12. STOCK OPTION PLAN
In April 1994 the Company adopted the 1994 Stock Option Plan ("Plan"). A total
of 200,000 shares were reserved for issuance under the Plan. The options vest
over a two-year period at the rate of 50% per year, beginning on the first
anniversary of the grant date. In October 1994, the Company granted options, in
connection with its initial public offering, for 58,016 shares exercisable at a
price of $4.75 per share, which was the fair market value at the date of grant.
In 1997,1996 and 1995, the Company granted options for 3,000 shares exercisable
at a price of $9.83, $4.00 and $3.00 per share, respectively, which was the fair
market value at the grant date, to the Directors of the Company. Such options
vest one year from the date of grant.
In April 1997, the Company amended the Plan to increase the reserved shares to
600,000. The vesting period in the Company's form option grant agreement was
also changed to 50% on the second anniversary of the grant date and 25% on
each of the third and fourth anniversaries of the grant date. The Company's
Compensation Committee retains the ability to change the vesting schedule at
any time. The per share weighted-average fair value of stock options granted
during 1997, 1996 and 1995 was $7.08, $2.59 and $2.07, respectively, on the
date of grant using the Black Scholes option-pricing model with the following
weighted average assumptions: expected dividend yield 0.0%, risk-free interest
rate of 6.5% in 1997 and 6.9% in 1996 and 1995, expected volatility of the
stock over the expected life 70% in 1997 and 30% in 1996 and 1995, and expected
life ranging from 7 to 10 years.
The Company applies intrinsic value accounting for its Plan and, accordingly, no
compensation cost has been recognized for its stock options in the financial
statements. Had the Company determined compensation cost based on the fair value
at the grant date for its stock options under SFAS No. 123, the Company's net
loss and loss per share would have been increased to the pro forma amounts
indicated below: <TABLE><CAPTION>
1997 1996 1995
(UNAUDITED)
---- ---- ---------
<S> <C> <C> <C>
Net loss As reported $4,974 $3,841 $613
(in thousands)
Pro forma $5,418 $3,930 $616
Loss per share (Basic) As reported $1.15 $1.41 $0.24
Pro forma $1.25 $1.45 $0.24
</TABLE>
The pro forma information above only includes stock options granted in the years
ended December 31,1997, 1996 and 1995. Compensation expense under the fair value
based method of accounting will increase over the next few years as granted
stock options vest and additional stock option grants are considered.<PAGE> 29
The following table illustrates the outstanding stock options and related
average exercise prices during each of the last three years.<TABLE><CAPTION>
AVERAGE PER
SHARE EXERCISE
SHARES PRICE
------ -----
<S> <C> <C>
BALANCE DECEMBER 31, 1994 58,016 $4.75
ISSUED 12,700 $3.57
EXERCISED
BALANCE DECEMBER 31, 1995 70,716 $4.58
ISSUED 146,437 $4.46
FORFEITED (25,450) $4.11
EXERCISED
BALANCE DECEMBER 31, 1996 191,703 $4.55
ISSUED 215,350 $9.82
FORFEITED (9,062) $6.19
EXERCISED (21,768) $4.57
BALANCE DECEMBER 31, 1997 376,223 $7.54
</TABLE>
The range of exercise prices on outstanding options at December 31, 1997 is as
follows:<TABLE><CAPTION>
PRICE RANGE WEIGHTED AVERAGE AVERAGE REMAINING LIFE
SHARES EXERCISE PRICE (IN YEARS)
-------------- ----------
<S> <C> <C> <C>
$1.63 - $5.00 148,923 $4.18 7.9
$5.01 - $7.50 106,400 $6.86 8.8
$7.51 - $10.00 33,000 $8.91 8.9
$10.01 - $14.38 87,900 $13.43 9.6
-------
TOTAL 376,223 =======</TABLE>
As of December 31, 1997, 1996 and 1995, the number of options exercisable was
62,461, 56,892 and 31,446, respectively, and weighted average exercise price of
those options was $4.53, $4.75 and $4.58, respectively.
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