<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section ___.14a-11(c) or
Section 240.14a-12
SPECTRUMEDIX CORPORATION
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on
which the filing fee is calculated and state how it was
determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
July 31, 1998
Dear Fellow Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders (the
"Annual Meeting") of SpectruMedix Corporation (the "Company"), which will be
held on August 26, 1998, at 10:00 a.m., at the offices of Brobeck, Phleger &
Harrison LLP, Two Embarcadero Place, 2200 Geng Road, Palo Alto, California.
Details of the business to be conducted at the Annual Meeting are given in
the attached Notice of the Annual Meeting of Stockholders and Proxy Statement.
After careful consideration, the Company's Board of Directors has
unanimously approved each of the proposals set forth in the enclosed Proxy
Statement and recommends that you vote FOR each of such proposals.
After reading the Proxy Statement, please mark, date, sign and return, by
no later than August 17, 1998, the enclosed proxy in the prepaid envelope
addressed to ChaseMellon Shareholder Services, L.L.C., our stock transfer agent,
to ensure that your shares will be represented. If you decide to attend the
Annual Meeting, please notify the Secretary of the Company that you wish to vote
in person and your proxy will not be voted. YOUR SHARES CANNOT BE VOTED UNLESS
YOU SIGN, DATE AND RETURN THE ENCLOSED PROXY, OR ATTEND THE ANNUAL MEETING IN
PERSON.
A copy of the Company's 1998 Annual Report and Form 10-KSB for the fiscal
year ended March 31, 1998 is also enclosed.
We look forward to seeing you at the Annual Meeting.
Sincerely,
--------------------------------------
Joseph K. Adlerstein, Ph.D.
Chairman, President and
Chief Executive Officer
<PAGE> 3
SPECTRUMEDIX CORPORATION
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 26, 1998
The Annual Meeting of Stockholders (the "Annual Meeting") of SpectruMedix
Corporation (the "Company") will be held at the offices of Brobeck, Phleger &
Harrison LLP, Two Embarcadero Place, 2200 Geng Road, Palo Alto, California, on
Thursday, August 26, 1998 at 10:00 a.m. local time, for the following purposes,
as more fully described in the Proxy Statement accompanying this Notice:
1. To elect two directors to serve until the Company's 1999 annual meeting
of stockholders or until their successors are duly elected and
qualified.
2. To approve a series of amendments to the Company's 1997 Stock Incentive
Plan, including an increase in the total number of shares of the
Company's Common Stock authorized for issuance thereunder from 500,000
shares to a total of 1,000,000 shares.
3. To ratify the selection of Price Waterhouse LLP as the Company's
independent public accountants for the fiscal year ending March 31,
1999.
4. To transact such other business as may properly come before the Annual
Meeting and any adjournment of the Annual Meeting.
Only stockholders of record at the close of business on July 3, 1998 are
entitled to receive notice of and to vote at the Annual Meeting and any
adjournment thereof. The stock transfer books will not be closed between the
record date and the date of the Annual Meeting. A complete list of stockholders
entitled to vote will be available from the Secretary of the Company at the
Company's executive offices at 2124 Old Gatesburg Road, State College,
Pennsylvania 16803, for a period of 10 days before the meeting.
YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. IF
YOU DO NOT EXPECT TO ATTEND IN PERSON, PLEASE PROMPTLY MARK, DATE, SIGN AND
RETURN THE ENCLOSED PROXY.
By Order of the Board of Directors,
--------------------------------------
Bernard Sonnenschein
Secretary, Treasurer and Director
July 31, 1998
<PAGE> 4
SPECTRUMEDIX CORPORATION
------------------------
PROXY STATEMENT
------------------------
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 26, 1998
GENERAL
The enclosed proxy ("Proxy") is solicited on behalf of the Board of
Directors of SpectruMedix Corporation, a Delaware corporation, with corporate
headquarters located at 2124 Old Gatesburg Road, State College, Pennsylvania
16803 (the "Company"), for use at the Annual Meeting of Stockholders to be held
on August 26, 1998 (the "Annual Meeting"). The Annual Meeting will be held at
10:00 a.m. local time at the offices of Brobeck, Phleger & Harrison LLP, Two
Embarcadero Place, 2200 Geng Road, Palo Alto, California 94303. These proxy
solicitation materials were first mailed on or about July 31, 1998, to all
stockholders entitled to vote at the Annual Meeting.
VOTING
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice and are described in more
detail in this Proxy Statement. On July 3, 1998, the record date for
determination of stockholders entitled to notice of and to vote at the Annual
Meeting, approximately 3,515,214 shares of the Company's common stock, $0.00115
par value (the "Common Stock"), were issued and outstanding. Each stockholder is
entitled to one vote for each share of Common Stock held by such stockholder on
July 3, 1998. The Second Amended and Restated Certificate of Incorporation of
the Company does not provide for cumulative voting. Provided a quorum is
present, the two nominees for directors who receive the highest number of votes
will be elected. The other matters submitted for stockholder approval at this
Annual Meeting will be decided by the affirmative vote of a majority of shares
present in person or represented by proxy and entitled to vote on each such
matter. Abstentions with respect to any matter are treated as shares present or
represented and entitled to vote on that matter and thus have the same effect as
negative votes. If, however, shares are not voted by the broker who is the
record holder of the shares, or if shares are not voted in other circumstances
in which proxy authority is defective or has been withheld with respect to any
matter, these non-voted shares are not deemed to be present or represented for
purposes of determining whether stockholder approval of that matter has been
obtained, but are counted for quorum purposes.
PROXIES
If the enclosed form of Proxy is properly signed and returned, the shares
represented thereby will be voted at the Annual Meeting in accordance with the
instructions specified thereon. If the proxy does not specify how the shares
represented thereby are to be voted, the proxy will be voted FOR the election of
the two directors proposed by the Board unless the authority to vote for the
election of directors (or for any one or more nominees) is withheld and, if no
contrary instructions are given, the proxy will be voted FOR the approval of the
amendments to the 1997 Stock Incentive Plan, including a 500,000-share increase
in the number of shares authorized for issuance thereunder described in the
accompanying Notice and Proxy Statement. You may revoke or change your Proxy at
any time before the Annual Meeting by filing with the Secretary of the Company
at the Company's principal executive offices, a notice of revocation or another
signed Proxy with a later date. Your proxy will be automatically revoked if you
attend the Annual Meeting and vote in person.
SOLICITATION
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the Proxy
and any additional soliciting materials furnished to stockholders. Copies of
solicitation materials will be furnished to brokerage houses, fiduciaries and
custodians holding shares in their names that are beneficially owned by others
so that they may forward this solicitation material to such
<PAGE> 5
beneficial owners. In addition, the Company may reimburse such persons for their
costs in forwarding the solicitation materials to such beneficial owners. The
original solicitation of proxies by mail may be supplemented by a solicitation
by telephone, telegram, or other means by directors, officers or employees. No
additional compensation will be paid to these individuals for any such services.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Company's Second Amended and Restated Certificate of Incorporation
provides that the number of members of the Board shall be set by resolution of
the Board, with each member having a one-year term. The Board currently is set
at and consists of two persons. The directors elected at the Annual Meeting will
serve a one-year term expiring at the 1999 annual meeting of stockholders or
until their successors have been duly elected and qualified. All nominees are
currently directors of the Company with terms expiring at the Annual Meeting.
Both nominees for election have agreed to serve if elected, and management
has no reason to believe that any nominee will be unable to serve. In the event
that any nominee is unable or declines to serve as a director at the time of the
Annual Meeting, the proxies will be voted for any nominee who may be designated
by the present Board of Directors to fill the vacancy. Unless otherwise
instructed, the proxy holders will vote the proxies received by them FOR the
nominees named below, provided a quorum is present. The two candidates receiving
the highest number of affirmative votes of the shares represented and voting on
this Proposal will be elected directors of the Company, to serve their
respective terms and until their successors have been duly elected and
qualified.
BUSINESS EXPERIENCE OF BOARD NOMINEES
Set forth below are the names and ages of the nominees, the principal
occupations of each nominee and for the past five years, certain directorships
held by each, and the year in which each became a director of the Company.
<TABLE>
<CAPTION>
DIRECTOR NOMINEES POSITION WITH THE COMPANY AGE DIRECTOR SINCE
----------------- ------------------------- --- --------------
<S> <C> <C> <C>
Joseph K. Adlerstein, Ph.D. Chairman, President and Chief Executive 54 April 1992
Officer
Bernard Sonnenschein Director, Treasurer and Secretary 36 April 1992
</TABLE>
Dr. Adlerstein co-founded the Company in April 1992 and currently serves as
its Chairman of the Board of Directors, President and Chief Executive Officer.
Dr. Adlerstein has over 20 years of experience with high-tech companies focusing
on energy, the environment, bioengineering, pharmaceuticals, ultrasonics and
metallurgy. Prior to joining the Company, Dr. Adlerstein served as an officer,
director and principal of Kasiel Holdings Ltd. (a member of the Adir Group), a
real estate and construction firm. Dr. Adlerstein is a director of Future Energy
Research Corporation, a privately held company. Dr. Adlerstein received a B.S.
from City University of New York, a Masters in Physics from New York University
and a Ph.D. in Physics from the Massachusetts Institute of Technology.
Mr. Sonnenschein co-founded the Company in April 1992 and currently serves
as its Secretary, Treasurer and a Director. Prior to joining the Company, from
1986 to 1992, Mr. Sonnenschein worked as a financial consultant to a group of
companies in the areas of bioengineering and pharmaceuticals, on-site treatment
services to hazardous waste generators and clinical diagnostic products. In
1989, Mr. Sonnenschein co-founded Swiss America Jewelry Corporation, a U.S.
manufacturer of the Nobel solid gold watch line, where he served as a Director
and Senior Vice President until 1992. Mr. Sonnenschein received a B.S. with
Honors in Accounting from Touro College.
BOARD MEETINGS AND COMMITTEES
During the fiscal year ended March 31, 1998 the Board of Directors held no
regularly scheduled meetings, no special telephonic meetings and acted by
unanimous written consent 14 times. The Board of
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Directors has not appointed a Compensation Committee, an Audit Committee or a
Nominating Committee. All Directors (who have served on the Board of Directors
throughout the year) have attended at least 75% of the aggregate number of
meetings of the Board of Directors and of the Committees, respectively, on which
such Directors serve.
When established, the Compensation Committee will be responsible for
determining and reviewing the compensation to be paid to officers and directors
of the Company and to administer the Company's 1997 Stock Incentive Plan (the
"1997 Plan"). When established, the Audit Committee will be responsible for
reviewing the results and scope of audits and other services provided by the
Company's independent auditors.
DIRECTOR COMPENSATION
All Board members are reimbursed for actual expenses incurred in attending
Board meetings. Each director received compensation for services rendered as an
officer and employee of the Company but not for services as a Director of the
Company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE NOMINEES
LISTED ABOVE.
PROPOSAL NO. 2
AMENDMENT TO THE 1997 STOCK OPTION PLAN
OF SPECTRUMEDIX CORPORATION
The Company's stockholders are being asked to approve the restatement of
the Company's 1997 Stock Incentive Plan (the "1997 Plan") adopted by the Board
on July 27, 1998 which will effect the following changes: (i) increase the
maximum number of shares of Common Stock reserved for issuance under the 1997
Plan by an additional 500,000 shares to an aggregate of 1,000,000 shares of
Common Stock, (ii) eliminate the requirement that the exercise price of
non-statutory options granted, or the purchase price of shares issued, to
individuals who own stock possessing more than 10% of the Company's total
combined voting power be at least 110% of the fair market value on the grant or
issue date, (iii) reaffirm the 100,000-share limit on the maximum number of
shares of Common Stock for which any one participant may be granted stock
options, separately exercisable stock appreciation rights and direct stock
issuances in the aggregate per calendar year, (iv) eliminate the minimum 20% per
year minimum vesting requirements for discretionary option grants and direct
stock issuances made under the 1997 Plan and (v) allow non-statutory options to
be transferable in connection with the optionee's estate plan.
The purpose of the increase in the share reserve under the 1997 Plan is to
provide the Company with the continued opportunity to utilize equity incentives
in order to retain and attract the services of key individuals essential to the
Company's long-term growth and success. The reaffirmation of the 100,000-share
limitation on the maximum number of shares of Common Stock for which any one
participant may be granted stock options, stock appreciation rights or direct
stock issuances per calendar year will assure that any compensation deemed paid
to the Company's executive officers upon their exercise of stock options or
stock appreciation rights with exercise prices equal to the fair market value
per share on the grant date will qualify as tax-deductible performance-based
compensation under the federal tax laws and will not otherwise be subject to the
$1 million limitation per covered individual on the tax deductibility of
compensation paid to certain executive officers of the Company. The remaining
changes effected by the restatement will facilitate plan administration by
eliminating a number of restrictions previously incorporated into the 1997 Plan
that were required by state securities laws prior to the time the Company's
Common Stock was publicly traded.
The 1997 Plan initially became effective upon adoption by the Board on
March 12, 1997 and was also approved by the stockholders at that time.
The following is a summary of the principal features of the 1997 Plan as
most recently restated. The summary, however, does not purport to be a complete
description of all the provisions of the restated 1997 Plan. Any stockholder of
the Company who wishes to obtain a copy of the actual plan restatement may do so
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<PAGE> 7
upon written request to the Corporate Secretary at the Company's principal
executive offices in State College, Pennsylvania.
EQUITY INCENTIVE PROGRAMS
The 1997 Plan is divided into three separate equity incentive programs: (i)
the Discretionary Option Grant Program, under which individuals in the Company's
service may, at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock at an exercise price per share not less than the
fair market value on the grant date, (ii) the Stock Issuance Program under which
such individuals may, in the Plan Administrator's discretion, be issued shares
of Common Stock directly, through the purchase of such shares at a price per
share not less than the fair market value at the time of issuance or as a
fully-paid bonus for services rendered the Company or the attainment of
designated performance goals, and (iii) the Automatic Option Grant Program under
which options will automatically be made at periodic intervals to eligible
non-employee Board members to purchase shares of Common Stock at an exercise
price equal to 100% of the fair market value of the option shares on the grant
date.
Options under the Discretionary Option Grant Program may be either
incentive stock options designed to meet the requirements of Section 422 of the
Internal Revenue Code or non-statutory options which are not intended to satisfy
such requirements. All grants under the Automatic Option Grant Program will be
non-statutory options.
ADMINISTRATION
The 1997 Plan (other than the Automatic Option Grant Program) is
administered by the Board. The Board acting in such administrative capacity has
complete discretion (subject to the terms of the 1997 Plan) to authorize option
grants and direct stock issuances under the 1997 Plan. Pursuant to the
provisions of the 1997 Plan, the Board may appoint a secondary committee of one
or more Board members, including employee directors, to authorize option grants
and direct stock issuances to eligible persons other than executive officers and
Board members subject to the short-swing liability provisions of the federal
security laws. The entity or entities responsible for administering the 1997
Plan will be referred to in this Proposal as the Plan Administrator.
All grants under the Automatic Option Grant Program are to be made in
strict compliance with the provisions of that program, and no Plan Administrator
will exercise any administrative discretion with respect to grants made under
such program. Stockholder approval of this Proposal will also constitute
pre-approval of each option that is granted on or after the date of the 1998
Annual Meeting pursuant to the provisions of the Automatic Option Grant Program
and the subsequent exercise of each such option in accordance with those
provisions.
ELIGIBILITY
Employees of the Company or any parent or subsidiary corporation,
non-employee members of the Board or the board of directors of any parent or
subsidiary corporation, and consultants and other independent advisers in the
service of the Company or its parent or subsidiaries will be eligible to
participate in the Discretionary Option Grant and Stock Issuance Programs.
Non-employee members of the Board are also eligible to participate in the
Automatic Option Grant Program.
As of July 3, 1998, a total of approximately two executive officers, and 26
other employees were eligible to participate in the Discretionary Option Grant
and Stock Issuance Programs. As of such date, there were no non-employee members
of the Board who were eligible to participate in the Automatic Option Grant
Program.
SHARE RESERVE
A total of 1,000,000 shares of Common Stock has been reserved for issuance
under the 1997 Plan, including the 500,000-share increase which forms part of
this Proposal.
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In no event may any one participant in the 1997 Plan be granted stock
options, separately exercisable stock appreciation rights and direct stock
issuances for more than 100,000 shares in the aggregate per calendar year.
Stockholder approval of this Proposal will also constitute approval of such
share limitation for purposes of Internal Revenue Code Section 162(m).
Should an option expire or terminate for any reason prior to exercise in
full, the shares subject to the portion of the option not so exercised will be
available for subsequent issuance under the 1997 Plan. Unvested shares issued
under the 1997 Plan and subsequently repurchased by the Company, at the original
option exercise or direct issue price paid per share, will also be added back to
the share reserve and, accordingly will be available for subsequent issuance
under the 1997 Plan.
In the event any change is made to the outstanding shares of Common Stock
by reason of any recapitalization, stock dividend, stock split, combination of
shares, exchange of shares or other change in the corporate structure effected
without the Company's receipt of consideration, appropriate adjustments will be
made to (i) the maximum number and class of securities issuable under the 1997
Plan, (ii) the maximum number and class of securities for which any one person
may be granted stock options, separately exercisable stock appreciation rights
and direct stock issuances per calendar year, (iii) the number and class of
securities for which option grants will subsequently be made under the Automatic
Option Grant Program to each newly-elected or continuing non-employee Board
member, and (iv) the number and class of securities and the exercise priced per
share in effect under each outstanding option in order to prevent dilution or
enlargement of benefits thereunder.
VALUATION
The fair market value per share of Common Stock is determined by the Plan
Administrator, based on such factors as the Plan Administrator deems
appropriate, including the bid an asked prices per share on the date in
question, as quoted on the Nasdaq Over-the-Counter Bulletin Board. On July 3,
1998, the average of the high bid and low asked price per share on such Bulletin
Board was $9.375.
DISCRETIONARY OPTION GRANT PROGRAM
Options granted under the Discretionary Option Grant Program will have an
exercise price per share not less than the fair market value per share of Common
Stock on the grant date. No granted option may have a term in excess of 10
years. The options will generally become exercisable in a series of installments
over the optionee's period of service with the Company.
Upon cessation of service, the optionee will have a limited period of time
in which to exercise his or her outstanding options for any shares in which the
optionee is vested at that time. The Plan Administrator will have complete
discretion to extend the period following the optionee's cessation of service
during which his or her outstanding options may be exercised and/or accelerate
the exercisability of such options in whole or in part. Such discretion may be
exercised at any time while the options remain outstanding, whether before or
after the optionee's actual cessation of service.
The shares of Common Stock acquired upon the exercise of one or more
options may be unvested and subject to repurchase by the Company, at the
original exercise price paid per share, if the optionee ceases service with the
Company prior to vesting in those shares. The Plan Administrator will have
complete discretion to establish the vesting schedule to be in effect for any
such unvested shares and, in certain circumstances, may cancel the Company's
outstanding repurchase rights with respect to those shares and thereby
accelerate the vesting of those shares.
The Plan Administrator is authorized to issue two types of stock
appreciation rights in connection with option grants made under the
Discretionary Option Grant Program:
Tandem stock appreciation rights provide the holders with the right to
surrender their options for an appreciation distribution from the Company
equal in amount to the excess of (a) the fair market value of the vested
shares of Common Stock subject to the surrendered option over (b) the
aggregate exercise
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<PAGE> 9
price payable for those shares. Such appreciation distribution may, at the
discretion of the Plan Administrator, be made in cash or shares of Common
Stock.
Limited stock appreciation rights may be granted to officers or
directors of the Company as a part of their option grants. Any option with
such a limited stock appreciation right may be surrendered to the Company
upon successful completion of a hostile take-over of the Company. In return
for the surrendered option, the officer will be entitled to a cash
distribution from the Company in an amount per vested option share equal to
the excess of (a) the take-over price per vested share over (b) the
exercise price payable for such share.
The Plan Administrator will have the authority to effect the cancellation
of outstanding options under the Discretionary Option Grant Program and to issue
replacement options with an exercise price based on the market price of Common
Stock at the time of the new grant.
STOCK ISSUANCE PROGRAM
Shares may be sold under the Stock Issuance Program at a price per share
not less than the fair market value on the issuance date, payable in cash or
through a promissory note payable to the Company. Shares may also be issued
solely as a bonus for past services.
The issued shares may either be immediately vested upon issuance or subject
to a vesting schedule tied to the performance of service or the attainment of
performance goals. However, the Plan Administrator will have the discretionary
authority at any time to accelerate the vesting of any and all unvested shares
at any time.
AUTOMATIC OPTION GRANT PROGRAM
Under the Automatic Option Grant Program, each non-employee Board member
who was serving on the Board on September 16, 1997, the date on which the
underwriting agreement for the initial public offering of the Common Stock was
executed and priced, had the right to automatically receive an option to
purchase 10,000 shares of Common Stock, provided such individual had not
previously received a stock option grant from the Company in connection with his
or her Board service. There were no non-employee Board members on such date.
Each non-employee Board member who is first elected or appointed after September
16, 1997, will automatically receive an option to purchase 10,000 shares of
Common Stock, provided such individual has not previously been in the employ of
the Corporation (or any parent or subsidiary). In addition, on the date of each
Annual Stockholders Meeting, beginning with the 1998 Annual Meeting, each
individual who is to continue to serve as a non-employee Board member will
automatically be granted a non-statutory option to purchase 2,500 shares of
Common Stock, provided such individual has served as a non-employee Board member
for at least six (6) months. There will be no limit on the number of such 2,500
share option grants any one non-employee Board member may receive over his or
her period of Board service, and non-employee Board members who have previously
been in the Company's employ will be eligible to receive those annual grants.
Each option granted under the Automatic Option Grant Program will have an
exercise price per share equal to one hundred percent (100%) of the fair market
value per share of Common Stock on the option grant date and a maximum term of
ten (10) years measured from such grant date, subject to earlier termination at
the end of the twelve (12)-month period measured from the date of the optionee's
cessation of Board Service.
Each such option granted under the Automatic Option Grant Program will be
immediately exercisable for all the option shares. However, any shares purchased
under the option will be subject to repurchase by the Company, at the option
exercise price paid per share, upon the optionee's cessation of Board service
prior to vesting in those shares. The shares subject to each initial
10,000-share automatic option grant will vest in a series of four (4) successive
equal annual installments upon the optionee's completion of each year of Board
service over the four (4)-year period measured from the grant date. The shares
subject to each 2,500-share grant will vest upon the optionee's completion of
one (1) year of Board service measured from the option grant date.
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<PAGE> 10
The shares subject to each automatic option grant will immediately vest in
full should any of the following events during the optionee's period of Board
service: (i) his or her death or permanent disability, (ii) an acquisition of
the Company by merger or asset sale, (iii) the successful completion of a tender
offer for more than fifty percent (50%) of the Company's outstanding voting
stock, or (iv) a change in the majority of the Board effected through one or
more proxy contested elections for Board membership.
In addition, upon the successful completion of a hostile tender offer for
securities possessing more than fifty percent (50%) of the total combined voting
power of the Company's outstanding securities, the optionee will have a thirty
(30)-day period in which to surrender to the Company each of his or her
outstanding automatic option grants. The optionee will in return be entitled to
a cash distribution from the company in an amount equal to the excess of (i) the
take-over price of the shares at the time subject to each surrendered option
(whether or not the optionee is otherwise at the time vested in those shares)
over (ii) the aggregate exercise price payable for such shares. Such cash
distribution will be paid within five (5) days following the surrender of the
option to the Company. Stockholder approval of this Proposal will constitute
pre-approval of each option grant with such a cash surrender right made under
the 1997 Plan on or after the date of the 1998 Annual Meeting and the subsequent
exercise of that right in accordance with the foregoing terms, and no approval
or consent of the Board or the Plan Administrator shall be required at the time
of the actual option surrender and cash distribution.
GENERAL PROVISIONS
Acceleration
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not to
be assumed by the successor corporation or otherwise replaced with a cash
incentive program which preserves the spread on the unvested option shares will
automatically accelerate in full, and all unvested shares under the
Discretionary Option Grant and Stock Issuance Programs will immediately vest,
except to the extent the Company's repurchase rights with respect to those
shares are to be assigned to the successor corporation. The Plan Administrator
may structure one or more options under the Discretionary Option Grant Program
so that those options will vest on an accelerated basis upon an acquisition of
the Company, whether or not those options are assumed or replaced with a cash
incentive plan. Alternatively, the Plan Administrator may structure the options
or stock issuances under the Discretionary Option Grant and Stock Issuance
Programs so that those options and issuances will immediately vest in the event
the individual's service with the successor entity is terminated within a
specified period (not to exceed eighteen (18) months) following an acquisition
of the Company which does not otherwise trigger the accelerated vesting of those
options or issuances. The Plan Administrator will also have the discretionary
authority to structure option grants or stock issuances under the Discretionary
Option Grant or Stock Issuance Programs so that those grants or issuances will
vest in full upon the termination of the individual's service within a specified
period (not to exceed eighteen (18) months) following a change in control of the
Company (whether by successful tender offer for more than fifty percent (50%) of
the outstanding voting stock or a change in the majority of the Board by one or
more contested elections for Board membership).
The acceleration of vesting upon a change in the ownership or control of
the Company may be seen as an anti-takeover provision and may have the effect of
discouraging a merger proposal, takeover attempt or other efforts to gain
control of the Company.
Option Transferability
Options are generally not assignable or transferable other than by will or
the laws of inheritance and may only be exercised by the optionee during his or
her lifetime. However, non-statutory options may be transferred or assigned
during the optionee's lifetime to one or more members of the optionee's family
or to a trust established exclusively for family members, to the extent such
transfer or assignment is in furtherance of the optionee's estate plan.
7
<PAGE> 11
Financial Assistance
The Plan Administrator may permit one or more participants to pay the
exercise price of outstanding options granted under the Discretionary Option
Grant Program or the purchase price of shares under the Stock Issuance Program
by delivering a promissory note payable in installments. However, the maximum
amount of financing provided by any participant may not exceed the cash
consideration payable for the issued shares plus all applicable taxes incurred
in connection with the acquisition of the shares. Any such promissory note may
be subject to forgiveness in while or in part, at the discretion of the Plan
Administrator, over the participant's period of service.
Special Tax Election
The Plan Administrator may provide one or more holders of options or
unvested shares (other than the options granted or the shares issued under the
Automatic Option Grant Program) with the right to have the Company withhold a
portion of the shares otherwise issuable to such individuals in satisfaction of
the tax liability incurred in connection with the exercise of those options or
the vesting of those shares. Alternatively, the Plan Administrator may allow
such individuals to deliver previously acquired shares of Common Stock in
payment of such tax liability.
STOCK AWARDS
The table below shows, as to each of the Company's executive officers named
in the Summary Compensation Table and the various indicated individuals and
groups, the number of shares of Common Stock subject to options granted under
the 1997 Plan, between the March 12, 1997 effective date and July 3, 1998,
together with the weighed average exercise price payable per share.
OPTION TRANSACTIONS
<TABLE>
<CAPTION>
OPTIONS GRANTED WEIGHTED AVERAGE
NAME AND TITLE (NUMBER OF SHARES) EXERCISE PRICE
-------------- ------------------ ----------------
<S> <C> <C>
Joseph K. Adlerstein.................................. -- --
Bernard Sonnenschein.................................. -- --
All executive offices as a group (2 persons).......... -- --
All non-employee directors as a group (no persons).... -- --
All employees, including current officers who are not
executive officers, as a group (24 persons)......... 275,836 $5.01
</TABLE>
As of July 3, 1998, options for 275,836 shares were outstanding, no shares
had been issued under the 1997 Plan, and 724,164 shares remained available for
future option grant, assuming stockholder approval of the share increase which
forms part of this Proposal.
AMENDMENT AND TERMINATION
The Board may amend or modify the 1997 Plan in any or all respects
whatsoever, subject to any stockholder approval under applicable law or
regulation. The Board may terminate the 1997 Plan at any time, and the 1997 Plan
will in all events terminate on April 29, 2007.
NEW PLAN BENEFITS
No options have been made to date on the basis of the 500,000-share
increase which is the subject of this Proposal.
8
<PAGE> 12
FEDERAL INCOME TAX CONSEQUENCES
Options granted under the 1997 Plan may be either incentive stock options
which satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which are not intended to satisfy such requirements. The
Federal income tax treatment for the two types of options differs as follows:
Incentive Stock Options. No taxable income is recognized by the optionee at
the time of the option grant, and no taxable income is generally recognized at
the time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made the
subject of disposition.
For Federal income tax purposes, dispositions are divided into two
categories: (i) qualifying and (ii) disqualifying. The optionee will make a
qualifying disposition of the purchased shares if the sale or disposition is
made more than two (2) years after the grant date of the option and more than
one (1) year after the exercise date. If the optionee fails to satisfy either of
these two holding periods prior to the sale or disposition, then a disqualifying
disposition of the purchased shares will result.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the date the option was exercised over (ii) the
exercise price paid for such shares. In no other instance will the Company be
allowed a deduction with respect to the optionee's disposition of the purchased
shares. The Company anticipates that any compensation deemed paid by the Company
upon one or more disqualifying dispositions of incentive stock option shares
will not have to be taken into account for purposes of the $1 million limitation
per covered individual on the deductibility of the compensation paid to certain
executive officers of the Company.
Non-statutory Options. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income in the year in which the option is exercised equal to the excess
of the fair market value of the purchased shares on the exercise date over the
exercise price, and the optionee will be required to satisfy the tax withholding
requirements applicable to such income.
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee in connection with the exercise of
the non-statutory option. The deduction will in general be allowed for the
taxable year of the Company in which such ordinary income is recognized by the
optionee. The Company anticipates that the compensation deemed paid by the
Company upon the exercise of non-statutory options will not have to be taken
into account for purposes of the $1 million limitation per covered individual on
the deductibility of the compensation paid to certain executive officers of the
Company.
Direct Stock Issuance. The tax principles applicable to direct stock
issuances under the 1997 Plan will be substantially the same as those summarized
above for the exercise of non-statutory option grants.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION.
The Company anticipates that any compensation deemed paid by it in
connection with disqualifying dispositions of incentive stock option shares or
exercises of non-statutory options granted with exercise prices equal to the
fair market value of the option shares on the grant date will qualify as
performance-based compensation for purposes of Code Section 162(m) and will not
have to be take into account for purposes of the $1 million limitation per
covered individual on the deductibility of the compensation paid to certain
executive officers of the Company. Accordingly, all compensation deemed paid
with respect to those options will remain deductible by the Company without
limitation under Code Section 162(m).
ACCOUNTING TREATMENT
Option grants with an exercise price equal to 100% of the fair market value
of the shares on the grant or issue date will not result in any charge to the
Company's earnings, but the Company must disclose, in pro-forma statements to
the Company's financial statements, the impact the option grants would have upon
the
9
<PAGE> 13
Company's reported earnings were the value of those options (as measured at the
time of grant) treated as compensation expense. In addition, the number of
outstanding options may be a factor in determining the Company's earnings per
share on a fully-diluted basis.
Should one or more optionees be granted stock appreciation rights which
have no conditions upon exercisability other than a service or employment
requirement, then such rights will result in a compensation expense to the
Company's earnings over the period such rights remain outstanding.
STOCKHOLDER APPROVAL REQUIRED
The affirmative vote of a majority of the shares present or represented and
entitled to vote at the Annual Meeting is required for approval of the
restatement of the 1997 Plan. If such stockholder approval is not obtained, then
any options granted on the basis of the 500,000-share increase to the share
reserve effected by the restatement will terminate without becoming exercisable
for any of the shares of Common Stock subject to those options, and no further
options will be granted and no shares will be issued on the basis of such share
increase. In addition, the exercise price of non-statutory stock options granted
or the purchase price of stock issued to individuals who own stock possessing
more than 10% of the total combined voting power of the Company's securities
will remain at 110% of the fair market value on the grant or issue date. The
1997 Plan will, however, continue to remain in effect, and option grants and
direct stock issuances may continue to be made pursuant to the provisions of the
1997 Plan in effect prior to the restatement, until the available reserve of
Common Stock as last approved by the stockholders has been issued.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
RESTATEMENT OF THE 1997 PLAN.
PROPOSAL NO. 3
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed the firm of Price Waterhouse LLP as
the Company's independent public accountants for the fiscal year ending March
31, 1999, subject to ratification of the stockholders. Price Waterhouse LLP has
been employed regularly by the Company to audit its consolidated financial
statements and for other purposes since December 1997. The Company had
previously employed the independent accounting firm of Lazar, Levine & Felix LLP
from the Company's inception to December 1997. Representatives of Price
Waterhouse LLP are expected to be present at the Company's Annual Meeting. They
will have an opportunity to make a statement, if they desire to do so, and will
be available to respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO
RATIFY THE SELECTION OF PRICE WATERHOUSE LLP AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS FOR THE FISCAL YEAR ENDING MARCH 31, 1999.
10
<PAGE> 14
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company
with respect to the beneficial ownership of the Company's Common Stock as of
July 3, 1998, unless otherwise noted, by (i) all persons who are beneficial
owners of five percent or more of the Company's Common Stock, (ii) each director
and nominee for director at the Annual Meeting, (iii) the Chief Executive
Officer and the next most highly compensated executive officer named in the
Summary Compensation Table below, and (iv) all current directors and executive
officers as a group. Unless otherwise noted, each of the stockholders has sole
voting and dispositive power with respect to the shares beneficially owned,
subject to community property laws, where applicable.
<TABLE>
<CAPTION>
SHARES PERCENT OF SHARES
NAME AND ADDRESS, IF REQUIRED, OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED(1)
-------------------------------------------------- ------------------ ---------------------
<S> <C> <C>
Joseph K. Adlerstein, Ph.D.(2)........................... 780,001 21.41%
c/o SpectruMedix Corporation
2124 Old Gatesburg Road
State College, Pennsylvania 16803
Bernard Sonnenschein..................................... 575,219 16.36%
c/o SpectruMedix Corporation
2124 Old Gatesburg Road
State College, Pennsylvania 16803
All directors and executive officers as a group (2
persons)(2)............................................ 1,355,220 37.77%
</TABLE>
- ---------------
* Less than one percent of the Company's outstanding Common Stock.
(1) Percentage of beneficial ownership is calculated assuming 3,515,214 shares
of Common Stock were outstanding on July 3, 1998. Beneficial ownership is
determined in accordance with the rules of the United States Securities and
Exchange Commission (the "SEC") and generally includes voting or dispositive
power with respect to securities. Shares of Common Stock subject to stock
options and warrants currently exercisable or exercisable within 60 days
after July 3, 1998, are deemed outstanding for computing the percentage of
the person holding such stock options and warrants but are not deemed
outstanding for computing the percentage of any other person.
(2) Includes options to purchase 127,827 shares of Common Stock exercisable
within 60 days of July 3, 1998.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
BOARD REPORT ON EXECUTIVE COMPENSATION
As members of the Company's Board of Directors, it is our duty to set the
base salary of certain executive officers each fiscal year and to approve the
individual bonus programs to be in effect for those individuals. In addition, we
have the exclusive authority to award stock options under the Company's 1997
Plan to the Company's executive officers and other key employees. The following
is a summary of the policies which governed our decisions concerning the
compensation paid to the Company's executive officers, including the
compensation reflected in the tables which appear elsewhere in this Proxy
Statement.
GENERAL COMPENSATION POLICY
Introduction. We have developed a compensation policy which is designed to
attract and retain qualified key executive officers critical to the Company's
success. In developing this policy, we have concluded that it is not appropriate
to base a significant percentage of the compensation payable to the executive
officers upon traditional financial targets, such as return on equity. This is
primarily because the Company's early stage of development and all of the
Company's product candidates are still in either development or clinical testing
phases and because, through the end of fiscal 1998, the Company had not yet
realized any significant revenues or product sales. Instead, we base our
decisions upon the following standards: (i) base salary levels which are
commensurate with those of comparable positions at other biopharmaceutical
companies, given the level of
11
<PAGE> 15
seniority and skills possessed by the executive officer, and which reflect the
individual's performance with the Company over time, (ii) annual bonuses tied to
the achievement of corporate and individual performance objectives and the
Company's financial performance, and (iii) long-term, stock-based incentive
awards intended to strengthen the mutuality of interests between the executive
officers and the Company's stockholders.
Factors. The primary factors which we considered in establishing the
components of each executive officer's compensation package for the 1998 fiscal
year are summarized below. We may, however, apply entirely different factors,
particularly different measures of performance, in setting executive
compensation for future fiscal years.
- Base Salary. The base salary of each executive officer is initially
established through negotiation at the time the officer is hired. Base salary is
subsequently adjusted at periodic intervals, usually on an annual basis. When
establishing or reviewing base salary levels for each executive officer, we
consider the following factors: the qualifications of the executive officer and
the relevant individual experience he or she brings to the Company, strategic
goals for which the executive officer has responsibility, compensation levels at
biopharmaceutical companies at a development stage comparable to the Company and
at other companies which compete with the Company for executive talent.
- Annual Incentive Compensation. Annual bonuses payable in cash were
awarded based on achievement of corporate and individual performance objectives.
For the 1998 fiscal year, the corporate performance objectives were tied to the
following measures of financial success: (i) the successful completion of the
Company's initial public offering, (ii) the execution of certain license
agreements and (iii) the progress on the development of the Company's core
technologies. Each objective was assigned a relative weight in determining the
amount of the bonus attributable to corporate performance.
CEO COMPENSATION
In establishing Dr. Adlerstein's base salary, it was the intent of the
Board to provide him with a level of stability and certainty each year and not
to have this particular component of compensation affected to any significant
degree by Company performance factors. Accordingly, we primarily took Dr.
Adlerstein's personal performance into consideration in setting his base salary
at $105,519. The remaining components of Dr. Adlerstein's compensation package
provide no dollar guarantees and are contingent upon the attainment of
performance objectives.
Dr. Adlerstein was paid a cash bonus of $5,000, based primarily upon the
Company's progress in meeting the performance objectives identified above for
the year.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
As a result of Section 162(m) of the Internal Revenue Code, the Company
will not be allowed a federal income tax deduction for compensation paid to
certain executive officers, to the extent that compensation exceeds $1 million
per officer in any one year. This limitation will apply to all compensation paid
to the covered executive officers which is not considered to be performance
based. Compensation which does qualify as performance-based compensation will
not have to be taken into account for purposes of this limitation. The 1997 Plan
contains certain provisions that are intended to assure that any compensation
deemed paid in connection with the exercise of stock options granted under that
plan with an exercise price equal to the market price of the option shares on
the grant date will qualify as performance-based compensation.
Because it is very unlikely that the cash compensation payable to any of
the Company's executive officers will approach the $1 million limit in the
foreseeable future, we have decided at this time not to take any other action to
limit or restructure the elements of cash compensation payable to the Company's
executive officers. We will reconsider this decision should the individual cash
compensation of any executive officer ever approach the $1 million level.
12
<PAGE> 16
The foregoing report has been submitted by the undersigned in our capacity
as members of the Company's Board of Directors.
Joseph K. Adlerstein, Ph.D.
Bernard Sonnenschein
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and the Company's four other most highly compensated
executive officers whose salary and bonus exceeded $100,000 for the 1998 fiscal
year (the "Named Officers") for services rendered in all capacities to the
Company for the 1998 and 1997 fiscal years. Information with respect to the 1996
fiscal year is not required to be reported because the Company was not a
reporting company pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), during such year. No executive
officer resigned or terminated employment during the 1998 fiscal year who would
have otherwise been includible in such table on the basis of salary and bonus
earned for that fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION --------------------
NAME AND -------------------------- OTHER ANNUAL NUMBER OF SECURITIES ALL OTHER
PRINCIPAL POSITION(S) YEAR SALARY BONUS(1) COMPENSATION UNDERLYING OPTIONS COMPENSATION
--------------------- ---- -------- -------- ------------ -------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Joseph K. Adlerstein, 1998 $116,221(2) $5,000 -- -- --
Ph.D....................
President, Chief 1997 73,415(3) -- -- -- --
Executive
Officer and Chairman of
the Board
Bernard Sonnenschein...... 1998 106,249(4) 5,000 -- -- --
Treasurer, Secretary and 1997 72,415(5) -- -- -- --
Director
</TABLE>
- ---------------
(1) The amounts shown under the Bonus column include cash bonuses earned for the
indicated fiscal years, but paid in the following year.
(2) Includes $10,702 paid under the Company's health insurance plan.
(3) Includes $8,800 paid under the Company's health insurance plan.
(4) Includes $9,880 paid under the Company's health insurance plan.
(5) Includes $7,800 paid under the Company's health insurance plan.
STOCK OPTIONS
No options were granted to the Named Officers in the fiscal year ending
March 31, 1998.
OPTION EXERCISES AND HOLDINGS
The table below sets forth information concerning the exercise of options
during the 1998 fiscal year and unexercised options held as of the end of such
year by the Named Officers. No stock appreciation rights were exercised during
such fiscal year, and except for the limited stock appreciation right which
forms part of each previously granted outstanding stock option, no stock
appreciation rights were outstanding at the end of the 1998 fiscal year.
13
<PAGE> 17
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES AGGREGATE MARCH 31, 1998 MARCH 31, 1998(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joseph K. Adlerstein,
Ph.D..................... -- -- 127,827 -- $1,036,402 --
Bernard Sonnenschein....... -- -- -- -- -- --
</TABLE>
- ---------------
(1) Based on the closing price of the purchased shares on the option exercise
date less the exercise price paid for such shares.
(2) Based on fair market value of the Common Stock at fiscal year end ($8.109
per share) less the option exercise price payable per share.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
In March 1997, the Company entered into an employment agreement, which was
amended in August 1997 (the "Executive Agreement"), with Joseph K. Adlerstein,
Ph.D. (the "Executive"), pursuant to which Dr. Adlerstein is employed as the
Company's Chairman of the Board, President and Chief Executive Officer. The
Executive Agreement provides that the Executive shall devote substantially all
of his respective business time to the affairs of the Company. The Executive
Agreement expires in March 2000, and shall be automatically renewed for
successive one-year periods unless, within 30 days of the expiration of the
Executive Agreement, either party notifies the other of its election not to
renew the Executive Agreement. The Executive Agreement provides for an initial
base salary of $96,000 (the "Base Salary") per annum and the payment of an
annual bonus of up to 25% of the Base Salary, as determined by the Board of
Directors of the Company based on performance and other criteria. In addition,
the Executive Agreement provides for additional compensation at a rate of
$24,000 for each year of the Executive Agreement for services rendered to the
Company since the Company's inception. Under the Executive Agreement, if the
Executive is terminated without cause, such terminated Executive shall receive a
severance payment equal to 18 months of his then applicable base salary. A
change in ownership or control of the Company shall be considered termination
without cause. The Executive Agreement contains confidentiality provisions and
covenants not to compete with the Company during the employment period. Also in
March 1997, the Company entered into an employment agreement with Bernard
Sonnenschein, the Company's Treasurer and Secretary. This agreement was
terminated in August 1997.
As a result of the Company's dependence on Dr. Adlerstein as a key
employee, the Company has obtained and is the sole beneficiary of key-person
life insurance in the amount of $1,000,000 on the life of Dr. Adlerstein. There
is no assurance that such insurance will continue to be available on reasonable
terms or at all.
All of the Company's employees are subject to certain confidentiality and
non-competition obligations. Each employee has also agreed that all inventions,
discoveries and developments which may be used in the Company's business and
that are developed by such employee during his or her employment with the
Company are the Company's property and the employee will assign his or her
rights therein to the Company. Should the Company be acquired by merger or asset
sale, then all outstanding options held by executive officers under the 1997
Plan will automatically accelerate and vest in full, except to the extent those
options are to be assumed by the successor corporation. In addition, the Plan
Administrator of the 1997 Plan will have the authority to provide for the
accelerated vesting of the shares of Common Stock subject to outstanding options
held by any executive officer or any unvested shares of Common Stock subject to
direct issuances held by such individual, in connection with the termination of
that individual's employment following: (i) a merger or asset sale in which
these options are assumed or are assigned, (ii) the successful completion of a
tender offer for more than 50% of the Company's outstanding voting stock or
(iii) certain hostile changes in control of the Company.
14
<PAGE> 18
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company does not presently have a Compensation Committee. No executive
officer of the Company serves as a member of the board of directors or
compensation committee of any entity which has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to the Delaware General Corporation Law, the Company has adopted
provisions in its Second Amended and Restated Certificate of Incorporation that
eliminate the personal liability of its directors to the Company and its
stockholders for monetary damages for breach of the directors' fiduciary duties
in certain circumstances and which authorize the Company to indemnify its
directors, officers and other agents, by bylaw, agreement or otherwise, to the
fullest extent permitted by law. The Company's Bylaws require the Company to
indemnify its directors and allow the Board of Directors in its discretion to
indemnify officers, employees and other agents to the fullest extent permitted
by law, including those circumstances in which indemnification would otherwise
be discretionary; provided, however, that the corporation shall indemnify any
such agent in connection with a proceeding initiated by such agent only if such
proceeding was authorized by the Board of Directors of the Company.
Additionally, the Company shall advance to the Director, prior to any final
disposition of any threatened or pending action, suit or proceeding, whether
civil, criminal, administrative or investigative, any and all reasonable
expenses (including legal fees and expenses) incurred in investigating or
defending any such action, suit or proceeding within 10 days after receiving
copies of invoices presented to Director for such expenses.
The Company has entered into separate indemnification agreements with its
directors and executive officers. These agreements may require the Company,
among other things, to indemnify directors and officers against certain
liabilities that may arise by reason of their status or service as directors and
officers. Management believes that these provisions in its Second Amended and
Restated Certificate of Incorporation and its Bylaws and contractual
indemnification are necessary to attract and retain qualified persons as
directors and officers.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding which may result in a claim for such indemnification.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file with the SEC
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Officers, directors and greater than
10% stockholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) reports they file.
Based solely upon review of the copies of such reports furnished to the
Company and written representations that no other reports were required, the
Company believes that during the fiscal year ended March 31, 1998, its officers,
directors and holders of more than 10% of the Company's Common Stock complied
with all Section 16(a) filing requirements, except that Mr. Sonnenschein did not
timely file a Form 5 with respect to a certain gift of 18,260 shares of Common
Stock, which untimely filing was subsequently corrected.
15
<PAGE> 19
OTHER BUSINESS
The Board of Directors is not aware of any other matter which may be
presented for action at the Annual Meeting other than the matters set forth in
this Proxy Statement. Should any other matter requiring a vote of the
stockholders arise, it is intended that the persons named as proxy holders on
the enclosed proxy card will vote the shares represented thereby in accordance
with their best judgment in the interest of the Company. Discretionary authority
with respect to such other matters is granted by the execution of the enclosed
proxy.
STOCKHOLDER PROPOSALS
Under the present rules of the SEC, the deadline for stockholders to submit
proposals to be considered for inclusion in the Company's Proxy Statement for
the 1999 annual meeting of stockholders is expected to be March 1, 1999. Such
proposals may be included in next year's Proxy Statement if they comply with
certain rules and regulations promulgated by the SEC.
FORM 10-KSB
The Company filed an Annual Report on Form 10-KSB with the SEC. A copy of
the Annual Report on Form 10-KSB for the fiscal year ended March 31, 1998 has
been mailed concurrently with this Proxy Statement to all stockholders entitled
to notice and to vote at the Annual Meeting. This Form 10-KSB is not
incorporated into this Proxy Statement.
THE BOARD OF DIRECTORS OF SPECTRUMEDIX CORPORATION
Dated: July 31, 1998
16
<PAGE> 20
SPECTRUMEDIX CORPORATION
1997 STOCK INCENTIVE PLAN
(AMENDED AND RESTATED AS OF JULY , 1998)
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1997 Stock Incentive Plan is intended to promote the interests
of SpectruMedix Corporation, a Delaware corporation, by providing eligible
persons with the opportunity to acquire a proprietary interest, or otherwise
increase their proprietary interest, in the Corporation as an incentive for them
to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into three separate equity programs:
(i) the Discretionary Option Grant Program under which eligible
persons may, at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock,
(ii) the Stock Issuance Program under which eligible persons may,
at the discretion of the Plan Administrator, be issued shares of Common Stock
directly, either through the immediate purchase of such shares or as a bonus for
services rendered the Corporation (or any Parent or Subsidiary), and
(iii) the Automatic Option Grant Program under which eligible
non-employee Board members shall automatically receive option grants at periodic
intervals to purchase shares of Common Stock.
B. The provisions of Articles One and Five shall apply to all equity
programs under the Plan and shall govern the interests of all persons under the
Plan.
<PAGE> 21
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. Administration of the Discretionary Option Grant
and Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, at the Board's discretion, be vested in the
Primary Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to such persons.
B. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also at any time terminate the functions of
any Secondary Committee and reassume all powers and authority previously
delegated to such committee or transfer such power and authority to the Primary
Committee.
C. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full power and authority
(subject to the provisions of the Plan) to establish such rules and regulations
as it may deem appropriate for proper administration of the Discretionary Option
Grant and Stock Issuance Programs and to make such determinations under, and
issue such interpretations of, the provisions of such programs and any
outstanding options or stock issuances thereunder as it may deem necessary or
advisable. Decisions of the Plan Administrator within the scope of its
administrative jurisdiction under the Plan shall be final and binding on all
parties who have an interest in the Discretionary Option Grant and Stock
Issuance Programs under its jurisdiction or any option or stock issuance
thereunder.
D. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
E. Administration of the Automatic Option Grant shall be
self-executing in accordance with the terms of those programs, and no Plan
Administrator shall exercise any discretionary functions with respect to any
option grants or stock issuances made under those programs.
2.
<PAGE> 22
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of directors
of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
B. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants under the Discretionary Option Grant
Program, which eligible persons are to receive option grants, the time or times
when such option grants are to be made, the number of shares to be covered by
each such grant, the status of the granted option as either an Incentive Option
or a Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive such stock issuances, the time or times when such
issuances are to be made, the number of shares to be issued to each Participant,
the vesting schedule (if any) applicable to the issued shares and the
consideration to be paid for such shares.
C. The Plan Administrator shall have the absolute discretion either
to grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.
D. The individuals who shall be eligible to participate in the
Automatic Option Grant Program shall be limited to (i) those individuals who are
serving as non-employee Board members on the Underwriting Date, provided they
have not previously received a stock option grant from the Corporation in
connection with their Board service, (ii) those individuals who first become
non-employee Board members at any time after the Underwriting Date, whether
through appointment by the Board or election by the Corporation's stockholders,
and (iii) those individuals who continue to serve as non-employee Board members
at one or more Annual Stockholders Meetings held after the Underwriting Date. A
non-employee Board member who has previously been in the employ of the
Corporation (or any Parent or Subsidiary) shall not be eligible to receive an
option grant under the Automatic Option Grant Program at the time he or she
first becomes a non-employee Board member, but shall be eligible to receive
periodic option grants under the Automatic Option Grant Program while he or she
continues to serve as a non-employee Board member.
3.
<PAGE> 23
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
reserved for issuance over the term of the Plan shall not exceed one million
(1,000,000) shares. Such shares reserve includes (i) the five hundred thousand
(500,000) shares initially reserved for issuance plus (ii) an additional five
hundred thousand (500,000) shares approved by the Board on July , 1998, subject
to stockholder approval at the 1998 Annual Meeting.
B. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than one hundred thousand (100,000) shares of Common Stock in the aggregate
per calendar year, beginning with the 1997 calendar year.
C. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent those options
expire or terminate for any reason prior to exercise in full. Unvested shares
issued under the Plan and subsequently repurchased by the Corporation, at the
original exercise or issue price paid per share, pursuant to the Corporation's
repurchase rights under the Plan shall be added back to the number of shares of
Common Stock reserved for issuance under the Plan and shall accordingly be
available for reissuance through one or more subsequent option grants or direct
stock issuances under the Plan. However, should the exercise price of an option
under the Plan be paid with shares of Common Stock or should shares of Common
Stock otherwise issuable under the Plan be withheld by the Corporation in
satisfaction of the withholding taxes incurred in connection with the exercise
of an option or the vesting of a stock issuance under the Plan, then the number
of shares of Common Stock available for issuance under the Plan shall be reduced
by the gross number of shares for which the option is exercised or which vest
under the stock issuance, and not by the net number of shares of Common Stock
issued to the holder of such option or stock issuance.
D. If any change is made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made to (i) the maximum number and/or class of securities issuable under the
Plan, (ii) the number and/or class of securities for which any one person may be
granted stock options, separately exercisable stock appreciation rights and
direct stock issuances under this Plan per calendar year, (iii) the number
and/or class of securities for which grants are subsequently to be made under
the Automatic Option Grant Program to new and continuing non-employee Board
members, (iv) the number and/or class of securities and the exercise price per
share in effect under each outstanding option under the Plan. Such adjustments
to the outstanding options are to be effected in a manner which shall preclude
the enlargement or dilution of rights and benefits under such options. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.
4.
<PAGE> 24
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise
of the option and shall, subject to the provisions of Section I of Article Five
and the documents evidencing the option, be payable in one or more of the forms
specified below:
(i) in cash or check made payable to the Corporation,
(ii) in shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date, or
(iii) to the extent the option is exercised for vested shares,
through a special sale and remittance procedure pursuant to which the
Optionee shall concurrently provide irrevocable instructions (A) to a
Corporation-designated brokerage firm to effect the immediate sale of
the purchased shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient funds to cover
the aggregate exercise price payable for the purchased shares plus
all applicable Federal, state and local income and employment taxes
required to be withheld by the Corporation by reason of such exercise
and (B) to the Corporation to deliver the certificates for the
purchased shares directly to such brokerage firm in order to complete
the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
5.
<PAGE> 25
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable at
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise of any
options granted to Optionee under the Plan and outstanding at the time of his or
her cessation of Service or death:
(i) Should the Optionee cease to remain in Service for any reason
other than death, Disability or Misconduct, then the period during
which the option may be exercised shall be reduced to the three
(3)-month period measured from the date of such cessation of Service.
(ii) Should Optionee's Service terminate by reason of Disability,
then the period during which the option may be exercised shall be
reduced to the twelve (12)-month period measured from the date of
such cessation of Service.
(iii) If the Optionee dies while holding an outstanding option
under the Plan, then the personal representative of his or her estate
or the person or persons to whom the option is transferred pursuant
to the Optionee's will or the laws of inheritance shall have a twelve
(12)-month period following the date of the Optionee's death to
exercise such option.
(iv) Under no circumstances, however, shall any such option be
exercisable after the specified expiration of the option term.
(v) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number
of vested shares for which the option is exercisable on the date of
the Optionee's cessation of Service. Upon the expiration of the
applicable exercise period or (if earlier) upon the expiration of the
option term, the option shall terminate and cease to be outstanding
for any vested shares for which the option has not been exercised.
However, the option shall, immediately upon the Optionee's cessation
of Service, terminate and cease to be outstanding with respect to any
and all option shares for which the option is not otherwise at the
time exercisable or in which the Optionee is not otherwise at that
time vested.
6.
<PAGE> 26
(vi) Should Optionee's Service be terminated for Misconduct, then
all outstanding options held by the Optionee shall terminate
immediately and cease to remain outstanding.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service from the
limited exercise period otherwise in effect for that option to such
greater period of time as the Plan Administrator shall deem
appropriate, but in no event beyond the expiration of the option
term, and/or
(ii) permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the number of
vested shares of Common Stock for which such option is exercisable at
the time of the Optionee's cessation of Service but also with respect
to one or more additional installments in which the Optionee would
have vested had the Optionee continued in Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. UNVESTED SHARES. The Plan Administrator shall have the discretion
to grant options which are exercisable for unvested shares of Common Stock.
Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, all or (at the discretion of the Corporation and with the consent of the
Optionee) any of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, the option shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death. However, Non-Statutory Options may,
in connection with the Optionee's estate plan, be assigned in whole or in part
during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion
7.
<PAGE> 27
shall be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in the documents issued to the assignee as the
Plan Administrator may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Five shall be applicable to Incentive
Options. Options designated as Non-Statutory Options when issued under the Plan
shall not be subject to the terms of this Section II.
A. ELIGIBILITY. Incentive Options may be granted only to Employees.
B. DOLLAR LIMITATION. The aggregate Fair Market Value of the shares
of Common Stock (determined as of the respective date or dates of grant) for
which one or more options granted to any Employee under the Plan (or any other
option plan of the Corporation or any Parent or Subsidiary) may for the first
time become exercisable as Incentive Options during any one calendar year shall
not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
C. 10% STOCKHOLDER. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. The shares subject to each option outstanding under the
Discretionary Option Grant Program at the time of a Corporate Transaction shall
automatically vest in full so that each such option shall, immediately prior to
the effective date of the Corporate Transaction, become fully exercisable for
all of the shares of Common Stock at the time subject to that option and may be
exercised for any or all of those shares as fully-vested shares of Common Stock.
However, the shares subject to an outstanding option shall NOT vest on such an
accelerated basis if and to the extent: (i) such option is assumed by the
successor corporation (or parent thereof) in the Corporate Transaction or (ii)
such option is to be replaced with a cash incentive program of the successor
corporation which preserves the spread existing on the unvested option shares at
the time of the Corporate Transaction and provides for subsequent payout in
accordance with the same exercise/vesting schedule applicable to those unvested
option shares or (iii) the acceleration of such option is subject to other
limitations imposed by the Plan Administrator at the time of the option grant.
8.
<PAGE> 28
B. All outstanding repurchase rights shall also terminate
automatically, and the Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction, except to
the extent: (i) those repurchase rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed by the
Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments to reflect such Corporate Transaction shall also be made
to (i) the exercise price payable per share under each outstanding option,
provided the aggregate exercise price payable for such securities shall remain
the same, (ii) the maximum number and/or class of securities available for
issuance over the remaining term of the Plan and (iii) the maximum number and/or
class of securities for which any one person may be granted stock options,
separately exercisable stock appreciation rights and direct stock issuances
under the Plan per calendar year.
E. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to provide for the automatic acceleration of one or
more outstanding options under the Discretionary Option Grant Program upon the
occurrence of a Corporate Transaction, whether or not those options are to be
assumed in the Corporate Transaction. In addition, the Plan Administrator shall
have the discretionary authority to structure one or more of the Corporation's
repurchase rights so that those rights shall not be assignable in connection
with a Corporate Transaction and shall accordingly terminate upon the
consummation of such Corporate Transaction, and the shares subject to those
terminated repurchase rights shall immediately vest in full, whether or not the
options under which those shares are purchasable are to be assumed by the
successor corporation.
F. The Plan Administrator shall have full power and authority
exercisable, either at the time the option is granted or at any time while the
option remains outstanding, to provide for the automatic acceleration of one or
more outstanding options under the Discretionary Option Grant Program in the
event the Optionee's Service is subsequently terminated by reason of an
Involuntary Termination within a designated period (not to exceed eighteen (18)
months) following the effective date of any Corporate Transaction in which those
options are assumed or replaced and do not otherwise accelerate. Any options so
accelerated shall remain exercisable for fully-vested shares until the earlier
of (i) the expiration of the option term or (ii) the expiration of the one
(1)-year period measured from the effective date of the Involuntary
9.
<PAGE> 29
Termination. In addition, the Plan Administrator shall have the discretionary
authority to structure one or more of the Corporation's repurchase rights so
that those repurchase rights shall immediately terminate with respect to any
shares held by the Optionee at the time of his or her Involuntary Termination,
and the shares subject to those terminated rights shall accordingly vest in
full.
G. The Plan Administrator shall have full power and authority
exercisable, either at the time the option is granted or at any time while the
option remains outstanding, to provide for the automatic acceleration of one or
more outstanding options under the Discretionary Option Grant Program upon (i) a
Change in Control or (ii) the subsequent termination of the Optionee's Service
by reason of an Involuntary Termination within a designated period (not to
exceed eighteen (18) months) following the effective date of such Change in
Control. Each option so accelerated shall remain exercisable for fully-vested
shares until the earlier of (i) the expiration of the option term or (ii) the
expiration of the one (1)-year period measured from the effective date of the
Optionee's cessation of Service. In addition, the Plan Administrator shall have
the discretionary authority to structure one or more of the Corporation's
repurchase rights so that those repurchase rights shall immediately terminate
with respect to any shares held by the Optionee at the time of such Change in
Control or Involuntary Termination, and the shares subject to those terminated
rights shall accordingly vest in full at that time.
H. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
limitation is not exceeded. To the extent such dollar limitation is exceeded,
the accelerated portion of such option shall be exercisable as a Non-Statutory
Option under the Federal tax laws.
I. The outstanding options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
IV. CANELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program and to grant in substitution new options covering the same or
different number of shares of Common Stock but with an exercise price per share
equal to the Fair Market Value per share of Common Stock on the new grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have the authority to grant to
selected Optionees tandem stock appreciation rights and/or limited stock
appreciation rights.
10.
<PAGE> 30
B. The following terms shall govern the grant and exercise of tandem
stock appreciation rights:
(i) One or more Optionees may be granted the right, exercisable
upon such terms as the Plan Administrator may establish, to elect
between the exercise of the underlying option for shares of Common
Stock and the surrender of that option in exchange for a distribution
from the Corporation in an amount equal to the excess of (a) the Fair
Market Value (on the option surrender date) of the number of shares
in which the Optionee is at the time vested under the surrendered
option (or surrendered portion thereof) over (b) the aggregate
exercise price payable for such shares.
(ii) No such option surrender shall be effective unless it is
approved by the Plan Administrator, either at the time of the actual
option surrender or at any earlier time. If the surrender is so
approved, then the distribution to which the Optionee shall be
entitled may be made in shares of Common Stock valued at Fair Market
Value on the option surrender date, in cash, or partly in shares and
partly in cash, as the Plan Administrator shall in its sole
discretion deem appropriate.
(iii) If the surrender of an option is not approved by the Plan
Administrator, then the Optionee shall retain whatever rights the
Optionee had under the surrendered option (or surrendered portion
thereof) on the option surrender date and may exercise such rights at
any time prior to the later of (a) five (5) business days after the
receipt of the rejection notice or (b) the last day on which the
option is otherwise exercisable in accordance with the terms of the
documents evidencing such option, but in no event may such rights be
exercised more than ten (10) years after the option grant date.
C. The following terms shall govern the grant and exercise of
limited stock appreciation rights:
(i) One or more Section 16 Insiders may be granted limited stock
appreciation rights with respect to their outstanding options.
(ii) Upon the occurrence of a Hostile Takeover, each individual
holding one or more options with such a limited stock appreciation
right shall have the unconditional right (exercisable for a thirty
(30)-day period following such Hostile Takeover) to surrender each
such option to the Corporation, to the extent the option is at the
time exercisable for vested shares of Common Stock. In return for the
surrendered option, the Optionee shall receive a cash distribution
from the Corporation in an amount equal to the excess of (A) the
Takeover Price of the shares of Common Stock which are at the time
vested under each
11.
<PAGE> 31
surrendered option (or surrendered portion thereof) over (B) the
aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five (5) days following the option
surrender date.
(iii) The Plan Administrator shall pre-approve, at the time the
limited right is granted, the subsequent exercise of that right in
accordance with the terms of the grant and the provisions of this
Section V. No additional approval of the Plan Administrator or the
Board shall be required at the time of the actual option surrender
and cash distribution.
(iv) The balance of the option (if any) shall remain outstanding
and exercisable in accordance with the documents evidencing such
option.
12.
<PAGE> 32
ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below.
A. PURCHASE PRICE.
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article Five, shares
of Common Stock may be issued under the Stock Issuance Program for any of the
following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any Parent or
Subsidiary).
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock Issuance Program
may, in the discretion of the Plan Administrator, be fully and immediately
vested upon issuance or may vest in one or more installments over the
Participant's period of Service or upon attainment of specified performance
objectives.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
13.
<PAGE> 33
3. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. The Corporation shall repay to the Participant any cash consideration
paid for the surrendered shares and shall cancel the unpaid principal balance of
any outstanding purchasemoney note of the Participant attributable to the
surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock which
would otherwise occur upon the cessation of the Participant's Service or the
non-attainment of the performance objectives applicable to those shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares as to which the waiver applies. Such waiver may be effected at any
time, whether before or after the Participant's cessation of Service or the
attainment or non-attainment of the applicable performance objectives.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase rights under the
Stock Issuance Program shall terminate automatically, and all the shares of
Common Stock subject to those terminated rights shall immediately vest in full,
in the event of any Corporate Transaction, except to the extent (i) those
repurchase rights are to be assigned to the successor corporation (or parent
thereof) in connection with such Corporate Transaction or (ii) such accelerated
vesting is precluded by other limitations imposed in the Stock Issuance
Agreement.
B. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase rights with respect to those shares remain
outstanding under the Stock Issuance Program, to structure one or more of those
repurchase rights so that such rights shall not be assignable in connection with
a Corporate Transaction and shall accordingly terminate upon the consummation of
such Corporate Transaction, and the shares subject to those terminated
repurchase rights shall immediately vest in full.
C. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase rights with respect to those shares remain
outstanding under the Stock Issuance Program, to structure one or more of those
repurchase rights so that such rights shall automatically terminate
14.
<PAGE> 34
in whole or in part, and the shares of Common Stock subject to those terminated
rights shall immediately vest, in the event the Participant's Service should
subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Corporate Transaction in which those repurchase rights are assigned
to the successor corporation (or parent thereof).
D. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase rights with respect to those shares remain
outstanding under the Stock Issuance Program, to structure one or more of those
repurchase rights so that such rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest, upon (i) a Change in Control or (ii) the subsequent
termination of the Participant's Service by reason of an Involuntary Termination
within a designated period (not to exceed eighteen (18) months) following the
effective date of such Change in Control or Involuntary Termination.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.
15.
<PAGE> 35
ARTICLE FOUR
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Option grants shall be made on the dates specified
below:
1. Each individual who is serving as a non-employee Board member
on the Underwriting Date shall automatically be granted on that date a
Non-Statutory Option to purchase Ten Thousand (10,000) shares of Common Stock,
provided that individual has not previously received a stock option grant from
the Corporation in connection with his or her Board service.
2. Each individual who is first elected or appointed as a
non-employee Board member at any time after the Underwriting Date shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase Ten Thousand (10,000) shares of Common Stock,
provided that individual has not previously been in the employ of the
Corporation or any Parent or Subsidiary.
3. On the date of each Annual Stockholders Meeting held after the
Underwriting Date, each individual who is to continue to serve as a non-employee
Board member, whether or not that individual is standing for re-election to the
Board at that particular Annual Meeting, shall automatically be granted a
Non-Statutory Option to purchase Two Thousand Five Hundred (2,500) shares of
Common Stock, provided such individual has served as a non-employee Board member
for at least six (6) months. There shall be no limit on the number of such
2,500-share option grants any one non-employee Board member may receive over his
or her period of Board service, and non-employee Board members who have
previously received stock option grants from the Corporation or been in the
employ of the Corporation (or any Parent or Subsidiary) shall be eligible to
receive one or more such annual option grants over their period of continued
Board service.
Stockholder approval of this 1998 Restatement of the Plan shall
constitute pre-approval of each option granted under this Automatic Option Grant
Program on or after the date of such approval and the subsequent exercise of
that option in accordance with the terms and provisions of this Article Four and
the applicable stock option agreement.
B. EXERCISE PRICE.
1. The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the option
grant date.
16.
<PAGE> 36
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
C. OPTION TERM. Each option shall have a term of ten (10) years
measured from the option grant date.
D. EXERCISE AND VESTING OF OPTIONS. Each option grant under this
Automatic Option Grant Program shall be immediately exercisable for any or all
of the option shares. However, the shares of Common Stock purchased under each
such option grant shall be subject to repurchase by the Corporation, at the
exercise price paid per share, upon the Optionee's cessation of Board service
prior to vesting in those shares. Each initial 10,000-share grant shall vest,
and the Corporation's repurchase right shall lapse, in a series of four (4)
successive equal annual installments upon the Optionee's completion of each year
of Board service over the four (4)-year period measured from the option grant
date. Each annual 2,500-share grant shall vest, and the Corporation's repurchase
right shall lapse, upon the Optionee's completion of one (1) year of Board
service measured from the option grant date.
E. TERMINATION OF BOARD SERVICE. The following provisions shall
govern the exercise of any options held by the Optionee under this Automatic
Option Grant Program at the time the Optionee ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's death, the
personal representative of the Optionee's estate or the person or
persons to whom the option is transferred pursuant to the Optionee's
will or in accordance with the laws of descent and distribution)
shall have a twelve (12)-month period following the date of such
cessation of Board service in which to exercise each such option.
(ii) During the twelve (12)-month exercise period, the option may
not be exercised in the aggregate for more than the number of vested
shares of Common Stock for which the option is exercisable at the
time of the Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board member by
reason of death or Permanent Disability, then all shares at the time
subject to the option shall immediately vest so that such option may,
during the twelve (12)-month exercise period following such cessation
of Board service, be exercised for all or any portion of those shares
as fully-vested shares of Common Stock.
17.
<PAGE> 37
(iv) In no event shall the option remain exercisable after the
expiration of the option term. Upon the expiration of the twelve
(12)-month exercise period or (if earlier) upon the expiration of the
option term, the option shall terminate and cease to be outstanding
for any vested shares for which the option has not been exercised.
However, the option shall, immediately upon the Optionee's cessation
of Board service for any reason other than death or Permanent
Disability, terminate and cease to be outstanding to the extent the
option is not otherwise at that time exercisable for vested shares.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKEOVER
A. In the event of any Corporate Transaction, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Corporate Transaction, become fully
exercisable for all of the shares of Common Stock at the time subject to such
option and may be exercised for all or any portion of those shares as
fully-vested shares of Common Stock. Immediately following the consummation of
the Corporate Transaction, each automatic option grant shall terminate and cease
to be outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
B. In connection with any Change in Control, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Change in Control, become fully exercisable
for all of the shares of Common Stock at the time subject to such option and may
be exercised for all or any portion of those shares as fully-vested shares of
Common Stock. Each such option shall remain exercisable for such fully-vested
option shares until the expiration or sooner termination of the option term or
the surrender of the option in connection with a Hostile Takeover.
C. Upon the occurrence of a Hostile Takeover, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each of
his or her outstanding automatic option grants. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Takeover Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the Optionee is otherwise at
the time vested in those shares) over (ii) the aggregate exercise price payable
for such shares. Such cash distribution shall be paid within five (5) days
following the surrender of the option to the Corporation. Stockholder approval
of this 1998 Plan Restatement shall constitute pre-approval of the grant of each
such option surrender right made under this Automatic Option Grant Program on or
after the date of such approval and the subsequent exercise of that right in
accordance with the terms and provisions of this Section II.C. No additional
approval of the Board or any Plan Administrator shall be required at the time of
the actual option surrender and cash distribution.
18.
<PAGE> 38
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same.
E. The grant of options under the Automatic Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.
19.
<PAGE> 39
ARTICLE FIVE
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optionee or
the Participant in connection with the option exercise or share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or the issuance or vesting of such shares under the
Plan shall be subject to the satisfaction of all applicable Federal, state and
local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant Program) with the right to use shares of Common Stock in
satisfaction of all or part of the Taxes incurred by such holders in connection
with the exercise of their options or the vesting of their shares. Such right
may be provided to any such holder in either or both of the following formats:
Stock Withholding: The election to have the Corporation withhold,
from the shares of Common Stock otherwise issuable upon the exercise of such
Non-Statutory Option or the vesting of such shares, a portion of those shares
with an aggregate Fair Market Value equal to the percentage of the Taxes (not to
exceed one hundred percent (100%)) designated by the holder.
Stock Delivery: The election to deliver to the Corporation, at
the time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock or Common Stock previously acquired by such holder (other
than in connection with the option exercise or share vesting triggering the
Taxes) with an aggregate Fair Market Value equal to the percentage of the Taxes
(not to exceed one hundred percent (100%)) designated by the holder.
20.
<PAGE> 40
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Discretionary Option Grant and Stock Issuance Programs became
effective immediately upon the Plan Effective Date. The Automatic Option Grant
Program became effective upon the Underwriting Date, and the initial option
grants under such program were made at that time. The stockholders approved the
Plan on March 11, 1997.
B. The Plan shall terminate upon the earliest of (i) April 29, 2007,
(ii) the date on which all shares available for issuance under the Plan shall
have been issued as fully-vested shares or (iii) the termination of all
outstanding options in connection with a Corporate Transaction. Upon such a
clause (i) plan termination, any outstanding option grants and unvested stock
issuances shall thereafter continue to have force and effect in accordance with
the provisions of the documents evidencing such grants or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, no such amendment
or modification shall adversely affect the rights and obligations with respect
to stock options or unvested stock issuances at the time outstanding under the
Plan unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.
On July , 1998, the Board adopted this 1998 Restatement of the Plan
to effect the following changes: (i) increase the maximum number of shares of
Common Stock reserved for issuance under the Plan by an additional 500,000
shares to 1,000,000 shares of Common Stock, (ii) eliminate the requirement that
the exercise price of Non-Statutory Options granted, or the purchase price of
shares issued, to 10% Stockholders be at least one hundred ten percent (110%) of
the Fair Market Value per share on the grant or issue date, (iii) allow
Non-Statutory Options granted under the Plan to be transferable in connection
with the optionee's estate plan, and (iv) eliminate the minimum twenty percent
(20%) per year vesting requirement for stock option grants or direct share
issuances made under the Plan. The 1998 Restatement became effective immediately
upon adoption by the Board and is subject to approval by the Corporation's
stockholders at the 1998 Annual Meeting. No options shall be exercised, and no
shares shall be issued, on the basis of the 500,000-share increase in the
maximum number of shares reserved for issuance under the Plan, unless and until
the 1998 Restatement is approved by the stockholders. Should such stockholder
approval not be obtained at the 1998 Annual Meeting, then such 500,000-share
increase shall not be implemented, and the exercise price of Non-Statutory
Options granted, and the purchase price of shares of stock issued, to 10%
Stockholders shall remain at not less than one hundred ten percent (110%) of the
Fair Market Value per share on the grant or issue date. All option grants made
prior to the 1998 Restatement shall remain outstanding in accordance with the
terms and conditions of the respective instruments evidencing those options
21.
<PAGE> 41
or issuances, and nothing in the 1998 Restatement shall be deemed to modify or
in any way affect those outstanding options or issuances. Subject to the
foregoing limitations, the Plan Administrator may make option grants under the
Plan at any time before the date fixed herein for the termination of the Plan.
B. Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant Program and shares of Common Stock may be issued
under the Stock Issuance Program that are in each instance in excess of the
number of shares then available for issuance under the Plan, provided any excess
shares actually issued under those programs shall be held in escrow until there
is obtained stockholder approval of an amendment sufficiently increasing the
number of shares of Common Stock available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months after the date
the first such excess issuances are made, then (i) any unexercised options
granted on the basis of such excess shares shall terminate and cease to be
outstanding and (ii) the Corporation shall promptly refund to the Optionees and
the Participants the exercise or purchase price paid for any excess shares
issued under the Plan and held in escrow, together with interest (at the
applicable Short Term Federal Rate) for the period the shares were held in
escrow, and such shares shall thereupon be automatically cancelled and cease to
be outstanding.
V. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any granted option or (ii) under the Stock Issuance Program shall be
subject to the Corporation's procurement of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VI. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant
any right to continue in Service for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
22.
<PAGE> 42
VII. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.
23.
<PAGE> 43
APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option
grant program in effect under the Plan.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or control of
the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange
offer made directly to the Corporation's stockholders, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of
the Board members ceases, by reason of one or more contested
elections for Board membership, to be comprised of individuals who
either (A) have been Board members continuously since the beginning
of such period or (B) have been elected or nominated for election as
Board members during such period by at least a majority of the Board
members described in clause (A) who were still in office at the time
the Board approved such election or nomination.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities
immediately prior to such transaction, or
A-1.
<PAGE> 44
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.
G. CORPORATION shall mean SpectruMedix Corporation, a Delaware
corporation, and any successor corporation which shall assume the Plan and the
outstanding options and stock issuances under the Plan.
H. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary
option grant program in effect under the Plan.
I. ELIGIBLE DIRECTOR shall mean a non-employee Board member eligible
to participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Article One.
J. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
K. EXERCISE DATE shall mean the date on which the Corporation shall
have received written notice of the option exercise.
L. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock or Common Stock is at the time traded on
the Nasdaq National Market, then the Fair Market Value shall be
deemed equal to the closing selling price per share of Common Stock
on the date in question, as such price is reported on the Nasdaq
National Market or any successor system. If there is no closing
selling price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be deemed equal to the
closing selling price per share of Common Stock on the date in
question on the Stock Exchange determined by the Plan Administrator
to be the primary market for the Common Stock, as such price is
officially quoted in the composite tape of transactions on such
exchange. If there is no closing selling price for the Common Stock
on the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such
quotation exists.
A-2.
<PAGE> 45
(iii) If the Fair Market Value of Common Stock is not
determinable pursuant to subparagraph (i) or (ii) of this provision,
then the Fair Market Value shall be determined by the Plan
Administrator, after taking into account such factors as it shall
deem appropriate, including the bid and asked prices for the Common
Stock on the date in question, as such prices are quoted on the
Nasdaq Over-the Counter Bulletin Board.
M. HOSTILE TAKEOVER shall mean the acquisition, directly or
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.
N. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
O. INVOLUNTARY TERMINATION shall mean the termination of the Service
of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially
reduces his or her duties and responsibilities or the level of
management to which he or she reports, (B) a reduction in his or her
level of compensation (including base salary, fringe benefits and
target bonus under any corporate-performance based bonus or incentive
programs) by more than fifteen percent (15%) or (C) a relocation of
such individual's place of employment by more than fifty (50) miles,
provided and only if such change, reduction or relocation is effected
by the Corporation without the individual's consent.
P. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
A-3.
<PAGE> 46
Q. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
R. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.
S. OPTIONEE shall mean any person to whom an option is granted under
the Discretionary Option Grant, Automatic Option Grant or Director Fee Option
Grant Program.
T. PARENT shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
U. PARTICIPANT shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.
V. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for purposes of the Automatic Option Grant
Program, Permanent Disability or Permanently Disabled shall mean the inability
of the non-employee Board member to perform his or her usual duties as a Board
member by reason of any medically determinable physical or mental impairment
expected to result in death or to be of continuous duration of twelve (12)
months or more.
W. PLAN shall mean the Corporation's 1997 Stock Incentive Plan, as
set forth in this document.
X. PLAN ADMINISTRATOR shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
Y. PLAN EFFECTIVE DATE shall mean March 12, 1997, the date on which
the Plan was originally adopted by the Board.
Z. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders.
A-4.
<PAGE> 47
AA. SECONDARY COMMITTEE shall mean a committee of one (1) or more
Board members appointed by the Board to administer the Discretionary Option
Grant and Stock Issuance Programs with respect to eligible persons other than
Section 16 Insiders.
AB. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
AC. SERVICE shall mean the performance of services for the
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically provided in the
documents evidencing the option grant or stock issuance.
AD. STOCK EXCHANGE shall mean either the American Stock Exchange or
the New York Stock Exchange.
AE. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by
the Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
AF. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in
effect under the Plan.
AG. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
AH. TAKEOVER PRICE shall mean the greater of (i) the Fair Market
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Takeover or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Takeover. However, if the surrendered option is an Incentive Option, the
Takeover Price shall not exceed the clause (i) price per share.
AI. TAXES shall mean the Federal, state and local income and
employment tax liabilities incurred by the holder of Non-Statutory Options or
unvested shares of Common Stock in connection with the exercise of those options
or the vesting of those shares.
AJ. 10% STOCKHOLDER shall mean the owner of stock (as determined
under Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
A-5.
<PAGE> 48
AK. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters who managed the initial public
offering of the Common Stock.
AL. UNDERWRITING DATE shall mean March 12, 1997, the date on which
the Underwriting Agreement was executed and priced in connection with the
initial public offering of the Common Stock.
A-6.
<PAGE> 49
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
SPECTRUMEDIX CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersign appoints JOSEPH K. ADLERSTEIN and J. STEPHAN DOLEZALEK,
and each of them, proxies with full power of substitution, to vote all shares of
Common Stock of SpectruMedix Corporation ("SpectruMedix") held of record by the
undersigned as of July 3, 1998 at the Annual Meeting of Stockholders ("Annual
Meeting") of Spectrumedix to be held the offices of Brobeck, Phleger & Harrison
LLP, Two Embarcadero Place, 2200 Geng Road, Palo Alto, California on August 26,
1998 at 10:00 a.m., local time, and at all adjournments thereof, upon the
following matters:
<TABLE>
<S> <C> <C>
(1) Election of Directors o FOR all nominees listed below o WITHHOLD AUTHORITY to vote for all nominees
(except as marked to the contrary below) listed below
Joseph K. Adlerstein, Ph.D. and Bernard Sonnenschein
</TABLE>
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME ON THE SPACE PROVIDED BELOW.)
- --------------------------------------------------------------------------------
(2) Amendment of the SpectruMedix Corporation 1997 Stock Incentive Plan,
including an increase in the number of shares issuable thereunder from
500,000 shares to a total of 1,000,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) Ratification of the selection of Price Waterhouse LLP as independent public
accountants for the 1999 fiscal year.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(4) In accordance with the discretion of the proxy holders, to act upon all
matters incident to the conduct of the Annual Meeting and upon other
matters as may properly come before the Annual Meeting.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF ANY NOMINEE NAMED ABOVE DECLINES OR IS UNABLE
TO SERVE AS A DIRECTOR, THE PERSONS NAMED AS PROXIES SHALL HAVE FULL DISCRETION
TO VOTE FOR ANY OTHER PERSON WHO MAY BE NOMINATED.
Dated: _______________________________, 1998
____________________________________________
____________________________________________
Signature or Signatures of Stockholder
(This signature should conform to your name
as printed hereon. Co-owners should both
sign.)
