Common use of STOCKHOLDERS' EQUITY Clause in Contracts

STOCKHOLDERS' EQUITY. Stock Option Plans and Other Employee Option Grants -- In June 1989, Isis adopted a stock option plan which provides for the issuance of incentive and non-qualified stock options for the purchase of up to 10,200,000 shares of common stock to its employees and certain other individuals. In addition to the options issued under the terms of the 1989 plan, non-qualified options to purchase 319,000 shares of common stock have been granted to certain employees. The plan also includes provisions for the issuance of stock pursuant to restricted stock purchases and bonuses. Typically options expire 10 years from the date of grant. Options granted after December 31, 1995 vest over a 4 year period, with 25% exercisable at the end of 1 year from the date of the grant and the balance vesting ratably thereafter. Options granted before January 1, 1996 generally 44 NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1998 vest over a 5 year period. At December 31, 1998, a total of 4,347,000 shares were exercisable, and 1,903,000 were available for future grant. In July 1992, Isis adopted the 1992 Non-Employee Directors' Stock Option Plan which provides for the issuance of non-qualified stock options for the purchase of up to 300,000 shares of common stock to its non-employee directors. Options under this plan expire 10 years from the date of grant. Options granted after December 31, 1995 become exercisable in 4 equal annual installments beginning 1 year after the date of grant. Options granted before January 1, 1996 vest over a 5 year period. At December 31, 1998, 139,000 shares issued under this plan were exercisable and 58,000 shares were available for future grant. The following table summarizes stock option activity for the years ended December 31, 1998 and 1997 (in thousands, except per share data): NUMBER OF SHARES PRICE PER SHARE WEIGHTED AVG. PRICE/SHARE Outstanding at December 31, 1995.......... 5,446 $ .14 to $19.75 Granted................................... 1,337 11.38 to 20.00 Exercised................................. (468) .14 to 17.88 Terminated................................ (222) 4.00 to 18.63 Outstanding at December 31, 1996.......... 6,093 .14 to 20.00 $ 8.48 Granted................................... 1,071 13.19 to 19.88 Exercised................................. (395) .14 to 16.00 Terminated................................ (327) 3.75 to 18.25 Outstanding at December 31, 1997.......... 6,442 .14 to 20.00 9.80 Granted................................... 1,168 7.06 to 15.44 Exercised................................. (320) .14 to 14.50 Terminated................................ (304) 3.75 to 20.00 Outstanding at December 31, 1998.......... 6,986====== .14 to 19.88 10.27 The following table summarizes information concerning currently outstanding and exercisable options (in thousands, except contractual life and exercise price data): OPTIONS OUTSTANDING -------------------------------------------------- OPTIONS EXERCISABLE WEIGHTED ------------------------------- NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE EXERCISE PRICE AS OF 12/31/98 CONTRACTUAL LIFE EXERCISE PRICE AS OF 12/31/98 EXERCISE PRICE - -------------- -------------- ---------------- -------------- -------------- -------------- $ 0.14 - $ 4.00.. 900 4.51 $ 3.32 649 $ 3.09 $ 4.13 - $ 6.38.. 825 4.71 $ 5.68 772 $ 5.70 $ 6.46 - $ 7.75.. 896 4.90 $ 6.88 864 $ 6.87 $ 7.88 - $11.88.. 1,052 5.68 $ 9.91 769 $ 9.66 $12.00 - $12.31.. 851 8.64 $12.29 88 $12.22 $12.31 - $13.13.. 891 7.02 $13.02 621 $13.03 $13.18 - $16.19.. 831 7.82 $14.54 333 $14.61 $16.25 - $19.88.. 740 7.69 $17.99 390 $17.94 ----- ----- $ 0.14 - $19.88.. 6,986 6.46 $10.27 4,486 $ 9.10 ===== ===== Employee Stock Purchase Plan -- In 1991, the Board of Directors adopted the Employee Stock Purchase Plan and reserved 500,000 shares of common stock for issuance thereunder. The plan permits full-time employees to purchase common stock through payroll deductions (which cannot exceed 10% of each employee's compensation) at the lower of 85% of fair market value at the beginning of the offer or the end of 45 DECEMBER 31, 1998 each six-month purchase period. During 1998, 78,000 shares were issued to employees at prices ranging from $10.47 to $10.73 per share. In 1997, 58,000 shares were issued at prices ranging from $10.73 to $15.30 per share. At December 31, 1998, 141,000 shares were available for purchase under this plan. Stock-Based Employee Compensation -- Isis has adopted the disclosure-only provision of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation expense has been recognized for the stock option plans. Had compensation expense been determined consistent with Statement No. 123, Isis' net loss and basic net loss per share would have been changed to the following pro forma amounts (in thousands, except per share amounts): 1998 1997 1996 Net loss -- as reported $(42,983) $(31,066) $(26,521) Net loss -- pro forma (49,761) (38,004) (32,200) Basic net loss per share -- as reported............ $ (1.60) $ (1.17) $ (1.04) Basic net loss per share -- pro forma.............. (1.85) (1.44) (1.26) The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for 1996, 1997 and 1998: expected life of 1 year from vesting date for regular employees, 2 years from vesting date for Directors and Vice Presidents, and 4 years from vesting date for Executive Officers; expected dividend yield of zero percent and expected volatility of 60 percent. The risk-free interest rate was based on the Treasury ▇▇▇▇ rate at the end of each year during 1996, 1997 and 1998. The weighted average risk free interest rates for 1996, 1997 and 1998 were 6.1%, 5.7%, and 4.6%, respectively. All options granted during the year were valued using the same risk-free rate for the year. The weighted average fair value of options granted was $7.20 for 1996, $8.50 for 1997 and $5.98 for 1998. Warrants -- In 1993, Isis issued Class A warrants in connection with a strategic alliance with PerSeptive Biosystems, Inc. As of December 31, 1998, 448,001 of the warrants remain outstanding at an exercise price of $7.75 per share. The warrants expire March 15, 1999. In 1997 and 1998, Isis issued 500,000 and 300,000 warrants, respectively, in conjunction with a private debt financing agreement. As of December 31, 1998, all of the warrants remain outstanding at an exercise price of $25 per share. The warrants expire November 1, 2004. See Note 3. As of December 31, 1998, total common shares reserved for future issuance was 10,429,000. 46 NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1998

STOCKHOLDERS' EQUITY. Stock Option Plans and Other Employee Option Grants -- In June 1989, Isis adopted a stock option plan which provides for the issuance of incentive and non-qualified stock options for the purchase of up to 10,200,000 shares of common stock to its employees and certain other individuals. In addition to the options issued under the terms of the 1989 plan, non-qualified options to purchase 319,000 shares of common stock have been granted to certain employees. The plan also includes provisions for the issuance of stock pursuant to restricted stock purchases and bonuses. Typically options expire 10 years from the date of grant. Options granted after December 31, 1995 vest over a 4 year period, with 25% exercisable at the end of 1 year from the date of the grant and the balance vesting ratably thereafter. Options granted before January 1, 1996 generally 44 NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1998 vest over a 5 year period. At December 31, 1998, a total of 4,347,000 shares were exercisable, and 1,903,000 were available for future grant. In July 1992, Isis adopted the 1992 Non-Employee Directors' Stock Option Plan which provides for the issuance of non-qualified stock options for the purchase of up to 300,000 shares of common stock to its non-employee directors. Options under this plan expire 10 years from the date of grant. Options granted after December 31, 1995 become exercisable in 4 equal annual installments beginning 1 year after the date of grant. Options granted before January 1, 1996 vest over a 5 year period. At December 31, 1998, 139,000 shares issued under this plan were exercisable and 58,000 shares were available for future grant. The following table summarizes stock option activity for the years ended December 31, 1998 and 1997 (in thousands, except per share data): NUMBER OF SHARES PRICE PER SHARE WEIGHTED AVG. PRICE/SHARE Outstanding at December 31, 1995.......... 5,446 $ .14 to $19.75 Granted................................... 1,337 11.38 to 20.00 Exercised................................. (468) .14 to 17.88 Terminated................................ (222) 4.00 to 18.63 Outstanding at December 31, 1996.......... 6,093 .14 to 20.00 $ 8.48 Granted................................... 1,071 13.19 to 19.88 Exercised................................. (395) .14 to 16.00 Terminated................................ (327) 3.75 to 18.25 Outstanding at December 31, 1997.......... 6,442 .14 to 20.00 9.80 Granted................................... 1,168 7.06 to 15.44 Exercised................................. (320) .14 to 14.50 Terminated................................ (304) 3.75 to 20.00 Outstanding at December 31, 1998.......... 6,986====== .14 to 19.88 10.27 The following table summarizes information concerning currently outstanding and exercisable options (in thousands, except contractual life and exercise price data): OPTIONS OUTSTANDING -------------------------------------------------- OPTIONS EXERCISABLE WEIGHTED ------------------------------- NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE EXERCISE PRICE AS OF 12/31/98 CONTRACTUAL LIFE EXERCISE PRICE AS OF 12/31/98 EXERCISE PRICE - -------------- -------------- ---------------- -------------- -------------- -------------- $ 0.14 - $ 4.00.. 900 4.51 $ 3.32 649 $ 3.09 $ 4.13 - $ 6.38.. 825 4.71 $ 5.68 772 $ 5.70 $ 6.46 - $ 7.75.. 896 4.90 $ 6.88 864 $ 6.87 $ 7.88 - $11.88.. 1,052 5.68 $ 9.91 769 $ 9.66 $12.00 - $12.31.. 851 8.64 $12.29 88 $12.22 $12.31 - $13.13.. 891 7.02 $13.02 621 $13.03 $13.18 - $16.19.. 831 7.82 $14.54 333 $14.61 $16.25 - $19.88.. 740 7.69 $17.99 390 $17.94 ----- ----- $ 0.14 - $19.88.. 6,986 6.46 $10.27 4,486 $ 9.10 ===== ===== Employee Stock Purchase Plan -- In 1991, the Board of Directors adopted the Employee Stock Purchase Plan and reserved 500,000 shares of common stock for issuance thereunder. The plan permits full-time employees to purchase common stock through payroll deductions (which cannot exceed 10% of each employee's compensation) at the lower of 85% of fair market value at the beginning of the offer or the end of 45 NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1998 each six-month purchase period. During 1998, 78,000 shares were issued to employees at prices ranging from $10.47 to $10.73 per share. In 1997, 58,000 shares were issued at prices ranging from $10.73 to $15.30 per share. At December 31, 1998, 141,000 shares were available for purchase under this plan. Stock-Based Employee Compensation -- Isis has adopted the disclosure-only provision of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation expense has been recognized for the stock option plans. Had compensation expense been determined consistent with Statement No. 123, Isis' net loss and basic net loss per share would have been changed to the following pro forma amounts (in thousands, except per share amounts): 1998 1997 1996 Net loss -- as reported reported............................ $(42,983) $(31,066) $(26,521) Net loss -- pro forma forma.............................. (49,761) (38,004) (32,200) Basic net loss per share -- as reported............ $ (1.60) $ (1.17) $ (1.04) Basic net loss per share -- pro forma.............. (1.85) (1.44) (1.26) The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for 1996, 1997 and 1998: expected life of 1 year from vesting date for regular employees, 2 years from vesting date for Directors and Vice Presidents, and 4 years from vesting date for Executive Officers; expected dividend yield of zero percent and expected volatility of 60 percent. The risk-free interest rate was based on the Treasury ▇▇▇▇ rate at the end of each year during 1996, 1997 and 1998. The weighted average risk free interest rates for 1996, 1997 and 1998 were 6.1%, 5.7%, and 4.6%, respectively. All options granted during the year were valued using the same risk-free rate for the year. The weighted average fair value of options granted was $7.20 for 1996, $8.50 for 1997 and $5.98 for 1998. Warrants -- In 1993, Isis issued Class A warrants in connection with a strategic alliance with PerSeptive Biosystems, Inc. As of December 31, 1998, 448,001 of the warrants remain outstanding at an exercise price of $7.75 per share. The warrants expire March 15, 1999. In 1997 and 1998, Isis issued 500,000 and 300,000 warrants, respectively, in conjunction with a private debt financing agreement. As of December 31, 1998, all of the warrants remain outstanding at an exercise price of $25 per share. The warrants expire November 1, 2004. See Note 3. As of December 31, 1998, total common shares reserved for future issuance was 10,429,000. 46 NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1998

STOCKHOLDERS' EQUITY. Stock Option Plans and Other Employee Option Grants -- In June 1989, Isis adopted a stock option plan which provides for the issuance of incentive and non-qualified stock options for the purchase of up to 10,200,000 shares of common stock to its employees and certain other individuals. In addition to the options issued under the terms of the 1989 plan, non-qualified options to purchase 319,000 shares of common stock have been granted to certain employees. The plan also includes provisions for the issuance of stock pursuant to restricted stock purchases and bonuses. Typically options expire 10 years from the date of grant. Options granted after December 31, 1995 vest over a 4 year period, with 25% exercisable at the end of 1 year from the date of the grant and the balance vesting ratably thereafter. Options granted before January 1, 1996 generally 44 NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1998 vest over a 5 year period. At December 31, 1998, a total of 4,347,000 shares were exercisable, and 1,903,000 were available for future grant. In July 1992, Isis adopted the 1992 Non-Employee Directors' Stock Option Plan which provides for the issuance of non-qualified stock options for the purchase of up to 300,000 shares of common stock to its non-employee directors. Options under this plan expire 10 years from the date of grant. Options granted after December 31, 1995 become exercisable in 4 equal annual installments beginning 1 year after the date of grant. Options granted before January 1, 1996 vest over a 5 year period. At December 31, 1998, 139,000 shares issued under this plan were exercisable and 58,000 shares were available for future grant. The following table summarizes stock option activity for the years ended December 31, 1998 and 1997 (in thousands, except per share data): NUMBER OF SHARES PRICE PER SHARE WEIGHTED AVG. PRICE/SHARE Outstanding at December 31, 1995.......... 5,446 $ .14 to $19.75 Granted................................... 1,337 11.38 to 20.00 Exercised................................. (468) .14 to 17.88 Terminated................................ (222) 4.00 to 18.63 Outstanding at December 31, 1996.......... 6,093 .14 to 20.00 $ 8.48 Granted................................... 1,071 13.19 to 19.88 Exercised................................. (395) .14 to 16.00 Terminated................................ (327) 3.75 to 18.25 Outstanding at December 31, 1997.......... 6,442 .14 to 20.00 9.80 Granted................................... 1,168 7.06 to 15.44 Exercised................................. (320) .14 to 14.50 Terminated................................ (304) 3.75 to 20.00 Outstanding at December 31, 1998.......... 6,986====== .14 to 19.88 10.27 The following table summarizes information concerning currently outstanding and exercisable options (in thousands, except contractual life and exercise price data): OPTIONS OUTSTANDING -------------------------------------------------- OPTIONS EXERCISABLE WEIGHTED ------------------------------- NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE EXERCISE PRICE AS OF 12/31/98 CONTRACTUAL LIFE EXERCISE PRICE AS OF 12/31/98 EXERCISE PRICE - -------------- -------------- ---------------- -------------- -------------- -------------- $ 0.14 - $ 4.00.. 900 4.51 $ 3.32 649 $ 3.09 $ 4.13 - $ 6.38.. 825 4.71 $ 5.68 772 $ 5.70 $ 6.46 - $ 7.75.. 896 4.90 $ 6.88 864 $ 6.87 $ 7.88 - $11.88.. 1,052 5.68 $ 9.91 769 $ 9.66 $12.00 - $12.31.. 851 8.64 $12.29 88 $12.22 $12.31 - $13.13.. 891 7.02 $13.02 621 $13.03 $13.18 - $16.19.. 831 7.82 $14.54 333 $14.61 $16.25 - $19.88.. 740 7.69 $17.99 390 $17.94 ----- ----- $ 0.14 - $19.88.. 6,986 6.46 $10.27 4,486 $ 9.10 ===== ===== Employee Stock Purchase Plan -- In 1991, the Board of Directors adopted the Employee Stock Purchase Plan and reserved 500,000 shares of common stock for issuance thereunder. The plan permits full-time employees to purchase common stock through payroll deductions (which cannot exceed 10% of each employee's compensation) at the lower of 85% of fair market value at the beginning of the offer or the end of 45 NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1998 each six-month purchase period. During 1998, 78,000 shares were issued to employees at prices ranging from $10.47 to $10.73 per share. In 1997, 58,000 shares were issued at prices ranging from $10.73 to $15.30 per share. At December 31, 1998, 141,000 shares were available for purchase under this plan. Stock-Based Employee Compensation -- Isis has adopted the disclosure-only provision of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation expense has been recognized for the stock option plans. Had compensation expense been determined consistent with Statement No. 123, Isis' net loss and basic net loss per share would have been changed to the following pro forma amounts (in thousands, except per share amounts): 1998 1997 1996 Net loss -- as reported $(42,983) $(31,066) $(26,521) Net loss -- pro forma (49,761) (38,004) (32,200) Basic net loss per share -- as reported............ $ (1.60) $ (1.17) $ (1.04) Basic net loss per share -- pro forma.............. (1.85) (1.44) (1.26) The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for 1996, 1997 and 1998: expected life of 1 year from vesting date for regular employees, 2 years from vesting date for Directors and Vice Presidents, and 4 years from vesting date for Executive Officers; expected dividend yield of zero percent and expected volatility of 60 percent. The risk-free interest rate was based on the Treasury ▇▇▇▇ rate at the end of each year during 1996, 1997 and 1998. The weighted average risk free interest rates for 1996, 1997 and 1998 were 6.1%, 5.7%, and 4.6%, respectively. All options granted during the year were valued using the same risk-free rate for the year. The weighted average fair value of options granted was $7.20 for 1996, $8.50 for 1997 and $5.98 for 1998. Warrants -- In 1993, Isis issued Class A warrants in connection with a strategic alliance with PerSeptive Biosystems, Inc. As of December 31, 1998, 448,001 of the warrants remain outstanding at an exercise price of $7.75 per share. The warrants expire March 15, 1999. In 1997 and 1998, Isis issued 500,000 and 300,000 warrants, respectively, in conjunction with a private debt financing agreement. As of December 31, 1998, all of the warrants remain outstanding at an exercise price of $25 per share. The warrants expire November 1, 2004. See Note 3. As of December 31, 1998, total common shares reserved for future issuance was 10,429,000. 46 NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1998

STOCKHOLDERS' EQUITY. Stock Option Plans and Other Employee Option Grants -- In June 1989The Company has a Shareholder Rights Plan, Isis adopted under which the Board of Directors declared a dividend of one Right for each share of Company common stock option plan which provides owned. The Plan provides, under certain conditions involving acquisition of the Company's common stock, that holders of Rights, except for the issuance acquiring entity, would be entitled (i) to purchase shares of incentive and non-qualified preferred stock options for the at a specified exercise price, or (ii) to purchase of up to 10,200,000 shares of common stock to its employees and certain other individualsof the Company, or the acquiring company, having a value of twice the Rights exercise price. In addition to the options issued The Rights under the terms of the 1989 planPlan expire in 1999. The Company provides, non-qualified options to purchase 319,000 shares among other things, for restricted stock awards of common stock have been granted to eligible employees and nonemployee directors of the Company at such cost to the recipient as the Stock Incentive Plan Committee of the Board of Directors may determine. These shares are issued subject to certain employeesconditions, and transfer and other restrictions as prescribed by the Plan. The plan also includes provisions for In 1993 and 1991, respectively, the Company awarded 20,000 shares and 100,000 shares of restricted common stock to certain directors under the Plan. No restricted stock was awarded during 1992. Also, in 1991, a total of 68,272 shares of restricted common stock was awarded to certain executives of the Company in accordance with a supplemental pension benefit arrangement. Upon issuance of stock pursuant restricted stock, unearned compensation, equivalent to restricted stock purchases and bonuses. Typically options expire 10 years from the date excess of grant. Options granted after December 31, 1995 vest the market value of the shares awarded over a 4 year period, with 25% exercisable the price paid by the recipient at the end of 1 year from the date of the grant grant, is charged to stockholders' equity and is amortized to expense over the balance vesting ratably thereafterperiods until the restrictions lapse. Options granted before January 1Amortization charged to expense in 1993, 1996 generally 44 NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 311992, 1998 vest over a 5 year periodand 1991 was not significant. At December 31, 19981993, a total of 4,347,000 shares were exercisable, and 1,903,000 were available for future grant. In July 4,732,053 (5,442,993 in 1992, Isis adopted the 1992 Non-Employee Directors' Stock Option Plan which provides for the issuance of non-qualified stock options for the purchase of up to 300,000 ) shares of common stock to its non-employee directorswere reserved under the Company's incentive and nonqualified stock option plans. Options under this plan expire 10 years from the date The options are exercisable at prices not less than market value on dates of grant, and in installments over five- to seven-year periods from such dates. Options granted after December 31, 1995 become exercisable in 4 equal annual installments beginning 1 year after the date of grant. Options granted before January 1, 1996 vest over a 5 year period. At December 31, 1998, 139,000 shares issued under this plan were exercisable and 58,000 shares were available Information on options for future grant. The following table summarizes stock option activity for the years ended December 31, 1998 and 1997 (in thousands, except per share data): NUMBER OF 1993 follows: PRICE RANGE ------------- SHARES PRICE PER SHARE WEIGHTED AVG. PRICE/SHARE --------- Outstanding at December 31, 1995.......... 5,446 beginning of year...................... $ .14 to $19.75 8.94-$16.50 2,116,289 Granted................................... 1,337 11.38 to 20.00 ............................................... 13.13- 14.94 93,000 Exercised................................. ............................................. 11.69- 14.06 (468136,973) .14 to 17.88 Terminated................................ (222) 4.00 to 18.63 Cancelled............................................. Outstanding at December 31, 1996.......... 6,093 .14 to 20.00 end of year (expiring from 1994 through 11.69- 15.75 (26,091) --------- 2000)................................................ Exercisable at end of year............................ $ 8.48 Granted................................... 1,071 13.19 to 19.88 Exercised................................. (395) .14 to 16.00 Terminated................................ (327) 3.75 to 18.25 Outstanding at December 31, 1997.......... 6,442 .14 to 20.00 9.80 Granted................................... 1,168 7.06 to 15.44 Exercised................................. (320) .14 to 14.50 Terminated................................ (304) 3.75 to 20.00 Outstanding at December 31, 1998.......... 6,986====== .14 to 19.88 10.27 The following table summarizes information concerning currently outstanding and exercisable options (in thousands, except contractual life and exercise price data): OPTIONS OUTSTANDING -------------------------------------------------- OPTIONS EXERCISABLE WEIGHTED ------------------------------- NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE EXERCISE PRICE AS OF 12/31/98 CONTRACTUAL LIFE EXERCISE PRICE AS OF 12/31/98 EXERCISE PRICE - -------------- -------------- ---------------- -------------- -------------- -------------- $ 0.14 - $ 4.00.. 900 4.51 $ 3.32 649 $ 3.09 $ 4.13 - $ 6.38.. 825 4.71 $ 5.68 772 $ 5.70 $ 6.46 - $ 7.75.. 896 4.90 $ 6.88 864 $ 6.87 $ 7.88 - $11.88.. 1,052 5.68 $ 9.91 769 $ 9.66 $12.00 - $12.31.. 851 8.64 $12.29 88 $12.22 $12.31 - $13.13.. 891 7.02 $13.02 621 $13.03 $13.18 - $16.19.. 831 7.82 $14.54 333 $14.61 $16.25 - $19.88.. 740 7.69 $17.99 390 $17.94 ----- ----- $ 0.14 - $19.88.. 6,986 6.46 $10.27 4,486 $ 9.10 8.94-$16.50 ============= $ 8.94-$16.50 ============= Employee Stock Purchase Plan -- In 2,046,225 ========= 1,344,215 ========= 25 AMETEK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Options on 259,486 shares were exercised in 1992 and no options were exercised in 1991, the Board of Directors adopted the Employee Stock Purchase Plan and reserved 500,000 . The Company also has outstanding 293,502 stock appreciation rights exercisable for cash and/or shares of the Company's common stock for issuance thereunderwhen the related option is exercised. The plan permits full-time employees Subject to purchase common stock through payroll deductions (which cannot exceed 10% certain limitations, each right relates to the excess of each employee's compensation) at the lower of 85% of fair market value at the beginning of the offer or Company's stock over the end exercise price of 45 the related option. Charges and credits, immaterial in amount, are made to income for these rights and certain related options. Changes in stockholders' equity are summarized below (In thousands): COMMON STOCK, $1 PAR VALUE CAPITAL IN EXCESS OF PAR VALUE RETAINED EARNINGS NET UNREALIZED GAINS (LOSSES) TREASURY STOCK ------------ ---------- -------- -------------- -------- BALANCE, DECEMBER 31, 1998 each six-month purchase period. During 1998, 78,000 shares were issued to employees at prices ranging from 1990................... $10.47 to 46,414 $10.73 per share. In 1997, 58,000 shares were issued at prices ranging from 3,598 $10.73 to $15.30 per share. At December 31, 1998, 141,000 shares were available for purchase under this plan. Stock-Based Employee Compensation -- Isis has adopted the disclosure-only provision of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation expense has been recognized for the stock option plans. Had compensation expense been determined consistent with Statement No. 123, Isis' net loss and basic net loss per share would have been changed to the following pro forma amounts (in thousands, except per share amounts): 1998 1997 1996 Net loss -- as reported 170,362 $ 1,498 $(42,98322,460) $Employee savings plan (31,066) $59,000 shares)........ 236 494 Net income.............. 37,986 Currency translation.... 1,179 Restricted stock awards (26,521) Net loss -- pro forma (49,761) (38,004) (32,200) Basic 168,272 shares)....... 594 379 Adjustment of pension liability in excess of unrecognized prior service cost, net loss per share -- as reported............ $ (1.60) $ (1.17) $ (1.04) Basic net loss per share -- pro forma.............. (1.85) (1.44) (1.26) The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for 1996deferred taxes......... 189 ------- ------ -------- -------- -------- BALANCE, 1997 and 1998: expected life of 1 year from vesting date for regular employees, 2 years from vesting date for Directors and Vice Presidents, and 4 years from vesting date for Executive Officers; expected dividend yield of zero percent and expected volatility of 60 percent. The risk-free interest rate was based on the Treasury ▇▇▇▇ rate at the end of each year during 1996, 1997 and 1998. The weighted average risk free interest rates for 1996, 1997 and 1998 were 6.1%, 5.7%, and 4.6%, respectively. All options granted during the year were valued using the same risk-free rate for the year. The weighted average fair value of options granted was $7.20 for 1996, $8.50 for 1997 and $5.98 for 1998. Warrants -- In 1993, Isis issued Class A warrants in connection with a strategic alliance with PerSeptive Biosystems, Inc. As of December 31, 1998, 448,001 of the warrants remain outstanding at an exercise price of $7.75 per share. The warrants expire March 15, 1999. In 1997 and 1998, Isis issued 500,000 and 300,000 warrants, respectively, in conjunction with a private debt financing agreement. As of December 31, 1998, all of the warrants remain outstanding at an exercise price of $25 per share. The warrants expire November 1, 2004. See Note 3. As of December 31, 1998, total common shares reserved for future issuance was 10,429,000. 46 NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 19981991................... 46,414 4,428 179,358 2,866 (21,587) Employee stock options and savings plan (255,151 shares)....... 1,251 2,137 Net income.............. 44,357 Cash dividends paid Currency translation.... (16,127) Amortization of restricted stock awards................. 334 Adjustment of pension liability in excess of unrecognized prior service cost, net of deferred taxes......... (3,168) ------- ------ -------- -------- -------- BALANCE, DECEMBER 31, 1992................... 46,414 5,679 193,724 (16,429) (19,116) Employee stock options and savings plan (88,400 shares)........ 571 744 Net loss................ (7,332) Cash dividends paid Currency translation.... (7,958) Restricted stock awards Amortization of restricted stock awards................. 227 Purchase of treasury stock (683,400 shares). (8,878) Appreciation in marketable securities and other financial instruments, net of deferred taxes......... 3,262 Adjustment of pension liability in excess of unrecognized prior service cost, net of ------- ------ -------- -------- -------- $46,414 ======= $6,389 ====== $161,297 ======== $(21,632) ======== $(27,142) ======== 26 deferred taxes......... (507) BALANCE, DECEMBER 31, 1993................... NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

STOCKHOLDERS' EQUITY. Stock Option Plans In March 1999, an unaffiliated entity purchased 523,800 shares of the Company's common stock for $800,000. In addition, the Company agreed to issue additional shares to this entity at various determination dates which are intended to compensate the entity for one-third of any decrease in the market price of the Company's stock. The Company is obligated to issue no more than 2,060,033 shares and Other Employee Option Grants -- warrants pursuant to this obligation. As of September 30, 1999, the Company has issued an additional 311,800 shares under this agreement. In June 1989November 1999, Isis adopted a the Company issued 77,866 additional shares and warrants to purchase 523,834 shares of restricted common stock at $1.527 per share through May 2000. The Company has no further obligations under the agreement. STOCK OPTION PLAN. The Company has two stock option plan plans under which provides for the issuance of incentive and non-qualified stock options for may be granted to officers, directors, employees, and consultants. Incentive stock options are required to have an exercise price which is not less than the purchase of up to 10,200,000 shares of common stock to its employees and certain other individuals. In addition to the options issued under the terms fair market value of the 1989 plan, non-qualified options to purchase 319,000 shares of common stock have been granted to certain employees. The plan also includes provisions for the issuance of stock pursuant to restricted stock purchases and bonuses. Typically options expire 10 years from at the date of grant. Options granted after December 31Under the first plan which was approved by shareholders in October 1988, 1995 vest over a 4 year period, with 25% exercisable at an aggregate of 1,000,000 shares were reserved for issuance pursuant to the end of 1 year from the date terms of the grant and plan. Under the balance vesting ratably thereaftersecond plan which was approved by shareholders in June 1998, an aggregate of 1,500,000 shares were reserved for issuance pursuant to the terms of the plan. Options The maximum term is 10 years for options granted before January 1F-55 179 MEDICAL DYNAMICS, 1996 generally 44 INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, under both plans. Activity in the 1988 and 1998 vest over a 5 year period. At December 31, 1998, a total of 4,347,000 shares were exercisable, and 1,903,000 were available for future grant. In July 1992, Isis adopted the 1992 Non-Employee Directors' Stock Option Plan which provides for the issuance of non-qualified stock options for the purchase of up to 300,000 shares of common stock to its non-employee directors. Options under this plan expire 10 years from the date of grant. Options granted after December 31, 1995 become exercisable in 4 equal annual installments beginning 1 year after the date of grant. Options granted before January 1, 1996 vest over a 5 year period. At December 31, 1998, 139,000 shares issued under this plan were exercisable and 58,000 shares were available for future grant. The following table summarizes stock option activity plans for the years ended December 31September 30, 1999 and 1998 and 1997 (in thousands, except per share data): is as follows: 1988 PLAN 1998 PLAN -------------------------- ------------------------ WEIGHTED WEIGHTED AVERAGE AVERAGE NUMBER OF EXERCISE PRICE NUMBER EXERCISE PRICE SHARES PRICE PER SHARE WEIGHTED AVG. PRICE/SHARES PER SHARE Outstanding at December 31--------- -------------- ------- -------------- Outstanding, 1995.......... 5,446 $ .14 to $19.75 Granted................................... 1,337 11.38 to 20.00 Exercised................................. (468) .14 to 17.88 Terminated................................ (222) 4.00 to 18.63 Outstanding at December 31, 1996.......... 6,093 .14 to 20.00 $ 8.48 Granted................................... 1,071 13.19 to 19.88 Exercised................................. (395) .14 to 16.00 Terminated................................ (327) 3.75 to 18.25 Outstanding at December 31September 30, 1997.......... 6,442 .14 to 20.00 9.80 ... 61,700 $1.83 -- $ -- Granted................................... 1,168 7.06 to 15.44 ......................... 5,000 2.63 -- -- Exercised................................. ....................... (3207,500) .14 to 14.50 Terminated................................ 2.75 -- -- Canceled........................ (3042,000) 3.75 to 20.00 Outstanding at December 313.00 -- -- ------ ----- ------- ------ Outstanding, September 30, 1998.......... 6,986====== .14 to 19.88 10.27 The following table summarizes information concerning currently outstanding and exercisable options ... 57,200 1.74 -- -- Granted......................... -- -- 234,800 .93 Exercised....................... -- -- -- -- Canceled........................ (in thousands5,000) 3.00 -- -- ------ ----- ------- ------ Outstanding, except contractual life and exercise price data): OPTIONS OUTSTANDING -------------------------------------------------- OPTIONS EXERCISABLE WEIGHTED ------------------------------- NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE EXERCISE PRICE AS OF 12/31/98 CONTRACTUAL LIFE EXERCISE PRICE AS OF 12/31/98 EXERCISE PRICE - -------------- -------------- ---------------- -------------- -------------- -------------- September 30, 1999... 52,200 $1.61 234,800 $ 0.14 - $ 4.00.. 900 4.51 $ 3.32 649 $ 3.09 $ 4.13 - $ 6.38.. 825 4.71 $ 5.68 772 $ 5.70 $ 6.46 - $ 7.75.. 896 4.90 $ 6.88 864 $ 6.87 $ 7.88 - $11.88.. 1,052 5.68 $ 9.91 769 $ 9.66 $12.00 - $12.31.. 851 8.64 $12.29 88 $12.22 $12.31 - $13.13.. 891 7.02 $13.02 621 $13.03 $13.18 - $16.19.. 831 7.82 $14.54 333 $14.61 $16.25 - $19.88.. 740 7.69 $17.99 390 $17.94 ----- ----- $ 0.14 - $19.88.. 6,986 6.46 $10.27 4,486 $ 9.10 .93 ====== ===== Employee Stock Purchase Plan -- In 1991======= ====== Options available for future grant at September 30, 1999 totaled 1,265,200 shares under the Board of Directors adopted the Employee Stock Purchase Plan and reserved 500,000 shares of common stock for issuance thereunder1998 plan. The plan permits full-time employees to purchase common stock through payroll deductions (which cannot exceed 10% of each employee's compensation) at the lower of 85% of fair market value at the beginning of the offer or the end of 45 DECEMBER 31, 1998 each six-month purchase period. During 1998, 78,000 shares were issued to employees at prices ranging from $10.47 to $10.73 per share. In 1997, 58,000 shares were issued at prices ranging from $10.73 to $15.30 per share. At December 31, 1998, 141,000 No shares were available for purchase future grants under this the 1988 plan. Stock-Based Employee Compensation -- Isis has adopted the disclosure-only provision of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation expense has been recognized for the stock option plans. Had compensation expense been determined consistent with Statement No. 123, Isis' net loss and basic net loss per share would have been changed to the following pro forma amounts (in thousands, except per share amounts): 1998 1997 1996 Net loss -- as reported $(42,983) $(31,066) $(26,521) Net loss -- pro forma (49,761) (38,004) (32,200) Basic net loss per share -- as reported............ $ (1.60) $ (1.17) $ (1.04) Basic net loss per share -- pro forma.............. (1.85) (1.44) (1.26) The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for 1996, 1997 and 1998: expected life of 1 year from vesting date for regular employees, 2 years from vesting date for Directors and Vice Presidents, and 4 years from vesting date for Executive Officers; expected dividend yield of zero percent and expected volatility of 60 percent. The risk-free interest rate was based on the Treasury ▇▇▇▇ rate at the end of each year during 1996, 1997 and 1998. The weighted average risk free interest rates for 1996, 1997 and 1998 were 6.1%, 5.7%, and 4.6%, respectively. All options granted during the year were valued using the same risk-free rate for the year. The weighted average fair value of options granted was $7.20 for 1996, $8.50 for 1997 and $5.98 for 1998. Warrants -- In 1993, Isis issued Class A warrants in connection with a strategic alliance with PerSeptive Biosystems, Inc. As of December 31, 1998, 448,001 of the warrants remain outstanding at an exercise price of $7.75 per share. The warrants expire March 15, 1999. In 1997 and 1998, Isis issued 500,000 and 300,000 warrants, respectively, in conjunction with a private debt financing agreement. As of December 31September 30, 19981999, all of options outstanding under the warrants remain 1988 plan are vested and 214,800 are vested under the 1998 plan. If not previously exercised, options outstanding at an exercise price of September 30, 1999, will expire as follows: 1988 PLAN 1998 PLAN -------------------- -------------------- NUMBER OF EXERCISE NUMBER OF EXERCISE YEAR ENDING SEPTEMBER 30, SHARES PRICE SHARES PRICE ------------------------- --------- -------- --------- -------- 2000..................................... -- $ -- 20,000 $25 per share1.50 2001..................................... 37,200 1.38 -- -- 2002..................................... 10,000 2.00 -- -- 2003..................................... 5,000 2.63 -- -- 2004..................................... -- -- 214,800 .88 ------ ----- ------- ----- 52,200 $1.61 234,800 $ .93 ====== ===== ======= ===== F-56 180 MEDICAL DYNAMICS, INC. The warrants expire November 1, 2004. See Note 3. As of December 31, 1998, total common shares reserved for future issuance was 10,429,000. 46 AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1998)