-----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, QJi4Ow9wdYNF0W+fS5asoYU6QCSQq2F7kC1NtXNofgS1TYAYlPAejd37QK0pMrQ3 MqwKQapgVDLgSQlJ6v+evg== 0000927016-97-001423.txt : 19970514 0000927016-97-001423.hdr.sgml : 19970514 ACCESSION NUMBER: 0000927016-97-001423 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970329 FILED AS OF DATE: 19970513 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PERSEPTIVE BIOSYSTEMS INC CENTRAL INDEX KEY: 0000859640 STANDARD INDUSTRIAL CLASSIFICATION: LABORATORY ANALYTICAL INSTRUMENTS [3826] IRS NUMBER: 042987616 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20032 FILM NUMBER: 97602769 BUSINESS ADDRESS: STREET 1: 500 OLD CONNECTICUT PATH CITY: FRAMINGHAM STATE: MA ZIP: 01701 BUSINESS PHONE: 5083837700 MAIL ADDRESS: STREET 1: 500 OLD CONNECTICUT PATH CITY: FRAMINGHAM STATE: MA ZIP: 01701 10-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period March 29, 1997 or ( ) Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the Transition Period From_____________ To ________ Commission File Number: 0-20032 PerSeptive Biosystems, Inc. --------------------------- (Exact name of registrant as specified in its charter) Delaware 04-2987616 -------- ---------- (State or other jurisdiction of (IRS Employer ID No.) incorporation or organization) 500 Old Connecticut Path, Framingham, MA 01701 - ---------------------------------------- ----- (Address of principal executive offices) (Zip Code) (508) 383-7700 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock 21,431,141 Shares - ------------ ----------------- (Class) (Outstanding at May 8, 1997) PERSEPTIVE BIOSYSTEMS, INC. QUARTERLY REPORT ON FORM 10-Q MARCH 29, 1997 TABLE OF CONTENTS
Page No. -------- Part I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements: a) Consolidated Balance Sheets at March 29, 1997 (unaudited) and September 30, 1996 3 b) Consolidated Statements of Operations for the three and six-month periods ended March 29, 1997 and March 30, 1996 (unaudited) 4 c) Consolidated Statements of Cash Flows for the six-month periods ended March 29, 1997 and March 30, 1996 (unaudited) 5 d) Notes to the Consolidated Financial Statements (unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Part II. OTHER INFORMATION Item 1. Legal Proceedings 15 Item 4. Submission of Matters to a Vote of Security Holders 17 Item 6. Exhibits and Reports on Form 8-K 18 SIGNATURES 19
2 PERSEPTIVE BIOSYSTEMS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
March 29, September 30, 1997 1996 ------------- ------------- (unaudited) ASSETS: Current assets: Cash and cash equivalents $ 6,788 $ 5,384 Short-term investments, available- for-sale 36,075 19,273 Trade accounts receivable, net of allowance for doubtful accounts of $1,936 at March 29, 1997 and $2,386 at September 30, 1996, respectively 17,466 16,052 Inventories, net 20,489 21,074 Other current assets 1,484 2,107 ------------- ------------- Total current assets 82,302 63,890 Fixed assets, net 29,555 32,017 Patent and license costs, net 5,686 5,913 Goodwill, net 17,998 18,518 Other long-term assets 1,422 1,317 ------------- ------------- Total assets $ 136,963 $ 121,655 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Accounts payable $ 11,042 $ 9,292 Accrued expenses 15,647 18,699 Current portion of deferred revenue 2,410 1,158 Short-term borrowing 4,919 5,032 Current portion of obligations and other current liabilities 2,274 3,137 ------------- ------------- Total current liabilities 36,292 37,318 Long-term liabilities: Convertible subordinated notes 27,230 27,230 Long-term debt 5,063 5,574 Captial lease obligations, less current portion 403 361 Deferred revenue and other liabilities 1,014 887 ------------- ------------- Total long-term liabilities 33,710 34,052 Commitments and contingencies Stockholders' equity: Redeemable convertible preferred stock, $.01 par value; 4,000 shares authorized; 2,000 shares issued and outstanding at March 29, 1997 and September 30, 1996; redemption value $20,000 at March 29, 1997 and September 30, 1996 18,767 18,053 Common stock, $.01 par value; 100,000,000 shares authorized; 21,429,431 and 21,315,456 shares issued and outstanding at March 29, 1997 and September 30, 1996, respectively 215 213 Additional paid-in capital 159,200 158,556 Accumulated deficit (106,959) (125,094) ------------- ------------- 71,223 51,728 Cumulative translation adjustment (4,240) (1,373) Unrealized loss on investments (22) (70) ------------- ------------- Total stockholders' equity 66,961 50,285 ------------- ------------- Total liabilities and stockholders' equity $ 136,963 $ 121,655 ============= =============
The accompanying notes are an integral part of these financial statements 3 PERSEPTIVE BIOSYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited)
Three months ended Six months ended ------------------------------ ----------------------------- March 29, March 30, March 29, March 30, 1997 1996 1997 1996 ------------------------------ ----------------------------- Revenue: Product revenue $ 23,193 $ 19,367 $ 44,294 $ 38,431 Contract revenue - 5,034 - 10,101 ----------- ----------- ----------- ---------- 23,193 24,401 44,294 48,532 ----------- ----------- ----------- ---------- Cost of goods sold: Cost of product revenue 11,691 9,677 22,334 18,700 Cost of contract revenue - 4,267 - 8,571 Other charges - 4,837 - 4,837 ----------- ----------- ----------- ---------- 11,691 18,781 22,334 32,108 ----------- ----------- ----------- ---------- Gross profit 11,502 5,620 21,960 16,424 Operating Expenses: Research and development 3,555 1,701 7,124 3,270 Selling, general and administrative 9,952 11,015 19,510 20,647 Other charges - 13,496 - 13,496 Amortization 260 794 520 1,518 ----------- ----------- ----------- ---------- 13,767 27,006 27,154 38,931 ----------- ----------- ----------- ---------- Loss from operations (2,265) (21,386) (5,194) (22,507) ----------- ----------- ----------- ---------- Other income (expense): Interest expense, net (599) (719) (1,462) (1,422) Other income (expense), net 25,498 41 25,506 (11) ----------- ----------- ----------- ---------- Net income/(loss) before provision for income taxes 22,634 (22,064) 18,850 (23,940) Provision for income taxes - - - 100 ----------- ----------- ----------- ---------- Net income (loss) $ 22,634 $ (22,064) $ 18,850 $ (24,040) =========== =========== =========== ========== Net income/(loss) per common share Primary $ 1.02 $ (1.48) $ 0.84 $ (1.72) Fully diluted $ 0.93 $ 0.77 Weighted average common shares Primary 21,745 15,243 21,679 14,609 Fully diluted 24,458 24,419
The accompanying notes are an integral part of these financial statements. 4 PERSEPTIVE BIOSYSTEMS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) (unaudited)
Six months ended March 29, March 30, -------------------------- 1997 1996 --------- --------- Cash from operating activities: Net income (loss) $ 18,850 $ (24,040) Adjustments to reconcile net income (loss) to net cash used in operating activities, net of acquired amounts Net (gain) loss on securities available for sale 48 - Depreciation and amortization 3,850 5,593 Non-cash portion of gain on Chemgenics exchange (21,830) - Non-cash portion of other charges - 17,261 Changes in assets and liabilities: Increase in accounts receivable (2,131) (1,315) Increase in inventories (327) (2,467) Decrease (increase) in other assets 365 (348) Increase in accounts payable 1,750 512 Decrease in accrued expenses (3,052) (118) Increase (decrease) in other liabilities 1,381 (2,426) --------- --------- Net cash used in operating activities $ (1,096) $ (7,348) --------- --------- Cash flows from investing activities Purchases of fixed assets (1,933) (7,188) Cash and investments acquired from PTC II - 11,851 Net proceeds from sales of securities available-for-sale 5,028 (1,422) Increases in patents and licenses - 187 --------- --------- Net cash provided by (used in) investing activities $ 3,095 $ 3,428 --------- --------- Cash flows from financing activities Proceeds from capital lease financing - 306 Principal payments under capital lease obligations (822) (733) Net proceeds from facility financing - 2,585 Net proceeds (payments) from short-term borrowing (114) 1,179 Proceeds from issuance of common stock 646 (6) --------- --------- Net cash (used in) provided by financing activities $ (290) $ 3,331 --------- --------- Effect of exchange rate changes on cash and cash equivalents (305) (688) --------- --------- Increase (decrease) in cash and cash equivalents 1,404 (1,277) Cash and cash equivalents, beginning of period 5,384 12,215 --------- --------- Cash and cash equivalents, end of period $ 6,788 $ 10,938 ========= ========= Supplemental disclosure of cash flow information: Interest paid 1,843 1,666 Supplemental disclosure of non-cash activities: Accretion of Series A Preferred Stock 714 1,031 Stock issued: purchase costs of AMI acquisition 3,423 Stock and warrants issued in connection with PTC II acquisition 15,592
The accompanying notes are an integral part of these financial statements 5 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) BASIS OF PRESENTATION The accompanying consolidated balance sheet at March 29, 1997, and the consolidated statements of operations for the three and six-month periods ended March 29, 1997 and March 30, 1996, and the consolidated statements of cash flows for the six-month periods ended March 29, 1997 and March 30, 1996 have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "Commission"). Although certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, the Company believes that the disclosures are adequate to make the information presented not misleading and reflect all adjustments (consisting only of normal recurring adjustments) which are necessary for a fair presentation of results of operations for such periods. The results of operations for the three and six- month periods ended March 29, 1997 are not necessarily indicative of the results expected for the year ended September 30, 1997. It is suggested that these financial statements be read in conjunction with the consolidated financial statements for the year ended September 30, 1996 and the notes thereto included in the Company's Annual Report on Form 10-K. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (2) INVENTORIES Inventories consist of the following (in thousands):
March 29, 1997 September 30, 1996 -------------- ------------------ Raw material $ 7,572 $ 7,368 Work in process 2,027 2,751 Finished goods 10,890 10,955 ------- ------- Total inventories $20,489 $21,074 ======= =======
(3) NET INCOME (LOSS) PER COMMON SHARE Primary net income (loss) per common share is computed by dividing net income, including accretion on preferred stock, by the weighted average common shares and dilutive weighted average common stock equivalents outstanding during the period. Accretion on preferred stock was $357,000 and $714,000 for the three and six-months ended March 29, 1997 and $515,000 and $1,031,000 for the three and six-months ended March 30, 1996, respectively. Common stock equivalents consist of shares subject to stock options, warrants, contingently issuable shares and shares held in escrow. Net loss per share for the three and six- month periods ended March 30, 1996 exclude all common stock equivalents from the calculation of weighted average common shares outstanding, as their inclusion would be anti-dilutive. Fully diluted net income per common share is computed by dividing net income before accretion on preferred stock by the weighted average common shares outstanding during the period plus weighted average common stock equivalents and equivalent shares resulting from the assumed conversion of preferred stock using the period end market price of the common stock. In February 1997, the Financial Accounting Standards Board issued Statement No. 128 ("SFAS 128"), "Earnings per Share," which is effective for fiscal years ended after December 15, 1997, including interim periods. SFAS 128 requires the presentation of basic and diluted earnings per share ("EPS"). Basic EPS, which replaces primary EPS, excludes dilution and 6 is computed by dividing income available to common stockholders by the weighted- average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Diluted EPS is computed similarly to fully diluted EPS under the existing rules. SFAS 128 requires restatement of all prior-period earnings per share data presented after the effective date. The Company will adopt SFAS 128 in its fiscal year ended September 30, 1998 and has not yet determined the impact of such adoption. (4) ACQUISITION OF PERSEPTIVE TECHNOLOGIES II CORPORATION On November 1, 1995, the Company, PerSeptive Acquisition Corporation ("PAC"), a wholly owned subsidiary of the Company, and PerSeptive Technologies II Corporation ("PTC II") entered into a definitive agreement pursuant to which the Company agreed to an exchange offer for all of the 2,645,000 outstanding units of PTC II followed by a merger of PTC II with PAC. Each PTC II unit consisted of one share of callable common stock of PTC II and one Class E Warrant of the Company, exercisable at $33.00 until December 1998. Effective March 8,1996, the Company acquired 2,603,125 units of PTC II that were validly tendered and not withdrawn in the exchange offer. The PTC II shareholders, who participated in the exchange offer, exchanged their units for 2,603,125 shares of the Company's common stock and 2,603,125 new class I Warrants to purchase the Company's common stock, exercisable until August 8, 1997 at an exercise price per share of $13.50. On March 13, 1996, PTC II merged with PAC and became a wholly owned subsidiary of the Company. Each of the remaining 41,875 shares of callable common stock of PTC II not exchanged in the exchange offer were automatically converted into a right to receive one share of the Company's common stock upon the merger of PTC II with PAC. During the quarter ended June 30, 1996, 36,475 rights were exchanged for an equivalent number of shares of the Company's common stock. The total value of the common stock issued in the exchange offer was approximately $16 million based on the market value of the Company's common stock on March 8, 1996. The transaction has been accounted for as a purchase and the Company has recorded an in-process research and development charge of approximately $6.8 million which represents the value of acquired technologies which have not reached commercialization. During the three-month period ended March 30, 1996, the Company recognized research and development revenue from PTC II totaling approximately $5 million. 5) LITIGATION AND OTHER MATTERS The Company has sued Pharmacia Biotech, Inc. and certain of its affiliates, and their parent Pharmacia AB (collectively, "Pharmacia"), now part of Pharmacia & Upjohn Co., Sepracor Inc. ("Sepracor") and BioSepra Inc. ("BioSepra"), a company partially owned by Sepracor, for willful infringement of three PerSeptive patents (U.S. Nos. 5,019,270, 5,228,989 and 5,384,042), covering the process of Perfusion Chromatography/(R)/ and the manufacture, sale and use of chromatography particles and matrices that enable Perfusion Chromatography (collectively, the "Original Perfusion Patents"). The Company commenced its action against Pharmacia and Sepracor on October 14, 1993, and the consolidated action has been pending in the United States District Court for the District of Massachusetts. BioSepra was added as a party on May 19, 1994. The lawsuit also claims that Sepracor and BioSepra made false and misleading representations of fact with respect to the Company's products, and that BioSepra engaged in false and misleading advertising. The lawsuit, in an amended complaint filed by Purdue University and the Company, also claims that Sepracor and BioSepra infringe a fourth patent (the "Coatings Patent"), licensed exclusively by PerSeptive, covering novel coatings for chromatography media. The lawsuit seeks to enjoin the defendants from infringing the four patents and asks for treble damages, as well as other relief and damages. Pharmacia, Sepracor and BioSepra each have asserted that their products do not infringe the Original Perfusion Patents and that the Original Perfusion Patents are invalid and unenforceable, and have asserted counterclaims against the Company alleging that the Company's assertions that they have infringed the patents, and that statements allegedly made by the Company to customers concerning the litigation, constitute unfair competition, commercial disparagement, unfair trade practices, tortious interference with customer relationships and violation of the Lanham Act, and seeking an unspecified amount of damages, and, under certain asserted claims, double or treble damages, as well as attorneys' fees and expenses. The Company has denied any liability on these counterclaims. 7 On January 9, 1996, the Court entered an order denying the Company's motion for partial summary judgement relating to the inventorship of the Original Perfusion Patents, granting the defendants' motions for partial summary judgement that inventorship of the Original Perfusion Patents is improper for failure to name two or more persons as additional joint inventors, and requiring the Company to move to correct inventorship or have the patents declared invalid. On March 12, 1996, the Court entered a ruling directing the Company to correct inventorship and placed on the Company the burden of proving the absence of deceptive intent in the designation of inventors at a hearing. The Company moved to correct inventorship. The Company has preserved its right to appeal on a number of issues, including the Court's January 9, 1996 order that the Original Perfusion Patents failed to name additional persons as joint inventors and the Court's March 12, 1996 order imposing the burden of proof on PerSeptive. The hearing was held in May and June 1996. On April 3, 1997, the Court issued a ruling denying the Company's motion to correct inventorship, ruling that the Company had not met its burden of proving that two British scientists, who worked for a company that is not a party to the litigation, were not named on the Original Perfusion Patents without deceptive intent within the meaning of Section 256 of Title 35 United States Code, and granted judgment in favor of Sepracor, BioSepra and Pharmacia on the Company's claims relating to the Original Perfusion Patents. On April 16, 1997, the Company filed a motion to permit an immediate appeal of the April 3, 1997 decision, and the related January 9, 1996 and March 12, 1996 decisions, to the United States Court of Appeals for the Federal Circuit, which has exclusive jurisdiction in the United States to hear appeals in patent cases. On April 30, 1997, the defendants filed a motion requesting that the District Court render a decision on the defendants' defense of inequitable conduct prior to permitting the Company's appeal. The Court has not rendered a decision on the Company's or the defendants' motions. The Court has not yet considered the issue of infringement of the Original Perfusion Patents or the Coatings Patent. The Company intends to continue to vigorously pursue this litigation. In September 1996 and February 1997, two new United States patents relating to Perfusion Chromatography systems were issued to the Company. Neither of these patents, which cover instruments an systems that perform the high-speed, high resolution chromatography which is the subject of the Original Perfusion Patents, are the subject of the current litigation. Prior to the issuance of these patents, the Company had submitted to the patent examiner the District Court's January 9, 1996 order, and non-confidential portions of the related briefs filed by the parties, and the patents were issued naming only PerSeptive's scientific founders as the inventors nonetheless. Since November 1994, the Company has been responding to informal requests for information from the Commission related to certain of the Company's financial matters. In May 1995, the Company was advised by the Commission that it had obtained a formal order of investigation so that, among other matters, it may utilize subpeona powers to obtain information relevant to its inquiry. The Commission has utilized and may in the future utilize its subpoena powers to obtain information from various officers, directors and employees of the Company and from persons not presently associated with the Company. If, after completion of its investigation, the Commission finds that violations of the federal securities laws have occurred, the Commission has the authority to order persons to cease and desist from committing or causing such violations and any future violations. The Commission may also seek administrative, civil and criminal fines and penalties and injunctive relief. The Department of Justice has the authority in respect of criminal matters. There can be no assurance as to the timeliness of the completion of the investigation or as to the final result thereof, and no assurance can be given that the final result of the investigation will not have a material adverse effect on the Company. The Company is cooperating fully with the investigation, and has responded and will continue to respond to requests for information in connection with the investigation. (6) TRANSACTION WITH CHEMGENICS Effective June 28, 1996 the Company completed a transaction with ChemGenics Pharmaceuticals, Inc. ("ChemGenics") (formerly Myco Pharmaceuticals, Inc.) in which the Company transferred certain assets and employees of the Company's drug discovery program and entered into a non-exclusive license, licensing the Company's technology in the field of drug discovery to ChemGenics in exchange for shares of ChemGenics common stock, $.001 par value per share ("ChemGenics common stock") equal to 40% of its fully diluted common stock, plus warrants to purchase, for a period of four years, additional shares of ChemGenics common stock at $5.00 per share equal to 10% of such fully diluted amount. In December 1996, the Company and ChemGenics executed amendments to their agreements pursuant to which the Company exchanged a portion of its ChemGenics common stock for a promissory note for $3 million payable on the earlier of the closing of ChemGenics' initial public offering or December 31, 2002. As a result of the above referenced modifications to the agreements, the Company held approximately 34% of the outstanding common stock of ChemGenics as of December 28, 1996. 8 (7) MERGER OF CHEMGENICS AND MILLENNIUM On January 20, 1997 ChemGenics and Millennium Pharmaceuticals, Inc. ("Millennium") entered into an Agreement and Plan of Merger ("Agreement"). Under the terms of the Agreement, the stockholders of ChemGenics received common stock of Millennium in exchange for their common stock of ChemGenics. At the closing on February 10, 1997, the Company received 1,612,582 shares of Millennium common stock, $.001 par value per share ("Millennium common stock"), in exchange for its shares of ChemGenics common stock. In addition, the Company received $4 million cash in exchange for the warrants for ChemGenics common stock and in satisfaction of the above referenced promissory note. The parties to the Agreement contemplate that the transaction will qualify as a tax-free merger. The Company's shares of Millennium common stock are unregistered as issued and will be subject to restrictions on sale which expire in increments between June and September 1997. In connection with this event, the Company recorded a gain of $25.8 million, reflecting the fair market value of the cash received and the Company's investment in Millennium common stock as of March 29, 1997. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This report contains forward-looking statements which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that may cause such a difference include, but are not limited to, those discussed below under the caption "Certain Factors That May Affect Future Results," as well as elsewhere in this Management's Discussion and Analysis of Financial Condition and Results of Operations, and those discussed in the Company's other filings with the Securities and Exchange Commission. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 29, 1997 AND MARCH 30, 1996 Product revenue for the three months ended March 29, 1997 was $23,193,000 compared with $19,367,000 for the comparable 1996 period. The growth in product revenue is attributable to increasing sales in the analysis, purification and synthesis product lines and further expansion of the Company's products into the international market place. Total revenue amounted to $23,193,000 and $24,401,000 for the three months ended March 29, 1997 and March 30, 1996, respectively. The decrease in total revenue is attributable to the elimination of contract revenue, previously recorded in connection with the Company's development efforts on behalf of PTC II, following the acquisition of PTC II in March 1996. Gross profit from product revenue for the three months ended March 29, 1997 and March 30, 1996 was $11,502,000 and $9,690,000, respectively. Gross margin from product revenue was 50% for these comparable periods. Gross margin from product revenue for the three months ended March 29, 1997 was favorably affected by the sale of instruments for which certain reserves had been recorded previously. The Company's ability to improve gross margin levels will be dependent upon, among other things, improving product mix and selling prices in the face of increasing competition and reducing underabsorption in the Company's manufacturing operations. Included in cost of revenue for the three months ended March 30, 1996 are other charges totaling $4.8 million. These charges represent provisions to write off inventory and other assets associated with actions taken in 1996 to discontinue product lines as well as to reposition certain products within the purification, analysis and synthesis product lines. Research and development expenses for the three months ended March 29, 1997 amounted to $3,555,000, or 15% of product revenue, as compared with $1,701,000, or 9% of product revenue, for the comparable period in 1996. Research and development expenses, which include such expenses as reflected in cost of contract revenue, have declined to $3,555,000, or 15% of product revenue, from $5,968,000, or 31% of product revenue, for the three months ended March 29, 1997 and March 30, 1996, respectively. Actions have been taken to control the level of research and development expense actually incurred following the acquisition of PTC II in March 1996. This has been accomplished, in part, through the restructuring program that resulted in the elimination of a significant portion of the Company's research and development staffing and related variable support costs. Management intends to continue pursuing commercialization opportunities and alliances in order to obtain value from the technologies acquired from PTC II, as it has done in the recently completed transactions with ChemGenics Pharmaceuticals, Inc. ("ChemGenics") (formerly Myco Pharmaceuticals, Inc.) (subsequently merged with Millennium Pharmaceuticals, Inc. ("Millennium"). See Notes (6) and (7). Management continues to evaluate the scope and direction of the various programs; however there is no assurance that funding sources and/or third-party arrangements will be obtained or established to defray the cost of research and development or that any of these acquired technologies will ultimately be successfully commercialized. Selling, general and administrative expenses amounted to $9,952,000, or 43% of Product revenue, during the three months ended March 29, 1997, as compared with $11,015,000, or 57% of Product revenue during the comparable period in the prior year. The reduction in both aggregate spending as well as spending as a percent of sales is attributable to management's efforts to control these costs as well as improve the productivity of the resources utilized in these functional areas. Other income was $25,498,000 and $41,000 for the three months ended March 29, 1997 and March 30, 1996, respectively. This increase was due primarily to the gain on the exchange of the Company's ChemGenics common stock, $.001 per value per share (the "ChemGenics common stock"), for Millennium 10 common stock, $.001 par value per share (the "Millennium common stock"), plus the receipt of additional consideration in the form of cash upon the merger of ChemGenics with Millennium. Net interest expense was $599,000 during the three months ended March 29, 1997, as compared with $719,000 during the comparable period in the prior year. This decrease is primarily attributable to higher net interest income as compared to the comparable period in the prior year. SIX MONTHS ENDED MARCH 29, 1997 AND MARCH 30, 1996 Product revenue for the six months ended March 29, 1997 was $44,294,000 compared with $38,431,000 for the comparable period in 1996. The growth in product revenue is attributable to increasing sales in the analysis and synthesis product lines and further expansion of the Company's products into the international market place. Total revenue amounted to $44,294,000 and $48,532,000 for the six months ended March 29, 1997 and March 30, 1996, respectively. The decrease in total revenue is attributable to the elimination of contract revenue, previously recorded in connection with the Company's development efforts on behalf of PTC II, following the acquisition of PTC II in March 1996. Gross profit from product revenue for the six months ended March 29, 1997 and March 30, 1996 was $21,960,000 and $19,731,000, respectively. Gross margin from product revenue was 50% for each of these periods. Gross margin from product revenue for the six months ended March 29, 1997 was favorably affected by the sale of instruments for which certain reserves had been recorded previously. The Company's ability to improve gross margin levels will be dependent upon, among other things, improving product mix and selling prices in the face of increasing competition and reducing underabsorption in the Company's manufacturing operations. Included in cost of revenue for the six months ended March 30, 1996 are other charges totaling $4.8 million. These charges represent provisions to write off inventory and other assets associated with actions taken to discontinue product lines as well as to reposition certain products within the purification, analysis and synthesis product lines. Research and development expenses for the six months ended March 29, 1997 amounted to $7,124,000, or 16% of product revenue, as compared with $3,270,000, or 9% of product revenue for the comparable period in the prior year. Research and development expenses, which include such expenses as reflected in cost of contract revenue, have declined to $7,124,000, or 16% of product revenue, from $11,841,000, or 31% of product revenue, for the six months ended March 29, 1997 and March 30, 1996, respectively. Actions have been taken to control the level of research and development expense actually incurred following the acquisition of PTC II in March 1996. This has been accomplished, in part, through the restructuring program that resulted in the elimination of a significant portion of the Company's research and development staffing and related variable support costs. Management intends to continue pursuing commercialization opportunities and alliances in order to obtain value from the technologies acquired from PTC II, as it has done in the recently completed ChemGenics/Millennium transaction. See Notes (6) and (7). Management continues to evaluate the scope and direction of the various programs, however there is no assurance that funding sources and/or third-party arrangements will be obtained or established to defray the cost of research and development or that any of these acquired technologies will ultimately be successfully commercialized. Selling, general and administrative expenses amounted to $19,510,000, or 44% of product revenue, during the six months ended March 29, 1997, as compared with $20,647,000, or 54% of product revenue, during the comparable period in the prior year. The reduction in both aggregate spending as well as spending as a percent of sales is attributable to management's efforts to control these costs as well as improve the productivity of the resources utilized in these functional areas. Other income was $25,506,000 for the six months ended March 29, 1997 as opposed to other expense of $11,000 for the comparable period in 1996. This increase was due primarily to the gain on the exchange of ChemGenics common stock for Millennium common stock plus the receipt of additional consideration in the form of cash upon the merger of ChemGenics with Millennium. Net interest expense was $1,462,000 during the six months ended March 29, 1997, as compared with $1,422,000 during the comparable period in the prior year. 11 LIQUIDITY AND CAPITAL RESOURCES Cash, cash equivalents and investments at March 29, 1997 were $42,863,000 as compared to $24,657,000 at September 30, 1996. The increase in cash, cash equivalents and investments is due principally to the $25.8 million of cash and fair market value of the Company's investment in Millennium Common Stock. This was offset by expenditures of cash, cash equivalents and investments during the three months ended March 29, 1997 primarily related to the funding of operational requirements and capital additions for $3.0 million and the funding of financing activities for $900,000. Management anticipates additional cash usage relating to various factors including, but not limited to, expenditures relating to a significant new product launch and cash requirements associated with capital expenditures, patent enforcement actions, working capital and operational needs. The Company believes that its capital resources are sufficient to fund its planned operations through the end of fiscal 1997. The Company believes that additional financing may be required for the development of some of its currently planned product introductions and to support the Company's future operations and revenue growth. The Company's future working capital and capital requirements will in general depend on numerous factors, including the progress of the Company's research and development of new products, the level of resources that the Company devotes to the development of manufacturing and marketing capabilities, the consistency of cash collections, the success of cost containment initiatives, the successful registration and liquidation of the Company's common stock holdings in Millennium, the competitive environment and the growth in the Company's business, which may cause the Company's actual future capital resources to differ materially, notwithstanding the forward- looking statement in the first sentence of this paragraph. The Company believes that the level of financial resources available to it is an important competitive factor. The Company is continually evaluating its liquidity position and may seek to raise additional capital through equity or debt financing or to enter into corporate partnering arrangements; however, there can be no assurance that the Company will be able to successfully raise additional capital at acceptable terms. In February 1997, the Financial Accounting Standards Board issued Statement No. 128 ("SFAS 128"), "Earnings per Share," which is effective for fiscal years ended after December 15, 1997, including interim periods. SFAS 128 requires the presentation of basic and diluted earnings per share ("EPS"). Basic EPS, which replaces primary EPS, excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Diluted EPS is computed similarly to fully diluted EPS under the existing rules. SFAS 128 requires restatement of all prior-period earnings per share data presented after the effective date. The Company will adopt SFAS 128 in its fiscal year ended September 30, 1998 and has not yet determined the impact of such adoption. CHEMGENICS AND MILLENNIUM TRANSACTIONS In June 1996, the Company entered into a transaction with ChemGenics, in which the Company transferred certain assets and employees of the Company's drug discovery program to ChemGenics and granted a non-exclusive license to ChemGenics to use the Company's technology (including technology developed through PTC II) in the field of drug discovery in exchange for shares of ChemGenics common stock and warrants to purchase additional shares of ChemGenics common stock exercisable until June 28, 2000. The warrants were exercisable at $5.00 per share ($13.25 per share after a proposed 2.65-for-1 reverse stock split). The Company was subject to certain contractual restrictions on the sale or distribution of its holdings of ChemGenics common stock. In December 1996, the Company and ChemGenics executed amendments to their agreements pursuant to which the Company exchanged a portion of its ChemGenics common stock for a promissory note for $3 million payable on the earlier of the closing of ChemGenics' initial public offering or December 31, 2002. The Company held approximately 34% of the outstanding common stock of ChemGenics as of December 28, 1996. In January 1997, ChemGenics and Millennium announced that they had entered into a definitive merger agreement (the "Merger Agreement") for Millennium to acquire ChemGenics in a stock for stock transaction. At the closing, which was held on February 10, 1997, the Company received 1,612,582 shares of Millennium common stock and cash in the amount of $4 million. The Millennium shares issued in the transaction are unregistered and subject to restrictions on sale which expire in increments between June and September 1997. Registration of the shares is expected to occur in June 1997. 12 CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS Additional Financing Requirements. The Company believes additional long-term financing may be required for the development of some of its currently planned product introductions and to support its planned operations and capital expenditures in its core business relating to the purification, analysis and synthesis of biomolecules. The Company may seek to raise additional capital through equity or debt financing or to enter into corporate partnering arrangements; however, there can be no assurances that this funding will be made available or that terms acceptable to the Company will be reached. Investment in Millennium. The Company currently holds approximately 1.6 million shares of unregistered Millennium common stock, which shares Millennium is required to register under the terms of the Merger Agreement. Failure of such registration statement to become effective in a timely manner due to regulatory delays could adversely impact the Company's near-term liquidity. Downward fluctuations in the market price of Millennium common stock will have an adverse effect on the value of the Company's investments. There can be no assurance that the Company will be able to realize cash from the sale of the Millennium common stock equal to the value reflected in the Company's balance sheet as of March 29, 1997. At this time, the Company has not established a plan for liquidating this investment. Potential Fluctuations in Operating Results. The Company's operating results may vary significantly from quarter to quarter or year to year, depending on factors such as the timing of biopharmaceutical development and commercialization programs of the Company's customers, the timing of increased research and development and sales and marketing expenses, the timing and size of orders and the introduction of new products by the Company and the capital resources of the Company's customers. The Company's current and planned expense levels are based in part on its expectations as to future revenue. Consequently, results may vary significantly from quarter to quarter or year to year based on timing of revenue, and revenue or profits in any period will not necessarily be indicative of results in subsequent periods. In addition, the Company's stock price has been volatile and may be affected by general market conditions beyond the Company's control. Uncertainties Associated with Future Performance. The Company expects to continue to improve operating results in future periods; however, there can be no assurance that the Company will achieve or maintain profitability or that its revenue growth can be sustained in the future. The Company's success in the market for biopharmaceutical purification, analysis and synthesis products will depend, in part, on attracting and maintaining key employees, continued development of foreign sales operations, continued support from current customers, development of new customers and successful enforcement of the Company's patent rights. See "Legal Proceedings." Need to Integrate Acquisitions. In recent years, the Company has made several acquisitions that have increased the number of the Company's employees or the scope of its business, or both. The Company may make additional acquisitions in the future. The success of these acquisitions will depend on a number of factors, including the ability of the Company's management to integrate the administrative, manufacturing and sales operations of the acquired businesses with those of the Company, to retain key personnel of the acquired businesses, to reduce costs and to preserve and expand sales of the products of the acquired businesses. There can be no assurance that the Company will be able to operate successfully the acquired businesses or that the Company will not experience losses as a result of these acquisitions. With respect to the acquisition of PTC II, the success of the combined business will depend, in part, on the continued availability of funding sources for the research and development projects. The Company licensed the technology developed through PTC II for drug discovery purposes to ChemGenics, which has been acquired by Millennium. If other research and development programs formerly funded by PTC II are continued by the Company, they will be required to be funded in total by the Company and it will be required to rely upon its own resources or seek alternative sources of capital and/or collaborative funding. There is no assurance that sufficient sources of capital and other funding will be available to the Company in the near term or long term to fund all the Company's current research and development programs and those acquired from PTC II. Uncertainties Associated with Expansion of Marketing and Manufacturing Operations. The Company intends to continue expanding its sales and marketing efforts in the United States and internationally. The Company's ability to accomplish this objective is dependent on many factors including, among others, attracting and retaining a significant number of additional sales and marketing professionals, expanding foreign sales operations and developing distributor relationships in certain 13 markets. This continued expansion will involve significant additional expense and the risks inherent in integrating new sales and marketing personnel into the Company's existing organization. Increasing sales may also require the expansion of the Company's manufacturing capabilities for the Biospectrometry product line, which expansion would require significant capital expenditures and management attention. There can be no assurance that the Company will be able to accomplish its sales, marketing and manufacturing objectives. Potential Costs Associated with Patent Litigation. Patent litigation is widespread in the biotechnology industry and, in general, it is not possible to predict how any such litigation would affect the Company's business. The Company has sued two competitors for infringement of Company patents relating to Perfusion Chromatography. The defendants in that suit are seeking to have these patents declared invalid and they have asserted counterclaims against the Company. The Company may incur substantial additional expenses relating to this and other proceedings. There can be no assurance that the outcome of the litigation will not have a material adverse effect on the Company. See "Legal Proceedings." Patent and License Uncertainties. Proprietary rights relating to the Company's products will be protected from unauthorized use by third parties only to the extent that they are covered by valid and enforceable patents or are maintained in confidence as trade secrets. There can be no assurance that any pending patent applications filed by the Company will result in patents being issued or that any patents now or hereafter owned by the Company will afford protection against competitors. In the absence of patent protection, the Company's business may be adversely affected by competitors that independently develop functionally equivalent technology. The Company has established a policy of vigorously enforcing its patent rights. See "Legal Proceedings." If the Company participates in interference or other proceedings under the jurisdiction of the U.S. Patent and Trademark Office, such proceedings could result in substantial costs to the Company. Competitors, including those with substantially greater resources than the Company, may initiate litigation to challenge the validity of the Company's patents. Others may use their resources to design comparable products that do not infringe the Company's patents. There may also be pending or issued patents of which the Company is not aware held by parties not affiliated with the Company that relate to the Company's products or technology. The Company may need to acquire licenses to, or contest the validity of, any such patents. It is likely that significant funds would be required to contest the validity of any such patents. There can be no assurance that any license required under any such patent would be made available on acceptable terms or that the Company would prevail in any such contest. Pending Governmental Investigation. Since November 1994, the Securities and Exchange Commission (the "Commission") has been conducting an investigation into certain financial matters of the Company arising from the Company's restatement of its financial statements for Fiscal 1993 and the first three quarters of Fiscal 1994, and related matters. If, after completion of its investigation, the Commission finds that violations of the federal securities laws have occurred, the Commission has the authority to order persons to cease and desist from committing or causing such violations and any future violations. The Commission may also seek administrative, civil and criminal fines and penalties and injunctive relief. The Department of Justice has the authority in respect of criminal matters. The Company has been cooperating fully with this investigation. There can be no assurance as to the timeliness of the completion of this investigation or as to the final result thereof, and no assurance can be given that the final result of the investigation will not have a material adverse effect on the Company. See "Legal Proceedings." Intense Competition and Risk of Technological Obsolescence. The Company encounters, and expects to continue to encounter, intense competition in the sale of its current and future products. There can be no assurance that developments by others will not render the Company's products or technologies obsolete or non-competitive. Many of the Company's competitors have substantially greater resources, manufacturing and marketing capabilities, research and development staff and production facilities than those of the Company. 14 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company has sued Pharmacia Biotech, Inc. and certain of its affiliates, and their parent Pharmacia AB (collectively, "Pharmacia"), now part of Pharmacia & Upjohn Co., Sepracor Inc. ("Sepracor") and BioSepra Inc. ("BioSepra"), a company partially owned by Sepracor, for willful infringement of three PerSeptive patents (U.S. Nos. 5,019,270, 5,228,989 and 5,384,042), covering the process of Perfusion Chromatography/(R)/ and the manufacture, sale and use of chromatography particles and matrices that enable Perfusion Chromatography (collectively, the "Original Perfusion Patents"). The Company commenced its action against Pharmacia and Sepracor on October 14, 1993, and the consolidated action has been pending in the United States District Court for the District of Massachusetts. BioSepra was added as a party on May 19, 1994. The lawsuit also claims that Sepracor and BioSepra made false and misleading representations of fact with respect to the Company's products, and that BioSepra engaged in false and misleading advertising. The lawsuit, in an amended complaint filed by Purdue University and the Company, also claims that Sepracor and BioSepra infringe a fourth patent (the "Coatings Patent"), licensed exclusively by PerSeptive, covering novel coatings for chromatography media. The lawsuit seeks to enjoin the defendants from infringing the four patents and asks for treble damages, as well as other relief and damages. Pharmacia, Sepracor and BioSepra each have asserted that their products do not infringe the Original Perfusion Patents and that the Original Perfusion Patents are invalid and unenforceable, and have asserted counterclaims against the Company alleging that the Company's assertions that they have infringed the patents, and that statements allegedly made by the Company to customers concerning the litigation, constitute unfair competition, commercial disparagement, unfair trade practices, tortious interference with customer relationships and violation of the Lanham Act, and seeking an unspecified amount of damages, and, under certain asserted claims, double or treble damages, as well as attorneys' fees and expenses. The Company has denied any liability on these counterclaims. On January 9, 1996, the Court entered an order denying the Company's motion for partial summary judgment relating to the inventorship of the Original Perfusion Patents, granting the Defendants' motions for partial summary judgment that inventorship of the Original Perfusion Patents is improper for failure to name two or more persons as additional joint inventors, and requiring the Company to move to correct inventorship or have the patents declared invalid. On March 12, 1996, the Court entered a ruling directing the Company to correct inventorship and placed on the Company the burden of proving the absence of deceptive intent in the designation of inventors at a hearing. The Company moved to correct inventorship. The Company has preserved its right to appeal on a number of issues, including the Court's January 9, 1996 order that the Original Perfusion Patents failed to name additional persons as joint inventors and the Court's March 12, 1996 order imposing the burden of proof on PerSeptive. The hearing was held in May and June 1996. On April 3, 1997, the Court issued a ruling denying the Company's motion to correct inventorship, ruling that the Company had not met its burden of proving that two British scientists, who worked for a company that is not a party to the litigation, were not named on the Original Perfusion Patents without deceptive intent within the meaning of Section 256 of Title 35 United States Code, and granted judgment in favor of Sepracor, BioSepra and Pharmacia on the Company's claims relating to the Original Perfusion Patents. On April 16, 1997, the Company filed a motion to permit an immediate appeal of the April 3, 1997 decision, and the related January 9, 1996 and March 12, 1996 decisions, to the United States Court of Appeals for the Federal Circuit, which has exclusive jurisdiction in the United States to hear appeals in patent cases. On April 30, 1997, the defendants filed a motion requesting that the District Court render a decision on the defendants' defense of inequitable conduct prior to permitting the Company's appeal. The Court has not rendered a decision on the Company's or the defendants' motions. The Court has not yet considered the issue of infringement of the Original Perfusion Patents or the Coatings Patent. The Company intends to continue to vigorously pursue this litigation. In September 1996 and February 1997, two new United States patents relating to Perfusion Chromatography systems were issued to the Company. Neither of these patents, which cover instruments and systems that perform the high-speed, high resolution chromatography which is the subject of the Original Perfusion Patents, are the subject of the current litigation. Prior to the issuance of these patents, the Company had submitted to the patent examiner the District Court's January 9, 1996 order, and non-confidential portions of related briefs filed by the parties, and the patents were issued naming only PerSeptive's scientific founders as the inventors nonetheless. Since November 1994, the Company has been responding to informal requests for information from the Commission relating to certain of the Company's financial matters. In May 1995, the Company was advised by the Commission that it 15 had obtained a formal order of investigation so that, among other matters, it may utilize subpoena powers to obtain information relevant to its inquiry. The Commission has utilized and may in the future utilize its subpoena powers to obtain information from various officers, directors and employees of the Company and from persons not presently associated with the Company. If, after completion of its investigation, the Commission finds that violations of the federal securities laws have occurred, the Commission has the authority to order persons to cease and desist from committing or causing such violations and any future violations. The Commission may also seek administrative, civil and criminal fines and penalties and injunctive relief. The Department of Justice has the authority in respect of criminal matters. There can be no assurance as to the timeliness of the completion of the investigation or as to the final result thereof, and no assurance can be given that the final result of the investigation will not have a material adverse effect on the Company. The Company is cooperating fully with the investigation, and has responded and will continue to respond to requests for information in connection with the investigation. 16 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS (a) The Company held an Annual Meeting of Stockholders (the "Meeting") on March 5, 1997. (b) Not Applicable (c) The following matters were voted on at the Meeting: 1. To elect two members to the Board of Directors to serve for three-year terms as Class II Directors. 2. To consider and act upon amendments to the Corporation's 1992 Stock Plan (the "Plan") (a) increasing the number of shares of Common Stock available for issuance under the Plan from 3,585,500 to 4,585,500 and (b) increasing the maximum number of shares of Common Stock of the Corporation that may be purchased by any participant under the Plan from 600,000 to 1,400,000 shares. 3. To ratify the selection of Coopers & Lybrand L.L.P. as the Corporation's auditors for the fiscal year ending September 30, 1997. Daniel I. C. Wang was elected to the Board of Directors to serve a three-year term as a Class II Director with 17,378,332 shares voted for and the votes of 475,508 shares withheld. There were no abstentions or broker non-votes. John F. Smith was elected to the Board of Directors to serve a three-year term as a Class II Director with 17,378,590 shares voted for and the votes of 475,250 shares withheld. There were no abstentions or broker non-votes. The amendment to the Plan increasing the total number of shares of the Company's Common Stock reserved for issuance under the Plan from 3,585,500 to 4,585,500 was approved with 13,997,128 shares voted for, 3,677,680 shares voted against, 143,107 shares abstaining and 35,925 broker non-votes. The selection of Coopers & Lybrand L.L.P. as the Company's auditors for the fiscal year ending September 30, 1997 was approved with 17,781,847 shares voting for, 41,511 shares voted against, 29,909 shares abstaining and 573 broker non- votes. (d) Not Applicable 17 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 4.1 1992 Stock Plan of the Company, as amended on January 20, 1997 4.2 1997 Non-Qualified Stock Option Plan of the Company 27. Financial Data Schedule (b) Reports on Form 8-K - None [The remainder of this page is intentionally left blank.] 18 SIGNATURES - ---------- Pursuant to 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. PERSEPTIVE BIOSYSTEMS, INC. Date: May 13, 1997 By: /s/ Noubar B. Afeyan ------------ --------------------- Noubar B. Afeyan, Chairman and Chief Executive Officer (Principal Executive Officer) By: /s/ John F. Smith --------------------- John F. Smith, President and Director By: /s/ Thomas G. Ruane --------------------- Thomas G. Ruane, Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 19 EX-4.1 2 1992 STOCK PLAN OF THE COMPANY EXHIBIT 4.1 (As Amended, January 20, 1997) PERSEPTIVE BIOSYSTEMS, INC. 1992 STOCK PLAN --------------- 1. Purpose. This 1992 Stock Plan (the "Plan") is intended to provide ------- incentives: (a) to the officers and other employees of PerSeptive Biosystems, Inc. (the "Company"), its parent (if any) and any present or future subsidiaries of the Company (collectively, "Related Corporations") by providing them with opportunities to purchase stock in the Company pursuant to options granted hereunder which qualify as "incentive stock options" under Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code") ("ISO" or "ISOs"); (b) to directors, officers, employees and consultants of the Company and Related Corporations by providing them with opportunities to purchase stock in the Company pursuant to options granted hereunder which do not qualify as ISOs ("Non-Qualified Option" or "Non-Qualified Options"); (c) to directors, officers, employees and consultants of the Company and Related Corporations by providing them with awards of stock in the Company ("Awards"); and (d) to directors, officers, employees and consultants of the Company and Related Corporations by providing them with opportunities to make direct purchases of stock in the Company ("Purchases"). Both ISOs and Non-Qualified Options are referred to hereafter individually as an "Option" and collectively as "Options". Options, Awards and authorizations to make Purchases are referred to hereafter collectively as "Stock Rights". As used herein, the terms "parent" and "subsidiary" mean "parent corporation" and "subsidiary corporation", respectively, as those terms are defined in Section 424 of the Code. 2. Administration of the Plan. --------------------------- A. Board or Committee Administration. The Plan shall be --------------------------------- administered by the Board of Directors of the Company (the "Board") or by a committee appointed by the Board (the "Committee"); provided, that, to the extent required by Rule 16b-3, or any successor provision ("Rule 16b-3"), of the Securities Exchange Act of 1934, with respect to specific grants of Stock Rights, the Plan shall be administered by a disinterested administrator or administrators within the meaning of Rule 16b-3. Hereinafter, all references in this Plan to the "Committee" shall mean the Board if no Committee has been appointed. Subject to ratification of the grant or authorization of each Stock Right by the Board (if so required by applicable state law), and subject to the terms of the Plan, the Committee shall have the authority to (i) determine the employees of the Company and Related Corporations (from among the class of employees eligible under paragraph 3 to receive ISOs) to whom ISOs may be granted, and to determine (from among the class of individuals and entities eligible under paragraph 3 to receive Non-Qualified Options and Awards and to make Purchases) to whom Non-Qualified Options, Awards and authorizations to make Purchases may be granted; (ii) determine the time or times at which Options or Awards may be granted or Purchases made; (iii) determine the option price of shares subject to each Option, which price shall not be less than the minimum price specified in -2- paragraph 6, and the purchase price of shares subject to each Purchase; (iv) determine whether each Option granted shall be an ISO or a Non-Qualified Option; (v) determine (subject to paragraph 7) the time or times when each Option shall become exercisable and the duration of the exercise period; (vi) determine whether restrictions such as repurchase options are to be imposed on shares subject to Options, Awards and Purchases and the nature of such restrictions, if any, and (vii) interpret the Plan and prescribe and rescind rules and regulations relating to it. If the Committee determines to issue a Non-Qualified Option, it shall take whatever actions it deems necessary, under Section 422 of the Code and the regulations promulgated thereunder, to ensure that such Option is not treated as an ISO. The interpretation and construction by the Committee of any provisions of the Plan or of any Stock Right granted under it shall be final unless otherwise determined by the Board. The Committee may from time to time adopt such rules and regulations for carrying out the Plan as it may deem best. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Stock Right granted under it. B. Committee Actions. The Committee may select one of its members ----------------- as its chairman, and shall hold meetings at such times and places as it may determine. Acts by a majority of the Committee, or acts reduced to or approved in writing by a majority of the members of the Committee (if consistent with applicable state law), shall be the valid acts of the Committee. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies however caused, or remove all members of the Committee and thereafter directly administer the Plan. C. Grant of Stock Rights to Board Members. Stock Rights may be -------------------------------------- granted to members of the Board consistent with the provisions of the first sentence of paragraph 2(A) above, if applicable. All grants of Stock Rights to members of the Board shall in all other respects be made in accordance with the provisions of this Plan applicable to other eligible persons. Consistent with the provisions of the first sentence of paragraph 2(A) above, members of the Board who are either (i) eligible for Stock Rights pursuant to the Plan or (ii) have been granted Stock Rights may vote on any matters affecting the administration of the Plan or the grant of any Stock Rights pursuant to the Plan, except that no such member shall act upon the granting to himself of Stock Rights, but any such member may be counted in determining the existence of a quorum at any meeting of the Board during which action is taken with respect to the granting to him of Stock Rights. 3. Eligible Employees and Others. The maximum number of shares of Common ----------------------------- Stock that may be issued to any officer, director, employee or consultant pursuant to the Plan is 1,400,000 shares. ISOs may be granted to any employee of the Company or any Related Corporation. Those officers and directors of the Company who are not employees may not be granted ISOs under the Plan. Non- Qualified Options, Awards and authorizations to make Purchases may be granted to any employee, officer or director (whether or not also an employee) or consultant of the Company or any Related Corporation. The Committee may take into consideration a recipient's individual circumstances in determining whether to grant an ISO, a Non-Qualified Option, an Award or an authorization to make a Purchase. Granting of any Stock -3- Right to any individual or entity shall neither entitle that individual or entity to, nor disqualify him from, participation in any other grant of Stock Rights. 4. Stock. The stock subject to Options, Awards and Purchases shall be ----- authorized but unissued shares of Common Stock of the Company, par value $.01 per share (the "Common Stock"), or shares of Common Stock reacquired by the Company in any manner. The aggregate number of shares which may be issued pursuant to the Plan is 4,585,500 subject to adjustment as provided in paragraph 13; provided, however, that such number of shares shall not be subject to ----------------- adjustment by reason of the four for one stock split in the form of a stock dividend declared by the Board of Directors of the Company at a meeting on March 27, 1992. Any such shares may be issued as ISOs, Non-Qualified Options or Awards, or to persons or entities making Purchases, so long as the number of shares so issued does not exceed such number, as adjusted. If any Stock Right granted under the Plan shall expire or terminate for any reason without having been exercised in full or shall cease for any reason to be exercisable in whole or in part, the unissued shares subject to such Stock Options shall again be available for grants of Stock Rights under the Plan. For the purposes of the foregoing sentence, shares withheld from the Stock Right exercise to pay the exercise price and/or tax consequences of the exercise shall be deemed to have been issued. 5. Granting of Stock Rights. Stock Rights may be granted under the Plan ------------------------ at any time on or after March 27, 1992 and prior to March 27, 2002. The date of grant of a Stock Right under the Plan will be the date specified by the Committee at the time it grants the Stock Right; provided, however, that such date shall not be prior to the date on which the Committee acts to approve the grant. The Committee shall have the right, with the consent of the optionee, to convert an ISO granted under the Plan to a Non-Qualified Option pursuant to paragraph 16. 6. Minimum Option Price; ISO Limitations. ------------------------------------- A. Price for Non-Qualified Options. The exercise price per share ------------------------------- specified in the agreement relating to each Non-Qualified Option granted under the Plan shall in no event be less than the minimum legal consideration required therefor under the laws of Delaware or the laws of any jurisdiction in which the Company or its successors in interest may be organized. B. Price for ISOs. The exercise price per share specified in the -------------- agreement relating to each ISO granted under the Plan shall not be less than the fair market value per share of Common Stock on the date of such grant. In the case of an ISO to be granted to an employee owning stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Related Corporation, the price per share specified in the agreement relating to such ISO shall not be less than one hundred ten percent (110%) of the fair market value per share of Common Stock on the date of grant. C. $100,000 Annual Limitation on ISOs. Each eligible employee may be ---------------------------------- granted ISOs only to the extent that, in the aggregate under this Plan and all incentive stock option plans of the Company and any Related Corporation, such ISOs do not become exercisable -4- for the first time by such employee during any calendar year in a manner which would entitle the employee to purchase more than $100,000 in fair market value (determined at the time the ISOs were granted) of Common Stock in that year. Any options granted to an employee in excess of such amount will be granted as Non-Qualified Options. D. Determination of Fair Market Value. If, at the time an Option is ---------------------------------- granted under the Plan, the Company's Common Stock is publicly traded, "fair market value" shall be determined as of the last business day for which the prices or quotes discussed in this sentence are available prior to the date such Option is granted and shall mean (i) the average (on that date) of the high and low prices of the Common Stock on the principal national securities exchange on which the Common Stock is traded, if the Common Stock is then traded on a national securities exchange; or (ii) the last reported sale price (on that date) of the Common Stock on the NASDAQ National Market List, if the Common Stock is not then traded on a national securities exchange; or (iii) the closing bid price (or average of bid prices) last quoted (on that date) by an established quotation service for over-the-counter securities, if the Common Stock is not reported on the NASDAQ National Market List. However, if the Common Stock is not publicly traded at the time an Option is granted under the Plan, "fair market value" shall be deemed to be the fair value of the Common Stock as determined by the Committee after taking into consideration all factors which it deems appropriate, including, without limitation, recent sale and offer prices of the Common Stock in private transactions negotiated at arm's length. 7. Option Duration. Subject to earlier termination as provided in --------------- paragraphs 9 and 10, each Option shall expire on the date specified by the Committee, but not more than (i) ten years and one day from the date of grant in the case of Non-Qualified Options, (ii) ten years from the date of grant in the case of ISOs generally, and (iii) five years from the date of grant in the case of ISOs granted to an employee owning stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Related Corporation. Subject to earlier termination as provided in paragraphs 9 and 10, the term of each ISO shall be the term set forth in the original instrument granting such ISO, except with respect to any part of such ISO that is converted into a Non-Qualified Option pursuant to paragraph 16. 8. Exercise of Option. Subject to the provisions of paragraphs 9 through ------------------ 12, each Option granted under the Plan shall be exercisable as follows: A. Vesting. The Option shall either be fully exercisable on the date ------- of grant or shall become exercisable thereafter in such installments as the Committee may specify. B. Full Vesting of Installments. Once an installment becomes ---------------------------- exercisable it shall remain exercisable until expiration or termination of the Option, unless otherwise specified by the Committee. C. Partial Exercise. Each Option or installment may be exercised at ---------------- any time or from time to time, in whole or in part, for up to the total number of shares with respect to which it is then exercisable. -5- D. Acceleration of Vesting. The Committee shall have the right to ----------------------- accelerate the date of exercise of any installment of any Option; provided that the Committee shall not, without the consent of an optionee, accelerate the exercise date of any installment of any Option granted to any employee as an ISO (and not previously converted into a Non-Qualified Option pursuant to paragraph 16) if such acceleration would violate the annual vesting limitation contained in Section 422(d) of the Code, as described in paragraph 6(C). 9. Termination of Employment. If an ISO optionee ceases to be employed by ------------------------- the Company and all Related Corporations other than by reason of death or disability as defined in paragraph 10, no further installments of his ISOs shall become exercisable, and his ISOs shall terminate after the passage of ninety (90) days from the date of termination of his employment, but in no event later than on their specified expiration dates, except to the extent that such ISOs (or unexercised installments thereof) have been converted into Non-Qualified Options pursuant to paragraph 16. Employment shall be considered as continuing uninterrupted during any bona fide leave of absence (such as those attributable to illness, military obligations or governmental service) provided that the period of such leave does not exceed 90 days or, if longer, any period during which such optionee's right to reemployment is guaranteed by statute. A bona fide leave of absence with the written approval of the Committee shall not be considered an interruption of employment under the Plan, provided that such written approval contractually obligates the Company or any Related Corporation to continue the employment of the optionee after the approved period of absence. ISOs granted under the Plan shall not be affected by any change of employment within or among the Company and Related Corporations, so long as the optionee continues to be an employee of the Company or any Related Corporation. Nothing in the Plan shall be deemed to give any grantee of any Stock Right the right to be retained in employment or other service by the Company or any Related Corporation for any period of time. 10. Death; Disability. ----------------- A. Death. If an ISO optionee ceases to be employed by the Company and ----- all Related Corporations by reason of his death, any ISO of his may be exercised, to the extent of the number of shares with respect to which he could have exercised it on the date of his death, by his estate, personal representative or beneficiary who has acquired the ISO by will or by the laws of descent and distribution, at any time prior to the earlier of the specified expiration date of the ISO or 180 days from the date of the optionee's death. B. Disability. If an ISO optionee ceases to be employed by the ---------- Company and all Related Corporations by reason of his disability, he shall have the right to exercise any ISO held by him on the date of termination of employment, to the extent of the number of shares with respect to which he could have exercised it on that date, at any time prior to the earlier of the specified expiration date of the ISO or 180 days from the date of the termination of the optionee's employment. For the purposes of the Plan, the term "disability" shall mean "permanent and total disability" as defined in Section 22(e)(3) of the Code or successor statute. -6- 11. Assignability. No Option shall be assignable or transferable by the ------------- optionee except by will or by the laws of descent and distribution. During the lifetime of the optionee each Option shall be exercisable only by him. 12. Terms and Conditions of Options. Options shall be evidenced by ------------------------------- instruments (which need not be identical) in such forms as the Committee may from time to time approve. Such instruments shall conform to the terms and conditions set forth in paragraphs 6 through 11 hereof and may contain such other provisions as the Committee deems advisable which are not inconsistent with the Plan, including restrictions applicable to shares of Common Stock issuable upon exercise of Options. In granting any Non-Qualified Option, the Committee may specify that such Non-Qualified Option shall be subject to the restrictions set forth herein with respect to ISOs, or to such other termination and cancellation provisions as the Committee may determine. The Committee may from time to time confer authority and responsibility on one or more of its own members and/or one or more officers of the Company to execute and deliver such instruments. The proper officers of the Company are authorized and directed to take any and all action necessary or advisable from time to time to carry out the terms of such instruments. 13. Adjustments. Upon the occurrence of any of the following events, an ----------- optionee's rights with respect to Options granted to him hereunder shall be adjusted as hereinafter provided, unless otherwise specifically provided in the written agreement between the optionee and the Company relating to such Option: A. Stock Dividends and Stock Splits. If the shares of Common Stock -------------------------------- shall be subdivided or combined into a greater or smaller number of shares or if the Company shall issue any shares of Common Stock as a stock dividend on its outstanding Common Stock, the number of shares of Common Stock deliverable upon the exercise of Options shall be appropriately increased or decreased proportionately, and appropriate adjustments shall be made in the purchase price per share to reflect such subdivision, combination or stock dividend. B. Consolidations or Mergers. If the Company is to be consolidated ------------------------- with or acquired by another entity in a merger, sale of all or substantially all of the Company's assets or otherwise (an "Acquisition"), the Committee or the board of directors of any entity assuming the obligations of the Company hereunder (the "Successor Board"), shall, as to outstanding Options, either (i) make appropriate provision for the continuation of such Options by substituting on an equitable basis for the shares then subject to such Options the consideration payable with respect to the outstanding shares of Common Stock in connection with the Acquisition; or (ii) upon written notice to the optionees, provide that all Options must be exercised, to the extent then exercisable, within a specified number of days of the date of such notice, at the end of which period the Options shall terminate; or (iii) terminate all Options in exchange for a cash payment equal to the excess of the fair market value of the shares subject to such Options (to the extent then exercisable) over the exercise price thereof. -7- C. Recapitalization or Reorganization. In the event of a ---------------------------------- recapitalization or reorganization of the Company (other than a transaction described in subparagraph B above) pursuant to which securities of the Company or of another corporation are issued with respect to the outstanding shares of Common Stock, an optionee upon exercising an Option shall be entitled to receive for the purchase price paid upon such exercise the securities he would have received if he had exercised his Option prior to such recapitalization or reorganization. D. Modification of ISOs. Notwithstanding the foregoing, any -------------------- adjustments made pursuant to subparagraphs A, B or C with respect to ISOs shall be made only after the Committee, after consulting with counsel for the Company, determines whether such adjustments would constitute a "modification" of such ISOs (as that term is defined in Section 424 of the Code) or would cause any adverse tax consequences for the holders of such ISOs. If the Committee determines that such adjustments made with respect to ISOs would constitute a modification of such ISOs, it may refrain from making such adjustments. E. Dissolution or Liquidation. In the event of the proposed -------------------------- dissolution or liquidation of the Company, each Option will terminate immediately prior to the consummation of such proposed action or at such other time and subject to such other conditions as shall be determined by the Committee. F. Issuances of Securities. Except as expressly provided herein, no ----------------------- issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares subject to Options. No adjustments shall be made for dividends paid in cash or in property other than securities of the Company. G. Fractional Shares. No fractional shares shall be issued under the ----------------- Plan and the optionee shall receive from the Company cash in lieu of such fractional shares. H. Adjustments. Upon the happening of any of the events described in ----------- subparagraphs A, B or C above, the class and aggregate number of shares set forth in paragraph 4 hereof that are subject to Stock Rights which previously have been or subsequently may be granted under the Plan shall also be appropriately adjusted to reflect the events described in such subparagraphs. The Committee or the Successor Board shall determine the specific adjustments to be made under this paragraph 13 and, subject to paragraph 2, its determination shall be conclusive. If any person or entity owning restricted Common Stock obtained by exercise of a Stock Right made hereunder receives shares or securities or cash in connection with a corporate transaction described in subparagraphs A, B or C above as a result of owning such restricted Common Stock, such shares or securities or cash shall be subject to all of the conditions and restrictions applicable to the restricted Common Stock with respect to which such shares or securities or cash were issued, unless otherwise determined by the Committee or the Successor Board. -8- 14. Means of Exercising Stock Rights. A Stock Right (or any part or -------------------------------- installment thereof) shall be exercised by giving written notice to the Company at its principal office address. Such notice shall identify the Stock Right being exercised and specify the number of shares as to which such Stock Right is being exercised, accompanied by full payment of the purchase price therefor (a) in United States dollars in cash or by check, (b) at the discretion of the Committee, through delivery or withholding from the Stock Right exercise of shares of Common Stock having a fair market value equal as of the date of the exercise to the cash exercise price of the Stock Right, (c) at the discretion of the Committee, by delivery of the grantee's personal recourse note bearing interest payable not less than annually at no less than 100% of the lowest applicable Federal rate, as defined in Section 1274(d) of the Code, (d) at the discretion of the Committee and consistent with applicable law, through the delivery of an assignment to the Company of a sufficient amount of the proceeds from the sale of the Common Stock acquired upon exercise of the Stock Right and an authorization to the broker or selling agent to pay that amount to the Company, which sale shall be at the participant's direction at the time of exercise, or (e) at the discretion of the Committee, by any combination of (a), (b), (c) and (d) above. If the Committee exercises its discretion to permit payment of the exercise price of an ISO by means of the methods set forth in clauses (b), (c), (d) or (e) of the preceding sentence, such discretion shall be exercised in writing at the time of the grant of the ISO in question. Notwithstanding the foregoing, no employee may pay any part of the exercise price hereof by delivering shares of Common Stock to the Company unless such Common Stock has been owned by such employee free of any substantial risk of forfeiture for at least six months. The holder of a Stock Right shall not have the rights of a shareholder with respect to the shares covered by his Stock Right until the date of issuance of a stock certificate to him for such shares. Except as expressly provided above in paragraph 13 with respect to changes in capitalization and stock dividends, no adjustment shall be made for dividends or similar rights for which the record date is before the date such stock certificate is issued. 15. Term and Amendment of Plan. This Plan was adopted by the Board of -------------------------- Directors and Stockholders of the Company on March 31, 1992. The Plan shall expire at the end of the day on March 27, 2002 (except as to Options outstanding on that date). The Board may terminate or amend the Plan in any respect at any time, except that, without the approval of the stockholders obtained within 12 months before or after the Board adopts a resolution authorizing any of the following actions: (a) the total number of shares that may be issued under the Plan may not be increased materially (except by adjustment pursuant to paragraph 13); (b) the benefits accruing to participants under the Plan may not be materially increased; (c) the requirements as to eligibility for participation in the Plan may not be materially modified; (d) the provisions of paragraph 3 regarding eligibility for grants of ISOs may not be modified; (e) the provisions of paragraph 6(B) regarding the exercise price at which shares may be offered pursuant to ISOs may not be modified (except by adjustment pursuant to paragraph 13); (f) the expiration date of the Plan may not be extended; and (g) the Board may not take any action which would cause the Plan to fail to comply with Rule 16b-3. Except as otherwise provided in this paragraph 15, in no event may action of the Board or stockholders alter or impair the rights of a grantee, without his consent, under any Stock Right previously granted to him. -9- 16. Conversion of ISOs into Non-Qualified Options; Termination of ISOs. ------------------------------------------------------------------ The Committee, at the written request of any optionee, may in its discretion take such actions as may be necessary to convert such optionee's ISOs (or any installments or portions of installments thereof) that have not been exercised on the date of conversion into Non-Qualified Options at any time prior to the expiration of such ISOs, regardless of whether the optionee is an employee of the Company or a Related Corporation at the time of such conversion. Such actions may include, but not be limited to, extending the exercise period or reducing the exercise price of the appropriate installments of such ISOs. At the time of such conversion, the Committee (with the consent of the optionee) may impose such conditions on the exercise of the resulting Non-Qualified Options as the Committee in its discretion may determine, provided that such conditions shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed to give any optionee the right to have such optionee's ISOs converted into Non-Qualified Options, and no such conversion shall occur until and unless the Committee takes appropriate action. The Committee, with the consent of the optionee, may also terminate any portion of any ISO that has not been exercised at the time of such termination. 17. Application Of Funds. The proceeds received by the Company from the -------------------- sale of shares pursuant to Options granted and Purchases authorized under the Plan shall be used for general corporate purposes. 18. Governmental Regulation. The Company's obligation to sell and deliver ----------------------- shares of the Common Stock under this Plan is subject to the approval of any governmental authority required in connection with the authorization, issuance or sale of such shares. 19. Withholding of Additional Income Taxes. Upon the exercise of a Non- -------------------------------------- Qualified Option, the grant of an Award, the making of a Purchase of Common Stock for less than its fair market value, the making of a Disqualifying Disposition (as defined in paragraph 20) or the vesting of restricted Common Stock acquired on the exercise of a Stock Right hereunder, the Company, in accordance with Section 3402(a) of the Code, may require the optionee, Award recipient or purchaser to pay additional withholding taxes in respect of the amount that is considered compensation includible in such person's gross income. The Committee in its discretion may condition (i) the exercise of an Option, (ii) the grant of an Award, (iii) the making of a Purchase of Common Stock for less than its fair market value, or (iv) the vesting of restricted Common Stock acquired by exercising a Stock Right, on the grantee's payment of such additional withholding taxes. Payment of such additional withholding taxes shall be in United States dollars in cash or by check and/or at the discretion of the Committee, through the delivery of previously held shares of common stock or withholding from the Stock Right exercise of shares of Common Stock having a fair market value equal as of the date of exercise to the amount of such withholding taxes. 20. Notice to Company of Disqualifying Disposition. Each employee who ---------------------------------------------- receives an ISO must agree to notify the Company in writing immediately after the employee makes a Disqualifying Disposition of any Common Stock acquired pursuant to the exercise of an ISO. A Disqualifying Disposition is any disposition (including any sale) of such Common Stock before the later of (a) two years after the date the employee was granted the ISO, or (b) one year after -10- the date the employee acquired Common Stock by exercising the ISO. If the employee has died before such stock is sold, these holding period requirements do not apply and no Disqualifying Disposition can occur thereafter. 21. Governing Law; Construction. The validity and construction of the --------------------------- Plan and the instruments evidencing Stock Rights shall be governed by the laws of the State of Delaware, or the laws of any jurisdiction in which the Company or its successors in interest may be organized. In construing this Plan, the singular shall include the plural and the masculine gender shall include the feminine and neuter, unless the context otherwise requires. EX-4.2 3 1997 NON-QUALIFIED STOCK OPTION PLAN OF THE COMPANY EXHIBIT 4.2 PERSEPTIVE BIOSYSTEMS, INC. 1997 NON-QUALIFIED STOCK OPTION PLAN ------------------------------------ 1. PURPOSE. This 1997 Non-Qualified Stock Option Plan (the "Plan") is ------- intended to provide incentives to employees, consultants and certain new officers of PerSeptive Biosystems, Inc. (the "Company"), and of any present or future parent or subsidiaries of the Company (collectively, "Related Corporations") by providing them with opportunities to purchase stock in the Company pursuant to options ("Non-Qualified Options" or "Options") granted hereunder which do not qualify as "incentive stock options" ("ISOs") under Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"). The Plan is not intended to provide Option grants to any person who is an officer or director of the Company or Related Corporations, unless such grant is an inducement essential to such person's entering into one or more employment agreements with the Company as a new employee. As used herein, the terms "parent" and "subsidiary" mean "parent corporation" and "subsidiary corporation," respectively, as those terms are defined in Section 424 of the Code. 2. ADMINISTRATION OF THE PLAN. --------------------------- A. BOARD OR COMMITTEE ADMINISTRATION. The Plan shall be administered --------------------------------- by the Board of Directors of the Company (the "Board"), or by a committee appointed by the Board (the "Committee"). Hereinafter, all references in this Plan to the "Committee" shall mean the Board if no Committee has been appointed. Subject to ratification of the grant or authorization of each Option by the Board (if so required by applicable state law), and subject to the terms of the Plan, the Committee shall have the authority to (i) determine to whom, from among the class of individuals and entities eligible under paragraph 3 to receive Options, Options may be granted; (ii) determine the time or times at which Options shall be granted; (iii) determine the option price of shares subject to each Option, which price shall not be less than the minimum price specified in paragraph 6; (iv) determine (subject to paragraph 7) the time or times when each Option shall become exercisable and the duration of the exercise period; (v) determine whether restrictions such as repurchase options are to be imposed on shares subject to Options and the nature of such restrictions, if any, and (vi) interpret the Plan and prescribe and rescind rules and regulations relating to it. The Committee shall take whatever actions it deems necessary, under Section 422 of the Code and the regulations promulgated thereunder, to ensure that no Option issued hereunder is treated as an ISO. The interpretation and construction by the Committee of any provisions of the Plan or of any Option granted under it shall be final unless otherwise determined by the Board. The Committee may from time to time adopt such rules and regulations for carrying out the Plan as it may deem advisable. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Option granted under it. B. COMMITTEE ACTIONS. The Committee may select one of its members as ----------------- its chairman, and shall hold meetings at such time and places as it may determine. A majority of the Committee shall constitute a quorum and acts by a majority of the members of the Committee, or acts reduced to or approved in writing by a majority of the members of the Committee (if consistent with applicable state law), shall constitute the valid acts of the Committee. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies however caused, or remove all members of the Committee and thereafter directly administer the Plan. 3. ELIGIBLE EMPLOYEES AND OTHERS. Non-Qualified Options may be granted to: ----------------------------- (a) any employee or consultant of the Company or any Related Corporation who has not been an officer of the Company prior to the date of such grant; or (b) any new officer of the Company, if such grant is an inducement essential to the individuals entering into one or more employment agreements with the Company as a new employee. No Options may be granted to any other person under the Plan. The Committee may take into consideration a recipient's individual circumstances in determining whether to grant an Option. The granting of any Option to any individual or entity shall neither entitle such grantee to, nor disqualify such grantee from, participation in any other grant of Options. 4. STOCK. The stock subject to Options shall be authorized but unissued ----- shares of Common Stock of the Company, par value $ .01 per share (the "Common Stock"), or shares of Common Stock reacquired by the Company in any manner. The aggregate number of shares which may be issued pursuant to the Plan is 200,000, subject to adjustment as provided in paragraph 13. If any Option granted under the Plan shall expire or terminate for any reason without having been exercised in full or shall cease for any reason to be exercisable in whole or in part or shall be repurchased by the Company, the unissued shares of Common Stock subject to such Option shall again be available for grants of Options under the Plan. For purposes of the foregoing sentence, shares withheld from the Option exercise to pay the exercise price and/or tax consequences of the exercise shall be deemed to have been issued. 5. GRANTING OF OPTIONS. Options may be granted under the Plan at any time ------------------- on or after March 5, 1997 and prior to March 5, 2007. The date of grant of an Option under the Plan will be the date specified by the Committee at the time it grants the Option; provided, however, that such date shall not be prior to the date on which the Committee acts to approve the grant. 6. MINIMUM OPTION PRICE. The exercise price per share specified in the -------------------- agreement relating to each Option granted under the Plan (the "Agreement"), may be less than the fair market value of the Common Stock of the Company on the date of grant, but shall in no event be less than the minimum legal consideration required therefor under the laws of Delaware or the laws of any jurisdiction in which the Company or its successors in interest may be organized. 7. OPTION DURATION. Subject to earlier termination as provided in --------------- paragraphs 9 and 10 or as specified in the Agreement relating to such Option, each Option shall expire on the date specified by the Committee, but not more than ten years and one day from the date of grant. 2 8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 9 through ------------------ 12, each Option granted under the Plan shall be exercisable as follows: A. VESTING. The Option shall either be fully exercisable on the date ------- of grant or shall become exercisable thereafter in such installments as the Committee may specify. B. FULL VESTING OF INSTALLMENTS. Once an installment becomes ---------------------------- exercisable it shall remain exercisable until expiration or termination of the Option, unless otherwise specified by the Committee. C. PARTIAL EXERCISE. Each Option or installment may be exercised at ---------------- any time or from time to time, in whole or in part, for up to the total number of shares with respect to which it is then exercisable. D. ACCELERATION OF VESTING. The Committee shall have the right to ----------------------- accelerate the date that any installment of any Option becomes exercisable. 9. TERMINATION OF BUSINESS RELATIONSHIP. Each Option may provide that it ------------------------------------ shall terminate before its stated expiration date, upon terms specified by the Committee, if the optionee ceases to be an employee or consultant of the Company, of any Related Corporation, or of the Company and all Related Corporations (any such relationship hereinafter referred to as a "Business Relationship with the Company"). Nothing in the Plan or any Option granted hereunder shall be deemed to give any optionee the right to continue his or her Business Relationship with the Company for any period of time. 10. DEATH; DISABILITY. ----------------- A. DEATH. Unless otherwise specified by the Committee, if an ----- optionee's Business Relationship with the Company terminates by reason of death, his or her Option may be exercised, to the extent of the number of shares with respect to which such optionee could have exercised it on the date of such optionee's death, by such optionee's estate, personal representative or beneficiary who has acquired the Option by will or by the laws of descent and distribution, at any time prior to the earlier of the specified expiration date of the Option or 180 days from the date of death. B. DISABILITY. Unless otherwise specified by the Committee, if an ---------- optionee's Business Relationship with the Company terminates by reason of such optionee's disability, such optionee shall have the right to exercise his or her Option, to the extent of the number of shares with respect to which such optionee could otherwise have exercised it on the date his or her Business Relationship with the Company terminated, at any time prior to the earlier of the specified expiration date of the Option or 180 days from the date of the termination of the optionee's Business Relationship with the Company. For the purposes of the Plan, the term "disability" shall mean "permanent and total disability" as defined in Section 22(e)(3) of the Code or any successor statute. 3 11. ASSIGNABILITY. No Option shall be assignable or transferable by the ------------- optionee except by will or by the laws of descent and distribution, and during the lifetime of the optionee each Option shall be exercisable only by the optionee. 12. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by ------------------------------- instruments (which need not be identical) in such forms as the Committee may from time to time approve. Such instruments shall conform to the terms and conditions set forth in paragraphs 6 through 11 hereof and may contain such other provisions as the Committee deems advisable which are not inconsistent with the Plan, including restrictions applicable to shares of Common Stock issuable upon exercise of Options. The Committee may specify that any Option shall be subject to the restrictions set forth herein or, consistent with paragraphs 7, 9 and 10 to such other or additional termination and cancellation provisions as the Committee may determine. The Committee may from time to time confer authority and responsibility on one or more of its own members and/or one or more officers of the Company to execute and deliver such instruments. The proper officers of the Company are authorized and directed to take any and all action necessary or advisable from time to time to carry out the terms of such instruments. 13. ADJUSTMENTS. Upon the occurrence of any of the following events, an ----------- optionee's rights with respect to Options granted to such optionee hereunder shall be adjusted as hereinafter provided, unless otherwise specifically provided in the written agreement between the optionee and the Company relating to such Option: A. STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common Stock -------------------------------- shall be subdivided or combined into a greater or smaller number of shares or if the Company shall issue any shares of Common Stock as a stock dividend on its outstanding Common Stock, the number of shares of Common Stock deliverable upon the exercise of Options shall be appropriately increased or decreased proportionately, and appropriate adjustments shall be made in the purchase price per share to reflect such subdivision, combination or stock dividend. B. CONSOLIDATIONS OR MERGERS. If the Company is to be consolidated with ------------------------- or acquired by another entity in a merger or other reorganization in which the holders of the outstanding voting stock of the Company immediately preceding the consummation of such event, shall, immediately following such event, hold, as a group, less than a majority of the voting securities of the surviving or successor entity, or in the event of a sale of all or substantially all of the Company's assets or otherwise (each, an "Acquisition"), the Committee or the board of directors of any entity assuming the obligations of the Company hereunder (the "Successor Board"), shall, as to outstanding Options, either (i) make appropriate provision for the continuation of such Options by substituting on an equitable basis for the shares then subject to such Options the consideration payable with respect to the outstanding shares of Common Stock in connection with the Acquisition; or (ii) upon written notice to the optionees, provide that all Options must be exercised, to the extent then exercisable or to be exercisable as a result of the Acquisition, within a specified number of days of the date of such notice, at the end of which period the Options shall terminate; or 4 (iii) terminate all Options in exchange for a cash payment equal to the excess of the fair market value of the shares subject to such Options (to the extent then exercisable or to be exercisable as a result of the Acquisition) over the exercise price thereof. C. RECAPITALIZATION OR REORGANIZATION. In the event of a ---------------------------------- recapitalization or reorganization of the Company (other than a transaction described in subparagraph B above) pursuant to which securities of the Company or of another corporation are issued with respect to the outstanding shares of Common Stock, an optionee upon exercising an Option shall be entitled to receive for the purchase price paid upon such exercise the securities such optionee would have received if such optionee had exercised his or her Option prior to such recapitalization or reorganization. D. DISSOLUTION OR LIQUIDATION. In the event of the proposed -------------------------- dissolution or liquidation of the Company, each Option will terminate immediately prior to the consummation of such proposed action or at such other time and subject to such other conditions as shall be determined by the Committee. E. ISSUANCES OF SECURITIES. Except as expressly provided herein, no ----------------------- issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares subject to Options. No adjustments shall be made for dividends paid in cash or in property other than securities of the Company. F. FRACTIONAL SHARES. No fractional shares shall be issued under the ----------------- Plan and the optionee shall receive from the Company cash in lieu of such fractional shares. G. ADJUSTMENTS. Upon the happening of any of the events described in ----------- subparagraphs A, B or C above, the class and aggregate number of shares set forth in paragraph 4 hereof that are subject to Options which previously have been or subsequently may be granted under the Plan shall also be appropriately adjusted to reflect the events described in such subparagraphs. The Committee or the Successor Board shall determine the specific adjustments to be made under this paragraph 13 and, subject to paragraph 2, its determination shall be conclusive. 14. MEANS OF EXERCISING OPTIONS. An Option (or any part or installment --------------------------- thereof) shall be exercised by giving written notice to the Company at its principal office address. Such notice shall identify the Option being exercised and specify the number of shares as to which such Option is being exercised, accompanied by full payment of the purchase price therefor either (a) in United States dollars in cash or by check, (b) at the discretion of the Committee, through delivery or withholding from the Option exercise of shares of Common Stock having a fair market value equal as of the date of the exercise to the cash exercise price of the Option, (c) at the discretion of the Committee, by delivery of the optionee's personal recourse note bearing interest payable not less than annually at no less than 100% of the lowest applicable Federal rate, as defined in Section 1274(d) of the Code, (d) at the discretion of the Committee and consistent with applicable law, through the delivery of an assignment to the Company of a sufficient 5 amount of the proceeds from the sale of the Common Stock acquired upon exercise of the Option and an authorization to the broker or selling agent to pay that amount to the Company, which sale shall be at the participant's direction at the time of exercise, or (e) at the discretion of the Committee, by any combination of (a), (b), (c) and (d) above. Notwithstanding the foregoing, no employee may pay any part of the exercise price hereof by delivering shares of Common Stock to the Company unless such Common Stock has been owned by such employee free of any substantial risk of forfeiture for at least six months. The holder of an Option shall not have the rights of a shareholder with respect to the shares covered by such Option until the date of issuance of a stock certificate to such holder for such shares. Except as expressly provided above in paragraph 13 with respect to changes in capitalization and stock dividends, no adjustment shall be made for dividends or similar rights for which the record date is before the date such stock certificate is issued. 15. TERM AND AMENDMENT OF PLAN. This Plan was adopted by the Board on March -------------------------- 5, 1997. The Plan shall expire at the end of the day on March 5, 2007 (except as to Options outstanding on that date). The Board may terminate or amend the Plan in any respect at any time. Except as otherwise provided in this paragraph 15, in no event may action of the Board alter or impair the rights of an optionee, without his or her consent, under any Option previously granted to such optionee. 16. APPLICATION OF FUNDS. The proceeds received by the Company from the sale -------------------- of shares pursuant to Options granted under the Plan shall be used for general corporate purposes. 17. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the grant or exercise of an -------------------------------------- Option or the vesting or transfer of restricted stock or securities acquired upon the exercise of an Option hereunder, the Company may withhold or require the optionee to pay additional withholding taxes in respect of amounts that constitute compensation includible in gross income. The Committee in its discretion may condition the grant or exercise of an Option or the vesting or transferability of restricted stock or securities acquired by exercising an Option, on the optionee's making satisfactory arrangement for such payment of such additional withholding taxes. Such arrangement may include payment by the optionee in cash or by check of the amount of the withholding taxes or, at the discretion of the Committee, by the optionee's delivery of previously held shares of Common Stock or the withholding from the shares of Common Stock otherwise deliverable upon exercise of a Option shares having an aggregate fair market value equal to the amount of such withholding taxes. 18. DETERMINATION OF FAIR MARKET VALUE OF COMMON STOCK. Whenever, under the -------------------------------------------------- terms of any option agreement or in administering the Plan, it is necessary or desirable to determine the fair market value of the Company's Common Stock, the Committee shall make such determination in accordance with this Section. "Fair Market Value" shall be determined as of the last business day for which the prices or quotes discussed in this sentence are available prior to the date such Option is granted and shall mean (i) the average (on that date) of the high and low prices of the Common Stock on the principal national securities exchange on which the Common Stock is traded, if the Common Stock is then traded on a national securities exchange; or (ii) the last reported sale price (on that date) of the Common Stock on the Nasdaq National 6 Market, if the Common Stock is not then traded on a national securities exchange; or (iii) the closing bid price (or average of bid prices) last quoted (on that date) by an established quotation service for over-the-counter securities, if the Common Stock is not reported on the Nasdaq National Market. However, if the Common Stock is not publicly traded at the time an Option is granted under the Plan, "fair market value" shall be deemed to be the fair value of the Common Stock as determined by the Committee after taking into consideration all factors which it deems appropriate, including, without limitation, recent sale and offer prices of the Common Stock in private transactions negotiated at arm's length. 19. GOVERNMENTAL REGULATION. The Company's obligation to sell and deliver ----------------------- shares of the Common Stock under this Plan is subject to the approval of any governmental authority required in connection with the authorization, issuance or sale of such shares. Government regulations may impose reporting or other obligations on the Company with respect to the Plan. For example, the Company may be required to file tax information returns reporting the income received by optionees in connection with the Plan. 20. GOVERNING LAW. The validity and construction of the Plan and the ------------- instruments evidencing Options shall be governed by the laws of the State of Delaware, or the laws of any jurisdiction in which the Company or its successors in interest may be organized. 7 EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q FOR THE QUARTER ENDED MARCH 29, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS 6-MOS SEP-30-1997 SEP-30-1996 OCT-01-1996 OCT-01-1995 MAR-29-1997 MAR-30-1996 6,788 10,938 36,075 13,006 19,402 20,856 1,936 2,267 20,489 21,074 82,302 66,393 44,234 55,322 14,679 19,091 136,963 134,757 36,292 40,079 0 0 0 0 18,767 27,023 215 170 47,979 31,889 136,963 134,757 44,294 38,431 44,294 48,532 22,334 18,700 22,334 32,108 1,648 38,942 0 0 1,462 1,422 18,850 (23,940) 0 100 18,850 (24,040) 0 0 0 0 0 0 18,850 (24,040) 0.84 (1.72) 0.77 0
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