with the same vesting schedule applicable to such option or (iii) the acceleration of such option is subject to other limitations imposed by the Plan Administrator at the time of the option grant. The determination of option comparability under clause (i) above shall be made by the Plan Administrator, and its determination shall be final, binding and conclusive. B. All outstanding repurchase rights shall also terminate automatically, and the shares of Common Stock subject to those terminated rights shall immediately vest in full, in the event of any Corporate Transaction, except to the extent: (i) those repurchase rights are to be assigned to the successor corporation (or parent thereof) in connection with such Corporate Transaction or (ii) such accelerated vesting is precluded by other limitations imposed by the Plan Administrator at the time the repurchase right is issued. C. Immediately following the consummation of the Corporate Transaction, all outstanding options shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof). D. Each option which is assumed in connection with a Corporate Transaction shall be appropriately adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been issuable to the Optionee in consummation of such Corporate Transaction had the option been exercised immediately prior to such Corporate Transaction. Appropriate adjustments shall also be made to (i) the number and class of securities available for issuance under the Plan on both an aggregate and per Optionee basis following the consummation of such Corporate Transaction and (ii) the exercise price payable per share under each outstanding option, provided the aggregate exercise price -------- payable for such securities shall remain the same. E. Any options which are assumed or replaced in the Corporate Transaction and do not otherwise accelerate at that time, shall automatically accelerate (and any of the Corporation's outstanding repurchase rights which do not otherwise terminate at the time of the Corporate Transaction shall automatically terminate and the shares of Common Stock subject to those terminated rights shall immediately vest in full) in the event the Optionee's Service should subsequently terminate by reason of an Involuntary Termination within eighteen (18) months following the effective date of such Corporate Transaction. Any options so accelerated shall remain exercisable for fully-vested shares until the earlier of (i) the ------- expiration of the option term or (ii) the expiration of the one (1)- year period measured from the effective date of the Involuntary Termination. F. The portion of any Incentive Option accelerated in connection with a Corporate Transaction or Change in Control shall remain exercisable as an Incentive Option only to the extent the applicable One Hundred Thousand Dollar limitation is not exceeded. To the extent such dollar limitation is exceeded, the accelerated portion of such option shall be exercisable as a Non-Statutory Option under the Federal tax laws. G. The grant of options under the Discretionary Option Grant Program shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. -7- IV. CANCELLATION AND REGRANT OF OPTIONS The Plan Administrator shall have the authority to effect, at any time and from time to time, with the consent of the affected option holders, the cancellation of any or all outstanding options under the Discretionary Option Grant Program (including outstanding options incorporated from the Predecessor Plan) and to grant in substitution new options covering the same or different number of shares of Common Stock but with an exercise price per share based on the Fair Market Value per share of Common Stock on the new option grant date. ARTICLE THREE STOCK ISSUANCE PROGRAM ---------------------- I. STOCK ISSUANCE TERMS Shares of Common Stock may be issued under the Stock Issuance Program through direct and immediate issuances without any intervening option grants. Each such stock issuance shall be evidenced by a Stock Issuance Agreement which complies with the terms specified below. A. Purchase Price -------------- 1. The purchase price per share shall be fixed by the Plan Administrator, but shall not be less than eighty-five percent (85%) of the Fair Market Value per share of Common Stock on the stock issuance date. 2. Subject to the provisions of Section I of Article Five, shares of Common Stock may be issued under the Stock Issuance Program for one or both of the following items of consideration which the Plan Administrator may deem appropriate in each individual instance: (i) cash or check made payable to the Corporation, or (ii) past services rendered to the Corporation (or any Parent or Subsidiary). B. Vesting Provisions ------------------ 1. Shares of Common Stock issued under the Stock Issuance Program may, in the discretion of the Plan Administrator, be fully and immediately vested upon issuance or may vest in one or more installments over the Participant's period of Service or upon attainment of specified performance objectives. The elements of the vesting schedule applicable to any unvested shares of Common Stock issued under the Stock Issuance Program, namely: (i) the Service period to be completed by the Participant or the performance objectives to be attained, (ii) the number of installments in which the shares are to vest, (iii) the interval or intervals (if any) which are to lapse between installments, and -8- (iv) the effect which death, Permanent Disability or other event designated by the Plan Administrator is to have upon the vesting schedule, shall be determined by the Plan Administrator and incorporated into the stock issuance agreement. 2. Any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) which the Participant may have the right to receive with respect to the Participant's unvested shares of Common Stock by reason of any stock dividend, stock split, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration shall be issued subject to (i) the same vesting requirements applicable to the Participant's unvested shares of Common Stock and (ii) such escrow arrangements as the Plan Administrator shall deem appropriate. 3. The Participant shall have full stockholder rights with respect to any shares of Common Stock issued to the Participant under the Stock Issuance Program, whether or not the Participant's interest in those shares is vested. Accordingly, the Participant shall have the right to vote such shares and to receive any regular cash dividends paid on such shares. 4. Should the Participant cease to remain in Service while holding one or more unvested shares of Common Stock issued under the Stock Issuance Program or should the performance objectives not be attained with respect to one or more such unvested shares of Common Stock, then those shares shall be immediately surrendered to the Corporation for cancellation, and the Participant shall have no further stockholder rights with respect to those shares. To the extent the surrendered shares were previously issued to the Participant for consideration paid in cash or cash equivalent (including the Participant's purchase-money indebtedness), the Corporation shall repay to the Participant the cash consideration paid for the surrendered shares and shall cancel the unpaid principal balance of any outstanding purchase-money note of the Participant attributable to such surrendered shares. 5. The Plan Administrator may in its discretion waive the surrender and cancellation of one or more unvested shares of Common Stock (or other assets attributable thereto) which would otherwise occur upon the non-completion of the vesting schedule applicable to such shares. Such waiver shall result in the immediate vesting of the Participant's interest in the shares of Common Stock as to which the waiver applies. Such waiver may be effected at any time, whether before or after the Participant's cessation of Service or the attainment or non-attainment of the applicable performance objectives. II. CORPORATE TRANSACTION A. All of the outstanding repurchase rights under the Stock Issuance Program shall terminate automatically, and all the shares of Common Stock subject to those terminated rights shall immediately vest in full, in the event of any Corporate Transaction, except to the extent (i) those repurchase rights are assigned to the successor corporation (or parent thereof) in connection with such Corporate Transaction or (ii) such accelerated vesting is precluded by other limitations imposed in the stock issuance agreement. -9- B. Any repurchase rights that are assigned in the Corporate Transaction shall automatically terminate, and all the shares of Common Stock subject to those terminated rights shall immediately vest in full, in the event the Optionee's Service should subsequently terminate by reason of an Involuntary Termination within eighteen (18) months following the effective date of such Corporate Transaction. III. SHARE ESCROW/LEGENDS Unvested shares may, in the Plan Administrator's discretion, be held in escrow by the Corporation until the Participant's interest in such shares vests or may be issued directly to the Participant with restrictive legends on the certificates evidencing those unvested shares. ARTICLE FOUR AUTOMATIC OPTION GRANT PROGRAM ------------------------------ I. OPTION TERMS A. Grant Dates. Option grants shall be made on the dates specified ----------- below: 1. Each non-employee director who is who is first elected or appointed as a non-employee Board member after the effective date of the Plan shall automatically be granted, on such initial election or appointment, a Non-Statutory Option to purchase 7,000 shares of Common Stock. 2. On the date of each Annual Stockholders Meeting, beginning with the 1995 Annual Meeting, each individual who is to continue to serve as a non-employee director after such meeting, shall automatically be granted, whether or not such individual is standing for re-election as a Board member at that Annual Meeting, a Non-Statutory Option to purchase an additional 7,000 shares of Common Stock, provided such individual has served as a non-employee Board member for at least six (6) months prior to the date of such Annual Meeting. There shall be no limit on the number of such 7,000-share option grants any one non-employee director may receive over his or her period of Board service. B. Exercise Price. -------------- 1. The exercise price per share shall be equal to one hundred percent (100%) of the Fair Market Value per share of Common Stock on the option grant date. 2. The exercise price shall be payable in one or more of the alternative forms authorized under the Discretionary Option Grant Program. Except to the extent the sale and remittance procedure specified thereunder is utilized, payment of the exercise price for the purchased shares must be made on the exercise date. C. Option Term. Each option shall have a term of ten (10) years ----------- measured from the option grant date. -10- D. Exercise and Vesting of Options. Each option shall be immediately ------------------------------- exercisable for any or all of the option shares. However, any shares purchased under the option shall be subject to repurchase by the Corporation, at the exercise price paid per share, upon the Optionee's cessation of Board service prior to vesting in those shares. Each grant shall vest, and the Corporation's repurchase right shall lapse, in a series of four (4) equal and successive quarterly installments over the Optionee's period of continued service as a Board member, with the first such installment to vest upon the Optionee's completion of three (3) months of Board service measured from the option grant date. E. Effect of Termination of Board Service. The following provisions -------------------------------------- shall govern the exercise of any options held by the Optionee at the time the Optionee ceases to serve as a Board member: (i) The Optionee (or, in the event of Optionee's death, the personal representative of the Optionee's estate or the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution) shall have the balance of the option term in which to exercise each such option. (ii) Following cessation of service on the Board for other than death or disability, the option may not be exercised in the aggregate for more than the number of vested shares of Common Stock for which the option was exercisable at the time of the Optionee's cessation of Board service. (iii) Should the Optionee cease to serve as a Board member by reason of death or Permanent Disability, then all shares at the time subject to the option shall immediately vest so that such option may be exercised for all or any portion of such shares as fully-vested shares of Common Stock. (iv) Upon expiration of the option term, the option shall terminate and cease to be outstanding for any vested shares for which the option has not been exercised. However, the option shall, immediately upon the Optionee's cessation of Board service, terminate and cease to be outstanding to the extent it is not exercisable for vested shares on the date of such cessation of Board service. II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER A. In the event of any Corporate Transaction, the shares of Common Stock at the time subject to each outstanding option but not otherwise vested shall automatically vest in full so that each such option shall, immediately prior to the effective date of the Corporate Transaction, become fully exercisable for all of the shares of Common Stock at the time subject to such option and may be exercised for all or any portion of such shares as fully-vested shares of Common Stock. Immediately following the consummation of the Corporate Transaction, each automatic option grant shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof). B. In connection with any Change in Control, the shares of Common Stock at the time subject to each outstanding option but not otherwise vested shall automatically vest in full so that each such option shall, immediately prior to the effective date of the Change in Control, become fully exercisable for all of the shares of Common Stock at the time subject to such option and may be exercised for all or any portion of such shares as fully-vested shares of Common Stock. Each such option shall -11- remain exercisable for such fully-vested option shares until the expiration or sooner termination of the option term or the surrender of the option in connection with a Hostile Take-Over. C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a thirty (30)-day period in which to surrender to the Corporation each automatic option held by him or her for a period of at least six (6) months. The Optionee shall in return be entitled to a cash distribution from the Corporation in an amount equal to the excess of (i) the Take-Over Price of the shares of Common Stock at the time subject to the surrendered option (whether or not the Optionee is otherwise at the time vested in those shares) over (ii) the aggregate exercise price payable for such shares. Such cash distribution shall be paid within five (5) days following the surrender of the option to the Corporation. No approval or consent of the Board shall be required in connection with such option surrender and cash distribution. D. The grant of options under the Automatic Option Grant Program shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. III. AMENDMENT OF THE AUTOMATIC OPTION GRANT PROGRAM The provisions of this Automatic Option Grant Program, together with the option grants outstanding thereunder, may not be amended at intervals more frequently than once every six (6) months, other than to the extent necessary to comply with applicable Federal income tax laws and regulations. IV. REMAINING TERMS The remaining terms of each option granted under the Automatic Option Grant Program shall be the same as the terms in effect for option grants made under the Discretionary Option Grant Program. ARTICLE FIVE MISCELLANEOUS ------------- I. ACCELERATION A. The Plan Administrator shall have the discretion, exercisable either at the time an option is granted under the Discretionary Stock Option Program, at the time that stock is issued under the Stock Issuance Program or at any time while the option or stock remains outstanding, to provide for the acceleration of one or more outstanding options and the termination of repurchase rights on one or more outstanding shares upon the occurrence of such events as the Plan Administrator may determine, including upon a Corporate Transaction regardless or whether or not such options are to be assumed or replaced or the repurchase rights are to be assigned in the Corporate Transaction. B. The Plan Administrator shall not have the discretion to provide for the acceleration of any options granted under the Automatic Option Grant Program. -12- II. FINANCING A. The Plan Administrator may permit any Optionee or Participant to pay the option exercise price under the Discretionary Option Grant Program or the purchase price for shares issued under the Stock Issuance Program by delivering a promissory note payable in one or more installments. The terms of any such promissory note (including the interest rate and the terms of repayment) shall be established by the Plan Administrator in its sole discretion. Promissory notes may be authorized with or without security or collateral. In all events, the maximum credit available to the Optionee or Participant may not exceed the sum of (i) the aggregate option exercise price or purchase price payable for the purchased shares plus (ii) any Federal, state and local income and employment tax liability incurred by the Optionee or the Participant in connection with the option exercise or share purchase. B. The Plan Administrator may, in its discretion, determine that one or more such promissory notes shall be subject to forgiveness by the Corporation in whole or in part upon such terms as the Plan Administrator may deem appropriate. III. TAX WITHHOLDING A. The Corporation's obligation to deliver shares of Common Stock upon the exercise of options or upon the issuance or vesting of such shares under the Plan shall be subject to the satisfaction of all applicable Federal, state and local income and employment tax withholding requirements. B. The Plan Administrator may, in its discretion, provide any or all holders of Non-Statutory Options or unvested shares of Common Stock under the Plan (other than the options granted or the shares issued under the Automatic Option Grant Program) with the right to use shares of Common Stock in satisfaction of all or part of the federal, state and local income or employment taxes incurred by such holders in connection with the exercise of their options or the vesting of their shares. Such right may be provided to any such holder in either or both of the following formats: (i) Stock Withholding: The election to have the Corporation ----------------- withhold, from the shares of Common Stock otherwise issuable upon the exercise of such Non-Statutory Option or the vesting of such shares, a portion of those shares with an aggregate Fair Market Value equal to the percentage of such taxes (not to exceed one hundred percent (100%)) designated by the holder. (ii) Stock Delivery: The election to deliver to the Corporation, -------------- at the time the Non-Statutory Option is exercised or the shares vest, one or more shares of Common Stock previously acquired by such holder (other than in connection with the option exercise or share vesting triggering the taxes) with an aggregate Fair Market Value equal to the percentage of such taxes (not to exceed one hundred percent (100%)) designated by the holder. IV. EFFECTIVE DATE AND TERM OF THE PLAN A. The Plan shall become effective on the date the Plan is adopted by the Board, and options may be granted under the Discretionary Option Grant Program from and after the effective date. However, no options granted under the Plan may be exercised, and no shares shall be issued under the Plan, until the Plan is approved by the Corporation's stockholders. If such stockholder approval is not obtained within twelve (12) months after such effective date, then all options previously granted -13- under this Plan shall terminate and cease to be outstanding, and no further options shall be granted and no shares shall be issued under the Plan. B. The Plan shall serve as the successor to the Predecessor Plan, and no further option grants shall be made under the Predecessor Plan after the effective date of the Plan. All options outstanding under the Predecessor Plan as of such date shall, immediately upon approval of the Plan by the Corporations's stockholders, be incorporated into the Plan and treated as outstanding options under the Plan. However, each outstanding option so incorporated shall continue to be governed solely by the terms of the documents evidencing such option. No provision of the Plan shall be deemed to adversely affect or otherwise diminish the rights or obligations of the holders of such incorporated options with respect to their acquisition of shares of Common Stock which may exist under the terms of the Predecessor Plan under which such incorporated option was issued. Subject to the rights of the optionee under the incorporated option documents and Predecessor Plan, the discretion delegated to the Plan Administrator hereunder may be exercised with respect to incorporated options to the same extent as it is exercisable with respect to options originally granted under this Plan. C. The option/vesting acceleration provisions of Article Two relating to Corporate Transactions and Changes in Control may, in the Plan Administrator's discretion, be extended to one or more options incorporated from the Predecessor Plan which do not otherwise provide for such acceleration. D. The Plan shall terminate upon the earliest of (i) April 27, 2005, (ii) the date on which all shares available for issuance under the Plan shall have been issued pursuant to the exercise of the options or the issuance of shares (whether vested or unvested) under the Plan or (iii) the termination of all outstanding options in connection with a Corporate Transaction. Upon such Plan termination, all options and unvested stock issuances outstanding on such date shall thereafter continue to have force and effect in accordance with the provisions of the documents evidencing such options or issuances. V. AMENDMENT OF THE PLAN A. The Board shall have complete and exclusive power and authority to amend or modify the Plan in any or all respects. However, (i) no such amendment or modification shall adversely affect the rights and obligations with respect to options or unvested stock issuances at the time outstanding under the Plan unless the Optionee or the Participant consents to such amendment or modification, and (ii) any amendment made to the Automatic Option Grant Program (or any options outstanding thereunder) shall be in compliance with the limitations of that program. In addition, the Board shall not, without the approval of the Corporation's stockholders, (i) materially increase the maximum number of shares issuable under the Plan, the number of shares for which options may be granted under the Automatic Option Grant Program or the maximum number of shares for which any one person may be granted options and direct stock issuances in the aggregate over the term of the Plan, except for permissible adjustments in the event of certain changes in the Corporation's capitalization, (ii) materially modify the eligibility requirements for Plan participation or (iii) materially increase the benefits accruing to Plan participants. B. Options to purchase shares of Common Stock may be granted under the Discretionary Option Grant Program and shares of Common Stock may be issued under the Stock Issuance Program that are in each instance in excess of the number of shares then available for issuance under the Plan, provided any excess shares actually issued under those programs are held in escrow until there is obtained stockholder approval of an amendment sufficiently increasing the number of shares of -14- Common Stock available for issuance under the Plan. If such stockholder approval is not obtained within twelve (12) months after the date the first such excess issuances are made, then (i) any unexercised options granted on the basis of such excess shares shall terminate and cease to be outstanding and (ii) the Corporation shall promptly refund to the Optionees and the Participants the exercise or purchase price paid for any excess shares issued under the Plan and held in escrow, together with interest (at the applicable Short Term Federal Rate) for the period the shares were held in escrow, and such shares shall thereupon be automatically cancelled and cease to be outstanding. VI. USE OF PROCEEDS Any cash proceeds received by the Corporation from the sale of shares of Common Stock under the Plan shall be used for general corporate purposes. VII. REGULATORY APPROVALS A. The implementation of the Plan, the granting of any option under the Plan and the issuance of any shares of Common Stock (i) upon the exercise of any option or (ii) under the Stock Issuance Program shall be subject to the Corporation's procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the options granted under it and the shares of Common Stock issued pursuant to it. B. No shares of Common Stock or other assets shall be issued or delivered under the Plan unless and until there shall have been compliance with all applicable requirements of Federal and state securities laws, including the filing and effectiveness of the Form S-8 registration statement for the shares of Common Stock issuable under the Plan, and all applicable listing requirements of any stock exchange (or the Nasdaq National Market, if applicable) on which Common Stock is then listed for trading. VIII. NO EMPLOYMENT/SERVICE RIGHTS Nothing in the Plan shall confer upon the Optionee or the Participant any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining such person) or of the Optionee or the Participant, which rights are hereby expressly reserved by each, to terminate such person's Service at any time for any reason, with or without cause. -15- APPENDIX -------- The following definitions shall be in effect under the Plan: A. BOARD shall mean the Corporation's Board of Directors. ----- B. CHANGE IN CONTROL shall mean a change in ownership or control of the ----------------- Corporation effected through either of the following transactions: (i) the acquisition, directly or indirectly, by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's stockholders which the Board does not recommend such stockholders to accept, or (ii) a change in the composition of the Board over a period of thirty- six (36) consecutive months or less such that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time the Board approved such election or nomination. C. CORPORATE TRANSACTION shall mean either of the following stockholder- --------------------- approved transactions to which the Corporation is a party: (i) a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the State of the Company's incorporation, (ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company in liquidation or dissolution of the Company, or (iii) any reverse merger in which the Company is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities are transferred to holders different from those who held such securities immediately prior to such merger. D. CORPORATION shall mean Synbiotics Corporation, a California corporation. ----------- E. EMPLOYEE shall mean an individual who is in the employ of the Corporation -------- (or any Parent or Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance. F. FAIR MARKET VALUE per share of Common Stock on any relevant date shall be ----------------- determined in accordance with the following provisions: -A-1- (i) If the Common Stock is at the time traded on the Nasdaq National Market, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question, as such price is reported by the National Association of Securities Dealers on the Nasdaq National Market or any successor system. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists. (ii) If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the Stock Exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists. (iii) If the Common Stock is at the time not traded on the Nasdaq National Market or listed on any Stock Exchange, the Fair Market Value shall be determined by the Plan Administrator after taking into account such factors as the Plan Administrator shall deem appropriate. G. HOSTILE TAKE-OVER shall mean a change in ownership of the Corporation ----------------- effected through acquisition, directly or indirectly, by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's stockholders which the Board does not recommend such stockholders to accept. H. INCENTIVE OPTION shall mean an option which satisfies the requirements of ---------------- Internal Revenue Code Section 422. I. INVOLUNTARY TERMINATION shall mean the termination of the Service of any ----------------------- individual which occurs by reason of: (i) such individual's involuntary dismissal or discharge by the Corporation for reasons other than Misconduct, or (ii) such individual's voluntary resignation following (A) a change in his or her position with the Corporation which materially reduces his or her level of responsibility, (B) a reduction in his or her level of compensation (including base salary, fringe benefits and any non-discretionary and objective-standard incentive payment or bonus award) by more than fifteen percent (15%) or (C) a relocation of such individual's place of employment by more than fifty (50) miles, provided and only if such change, reduction or relocation is effected by the Corporation without the individual's consent. J. MISCONDUCT shall mean the commission of any act of fraud, embezzlement or ---------- dishonesty by the Optionee or Participant, any unauthorized use or disclosure by such person of confidential information or trade secrets of the Corporation (or any Parent or Subsidiary), or any other intentional misconduct by such person adversely affecting the business or affairs of the Corporation (or any Parent or Subsidiary) in a material manner. The foregoing definition shall not be deemed to be inclusive of all the acts or omissions which the Corporation (or any Parent or Subsidiary) may consider as grounds for the dismissal or discharge of any Optionee, Participant or other person in the Service of the Corporation (or any Parent or Subsidiary). -A-2- K. NON-STATUTORY OPTION shall mean an option which is not an Incentive -------------------- Option. L. PARENT shall mean any corporation (other than the Corporation) in an ------ unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. M. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the inability -------------------------------------------- of the Optionee or the Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months or more. N. PREDECESSOR PLANS shall mean the Corporation's existing 1986 Stock Option ----------------- Plan, 1987 Stock Option Plan, 1988 Stock Option Plan, 1991 Stock Option Plan, and 1994 Stock Option Plan. O. SERVICE shall mean the provision of services to the Corporation (or any ------- Parent or Subsidiary) by a person in the capacity of an Employee, a non- employee member of the board of directors or a consultant or independent advisor, except to the extent otherwise specifically provided in the documents evidencing the option grant. P. SUBSIDIARY shall mean any corporation (other than the Corporation) in an ---------- unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. Q. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market Value per --------------- ------- share of Common Stock on the date the option is surrendered to the Corporation in connection with a Hostile Take-Over or (ii) the highest reported price per share of Common Stock paid by the tender offeror in effecting such Hostile Take-Over. However, if the surrendered option is an Incentive Option, the Take-Over Price shall not exceed the clause (i) price per share. -A-3- EX-11.1 3 COMPUTATION OF EARNINGS SYNBIOTICS CORPORATION EXHIBIT 11.1 ------------ COMPUTATION OF EARNINGS (LOSS) PER SHARE
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------- ------------- 1995 1994 1995 1994 ---- ---- ---- ---- PRIMARY EARNINGS (LOSS) PER SHARE: Net income (loss) per statement of operations $ (854,000) $ 1,188,000 $ 880,000 $ 323,000 ============ ============= ============ ============ Weighted average number of shares outstanding 5,809,000 5,824,000 5,827,000 5,857,000 ============ ============= ============ ============ Primary earnings (loss) per share $ (.15) $ .20 $ .15 $ .06 ============ ============= ============ ============ FULLY DILUTED EARNINGS (LOSS) PER SHARE:/(1)/ Net income (loss) per statement of operations $ (854,000) $ 1,188,000 $ 880,000 $ 323,000 ============ ============= ============ ============ Reconciliation of weighted average number of shares per primary computation above, to amount used for fully diluted computation: Weighted average number of shares outstanding, per primary computation 5,809,000 5,824,000 5,827,000 5,857,000 ------------ ------------ ------------ ------------ Add-effect of outstanding options (as determined by the application of the treasury method) 54,000 7,000 8,000 ------------ ------------ ------------ ------------ Weighted average number of shares, as adjusted 5,863,000 5,824,000 5,834,000 5,865,000 ============ ============= ============ ============ Fully diluted earnings (loss) per share $ (.15) $ .20 $ .15 $ .06 ============ ============= ============ ============
/(1)/ This computation is submitted, for the three month period ended September 30, 1995, in accordance with Regulation S-B Item 601(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15 because it produces an anti-dilutive result. -1- EX-27 4 ARTICLE 5 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED BALANCE SHEET AS OF SEPTEMBER 30, 1995 AND THE RELATED CONDENSED STATEMENTS OF OPERATIONS AND OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 INCLUDED ELSEWHERE IN THIS FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1995 JAN-01-1995 SEP-30-1995 1,436 507 926 77 2,728 6,197 4,448 3,469 12,232 1,865 0 29,346 0 0 (18,979) 12,232 10,921 11,195 6,138 11,244 0 0 0 882 2 880 0 0 0 880 .15 .15
-----END PRIVACY-ENHANCED MESSAGE-----