<PAGE>
OEC MEDICAL SYSTEMS, INC.
384 WRIGHT BROTHERS DRIVE
SALT LAKE CITY, UTAH 84116
April 25, 1996
TO OUR STOCKHOLDERS:
You are invited to attend the Annual Meeting of Stockholders of OEC Medical
System, Inc. (the "Company"), which will be held at 10:00 a.m. on Tuesday, June
11, 1996, at the Little America Hotel, 500 South Main, Salt Lake City, Utah.
At this important meeting, you will be asked to vote on the election of
directors, an amendment to the 1990 Stock Option/Stock Purchase Plan, an
amendment to the 1993 Employee Incentive Stock Acquisition Plan, and to ratify
the selection of Deloitte & Touche LLP as the Company's accountants. YOUR BOARD
OF DIRECTORS UNANIMOUSLY RECOMMENDS TO THE STOCKHOLDERS OF THE COMPANY THAT THEY
VOTE FOR THE NOMINEES TO THE BOARD OF DIRECTORS, FOR THE AMENDMENT TO THE 1990
STOCK OPTION/STOCK PURCHASE PLAN, FOR THE AMENDMENT TO THE 1993 EMPLOYEE
INCENTIVE STOCK ACQUISITION PLAN AND FOR THE RATIFICATION OF THE COMPANY'S
SELECTION OF DELOITTE & TOUCHE LLP FOR THE FISCAL YEAR ENDING DECEMBER 31, 1996.
Your vote is important to the Company. Whether or not you plan to attend the
meeting, please return a completed proxy card in the enclosed envelope. If you
do attend the meeting and wish to vote in person, you may withdraw your proxy
and vote your shares personally.
We look forward to seeing you at the meeting.
Sincerely,
[SIGNATURE]
Ruediger Naumann-Etienne
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
<PAGE>
OEC MEDICAL SYSTEMS, INC.
384 WRIGHT BROTHERS DRIVE
SALT LAKE CITY, UTAH 84116
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 11, 1996
------------------------
The Annual Meeting of the Stockholders of OEC Medical Systems, Inc. (the
"Company") will be held at 10:00 a.m. MDT on Tuesday, June 11, 1996, at the
Little America Hotel, 500 South Main, Salt Lake City, Utah for the following
purposes:
1. TO ELECT FIVE DIRECTORS OF THE COMPANY. MANAGEMENT'S NOMINEES FOR ELECTION
ARE GREGORY K. HINCKLEY, BENNO P. LOTZ, ALLAN W. MAY, RUEDIGER
NAUMANN-ETIENNE AND CHASE N. PETERSON.
2. TO APPROVE AN AMENDMENT TO THE 1990 STOCK OPTION/STOCK PURCHASE PLAN (THE
"1990 PLAN") TO (I) INCREASE THE NUMBER OF SHARES OF THE COMPANY'S COMMON
STOCK AUTHORIZED FOR ISSUANCE UNDER THE 1990 PLAN BY AN ADDITIONAL 500,000
SHARES, (II) ALLOW NON-EMPLOYEE BOARD MEMBERS TO RECEIVE DISCRETIONARY
OPTION GRANTS AND STOCK AWARDS UNDER THE 1990 PLAN, (III) ALLOW NON-EMPLOYEE
BOARD MEMBERS TO PARTICIPATE IN THE AUTOMATIC OPTION GRANT PROGRAM, WHETHER
OR NOT THEY HAVE PREVIOUSLY BEEN IN THE COMPANY'S EMPLOY, AND (IV) IMPOSE A
LIMIT ON THE MAXIMUM NUMBER OF SHARES OF THE COMPANY'S COMMON STOCK ANY ONE
PARTICIPANT IN THE 1990 PLAN MAY RECEIVE PER CALENDAR YEAR.
3. TO APPROVE AN AMENDMENT TO THE 1993 EMPLOYEE INCENTIVE STOCK ACQUISITION
PLAN TO INCREASE THE NUMBER OF SHARES OF THE COMPANY'S COMMON STOCK
AUTHORIZED FOR ISSUANCE UNDER SUCH PLAN BY AN ADDITIONAL 100,000 SHARES.
4. TO RATIFY THE APPOINTMENT OF DELOITTE & TOUCHE LLP, CERTIFIED PUBLIC
ACCOUNTANTS, AS INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31,
1996.
5. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING AND
ANY ADJOURNMENT THEREOF.
Stockholders of record at the close of business on April 12, 1996 will
receive this notice and are entitled to vote at the meeting.
PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY
IN THE ENCLOSED REPLY ENVELOPE.
BY ORDER OF THE BOARD OF DIRECTORS
[SIGNATURE]
Allan W. May
SECRETARY
Dated: April 25, 1996
IMPORTANT: WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO
COMPLETE AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED.
<PAGE>
OEC MEDICAL SYSTEMS, INC.
384 WRIGHT BROTHERS DRIVE
SALT LAKE CITY, UTAH 84116
------------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 11, 1996
------------------------
This Proxy Statement is furnished in connection with the solicitation by and
on behalf of the Board of Directors of OEC Medical Systems, Inc. ("OEC" or the
"Company") of proxies to be used at the Annual Meeting of Stockholders (the
"Annual Meeting") which will be held on June 11, 1996, at 10:00 a.m., Mountain
Daylight Time, at the Little America Hotel, 500 South Main, Salt Lake City, Utah
or at any adjournment or postponement thereof, for the purposes set forth in the
accompanying Notice of Annual Meeting of Stockholders. This Proxy Statement and
the Proxy were first mailed to stockholders on or about April 25, 1996. A copy
of the Company's Annual Report to Stockholders for 1995 accompanies this Proxy
Statement.
The entire cost of soliciting proxies, including the costs of preparing,
assembling, printing and mailing this Proxy Statement, the Proxy and any
additional soliciting material furnished to stockholders, will be borne by OEC.
Arrangements may be made with brokerage houses and other custodians, nominees
and fiduciaries to send proxies and proxy materials to the beneficial owners of
stock, and such persons may be reimbursed for their expenses. The Company has
employed Chemical Mellon Shareholder Services, a proxy solicitation firm, to
solicit proxies. The amounts to be paid to such proxy solicitation firm are not
expected to exceed $15,000. Proxies may be solicited by directors, officers or
regular employees of the Company in person or by telephone, telegram or other
means. No additional compensation will be paid to such individuals for any such
services.
The Company's principal executive offices are located at 384 Wright Brothers
Drive, Salt Lake City, Utah 84116.
VOTING RIGHTS
The close of business on April 12, 1996 was the record date for stockholders
entitled to notice of and to vote at the Annual Meeting (the "Record Date"). As
of that date, OEC had outstanding 12,887,862 shares of Common Stock. All of the
outstanding shares of Common Stock on the Record Date are entitled to vote at
the Annual Meeting, and stockholders of record entitled to vote at this meeting
will have one vote for each share so held on the matters to be voted upon,
including voting on the election of directors.
REVOCATION OF PROXIES
Any person giving a proxy has the power to revoke it at any time before its
exercise. A proxy may be revoked by filing with the Secretary of the Company at
the Company's principal executive offices as set forth above an instrument of
revocation or a duly executed proxy bearing a later date, or by attending the
Annual Meeting and voting in person. Subject to any such revocation, all shares
represented by properly executed proxies will be voted in accordance with
specifications on the enclosed proxy. If no such specifications are made,
proxies will be voted FOR the election of the five nominees for director, FOR
the amendment to the 1990 Stock Option/Stock Purchase Plan, FOR the amendment to
the 1993 Employee Incentive Stock Acquisition Plan, and FOR the ratification of
3
<PAGE>
Deloitte & Touche LLP as the Company's independent auditors for the fiscal year
ending December 31, 1996. Management does not know of any matters to be
presented at this Annual Meeting other than those set forth in this Proxy
Statement and in the Notice accompanying this Proxy Statement. If other matters
should properly come before the meeting, the proxy holders will vote on such
matters in accordance with their best judgment. Abstentions and broker non-votes
are each included in the determination of the number of shares present for
quorum purposes. Abstentions are counted in tabulations of the votes cast on
proposals presented to stockholders, whereas broker non-votes are not counted
for purposes of determining whether a proposal has been approved.
PROPOSAL NO. 1
NOMINATION AND ELECTION OF DIRECTORS
Five directors are to be elected at the 1996 Annual Meeting, each to serve
until the next annual meeting of stockholders and until his successor shall be
elected and qualified, or until his earlier death, resignation or removal. The
five candidates receiving the highest number of affirmative votes of the shares
entitled to vote at the Annual Meeting will be elected directors of the Company.
If any nominee is not available for election (a contingency the Company does
not now foresee) it is the intention of the Board of Directors to recommend the
election of a substitute nominee, and proxies in the accompanying form will be
voted for the election of any substitute nominee, unless authority to vote such
proxies in the election of directors has been withheld. Unless you request on
your proxy form that voting of your proxy be withheld for any one or more of the
following nominees for director, your proxy will be voted for the election of
the five nominees listed below.
A shareholder proposal was made and withdrawn and the company agreed to
reaffirm its commitment to identify and consider all qualified candidates for
director. OEC has a strong commitment to diversity at all levels throughout the
Company, including Board of Directors. As opportunities arise, consistent with
the past practices of OEC, the board will actively seek and consider all
candidates, including women and members of racial and ethnic minority groups,
who can contribute the type of background, business experience and demonstrated
effectiveness that will assist us in satisfying the business needs of the
Company at the time of appointment.
INFORMATION WITH RESPECT TO NOMINEES
The names of and certain information with respect to the persons nominated
by the Board of Directors for election as directors are included below.
<TABLE>
<CAPTION>
NAME AGE POSITION AND OTHER INFORMATION
- ----------------------------------- --- ---------------------------------------------------------
<S> <C> <C>
Gregory K. Hinckley 49 Director
Benno P. Lotz 65 Director
Allan W. May 48 Director
Ruediger Naumann-Etienne 49 Chairman of the Board, President, and Chief Executive
Officer
Chase N. Peterson 66 Director
</TABLE>
Gregory K. Hinckley has been Senior Vice President and Chief Financial
Officer of VLSI Technology, Inc., since 1992. VLSI is a semiconductor company
with $700 million in revenues. From 1989 to 1991, he was Vice President and
Chief Financial Officer of Crowley Maritime Corporation, and from 1983 until
1989 he was the Chief Financial Officer of Bio-Rad Laboratories, Inc. He is also
a director of Advanced Molecular Systems, Inc. He has been a director of the
Company since June 1995.
Benno P. Lotz is a self-employed management consultant. From 1976 to 1983,
he was President and Chief Executive Officer of Orthopedic Equipment Company,
Inc. In 1983, when that entity became a subsidiary of the Company's predecessor,
Diasonics, Inc., he was named Chairman and General Manager, a position which he
held until his retirement in 1991. He has been a director of the Company since
March 1995.
4
<PAGE>
Allan May has been Senior Vice President, Strategic Development, and General
Counsel and Secretary of the Company since November 1994; he held various
positions with the Company's predecessor, Diasonics, Inc. from March 1989 to
September 1993. He was Senior Vice President, Business Development, and General
Counsel, and Secretary of Diasonics Utrasound, Inc. from October 1993 through
October 1994. Mr. May served as Chief Operating Officer of Tigera Group, Inc.
(formerly Fortune Systems Corporation) from 1987 to 1988. He has been a director
of the Company since February 1994.
Ruediger Naumann-Etienne was appointed President and Chief Executive Officer
in February 1995. He has been a director of the Company since January 1989, and
was named Chairman of the Board in September 1993. He was President and Chief
Operating Officer of the Company from December 1987 to July 1990 and Executive
Vice President and Chief Financial Officer from April 1984 to September 1988. He
has also been Managing Director of Intertec from July 1990.
Chase N. Peterson, M.D. has been Professor of Internal Medicine (Clinical)
at the University of Utah since 1983 and Professor of Family and Preventive
Medicine (Clinical) since 1991. He was President of the University of Utah from
1983 through 1991. He is a graduate of Harvard College and Harvard Medical
School. He has been a Director of the Company since October 1993.
COMMITTEES OF THE OEC BOARD. During 1995, there were six meetings of the
Board of Directors of the Company. OEC has standing Audit, Nominations and
Compensation Committees. The Audit Committee, currently consisting of Messrs.
Hinckley, Lotz, and Peterson, recommends to the Board, subject to stockholder
approval, the engagement of the independent auditors and reviews the
independence of the auditors and the scope and results of OEC's procedures for
the adequacy of its system of internal accounting controls. The Nominations
Committee, currently consisting of Messrs. May and Peterson, selects and
nominates to the Board nominees for election as directors. The Compensation
Committee, currently consisting of Messrs. Hinckley and Peterson, reviews and
recommends to the Board the remuneration arrangements for senior management of
OEC, administers its compensation and employee benefit plans and administers the
Company's Stock Plan and the Employee Incentive Stock Acquisition Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
NOMINEES TO THE BOARD OF DIRECTORS.
PROPOSAL NO. 2
APPROVAL OF THE 1990 STOCK OPTION/STOCK PURCHASE PLAN AMENDMENT
The stockholders are being asked to approve an amendment to the Company's
1990 Stock Option/ Stock Purchase Plan (the "1990 Plan") which will (i) increase
the number of shares of Common Stock authorized for issuance under the 1990 Plan
by an additional 500,000 shares, (ii) extend the eligibility provisions of the
1990 Plan to allow non-employee members of the Board of Directors (other than
those serving on the Compensation Committee) to receive option grants and direct
stock issuances under the Discretionary Option Grant and Stock Purchase Programs
in effect under the 1990 Plan, (iii) allow non-employee Board members to
participate in the Automatic Option Grant Program, whether or not they have
previously been in the employ of the Company (or any affiliated or predecessor
Company), and (iv) limit the maximum number of shares of Common Stock for which
any one individual may receive stock options, separately exercisable stock
appreciation rights and direct stock issuances under the 1990 Plan to 150,000
shares per calendar year, except that such limit will be increased to 250,000
for the calendar year in which such individual receives his or her initial stock
option grant or direct stock issuance under the 1990 Plan. The affirmative vote
of a majority of the Common Stock present or represented and entitled to vote at
the Annual Meeting is required for approval of the amendment.
The purpose of the 500,000-share increase is to assure that a sufficient
reserve of Common Stock will be available under the 1990 Plan to allow the
Company to continue to attract and retain the
5
<PAGE>
services of key individuals essential to the Company's long-term growth and
success through equity incentives made in the form of stock option grants or
direct stock issuances. The amendment to the eligibility provisions of the
Discretionary Option Grant and Stock Purchase Programs to allow non-employee
Board members to participate in those programs will provide the Company with
additional flexibility in utilizing equity incentives as a vehicle to attract
and retain the services of non-employee Board members. The elimination of the
prior employment restriction upon participation in the Automatic Option Grant
Program will allow all present and future non-employee Board members to receive
equity awards under that incentive program. The limitation on the maximum number
of shares for which any one individual may be granted stock options or direct
stock issuances per calendar year will assure that any compensation deemed paid
to the Company's executive officers in connection with their exercise of any
options granted under the 1990 Plan will qualify as performance-based
compensation which will not be subject to the $1 million limitation per covered
individual on the federal income tax deductibility of compensation paid by the
Company to certain executive officers.
The following is a summary of the principal features of the 1990 Plan,
together with the applicable tax and accounting implications, which will be in
effect if the amendment in the 1990 Plan is approved by the stockholders. This
summary, however, does not purport to be a complete description of all the
provisions of the 1990 Plan. Any stockholder who wishes to obtain a copy of the
actual plan document may do so by written request to the Corporate Secretary at
the Company's executive offices in Salt Lake City, Utah.
The 1990 Plan was originally adopted by the Board of Directors on April 16,
1990 and approved by the stockholders at the 1990 Annual Meeting held on June 4,
1990. The 1990 Plan was subsequently amended (i) in 1991 to implement an
automatic option grant program for non-employee Board members, and that
amendment was approved by the stockholders at the 1991 Annual Meeting held in
June 1991, and (ii) in 1993 to increase the number of shares available in the
plan by 1,000,000, and that amendment was approved by the stockholders at the
1993 Annual Meeting held on September 17, 1993. The amendments to the 1990 Plan
for which stockholder approval is sought under this Proposal were adopted by the
Board on June 8, 1995 and March 26, 1996.
The 1990 Plan is divided into three (3) separate components:
(i) the Discretionary Option Grant Program pursuant to which employees
(including officers), non-employee Board members (other than those at the
time serving on the Compensation Committee) and consultants may, at the
discretion of the Plan Administrator, be granted options to purchase shares
of Common Stock at an exercise price equal to the fair market value of the
option shares on the grant date;
(ii) the Automatic Option Grant Program pursuant to which option grants
will automatically be made at periodic intervals to non-employee Board
members to purchase shares of Common Stock at an exercise equal to the fair
market value of the option shares on the grant date; and
(iii) the Stock Purchase Program pursuant to which eligible employees
(including officers), non-employee Board members (other than those at the
time serving on the Compensation Committee) and consultants may, in the Plan
Administrator's discretion, be granted short term rights (generally not to
remain outstanding for more than thirty (30) days) to purchase shares of
Common Stock at a price not less than the fair market value of the shares at
the time of issuance.
The options granted under the Discretionary Option Grant Program may be
either incentive stock options ("Incentive Options") designed to qualify for
favorable tax treatment under Section 422 of the Internal Revenue Code or
non-statutory options which are not entitled to such treatment. All grants under
the Automatic Option Grant Program will be non-statutory options.
ISSUABLE SHARES. The maximum number of shares of Common Stock authorized
for issuance over the term of the 1990 Plan may not exceed 3,693,303 shares,
including the 500,000-share increase for which stockholder approval is sought
under this Proposal. However, not more than 2,560,659 shares may be issued under
the 1990 Plan after March 31, 1996. The shares of Common Stock issuable
6
<PAGE>
under the 1990 Plan may be drawn from shares of the Company's authorized but
previously unissued Common Stock or from shares of Common Stock reacquired by
the Company, including shares purchased on the open market and held as treasury
shares. In no event, however, may any one participant in the 1990 Plan receive
stock options, separately exercisable stock appreciation rights and direct stock
issuances for more than 150,000 shares of Common Stock in the aggregate per
calendar year, beginning with the 1996 calendar year, except that such limit
will be increased to 250,000 shares for the calendar year in which such
individual receives his or her initial stock option grant or direct stock
issuance under the 1990 Plan.
The shares of Common Stock subject to any outstanding options which expire
or terminate prior to exercise (including options canceled in accordance with
the cancellation-regrant provisions of the 1990 Plan) may become the subject of
subsequent option grants or direct stock issuances under the 1990 Plan. However,
shares subject to any options cashed out in accordance with the Change in
Control provisions described below and all shares issued under the 1990 Plan,
whether or not repurchased by the Company pursuant to its repurchase rights
under the 1990 Plan, will reduce on a one-for-one basis the number of shares
available for subsequent issuance under the 1990 Plan.
ADMINISTRATION. Both the Discretionary Option Grant Program and the Stock
Purchase Program will be administered by one or more committees (collectively,
the "Committee"). Each Committee will be comprised of two or more non-employee
Board members appointed by the Board and will as Plan Administrator have
complete discretion, within the scope of its jurisdiction under the 1990 Plan,
to determine which eligible individuals are to receive option grants, stock
appreciation rights or purchase rights, the number of shares subject to each
such grant or right, the status of any granted option as either an Incentive
Option or a non-statutory option, the vesting schedule (if any) to be in effect
for the option grant or stock issuance and the maximum term for which any
granted option is to remain outstanding.
As of March 31, 1996, the Compensation Committee of the Board serves as the
sole Plan Administrator of the 1990 Plan.
ELIGIBILITY. Employees (including officers), non-employee Board members
(other than those at the time serving on the Compensation Committee), including
non-employee Board members who have previously been in employee status with the
Company (or its predecessor), and independent consultants and advisors of the
Company or any subsidiary corporation are eligible to participate in the
Discretionary Option Grant and Stock Purchase Programs in effect under the 1990
Plan. Non-employee Board members (including those serving on the Compensation
Committee) will also be eligible to participate in the Automatic Option Grant
Program. As of March 31, 1996, approximately 500 individuals (including 6
executive officers and 1 non-employee Board member) were eligible to participate
in the Discretionary Option Grant and Stock Purchase Programs, and 3
non-employee Board members were eligible to receive option grants under the
Automatic Option Grant Program.
PRICE AND EXERCISABILITY. The exercise price per share of Common Stock
subject to option grants made under the Discretionary Option Grant Program may
not be less than the fair market value of such Common Stock on the grant date.
The purchase price of any shares of Common Stock issued under the Stock Purchase
Program may not be less than the fair market value of those shares on the issue
date. The exercise or purchase price is generally payable in cash. However, the
exercise price of any outstanding option may also be paid in shares of Common
Stock upon the exercise of the option or purchase right. Such price may also be
paid through a same-day sale program, pursuant to which the purchased shares are
immediately sold and a portion of the sale proceeds are applied to the payment
of the purchase price. For employees of the Company or its subsidiaries, the
exercise or purchase price may also, with the Plan Administrator's approval, be
paid with a promissory note to become due and payable upon such terms and
conditions as the Plan Administrator may establish.
Options granted under the Discretionary Option Grant Program may be
immediately exercisable for the full number of shares purchasable thereunder or
may become exercisable in cumulative
7
<PAGE>
increments over a period of months or years or upon attainment of specified
performance objectives as determined by the Plan Administrator. No option
granted under the 1990 Plan may have a maximum term in excess of ten (10) years.
VALUATION. For purposes of establishing the option exercise or stock
purchase price and for all other valuation purposes under the 1990 Plan, the
fair market value per share of Common Stock on any relevant date will be the
closing selling price per share on such date, as quoted on the New York Stock
Exchange. If there is no reported selling price for such date, then the closing
selling price for the last previous date for which such quotation exists will be
determinative of fair market value. On March 29, 1996, the fair market value per
share of Common Stock was $11.75 the closing selling price per share on that
date on the New York Stock Exchange.
TERMINATION OF SERVICE. If an optionee ceases to remain in the Company's
service for any reason other than death or permanent disability, the optionee
will have a limited period, not to exceed ninety (90) days following such
cessation of service, in which to exercise his or her outstanding options for
any vested shares for which those options are exercisable at the time of such
cessation of service. The Plan Administrator will have complete discretion,
exercisable either at the time of the option grant or at any time while the
option remains outstanding, to accelerate the exercisability of such option with
respect to one or more subsequent installments for which the option would
otherwise have become exercisable had the optionee's cessation of service not
occurred.
In the event of the optionee's death or permanent disability while in the
Company's service, the option may be exercised for any vested shares for which
the option is exercisable on the date of the optionee's cessation of service.
Such exercise must be effected prior to the earlier of (i) twelve months (or
such shorter period as the Plan Administrator may have specified in the option
agreement) after the date of the optionee's death or permanent disability or
(ii) the specified expiration date of the option term.
The Plan Administrator has the authority to extend the period of time for
which one or more options may remain outstanding after the optionee's cessation
of service from the period designated in the agreements evidencing such options
to such longer period as the Plan Administrator may deem appropriate under the
circumstances. However, in no event may the exercise period for an outstanding
option be extended beyond the specified expiration date of the option term.
The Company will have the right to repurchase, at the original purchase
price, any unvested shares, whether issued under the Discretionary Option Grant
or Stock Purchase Program, which are held by the plan participant at the time of
his or her cessation of service with the Company. However, the Plan
Administrator will have full power and authority to accelerate the vesting of
any or all of such shares at the time of such cessation of service.
For purposes of both the Discretionary Option Grant and Stock Purchase
Programs, a plan participant will be deemed to continue in the Company's service
for so long as such individual renders periodic services to the Company or any
subsidiary, whether as an employee, non-employee board member or independent
consultant.
STOCKHOLDER RIGHTS AND ASSIGNABILITY OF OPTIONS AND PURCHASE RIGHTS. No
optionee will have any stockholder rights with respect to the option shares
until that individual has exercised the option and paid the exercise price for
the purchased shares. Individuals who acquire shares of Common Stock pursuant to
purchase rights granted under the Stock Purchase Program will have full
stockholder rights with respect to those shares (including voting and dividend
rights), whether or not those shares are vested.
Options and purchase rights granted under the 1990 Plan are not assignable
or transferable other than by will or the laws of inheritance following the
holder's death, and each such option or purchase right may only be exercised by
the individual to whom granted, while that individual is alive.
8
<PAGE>
ACCELERATED VESTING. Upon the occurrence of a Change of Control, there will
be (i) immediate vesting of all unvested shares which have been outstanding
under the 1990 Plan for a period of at least six (6) months, whether such shares
have been issued under the Discretionary Option Grant or Stock Purchase Program,
and (ii) immediate acceleration in full of all options which have been
outstanding under the Discretionary Option Grant Program for a period of at
least six (6) months.
A Change of Control will be deemed to occur upon:
(1) the consummation of any transaction approved by the stockholders in
which the Company will cease to be an independent corporation (including,
without limitation, a reverse merger transaction in which the Company
becomes the subsidiary of another corporation) or the sale or other
disposition of all or substantially all of the Company's assets other than
in the ordinary course of business;
(2) the first date on which one or more contested elections for Board
membership results in less than two thirds of the Board members being
comprised of individuals (a) who were members of the Board on a date three
(3) years prior to the date of the first such contested election for Board
membership or (b) who were elected or nominated for election as Board
members by the affirmative vote of at least a majority of those Board
members described in clause (a) who were still in office as of the date the
Board approved such election or nomination;
(3) the acquisition by any person or related group of persons, other
than any such group which includes the Company, of (A) 40% or more of the
outstanding Common Stock pursuant to a tender or exchange offer which the
Board does not recommend that the stockholders accept or (B) 50% or more of
the outstanding Common Stock in a single transaction or a series of related
transactions; or
(4) any dissolution or liquidation of the Company or any merger or
consolidation in which the Company is not the surviving corporation, except
for a transaction the principal purpose of which is to change the Company's
state of incorporation.
Any option accelerated upon a Change of Control event (other than a clause
(4) event) will remain exercisable for a period of thirty (30) days following
such event (or for such extended period as determined by the Plan Administrator
in its sole discretion, exercisable either at the time of the grant of such
option or at any time prior to the occurrence of such event).
The acceleration of options and the vesting of shares under the 1990 Plan
upon such a Change of Control may be seen as an anti-takeover provision and may
have the effect of discouraging a proposal for merger, a takeover attempt or
other efforts to gain control of the Company.
The Plan Administrator will also have the discretionary authority to grant
one or more optionees the right to surrender their options upon a Change of
Control in return for a cash payment from the Company equal to the difference
between the exercise price in effect under each surrendered option and the
amount which a holder of the number of shares subject to the surrendered option
would have received for those shares in connection with the Change of Control.
TAX WITHHOLDING. One or more participants in the Discretionary Option Grant
or Stock Purchase Program may, upon such terms and conditions as the Plan
Administrator deems appropriate, be granted the right to have the Company
withhold, from the shares otherwise issuable under any exercised option or
purchase right, one or more of those shares with an aggregate fair market value
equal to all or part of the federal and state income and employment taxes
incurred in connection with the acquisition of such shares. In lieu of such
direct withholding, one or more participants may also be granted the right to
deliver existing shares of Common Stock in satisfaction of such taxes.
CANCELLATION/REGRANT. The Plan Administrator has the authority to effect,
from time to time, the cancellation of outstanding options under the
Discretionary Option Grant Program in return for the grant of new options for
the same or different number of option shares with an exercise price per share
equal to the fair market value of the Common Stock on the new grant date.
9
<PAGE>
AUTOMATIC OPTION GRANT PROGRAM. Under the amended Automatic Option Grant
Program, each individual who is first appointed or elected as a non-employee
Board member at any time after the 1996 Annual Stockholders' Meeting will
automatically be granted, at the time of such initial appointment or election,
an option to purchase 5,000 shares of Common Stock. Each individual who (i) is
re-elected as a non-employee Board member at one or more Annual Stockholders'
Meeting beginning with the 1996 Annual Meeting will automatically be granted, on
the date of each such Annual Meeting at which he or she is so re-elected, an
option to purchase 5,000 shares of Common Stock. However, no non-employee Board
member may be granted options under the Automatic Option Grant Program for more
than 15,000 shares in the aggregate during his or her period of continued Board
service, and no non-employee Board member may receive his or her first annual
5,000-share automatic option grant until he or she has served on the Board for
at least six (6) months.
Each option grant under the automatic grant program will be subject
to the following additional terms and conditions:
(i) The option price per share will not be less than 100% of the fair
market value per share of Common Stock on the grant date.
(ii) Each option is to have a maximum term of ten (10) years, measured
from the grant date, subject to earlier termination upon the optionee's
cessation of Board service.
(iii) Each automatic option grant will become exercisable in three (3)
successive equal annual installments upon the optionee's completion of each
year of Board service over the three (3)-year period measured from the grant
date.
(iv) Each automatic grant will remain exercisable for up to a six
(6)-month period following the optionee's termination of Board service or
for up to a one-year period following the optionee's death if he or she dies
while serving as a Board member or within six (6) months after cessation of
such Board service. During the applicable period, the option may be
exercised for any or all of the shares for which the option is exercisable
at the time of the optionee's cessation of Board service.
(v) The option will become immediately exercisable for all of the option
shares upon the occurrence of a Change of Control (as defined above),
provided that the option has been outstanding under the program for at least
six (6) months.
(vi) Upon the successful completion of a hostile tender offer for 40% or
more of the outstanding Common Stock, the non-employee Board member will
have the unconditional right to surrender any automatic grant held for at
least six (6) months for a cash distribution from the Company equal to the
excess of (i) the takeover price of the number of shares subject to the
surrendered option, whether or not the option is at the time exercisable for
any or all of those shares, over (ii) the aggregate option price payable for
such shares. For purposes of such calculation, the takeover price per share
of Common Stock subject to the surrendered option will be deemed to be equal
to the greater of (A) the fair market value of such shares on the option
surrender date (as determined in accordance with the normal valuation
provisions of the 1990 Plan) or (B) the highest reported price per share
paid by the tender offeror in acquiring the Common Stock.
(vii) The remaining terms and conditions of the option will in general
conform to the terms described above for grants made under the Discretionary
Option Grant Program and will be incorporated into the option agreement
evidencing the automatic grant.
CHANGE IN CAPITAL STRUCTURE. In the event any change is made to the
outstanding Common Stock by reason of any recapitalization, stock dividend,
stock split, combination of shares, exchange of shares, or other change in
corporate structure effected without the Company's receipt of consideration,
appropriate adjustments will be made to (i) the maximum number and/or class of
securities issuable under the 1990 Plan, (ii) the maximum number and/or class of
securities for which any one individual may receive stock options, separately
exercisable stock appreciation rights and direct stock issuances under the 1990
Plan per calendar year, (iii) the number and/or class of securities and price
10
<PAGE>
per share in effect under each outstanding option and (iv) the number and/or
class of securities per non-employee Board member for which option grants will
subsequently be made under the Automatic Option Grant Program and the maximum
number and/or class of securities issuable per non-employee Board member over
his or her period of continued Board service.
STOCK AWARDS. The table below shows, as to each of the Named Officers 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 1990
Plan during the period beginning January 1, 1995 and ending March 31, 1996,
together with the weighted average exercise price payable per share.
OPTION TRANSACTIONS
<TABLE>
<CAPTION>
OPTIONS GRANTED WEIGHTED AVERAGE
NAME (NUMBER OF SHARES) EXERCISE PRICE
- ---------------------------------------------------------------------------- ------------------ ----------------
<S> <C> <C>
David J. Rose............................................................... -- --
Ruediger Naumann-Etienne.................................................... 100,000 $ 5.75
Randy W. Zundel............................................................. 70,000 $ 5.75
Gary N. Kilman.............................................................. 50,000 $ 5.75
Larry E. Harrawood.......................................................... 60,000 $ 5.75
Barry K. Hanover............................................................ 50,000 $ 5.75
Allan W. May................................................................ 50,000 $ 5.75
All executive officers as a group........................................... 380,000 $ 5.75
Gregory K. Hinckley, Director............................................... 5,000 $ 7.375
Benno P. Lotz, Director..................................................... 5,000 $ 7.375
Chase Peterson, Director.................................................... 5,000 $ 7.375
All non-employee directors as a group....................................... 15,000 $ 7.375
All employees, including current officers who are not executive officers as
a group.................................................................... 389,880 $ 6.65
</TABLE>
As of March 31, 1996, options covering 1,737,767 shares of Common Stock were
outstanding under the 1990 Plan, 822,892 shares remained available for future
option grant and direct issuance (inclusive of the 500,000-share increase for
which stockholder approval is sought under this Proposal) and 1,132,644 shares
have been issued under the 1990 Plan.
AMENDMENT AND TERMINATION. The Board may amend or modify the 1990 Plan at
any time; however, no such amendment may, without the approval of stockholders,
(i) materially increase the benefits accruing to participants or modify the
class of individuals eligible for participation or (ii) materially increase the
number of shares available for issuance, except in the event of certain changes
to the Company's capital structure. Amendments to the Automatic Option Grant
Program may not be made at intervals more frequently than once every six (6)
months, except in certain limited circumstances. The 1990 Plan will terminate on
December 31, 1999, unless sooner terminated by the Board.
FEDERAL TAX CONSEQUENCES. Options granted under the 1990 Plan may be either
Incentive Options which satisfy the requirements of Section 422 of the Internal
Revenue Code or non-qualified options which are not intended to meet such
requirements. The federal income tax treatment for the two types of options
differs as follows:
INCENTIVE 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.
11
<PAGE>
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 other disposition
of such shares is made after the optionee has held the shares for 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 other disposition of the purchased shares, then a
disqualifying disposition will result.
Upon a qualifying disposition of the shares, the optionee will recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over (ii)
the exercise price paid for such shares. If there is a disqualifying disposition
of the shares, then the excess of (i) the fair market value of those shares on
the date the option was exercised over (ii) the exercise price paid for the
shares will be taxable as ordinary income. Any additional gain recognized upon
the disposition will be a capital gain.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to a business expense 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 the shares. In no other instance will the Company be
allowed a deduction with respect to the optionee's disposition of the purchased
shares.
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 paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
Special provisions of the Internal Revenue Code apply to the acquisition of
unvested shares of Common Stock under a non-statutory option. These special
provisions may be summarized as follows:
(a) If the shares acquired upon exercise of the non-statutory option are
subject to repurchase by the Company at the original exercise price in the
event of the optionee's termination of service prior to vesting in such
shares, then the optionee will not recognize any taxable income at the time
of exercise but will have to report as ordinary income, as and when the
Company's repurchase right lapses, an amount equal to the excess of (i) the
fair market value of the shares on the date the Company's repurchase right
lapses with respect to those shares over (ii) the exercise price paid for
the shares.
(b) The optionee may, however, elect under Section 83(b) of the Internal
Revenue Code to include as ordinary income in the year of exercise of the
non-statutory option an amount equal to the excess of (i) the fair market
value of the purchased shares on the exercise date (determined as if the
shares were not subject to the Company's repurchase right) over (ii) the
exercise price paid for such shares. If the Section 83(b) election is made,
the optionee will not recognize any additional income as and when the
Company's repurchase right lapses.
The Company will be entitled to a business expense deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised 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.
STOCK ISSUANCES. The tax treatment of direct stock issuances under the 1990
Plan will depend upon whether the shares are vested or unvested at the time of
issuance.
VESTED SHARES. To the extent the participant is issued vested shares under
the Stock Purchase Program, the individual must report as ordinary income in the
year of issuance an amount equal to the excess of (i) the fair market value of
those vested shares on the issue date over (ii) the aggregate purchase price
paid for such shares in the form of cash or promissory notes.
12
<PAGE>
UNVESTED SHARES. The tax treatment applicable to the acquisition of
unvested shares under the Stock Purchase Program will be the same as that
summarized above for the acquisition of unvested shares upon the exercise of a
non-statutory option.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION. The Company anticipates that any
compensation deemed paid by it in connection with disqualifying dispositions of
Incentive Option shares or exercises of non-statutory options will qualify as
performance-based compensation for purposes of Internal Revenue Code Section
162(m) and 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. Accordingly, all compensation
deemed paid with respect to those options will remain deductible by the Company
without limitation under Internal Revenue Code Section 162(m).
ACCOUNTING TREATMENT. Under current accounting principles, neither the
grant nor the exercise of options with an exercise price equal to the fair
market value of the option shares on the grant date will result in any charge to
the Company's earnings. However, the Company must disclose, in pro-forma
statements to the Company's financial statements, the impact those options would
have upon the Company's reported earnings were the value of those options at the
time of grant treated as a 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.
STOCKHOLDER APPROVAL. The affirmative vote of a majority of the outstanding
shares of the Company's Common Stock present or represented and entitled to vote
at the 1996 Annual Meeting is required for approval of the amendment to the 1990
Plan. Should such stockholder approval not be obtained, then any options granted
on the basis of the 500,000-share increase which forms part of the amendment
will terminate without becoming exercisable for any of the shares of Common
Stock subject to those options, and no further options will be granted on the
basis of such share increase. In addition, without such stockholder approval,
the non-employee Board members will not be eligible to receive any option grants
or direct stock issuances under the Discretionary Option Grant or Stock Purchase
Program, and any stock options or purchase rights granted under those programs
to non-employee Board members will terminate without ever becoming exercisable
for the shares subject to those options or rights. Individuals who previously
have been in the employ of the Company (or any affiliated or predecessor
company) will also remain ineligible to participate in the Automatic Option
Grant Program during their period of non-employee Board service. However, the
1990 Plan will continue to remain in effect, and option grants may continue to
be made pursuant to the provisions of the 1990 Plan prior to the recent
amendment for which stockholder approval is sought under this Proposal until the
available reserve of Common Stock as last approved by the stockholders has been
issued pursuant to option grants and direct stock issuances made under the 1990
Plan.
The Board of Directors believes that option grants under the 1990 Plan play
an important role in the Company's efforts to attract and retain the services of
individuals of outstanding ability who are essential to the Company's long-term
financial success. Accordingly, the Board of Directors recommends that the
stockholders vote FOR the approval of the amendment to the 1990 Plan.
NEW PLAN BENEFITS. No option grants or direct stock issuances have been
granted to date on the basis of the 500,000-share increase to the 1990 Plan
which forms part of the amendment for which the stockholder approval is sought
pursuant to this Proposal. However, Mr. Benno Lotz was granted an option for
5,000 shares of Common Stock under the Discretionary Option Grant Program on
June 8, 1995 which is subject to stockholder approval of this Proposal. The
option has an exercise price of $7.375 per share and a maximum term of ten (10)
years, subject to earlier termination following Mr. Lotz's cessation of service
with the Company. The option will become exercisable for the option shares in
three successive equal installments upon Mr. Lotz's completion of each year of
Board service over the three-year period measured from the grant date. The
remaining terms and conditions of such grant are as summarized above for all
option grants made under the Discretionary Option Grant Program. However, the
option will immediately terminate without ever becoming exercisable for any
13
<PAGE>
of the option shares should the stockholders not approve this Proposal at the
Annual Meeting. Should the stockholders approve this proposal, then Messrs.
Hinckley and Lotz will each receive an Automatic Option Grant for 5,000 shares
upon their re-election to the Board at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
AMENDMENT TO THE STOCK OPTION/STOCK PURCHASE PLAN.
PROPOSAL NO. 3
APPROVAL OF AMENDMENT
TO
THE 1993 EMPLOYEE INCENTIVE STOCK ACQUISITION PLAN
The Company's stockholders are being asked to approve an amendment to the
Company's 1993 Employee Incentive Stock Acquisition Plan (the "Acquisition
Plan") which will increase the maximum number of shares of Common Stock
authorized for issuance over the term of the Acquisition Plan by an additional
100,000 shares to 275,000 shares.
The purpose of the new amendment is to ensure that the Company will continue
to have a sufficient reserve of Common Stock available under the Acquisition
Plan to provide eligible employees of the Company and its participating
affiliates with the opportunity to acquire a proprietary interest in the Company
through participation in a payroll-deduction based employee stock purchase plan
under Section 423 of the Internal Revenue Code.
The Acquisition Plan was adopted by the Board of Directors and approved by
the Company's stockholders at the 1993 Annual Meeting held on September 17, 1993
as the successor to the Company's pre-existing Employee Incentive Stock
Acquisition Plan. The new Acquisition Plan became effective with the purchase
period which began on January 1, 1994. The 100,000-share increase for which
stockholder approval is sought under this Proposal was adopted by the Board on
March 26, 1996.
The following is a summary of the principal features of the Acquisition
Plan, as amended. The summary, however, does not purport to be a complete
description of all the provisions of the Acquisition Plan. Any stockholder who
wishes to obtain a copy of the actual plan document may do so by written request
to the Corporate Secretary at the Company's executive offices in Salt Lake City,
Utah.
PURPOSE. The purpose of the Acquisition Plan is to provide eligible
employees of the Company and its participating subsidiaries with the opportunity
to acquire a proprietary interest in the Company through participation in a plan
intended to qualify for the favorable tax benefits afforded employee stock
purchase plans under Section 423 of the Internal Revenue Code. Participating
subsidiaries may include any subsidiary corporation of the Company, whether now
existing or hereafter created, which the Company's Board of Directors
designates.
ADMINISTRATION. The Acquisition Plan is administered by the Compensation
Committee of the Board. The Compensation Committee as Plan Administrator has
full authority to adopt administrative rules and procedures and to interpret the
provisions of the Acquisition Plan. All costs and expenses incurred in plan
administration will be paid by the Company without charge to participants.
ISSUABLE SECURITIES. The shares of Common Stock issuable under the
Acquisition Plan may be either shares newly-issued by the Company or shares
reacquired by the Company, including shares purchased on the open market. The
maximum number of shares of Common Stock which may be sold to participants over
the term of the Acquisition Plan may not exceed 275,000 shares, inclusive of the
100,000-share increase for which stockholder approval is sought under this
Proposal.
In the event that any change is made to the outstanding Common Stock
(whether by reason of subdivision or consolidation, stock dividend, or other
change in corporate structure effected without the Company's receipt of
consideration), appropriate adjustments will be made to (i) the class and
maximum number of securities issuable over the term of the Acquisition Plan,
(ii) the class and
14
<PAGE>
maximum number of securities purchasable per participant during any one purchase
period and (iii) the class and number of securities and the price per share in
effect under each outstanding purchase right.
ELIGIBILITY AND PARTICIPATION. Any individual who renders services to the
Company or a participating subsidiary as an employee is eligible to participate
in the Acquisition Plan.
As of March 31, 1996, approximately 500 employees, including 6 executive
officers, were eligible to participate in the Acquisition Plan.
PURCHASE PERIODS AND PURCHASE RIGHTS. Shares are offered under the
Acquisition Plan through a series of successive purchase periods each with a
duration of six (6) months. The purchase periods run from January 1 to June 30
and from July 1 until December 31 each year.
The participant will be granted a separate purchase right for each purchase
period in which he or she participates. The purchase right will be granted on
the start date of the purchase period and will be automatically exercised on the
last day of that period.
PURCHASE PRICE. The purchase price of the Common Stock acquired at the end
of each purchase period will be equal to the LESSER of (i) 85% of the fair
market value per share of Common Stock on the day preceding the date on which
such purchase period begins or (ii) 85% of the fair market value per share of
Common Stock on the last trading day in the purchase period.
The fair market value per share of Common Stock on any relevant date will be
the closing selling price per share on such date as reported on the New York
Stock Exchange. On March 29, 1996, the fair market value per share was $11.75
the closing selling price per share on that date on the New York Stock Exchange.
PAYROLL DEDUCTIONS AND STOCK PURCHASES. Each participant may, through
authorized payroll deductions, apply from 2% to 20% of his or her cash
compensation each purchase period to the purchase of Common Stock at the end of
that purchase period.
SPECIAL LIMITATIONS. The Acquisition Plan imposes certain limitations upon
a participant's rights to acquire Common Stock, including the following
limitations:
(i) Purchase rights may not be granted to any individual who owns stock
(including stock purchasable under any outstanding purchase rights)
possessing 5% or more of the total combined voting power or value of all
classes of stock of the Company or any of its subsidiaries.
(ii) Purchase rights granted to a participant may not permit such
individual to purchase more than $25,000 of Common Stock (valued at the time
each purchase right is granted) during any one calendar year.
(iii) The maximum number of shares of Common Stock purchasable by any
participant per purchase period may not exceed 2,000 shares.
TERMINATION OF PURCHASE RIGHTS. The purchase right of a participant will
immediately terminate upon (i) the participant's termination of employment or
(ii) his or her election to withdraw from the Acquisition Plan.
STOCKHOLDER RIGHTS. No participant will have any stockholder rights with
respect to the shares covered by his or her outstanding purchase right until the
shares are actually purchased on the participant's behalf. No adjustment will be
made for dividends, distributions or other rights for which the record date is
prior to the date of such purchase.
MERGER OR DISSOLUTION. In the event of a dissolution or liquidation of the
Company or a merger or consolidation of the Company, the Acquisition Plan will
terminate and all payroll deductions made by participants during the purchase
period in which such transaction occurs will be refunded to the participants.
15
<PAGE>
AMENDMENT AND TERMINATION. The Acquisition Plan will terminate upon the
EARLIER of (i) December 31, 2002 or (ii) the date on which all shares available
for issuance are sold pursuant to exercised purchase rights.
The Board may from time to time alter, amend, suspend or discontinue the
provisions of the Acquisition Plan. However, the Board may not, without approval
of the stockholders, (i) increase the number of shares issuable under the
Acquisition Plan or the maximum number of shares which any participant may
purchase per purchase period, except in connection with certain changes in the
Company's capital structure, (ii) materially increase the benefits accruing to
participants or (iii) materially modify the requirements for eligibility to
participate in the Acquisition Plan.
ACCOUNTING TREATMENT. The issuance of Common Stock under the Acquisition
Plan will not result in a compensation expense chargeable against the Company's
reported earnings. However, the Company must disclose, in pro-forma statements
to the Company's financial statements, the impact the purchase rights granted
under the Acquisition Plan would have upon the Company's reported earnings were
the value of those purchase rights treated as compensation expense.
STOCK ISSUANCES. The table below shows, as to each of the Named Officers in
the Summary Compensation Table and the various indicated groups, the number of
shares of Common Stock purchased under the Acquisition Plan between January 1,
1995 and March 31, 1996, together with the weighted average purchase price paid
per share.
ACQUISITION PLAN TRANSACTIONS
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
NAME PURCHASED SHARES PURCHASE PRICE
- ----------------------------------------------------------------------------- ----------------- -----------------
<S> <C> <C>
David J. Rose................................................................ -- --
Ruediger Naumann-Etienne..................................................... -- --
Randy W. Zundel.............................................................. 1,477 $ 5.95
Gary N. Kilman............................................................... -- --
Larry E. Harrawood........................................................... 3,269 $ 6.07
Barry K. Hanover............................................................. 2,000 $ 5.53
All executive officers as a group............................................ 6,746 $ 5.88
All employees, including current officers who are not executive officers as a
group....................................................................... 52,481 $ 6.03
</TABLE>
As of March 31, 1996, 125,343 shares of Common Stock had been issued under
the Acquisition Plan, and 149,657 shares remained available for future issuance
(inclusive of the 100,000-share increase for which stockholder approval is
sought under this Proposal).
FEDERAL TAX CONSEQUENCES. The Acquisition Plan is intended to be an
"employee stock purchase plan" within the meaning of Section 423 of the Internal
Revenue Code. Under a plan which so qualifies, no taxable income will be
recognized by a participant, and no deductions will be allowed to the Company,
at the time the purchase right is granted or at the time such right is
exercised. Taxable income will not be recognized by the participant until there
is a sale or other disposition of the shares acquired under the Acquisition Plan
or in the event the participant should die while still owning the purchased
shares.
If the participant sells or otherwise disposes of the purchased shares
within two (2) years after the start date of the purchase period, then (i) the
participant will recognize ordinary income in the year of sale or disposition
equal to the amount by which the fair market value of the shares on the purchase
date exceeded the purchase price and (ii) the Company will be entitled to a
business expense deduction in the same amount for the taxable year in which such
disposition occurs. If the participant sells or disposes of the purchased shares
more than two (2) years after the start date of the purchase period, then no
deduction will be available to the Company, and the participant will recognize
ordinary
16
<PAGE>
income in the year of sale or disposition equal to the lesser of (i) the amount
by which the fair market value of the shares on the sale or disposition date
exceeded the purchase price paid for those shares or (ii) 15% of the fair market
value of the shares on the start date of the purchase period. Any additional
gain upon the disposition will be taxed as a long-term capital gain.
If the participant still owns the purchased shares at the time of death, the
lesser of (i) the amount by which the fair market value of the shares on the
date of death exceeds the purchase price or (ii) 15% of the fair market value of
the shares on the start date of the purchase period in which such shares were
acquired will constitute ordinary income in the year of death.
NEW PLAN BENEFITS. No purchase rights have been granted, and no shares of
Common Stock have been issued, under the Acquisition Plan on the basis of the
100,000-share increase for which stockholder approval is sought under this
Proposal.
STOCKHOLDER APPROVAL. The affirmative vote of a majority of the outstanding
voting shares of the Company present or represented and entitled to vote at the
1996 Annual Meeting is required for approval of the 100,000-share increase to
the Acquisition Plan. Should such stockholder approval not be obtained, then the
share increase will not be implemented, and any purchase rights granted on the
basis of such share increase will immediately terminate. No additional purchase
rights will be granted on the basis of such share increase, and the Acquisition
Plan will terminate once the existing share reserve has been issued.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
AMENDMENT TO THE ACQUISITION PLAN.
COMPENSATION
The following table provides certain summary information concerning the
compensation paid or accrued by the Company and its subsidiaries, to or on
behalf of the Company's Chief Executive Officer and each of the other four most
highly compensated executive officers of the Company whose salary and bonus for
the 1995 fiscal year was in excess of $100,000, for services rendered in each of
the fiscal years ended December 31, 1995, 1994 and 1993, respectively. Mr. David
Rose is also included in the table because he served as the Company's Chief
Executive Officer for part of the 1995 fiscal year until his resignation on
February 10, 1995. No other executive officer who would have otherwise been
included in such table on the basis of salary and bonus earned for the 1995
fiscal year resigned or terminated employment during that fiscal year. The
individuals named in such tables are designated the "Named Officers."
17
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES
----------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($)(1) BONUS ($) OPTIONS COMPENSATION ($)(2)
- ------------------------------------------- --------- ------------ --------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
1995 200,000 100,000 100,000 --
Ruediger Naumann-Etienne (4) .............. 1994 -- -- -- --
President and Chief Executive Officer 1993 -- -- -- --
David Rose (3) ............................ 1995 25,961 -- -- 270,000(3)
former President and Chief Executive 1994 224,993 253 4,000 29,945
Officer 1993 224,992 28,375 180,000 6,419
1995 153,465 77,214 70,000 17,879
Randy Zundel .............................. 1994 147,396 22,453 -- 14,403
Chief Financial Officer 1993 139,466 17,750 70,000 3,909
1995 120,012 88,932 50,000 21,367
Gary Kilman ............................... 1994 115,472 61,091 -- 17,668
Vice President, Sales 1993 111,872 63,934 60,000 3,185
1995 145,169 58,544 60,000 17,730
Larry Harrawood ........................... 1994 138,208 17,104 -- 15,673
Vice President, Marketing 1993 115,981 33,457 70,000 4,953
1995 108,878 44,740 50,000 11,782
Barry Hanover ............................. 1994 104,634 12,640 -- 10,834
Vice President, Engineering 1993 100,006 10,025 50,000 2,212
</TABLE>
- ------------------------
(1) Includes salary deferred under the Company's 401(k) Savings Plan.
(2) For the 1995 fiscal year the indicated amount for each Named Officer was
comprised of (i) the contributions made by the Company to the Company's
401(k) Savings Plan on behalf of each such officer which match his salary
deferral contributions to such plan, up to a maximum match of $3,000 per
participant, and (ii) the imputed cost of life insurance coverage provided
by the split dollar life insurance policy which the Company maintains for
each Named Officer plus the value to the Named Officer of the benefit
provided by the Company's payment of the premium on such insurance policy.
<TABLE>
<CAPTION>
PLAN CONTRIBUTION INSURANCE BENEFIT
1995 1995
----------------- -----------------
<S> <C> <C>
Mr. Rose................................................................ $ -- $ --
Mr. Zundel.............................................................. 3,000 14,879
Mr. Kilman.............................................................. 3,000 18,367
Mr. Harrawood........................................................... 3,000 14,730
Mr. Hanover............................................................. 3,000 8,782
</TABLE>
- ------------------------
(3) Mr. Rose resigned as an officer and director of the Company on February 10,
1995. Dr. Naumann-Etienne assumed the positions of president and chief
executive officer in February 1995. In connection with Mr. Rose's
resignation, he became entitled to the following severance benefits included
as "All Other Compensation" for him for the 1995 fiscal year: (i) a lump sum
payment of $45,000 at the time of such resignation plus (ii) $225,000 of
salary continuation payments over the 12-month period following his
resignation date.
18
<PAGE>
(4) Dr. Naumann-Etienne was paid $120,000 in 1994 and $30,000 in 1993 as
compensation under a consulting agreement for his role as Chairman of the
Board of Directors. Dr. Naumann-Etienne became an employee of the Company on
March 1, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options under the Company's 1990 Stock Option/Stock Purchase Plan for the 1995
fiscal year to each of the Named Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
% OF TOTAL APPRECIATION FOR
OPTIONS OPTIONS GRANTED OPTION TERM
GRANTED TO EMPLOYEES IN EXERCISE PRICE EXPIRATION --------------------
NAME (#)(1) FISCAL YEAR $(SH)(2) DATE 5%(3) 10%(3)
- ----------------------------------------------- --------- --------------- --------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Ruediger Naumann-Etienne....................... 100,000 14% 5.75 4/06/05 362,000 916,000
David Rose..................................... -- -- -- -- -- --
Randy Zundel................................... 70,000 10% 5.75 4/06/05 253,000 641,200
Gary Kilman.................................... 50,000 7% 5.75 4/06/05 181,000 458,000
Larry Harrawood................................ 60,000 8% 5.75 4/06/05 217,200 549,600
Barry Hanover.................................. 50,000 7% 5.75 4/06/05 181,000 458,000
</TABLE>
- ------------------------
(1) Each option was granted April 6, 1995 and will become exercisable in the
following manner: 1/3 will vest with an increase in the stock price of $3,
1/3 additional will vest with an increase in the stock price of $5, and 1/3
additional will vest with a doubling of the stock price. Vesting in any
event will occur on April 6, 2001, provided the optionee continues in the
Company's employ through such date. Each option will become immediately
exercisable for all the option shares should any of the following change in
control events occur while the optionee continues in the Company's service:
(i) the acquisition of the Company by merger or sale of substantially all of
the Company's assets or 50% or more of the Company's outstanding common
stock, (ii) the successful completion of a hostile tender offer for more
than 40% of the Company's outstanding common stock, (iii) a change in the
composition of more than one-third of the Board members by proxy contest or
(iv) the dissolution or liquidation of the Company.
(2) The exercise price may be paid in cash, in shares of Company Common Stock
valued at fair market value on the exercise date or through a cashless
exercise procedure involving a same-day sale of the purchased shares.
(3) There is no assurance provided to any executive officer or any other holder
of the Company's securities that the actual stock price appreciation over
the 10-year option term will be at the assumed 5% and 10% levels or at any
other defined level. Unless the market price of the Company Common Stock
appreciates over the option term, no value will be realized from the option
grants made to the executive officers.
OPTION EXERCISES AND HOLDINGS
The following table provides information, with respect to the Named
Officers, concerning the exercise of options during the last fiscal year and
unexercised options held as of the end of the fiscal year. No stock appreciation
rights were exercised during the last fiscal year, nor were any stock
appreciation rights outstanding at the end of such fiscal year.
19
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS AT
VALUE REALIZED NUMBER OF SECURITIES FY-END (MARKET PRICE
(MARKET PRICE UNDERLYING UNEXERCISED SHARES AT FY-END [$9.75]
AT EXERCISE OPTION AT FY-END (1) LESS EXERCISE PRICE) (1)
SHARES ACQUIRED LESS EXERCISE -------------------------- --------------------------
NAME ON EXERCISE (#) PRICE) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------- --------------- --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ruediger Naumann-Etienne.......... 40,000 $ 100,000 81,500 100,000 $ 345,050 $ 400,000
David J. Rose..................... 64,150 154,688 -- -- -- --
Randy W. Zundel................... -- -- 45,550 119,450 217,960 369,793
Gary N. Kilman.................... -- -- 33,550 92,450 136,045 353,060
Larry E. Harrawood................ -- -- 45,620 109,480 154,946 418,489
Barry K. Hanover.................. -- -- 15,000 85,000 54,375 326,875
</TABLE>
- ------------------------
(1) Includes options granted under the OEC Plan prior to the distribution
("Distribution") by the Company of its interests in Diasonics Ultrasound,
Inc. and FOCAL Surgery, Inc. to its shareholders on September 30, 1993 which
were adjusted to reflect such Distribution ("OEC Adjusted Options").
Pursuant to the Distribution, each option (the "Diasonics Option")
outstanding under the OEC Plan which was not exercised prior to the
Distribution was split into three separately exercisable options -- the OEC
Adjusted Option, the Diasonics Ultrasound Adjusted Option and the FOCAL
Surgery Adjusted Option (together, the "Adjusted Options"). Each OEC
Adjusted Option covers the same number of shares of Common Stock as the
number of shares subject to the Diasonics Option to which it relates.
Each OEC Adjusted Option in general has the same terms and conditions
(including the same vesting/exercise schedule) as in effect for the
Diasonics Option immediately prior to the Distribution. However, the per
share exercise price in effect under the Diasonics Option immediately prior
to the Distribution was allocated among each of the Adjusted Options on the
basis of the relative fair market values of the underlying common stock of
each of the three companies after the Distribution.
For purposes of vesting and continued exercisability of each OEC Adjusted
Option, employment or service (whether as an employee, consultant or
non-employee director) with any one of the three companies or their
respective subsidiaries will be treated as service and employment with the
Company, as if the Distribution did not take place. Accordingly, each of the
OEC Adjusted Options held by an individual after the Distribution will
continue to vest and remain outstanding for so long as that individual
remains in the employ or service of any one of the three companies or their
subsidiaries. Each OEC Adjusted Option will, however, terminate and cease to
be exercisable upon the EARLIEST to occur of (i) the specified expiration
date of the original Diasonics Option, (ii) the expiration of the three
(3)-month period following the date the option holder ceases all employment
and service relationships with the three companies and their subsidiaries or
(iii) the expiration of the twelve (12)-month period following the date of
the option holder's death or permanent disability if such individual dies or
becomes disabled while in the service of one or more of the companies.
The number of shares of Company Common Stock purchasable by each Named
Officer under his OEC Adjusted Option at the end of the 1995 fiscal year is
as follows: Dr. Naumann-Etienne 81,500 shares Mr. Zundel 25,000 shares; Mr.
Kilman 16,000 shares; Mr. Harrawood 15,100 shares; Mr. Hanover -0- shares;
Mr. Rose -0- shares.
OFFICER LOAN. In order to assist Mr. Naumann-Etienne, the Company's current
Chief Executive Officer and a member of the Board of Directors, in the exercise
of certain outstanding stock options about to expire, the Company allowed him to
deliver a promissory note on September 5, 1995 in payment of the exercise price
of the shares of the Company's common stock subject to those options. The note
is a full-recourse obligation in the principal amount of $210,000 and bears
interest at the rate
20
<PAGE>
of 5.83% per annum, compounded semi-annually. The note is secured by a pledge
with the Company of the 40,000 shares of common stock purchased under the
expiring options, and the pledged shares will only be released pro-rata as the
principal balance of the note is paid down. The principal balance will become
payable in one lump sum on October 31, 1996, subject to acceleration upon Mr.
Naumann-Etienne's cessation of service. The highest outstanding balance under
the note to date has been $217,142, and as of March 31, 1996, the unpaid balance
was $217,142.
DIRECTOR'S COMPENSATION. All non-employee members of the Board are paid an
annual retainer of $20,000 plus reimbursement of all out-of-pocket costs
incurred in connection with their attendance at Board or committee meetings.
In addition, the Company's 1990 Stock Option/Stock Purchase Plan contains an
automatic option grant program for non-employee Board members who have not
previously been in the employ of the Company or any affiliated companies. Under
that program, each non-employee Board member automatically receives a
non-statutory option grant for 5,000 shares of Common Stock upon his initial
election or appointment to the Board, and each eligible individual re-elected as
a non-employee Board member at one or more Annual Stockholders Meetings also
receives an automatic option grant on the date of each such Annual Meeting for
an additional 5,000 shares (provided such individual has not received an initial
automatic grant within the preceding six months). Each grant will have an
exercise price per share equal to the market price of the Common Stock on the
grant date. The maximum number of shares of Common Stock purchasable per
non-employee Board member under the automatic option grant program is limited to
15,000 shares. Each grant will become exercisable over the optionee's period of
Board service in three equal annual installments, beginning one year after the
grant date. However, in the event there is a change in control of the Company
whether effected by merger, sale of substantially all of the Company's assets or
50% or more of the outstanding Common Stock or the completion of a hostile
tender offer for 40% or more of the outstanding Common Stock, or in the event
there is a change in the composition of one-third or more of the Board members
effected through a contested election of Board members or in the event of
dissolution or liquidation of the Company, then each automatic grant outstanding
for at least six months will immediately accelerate and become exercisable for
all of the option shares. Each of the automatic grants will have a maximum term
of ten years measured from the grant date, subject to earlier termination upon
the optionee's cessation of Board service. Upon the successful completion of a
hostile tender offer for 40% or more of the outstanding Common Stock, options
will automatically be canceled in return for a cash distribution from the
Company based upon the tender-offer price of the shares of Common Stock subject
to the canceled options. Mr. Hinckley received an automatic option grant for
5,000 shares upon his initial election to the Board at the 1995 Annual
Stockholders' Meeting, and Mr. Peterson also received a 5,000 share automatic
option grant upon his re-election to the Board at the 1995 Annual Meeting. Each
such automatic option grant has an exercise price of $7.375 per share. Mr. Lotz
received a discretionary option grant for 5,000 shares on June 8, 1995. This
option grant has an exercise price of $7.375 and will become exercisable on
three successive equal annual installments over the period of continual Board
service measured from the grant date, provided the stockholders approve the
amendment to the Company's 1990 Stock Option/Stock Purchase Plan in Proposal
Two.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES ACT OF 1934
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file with
the Securities and Exchange Commission and the New York Stock Exchange 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
ten-percent stockholders are required by SEC regulation to furnish the Company
with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely upon review of copies of such
reports furnished to the Company and written representations that no other
reports were required, all Section 16(a) filing
21
<PAGE>
requirements applicable to the Company's officers, directors and greater than
ten-percent stockholders for the 1995 fiscal year were complied with, except
Larry Harrawood who filed late one Form 5 reporting.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors, subject to review by
the full Board, is responsible for the establishment of remuneration
arrangements for senior management and the administration of compensation and
employee benefits plans. In addition, the Compensation Committee sets the base
salary of the Company's executive officers, approves individual bonus programs
for executive officers, and administers the Company's 1990 Stock Option/Stock
Purchase Plan under which grants may be made to executive officers and other key
employees. The following is a summary of policies of the Committee that affect
the compensation paid to executive officers, as reflected in the tables and text
set forth elsewhere in the Proxy Statement.
The objectives of the Company's executive compensation program are to
motivate and retain current executives and to attract future ones. The Company's
executive compensation program is designed to: (1) provide a direct and
substantial link between Company performance and executive pay, (2) consider
individual performance and accomplishments and compensate accordingly, and (3)
determine the Company's position in the medical device and high technology labor
markets and be competitive in those labor markets.
The Company positions its executive pay levels at the median of U.S. medical
and technology companies. To this end, the Company tracks executive pay levels
against companies of similar size, i.e., approximately $100 million. The
Committee also considers geographic location and companies that may compete with
the Company in recruiting executive talent.
The data utilized by the Committee in establishing executive compensation
levels is compiled by the Senior Manager, Human Resources, who has
responsibility to verify that compensation is competitive for similar positions.
Primarily, three compensation surveys were used: (1) the 1995 Radford
Associates/Alexander & Alexander Consulting Group's "Management Total
Compensation Report", (2) the Hay Group's, "Compensation and Benefits Strategies
for 1995 and Beyond", and (3) a November 1995 customized, senior level,
executive survey of Utah based companies prepared by the Industrial Relations
Council, a private Utah employers association.
The Company's executive compensation program has three components; (1) base
salary, (2) short-term incentives, and (3) long-term incentives. Base salary is
used primarily as an attraction and retention device. Base pay is established
within discrete ranges as determined for each position and is adjusted on a
merit review basis each February. Pay is sufficiently variable, under the
program, that 75th percentile performance will result in 75th percentile pay
levels and below median performance levels will result in below median pay. Base
pay increases are determined by long-term contributions to the Company's
performance as well as the individual executive's position, duties, and
responsibilities.
The Committee approved a severance package for Mr. David Rose in connection
with his resignation as Chief Executive Officer on February 10, 1995. Pursuant
to such package, Mr. Rose received a lump sum cash payment of $45,000 at the
time of his resignation and will receive the following additional benefits: (i)
salary continuing payments in the aggregate amount of $225,000 payable over the
twelve-month period following his resignation date, (ii) continued vesting in
his outstanding stock options through August 10, 1995 and (iii) continued health
care coverage for twelve months. In consideration of the services provided by
Mr. Rose and the severance benefits typically provided departing chief executive
officers of companies of similar size in the industry, the Committee believes
that the severance package for Mr. Rose was fair and equitable.
When Dr. Naumann-Etienne succeeded Mr. Rose as Chief Executive Officer in
February 1995, the Committee established his level of base compensation at
$200,000 per year, based upon negotiation
22
<PAGE>
with Mr. Naumann-Etienne and the compensation levels in effect for chief
executive officers at similarly sized medical and technology companies. On the
basis of the compensation surveys for those companies, Dr. Naumann-Etienne's
base compensation level is at the 25th percentile.
The base salary levels in effect for the 1995 fiscal year for the other
executive officers were increased by an average of 4.6 percent. The increase
reflected the Committee's assessment of each executive officer's personal
performance and was designed to maintain his base salary at a competitive market
level.
Short-term incentive pay is paid on an annual basis, if earned. Incentive
pay is provided through the Management Incentive Plan (MIP). Each year
individual and financial objectives are established. To the degree a participant
meets or exceeds his/her personal objectives and the business unit and the
Company meet or exceed their financial objectives, the participating executive
will receive a bonus payable in February following the close of the fiscal year.
The measurement of Company financial performance used in determining
individual incentive pay is profit before tax (PBT). Payments are made based
upon performance versus the target. Performance above the target results in
proportionately higher bonus payouts (up to 150% of the target bonus). Likewise,
below target performance results in proportionately lower bonus payouts (50% of
the target bonus at 75% of target achievement). All bonuses become discretionary
if performance is below 75% of target performance. Since financial performance
for fiscal 1995 met expectations, the Chief Executive Officer received a
$100,000 bonus, and all other executive officers as a group received
discretionary bonuses totaling $269,430.
Long-term incentives are provided through stock options. The stock option
plan is intended to provide incentive to key employees of the Company and
attract new employees with outstanding qualifications, in addition to incenting
executives to make the types of decisions that will continue to improve Company
performance in the long term. The number of shares subject to each option grant
is based upon the officer's tenure, level of responsibility, and relative
position with the Company. The Company has established certain general
guidelines in making option grants to the executive officers in an attempt to
target a fixed number of option shares based upon the individual's position with
the Company and his/her existing holdings of vested options. However, the
Committee does not adhere strictly to these guidelines and will vary the size
and terms of the option grant made to each executive officer as it feels the
circumstances warrant. Each grant allows the officer to acquire shares of the
Company's common stock at a fixed price per share (the market price on the grant
date) over a specified period of time (up to ten years). In 1995, 330,000
special performance-based options were granted to executive officers (see
distribution in the preceding Option Grant Table) under the Company's 1990 Stock
Option/Stock Purchase Plan. These options will vest on an accelerated basis upon
the achievement of performance milestones tied to appreciation in the market
price of the Company's common stock; otherwise, the options will vest upon the
optionee's completion of six years of service.
In total, about one-third of the Chief Executive Officer's annual
compensation is variable upon meeting the financial target. Looking forward over
a five-year term and calculating the values of stock options, about 60% of the
Chief Executive Officer's total compensation will be variable. The Chief
Executive Officer's targeted pay mix is heavily weighted toward long-term
incentives and, therefore, long-term corporate and stock market performance.
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to publicly held companies for compensation exceeding
$1 million paid to certain of the corporation's executive officers. The
compensation to be paid to the Company's executive officers for the 1995 fiscal
year did not exceed the $1 million limit per officer, nor is it expected that
the compensation to be paid to the Company's executive officers for fiscal 1996
will exceed that limit. If the stockholders approve the recent amendment to the
Company's 1990 Stock Option/Stock Purchase Plan at the 1996 Annual Meeting, then
any compensation deemed paid to an executive officer when he exercises any
options subsequently granted under that Plan will qualify as performance-based
compensation which will not be subject to the $1 million limitation. Presently
outstanding stock option grants are not
23
<PAGE>
subject to the Code Section 162(m) limitation because of certain transitional
rules in effect for that limitation. Since it is very unlikely that the cash
compensation payable to any of the Company's executive officers in the
foreseeable future will approach the $1 million limit, the Committee has 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 officer. The Committee
will reconsider this decision should the individual compensation of any
executive officer ever approach the $1 million level.
Submitted by the Compensation Committee of the Company's Board of Directors.
Gregory K. Hinckley
Dr. Chase N. Peterson
EMPLOYMENT CONTRACTS AND CHANGE OF EMPLOYMENT ARRANGEMENTS
No executive officers of the Company have employment agreements with the
Company. In connection with his resignation as Chief Executive Officer on
February 10, 1995, Mr. Rose became entitled to the following severance package;
(i) a lump sum cash payment of $45,000 at the time of his resignation, (ii)
salary continuing payments in the aggregate amount of $225,000 payable over the
twelve-month period following his resignation date, (iii) continued vesting in
his outstanding stock options through August 10, 1995, after which time he will
have 90 days to exercise his vested options, and (iv) continued health care
coverage for twelve months.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee is a current or former employee of
the Company. No executive officer of the Company served on 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.
24
<PAGE>
PERFORMANCE GRAPH
The following graph shows a five-year comparison of cumulative stockholder
returns for the Company, the Standard & Poor 500 Stock Index and the DJ Medical
& Biotech Index for December 31, 1990 through December 31, 1995.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933 or the Exchange Act of 1934
that might incorporate future filings made by the Company under those statutes,
neither the preceding Compensation Committee Report on Executive Compensation
nor the Comparison of Cumulative Total Return graph shall be incorporated by
reference into any such filings; nor shall such report or graph be incorporated
by reference into any future filings made by the Company under these statues.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
12/90 12/91 12/92 12/93 12/94 12/95
<S> <C> <C> <C> <C> <C> <C>
OEC MEDICAL SYSTEMS INC. 100 209 108 83 79 118
S&P 500 100 130 140 155 157 215
DJ MEDICAL & BIO TECH 100 243 210 183 209 358
</TABLE>
* Assumes $100 was invested in each of the Company's stock, the S&P 500 Index
and the Dow Jones Medical and Biotechnology Index as of December 31, 1990.
Total shareholder return assumes reinvestment of dividends. While the
Company has paid no cash dividends, it did declare a distribution of the
stock of its wholly-owned ultrasound business, Diasonics Ultrasound, Inc.
(including its wholly-owned subsidiary, FOCAL Surgery, Inc.) effective
October 1, 1993. The distribution of that stock has been treated as a
dividend of the equivalent cash value of shares of Diasonics Ultrasound,
Inc. and FOCAL Surgery Inc. for purposes of computing the effect of dividend
reinvestment in computing shareholder return in this graph. The equivalent
cash value of shares distributed was computed based on the average of bid
and ask prices for each of Diasonics Ultrasound, Inc. common, when-issued
NASDAQ, and FOCAL Surgery, Inc. common, when issued OTC, as of October 1,
1993.
25
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of March 31, 1996 concerning
beneficial ownership of Common Stock by each of the directors, nominees for
directors, and the named Officers in the Summary Compensation Table, known
beneficial holders of more than 5% of the outstanding Common Stock and all
directors and executive officers as a group. All information is based on
information known to the Company with respect to such persons' beneficial
ownership of shares of Company common stock as of March 31, 1996. Unless
otherwise noted, the listed persons have sole voting and dispositive powers with
respect to the shares held in their names, subject to community property laws,
if applicable:
<TABLE>
<S> <C> <C>
Forstmann-Leff Assoc., Inc. ..................................... 3,007,980 23.9%
FLA Asset Management, Inc.
Stamford Advisors Corp.
55 East 52nd Street
New York, NY 10055 (1)
State of Wisconsin .............................................. 1,185,000 9.27%
Investment Board
121 East Wilson Street
Madison, WI 53703 (1)
David J. Rose (2)................................................ -- *
Randy W. Zundel (2).............................................. 86,414 *
Gary N. Kilman (2)............................................... 48,166 *
Larry E. Harrawood (2)........................................... 90,583 *
Barry K. Hanover (2)............................................. 42,082 *
Gregory K. Hinckley.............................................. -- *
Benno P. Lotz (2)................................................ 10,937 *
Allan W. May (2)................................................. 130,228 1.0%
Ruediger Naumann-Etienne (2)..................................... 154,833 1.2%
Chase Peterson (2)............................................... 7,667 *
All executive officers and directors as a group (10 persons) 570,910 4.5%
(3).............................................................
</TABLE>
- ------------------------
(*) Less than 1%.
(1) Information provided pursuant to Schedule 13G reports filed with the
Securities Exchange Commission in February 1996.
(2) Includes options to purchase common stock which are currently exercisable or
will become exercisable within 60 days of March 31, 1996, as follows: Mr.
Zundel, 83,916; Mr. Kilman, 48,166; Mr. Harrawood, 70,683; Mr. Hanover,
42,082; Mr. Rose, -0-; Dr. Naumann-Etienne, 114,833; Mr. May, 126,666; Mr.
Lotz, 10,937; Mr. Peterson, 7,667.
(3) Includes options to purchase 503,900 shares of common stock which are
currently exercisable or will become exercisable within 60 days of March 31,
1996.
PROPOSAL NO. 4
RATIFICATION OF INDEPENDENT AUDITORS
The firm of Deloitte & Touche LLP served as independent auditors for the
Company for the year ended December 31, 1995. The Board of Directors has
appointed, subject to the ratification by the stockholders, Deloitte & Touche
LLP as independent auditors for the year ending December 31, 1996.
26
<PAGE>
Representatives of Deloitte & Touche LLP are expected to be present at the
meeting with the opportunity to make a statement, if they desire to do so, and
to be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS TO THE STOCKHOLDERS THAT THEY VOTE FOR
RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP.
STOCKHOLDERS' PROPOSALS
Proposals of stockholders that are intended to be presented at the 1996
annual meeting of stockholders of the Company must be received by December 26,
1996 in order to be considered for inclusion in the proxy statement and proxy
relating to that meeting.
OTHER MATTERS
The Board of Directors knows of no other matter to be acted upon at the
meeting. However, if any other matter is properly brought before the meeting,
the persons named in the accompanying form of Proxy will vote thereon in
accordance with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS
[SIGNATURE]
Allan W. May
SECRETARY
27
<PAGE>
OEC MEDICAL SYSTEMS, INC.
1990 STOCK OPTION/STOCK PURCHASE PLAN
AMENDED AND RESTATED THROUGH MARCH 31, 1996
ARTICLE ONE
GENERAL PROVISIONS
1. PURPOSE.
This restated 1990 Stock Option/Stock Purchase Plan (the "Plan") was
initially established, effective April 16, 1990, as a consolidation and
restatement of four pre-existing stock option plans and one pre-existing stock
purchase plan maintained by Diasonics, Inc., a Delaware corporation: (i) the
1982 Stock Option Plan, (ii) the 1984 Stock Option Plan, (iii) the 1985 Stock
Option Plan, (iv) the 1987 Stock Option Plan and (v) the 1987 Stock Purchase
Plan, and this Plan accordingly supersedes those five plans (collectively the
"Predecessor Plans") and serves as their successor. Accordingly, all options
and purchase rights outstanding under the Predecessor Plans on the original
April 16, 1990 effective date of this Plan have been incorporated into this
Plan, subject, however, to the express terms and conditions of the instruments
evidencing each such pre-existing option and purchase right.
This restated Plan is intended to provide key Employees
(including Officers and Directors), non-employee Board members and Consultants
of the Company and the Company's Subsidiaries with the opportunity to acquire an
equity interest in the Company and thereby encourage them to continue to provide
services to the Company or the Company's Subsidiaries. The effective date of
this restatement shall be July 14, 1993.
2. DEFINITIONS.
As used herein, the following terms have the meanings indicated:
2.1 "Board" means the Board of Directors of the Company.
2.2 "Code" means the Internal Revenue Code of 1986, as amended.
2.3 "Committee" means one or more committees of the Board, each with
at least two Board members, which shall assume responsibility for the
administration of one or more functions under the Plan, either to the extent
expressly provided in the Plan or as specifically authorized by Board
resolution.
<PAGE>
2.4 "Common Stock" means the common stock of the Company, $.01 par
value per share.
2.5 "Company" means OEC Medical Systems, Inc., a Delaware
corporation.
2.6 "Consultant" means any person (other than a Director) or entity
(including any corporation) rendering services to the Company or a Subsidiary as
an independent contractor or any person (other than a Director) who is employed
by the person or entity rendering such services.
2.7 "Director" means an individual who is a member of the Board or a
member of the board of directors of any Subsidiary.
2.8 "Employee" means an individual who is employed, within the
meaning of Section 3401 of the Code and the regulations thereunder, as a common
law employee by the Company or one or more Subsidiary corporations, including
any Officer or Director who is so employed, but excluding any Officer or
Director who is not so employed.
2.9 "Employment Termination" means:
(i) In the case of an Employee, the cessation of such
individual's Employee status for any reason without his/her becoming or
continuing as a Consultant or Director; and
(ii) In the case of a Director, the cessation of such
individual's service on the Board for any reason without his/her becoming
or continuing as an Employee or Consultant; and
(iii) In the case of a Consultant, the cessation of such person's
status as a Consultant for any reason without his/her becoming or
continuing as an Employee or Director.
2.10 "Exercise Price" means the price per share at which an Option
may be exercised.
2.11 "Fair Market Value" means:
(i) The closing price per share of Common Stock on the relevant
determination date on an established stock exchange, if the Common Stock is
listed and traded on such an exchange. If no sale of Common Stock is made
on any such exchange on the date in question, the Fair Market Value shall
be determined by the closing price of the Common Stock on the next
preceding day upon which such a sale shall have occurred.
2.
<PAGE>
(ii) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market or any successor system. If there is no closing selling
price for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
2.12 "Grant Date" is the date on which (i) the Committee grants a
discretionary Option under Article Two of the Plan, (ii) the Committee grants a
Purchase Right under Article Three of the Plan, or (iii) an automatic grant is
made to a non-employee member of the Board pursuant to the provisions of Article
Four.
2.13 "Incentive Stock Option" means an Option under Article Two which
meets the requirements of Section 422(b) of the Code.
2.14 "1933 Act" means the Securities Act of 1933, as amended.
2.15 "1934 Act" means the Securities Exchange Act of 1934, as
amended.
2.16 "Nonstatutory Stock Option" means an Option under Article Two or
Article Four which is not intended to meet the requirements of Section 422(b),
423(b) or 424(b) of the Code.
2.17 "Note" means a full recourse promissory note of an Optionee
and/or Participant.
2.18 "Officer" means any Employee who is at the time of determination
subject to the short-swing profit restrictions of Section 16 of the 1934 Act.
2.19 "Option" means, except where the context clearly indicates
otherwise, (i) any discretionary stock option grant made by the Committee
pursuant to Article Two of the Plan or (ii) any automatic stock option grant
made pursuant to the provisions of Article Four.
2.20 "Optionee" means, except where the context clearly indicates
otherwise, (i) an Employee, non-employee Director or Consultant to whom a
discretionary Option has been granted pursuant to Article Two of the Plan or
(ii) a non-employee Director to whom an automatic grant has been made pursuant
to the provisions of Article Four.
2.21 "Participant" means an Employee, non-employee Director or
Consultant who has been granted a Purchase Right under Article Three of the
Plan.
3.
<PAGE>
2.22 "Permanent Disability" means a disability within the meaning of
Section 22(e)(3) of the Code.
2.23 "Plan" means this restated OEC Medical Systems, Inc. 1990 Stock
Option/Stock Purchase Plan, as it may be subsequently amended from time to time.
2.24 "Purchase Agreement" means the agreement between the Company and
the Optionee and/or Participant evidencing the purchase of Shares under the
Plan.
2.25 "Purchase Price" means, with respect to an Option granted under
Article Two or Article Four, the Exercise Price times the number of Shares with
respect to which such Option is exercised and means, with respect to a Purchase
Right granted under Article Three, the aggregate price payable for the Shares
purchasable under such Purchase Right.
2.26 "Purchase Right" means a right to purchase one or more Shares
granted to a Participant pursuant to the provisions of Article Three.
2.27 "Right of Repurchase" means the repurchase rights of the Company
described in Section 4 of Article Three.
2.28 "Shares" means the shares of Common Stock issuable under the
Plan pursuant to Options granted under Articles Two and Four and Purchase Rights
granted under Article Three.
2.29 "Subsidiary" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company, provided each such
corporation (other than the last corporation) in the unbroken chain owns at
least 50 percent of the total combined voting power of all classes of stock in
one of the other corporations in such chain.
2.20 "10% Stockholder" means an individual who owns stock possessing
10% or more of the total combined voting power of all classes of outstanding
stock of the Company or any one of its Subsidiary corporations. In determining
such stock ownership, the following guidelines shall be in effect:
(i) The individual shall be considered to own the stock owned,
directly or indirectly, by or for his/her brothers and sisters, spouse,
ancestors and lineal descendants. Stock owned, directly or indirectly, by
or for a corporation, partnership, estate or trust shall be considered as
being owned proportionately by or for its stockholders, partners or
beneficiaries. Stock with respect to which such individual holds an Option
or Purchase Right shall not be counted.
4.
<PAGE>
(ii) "Outstanding stock" shall include all stock actually issued
and outstanding immediately after the grant of an Option or Purchase Right to
such individual, but shall not include Shares authorized for issuance under any
Options or Purchase Rights held by such individual or by any other person.
3. STRUCTURE OF THE PLAN.
3.1 STOCK PROGRAMS. The Plan shall be divided into three separate
components: the Discretionary Option Grant Program specified in Article Two, the
Stock Purchase Program specified in Article Three, and the Automatic Option
Grant Program specified in Article Four. Under the Discretionary Option Grant
Program, eligible Employees, non-employee Directors and Consultants may, at the
discretion of the Committee, be granted Options to purchase shares of Common
Stock at an Exercise Price equal to the Fair Market Value of the shares on the
Grant Date. Under the Stock Purchase Program, eligible Employees, non-employee
Directors and Consultants may be granted Purchase Rights to acquire shares of
Common Stock at a Purchase Price equal to the Fair Market Value of the shares on
the Grant Date. Such shares may be issued as fully vested or may vest in one or
more installments over time. Under the Automatic Option Grant Program, the non-
employee Directors will automatically receive periodic option grants to purchase
shares of Common Stock at an Exercise Price equal to the Fair Market Value of
the shares on each automatic Grant Date. No such non-employee Director member
may, however, be granted options to purchase more than 15,000 shares of Common
Stock (subject to adjustment under Section 4.4 of this Article One) under the
Automatic Option Grant Program. Non-employee Directors (other than those
serving as members of the Primary Committee) shall also, in their capacity as
such Directors, be eligible to receive Options and Purchase Rights pursuant to
the Discretionary Option Grant and Stock Purchase Programs in effect under the
Plan.
3.2 APPLICABILITY. Unless the context clearly indicates otherwise,
the provisions of Articles One and Five of the Plan shall apply to the
Discretionary Option Grant Program, the Stock Purchase Program and the Automatic
Option Grant Program and shall accordingly govern the interests of all
individuals under the Plan.
4. STOCK.
4.1 NUMBER OF SHARES. The shares of Common Stock issuable under the
Plan shall be shares of the Company's authorized but unissued Common Stock or
shares of Common Stock reacquired by the Company. The maximum number of Shares
available for issuance under the Plan from and after the original April 16, 1990
effective date of this
5.
<PAGE>
consolidated Plan shall not exceed 3,693,303 shares of Common Stock,(1/)
subject to adjustment from time to time in accordance with Section 4.4 of this
Article One. All Options or Purchase Rights outstanding under any of the
Predecessor Plans on the original April 16, 1990 effective date of this Plan
shall be incorporated into this Plan, subject, however, to the express terms and
conditions of the instruments evidencing each such pre-existing Option or
Purchase Right. To the extent any such Options or Purchase Rights are
subsequently exercised, the number of Shares issued with respect to each such
Option or Purchase Right shall reduce, on a one Share-for-one Share basis, the
number of Shares available for issuance under this Plan.
4.2 SHARE LIMITATION. No one person participating in the Plan may
receive Options, separately exercisable stock appreciation rights and direct
Share issuances for more than 150,000 shares of Common Stock in the aggregate
per calendar year, beginning with the 1996 calendar year, except that such limit
shall be increased to 250,000 shares of Common Stock for the calendar year in
which such person receives his/her initial Option grant or Purchase Right under
the Plan.
4.3 REISSUANCES. In the event that any outstanding Option or
Purchase Right (including outstanding Options and Purchase Rights issued under
the Predecessor Plans and incorporated into this Plan) for any reason expires or
is terminated, whether or not pursuant to the cancellation-regrant provisions of
Section 2 of Article Two, the Shares allocable to the unexercised portion of
such Option or Purchase Right may be made the subject of subsequent Option or
Purchase Right grants under this Plan. Shares subject to any Option or portion
thereof surrendered or cancelled in accordance with Section 1.8(b) of Article
Two or Section 3.2 of Article Four and all share issuances under the Plan,
whether or not such shares are subsequently repurchased by the Company pursuant
to its repurchase rights under Articles Two and Three, shall reduce on a share-
for-share basis the number of shares of Common Stock available for subsequent
Option or Purchase Right grants under this Plan. In addition, should the
Purchase Price of an outstanding Option or Purchase Right exercised under the
Plan be paid with shares of Common Stock or should shares of Common Stock be
withheld by the Company in satisfaction of the withholding taxes incurred by the
Optionee or the Participant in connection with the acquisition or vesting of
Shares issued under the Plan, then the number of shares of Common Stock
- -------------------------
(1/) Such number of Shares represents the sum of (i) the 1,793,303 Shares which
remained available, as of the original April 16, 1990 effective date of the
Plan, for issuance in the aggregate under the five Predecessor Plans
consolidated into this Plan, (ii) an increase upon such effective date of an
additional 400,000 Shares, (iii) an additional increase of 1,000,000 Shares
approved by the Company's stockholders at the 1993 Annual Stockholders Meeting
and (iv) a further increase of 500,000 Shares authorized by the Board on March
26, 1996, subject to stockholder approval at the 1996 Annual Meeting. These
numbers have been adjusted to reflect the 1 for 5 reverse split of the Common
Stock effected by the Company on August 1, 1991.
6.
<PAGE>
available for issuance under the Plan shall be reduced by the gross number of
Shares for which the Option or Purchase Right is exercised, and not by the net
number of Shares of Common Stock actually issued to the Optionee or the
Participant.
4.4 ADJUSTMENTS. Subject to any required action by stockholders, in
the event of any increase or decrease in the number of the Company's outstanding
shares of Common Stock resulting from a subdivision or consolidation of such
shares or the payment of a stock dividend (but only of Common Stock), a rights
offering covering shares of Common Stock or any other increase or decrease in
the number of issued shares of Common Stock effected without receipt of
consideration by the Company, the Primary Committee may, in its discretion, make
proportionate adjustments to:
(i) the maximum number of Shares which may be issued pursuant to
the Discretionary Option Grant Program and Stock Purchase Program of this
Plan,
(ii) the maximum number of Shares for which any one person may
receive Option grants, separately exercisable stock appreciation rights and
direct Share issuances per calendar year pursuant to the Discretionary
Option Grant Program and Stock Purchase Program of this Plan,
(iii) the number of Shares purchasable under each Option
outstanding under the Discretionary Option Grant Program and the Exercise
Price payable per share thereunder, and
(iv) the number of Shares purchasable under each outstanding
Purchase Right and the Purchase Price payable per share.
Upon the occurrence of any of the foregoing Section 4.4 transactions
affecting the Common Stock issuable under the Plan, the following adjustments
shall automatically be made to the Automatic Option Grant Program and the
outstanding grants thereunder:
(i) the number of Shares for which automatic option grants are
to made per non-employee Board member at each subsequent Annual
Stockholders Meeting and the maximum number of Shares which each non-
employee Board member may acquire in the aggregate pursuant to such
automatic option grants shall be proportionately adjusted to reflect the
effect of the Section 4.4 transaction upon the Company's outstanding Common
Stock, and
(ii) the number of Shares purchasable under each Option
outstanding under the Automatic Option Grant Program and the Exercise Price
payable per share thereunder shall be proportionately adjusted to reflect
7.
<PAGE>
the effect of the Section 4.4 transaction and thereby preclude any dilution
or enlargement of rights under such Option.
5. ADMINISTRATION OF THE PLAN.
5.1 COMMITTEES. Except to the limited extent provided below, the
Plan shall be administered solely and exclusively by one or more Committees
appointed by the Board and comprised of at least two members of the Board. Each
member of the primary Committee ("Primary Committee") shall be a "disinterested
person" within the meaning of SEC Rule 16b-3(c)(2)(i) under the 1934 Act. The
Primary Committee shall have sole and exclusive authority to grant Options under
Article Two or Purchase Rights under Article Three to individuals who are at the
time either Officers or Directors. Individuals who are not at the time either
Officers or Directors may be granted Options under Article Two or Purchase
Rights under Article Three by the Primary Committee, by a secondary Committee of
two or more Board members or by the Board. Administration of the automatic
option grant provisions of Article Four of the Plan shall be self-executing in
accordance with the terms and conditions of such Article Four, and neither the
Board, the Primary Committee nor any secondary Committee shall exercise any
discretionary functions with respect to the Option grants made pursuant to that
section of the Plan.
5.2 PROCEDURES. The Board shall appoint the members of each
Committee and may from time to time remove one or more of such members.
Vacancies on any Committee however caused shall be filled by the Board. Each
Committee shall appoint one of its members as chairman and shall hold meetings
at such times and places as it may determine. Acts of a majority of the members
of the Committee at a meeting at which a quorum is present, or acts approved in
writing by all of the Committee members, shall be valid acts of the Committee.
5.3 INTERPRETATION. All questions of interpretation, construction,
implementation and application of the Plan shall be determined by the Primary
Committee. Such determinations shall be final and binding on all persons. No
member of any Committee or the Board shall be liable for any act or omission
with respect to the Plan or any Option or Purchase Right granted or any Shares
issued pursuant hereto, provided such member acted (or failed to act) in good
faith.
6. PARTICIPATION.
6.1 SELECTION. The applicable Committee shall, from time to time at
its discretion, select (from among the eligible individuals specified below) the
persons who are to be granted Options ("Optionees") under Article Two and/or
Purchase Rights ("Participants") under Article Three, establish the number of
Shares subject to each such grant, and determine whether any Options granted
under Article Two are to be Incentive Stock Options or Nonstatutory Stock
Options (except that no Incentive Stock Option may be granted to any person who
is not an Employee).
8.
<PAGE>
6.2 ELIGIBILITY. The persons eligible to participate in the
Discretionary Option Grant Program and the Stock Purchase Program shall be
limited to Employees (including Officers or Directors), non-employee Directors
(other than individuals at the time serving as members of the Primary Committee)
and Consultants (including employees of Consultants). Non-employee Directors
serving as members of the Primary Committee shall, NOT, during such period of
service, be eligible to participate in the Discretionary Option Grant Program or
the Stock Purchase Program. However, each non-employee Director serving on the
Primary Committee and each of the other non-employee Directors shall be eligible
to receive automatic Option grants pursuant to the provisions of Article Four.
9.
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
1. TERMS AND CONDITIONS OF OPTIONS.
1.1 OPTION AGREEMENTS. Discretionary Option grants made by the
Committee pursuant to this Article Two shall be evidenced by written stock
option agreements ("Option Agreements") in such form as the Primary Committee
shall from time to time determine. The Option Agreements shall comply with and
be subject to the terms and conditions set forth below. Except as the Committee
authorizing the grant may otherwise determine, any Option granted under this
Article Two shall cease to be effective unless the Optionee returns a duly-
executed Option Agreement to the Company within sixty (60) days after such
agreement is sent to the Optionee. Waiver of the 60-day return requirement with
respect to one or more Optionees shall not constitute a waiver with respect to
any other Optionee. To the extent an Option is granted to a person who is not
an Employee, non-employee Director or Consultant at the time of grant, such
grant shall not become effective until such person becomes an Employee, Director
or Consultant and shall terminate in the event such person does not become an
Employee, Director or Consultant within the time period specified by the
Committee authorizing the grant.
1.2 MINIMUM SERVICE PERIOD. Except as otherwise specified in
Section 1.8 of this Article Two, no Option granted under this Article Two shall
become exercisable unless and until the Optionee renders services as an
Employee, non-employee Board member or Consultant for the minimum period which
the Committee authorizing the grant specifies in the Option Agreement, but such
Option Agreement shall not impose upon the Company or its Subsidiaries any
obligation to retain the Optionee as an Employee, non-employee Board member or
Consultant for any period of specific duration. No Option granted to an Officer
of Director under this Article Two shall become exercisable in whole or in part
during the first six (6) months following the Grant Date of such Option.
1.3 NUMBER OF SHARES. Each Option shall state the number of Shares
to which it pertains (the "Option Shares") and shall provide for the adjustment
thereof in accordance with the provisions of Section 4.4 of Article One.
1.4 EXERCISE PRICE. The following provisions shall be in effect for
establishing the Exercise Price for each granted Option:
(i) The Exercise Price shall not be less than the Fair Market
Value of the Option Shares on the Grant Date (or on such other date as may
be required by law if the Option is intended to be an Incentive Stock
Option) and shall be set forth in the Option Agreement.
10.
<PAGE>
(ii) If any Optionee is on the Grant Date a 10% Stockholder, then
the Exercise Price shall not be less than one hundred and ten percent
(110%) of the Fair Market Value of the Option Shares on the Grant Date.
1.5 LIMITATION ON EXERCISABILITY. The aggregate Fair Market Value
(determined as of the respective date or dates of grant) of the Common Stock for
which one or more Options granted to any Optionee under this Article Two (or any
other option plan of the Company or its parent or Subsidiary corporations) may
for the first time become exercisable as incentive stock options under the
Federal tax laws during any one calendar year shall not exceed the sum of One
Hundred Thousand Dollars ($100,000). To the extent the Optionee holds two or
more such Options which become exercisable for the first time in the same
calendar year, the foregoing limitation on the exercisability thereof as
incentive stock options under the Federal tax laws shall be applied on the basis
of the order in which such Options are granted.
1.6 PAYMENT. The Purchase Price shall become immediately due upon
exercise of the Option and shall be payable in one of the following forms:
(i) full payment in cash or cash equivalents;
(ii) full payment in shares of Common Stock held by the Optionee
for the requisite period necessary to avoid a charge to the Company's
earnings for financial reporting purposes and valued at Fair Market Value
on the date of exercise;
(iii) full payment through a combination of shares of Common Stock
held for the requisite period necessary to avoid a charge to the Company's
earnings for financial reporting purposes and valued at Fair Market Value
on the date of exercise and cash or cash equivalents;
(iv) in the discretion of the Committee authorizing the grant,
pursuant to a Note executed by the Optionee, provided such individual is an
Employee;
(v) on a partly-paid basis in accordance with the applicable
provisions of Delaware law; or
(vi) full payment through a broker-dealer sale and remittance
procedure pursuant to which the Optionee (I) shall provide irrevocable
written instructions to a Company-designated brokerage firm to effect the
immediate sale of the purchased Shares and to remit to the Company out of
the sale proceeds available on the settlement date, an amount equal to the
Purchase Price payable for the purchased Shares plus all applicable Federal
and State income and employment taxes and (II) shall provide written
11.
<PAGE>
directives to the Company to deliver the certificates for the purchased
Shares directly to such brokerage firm in order to complete the sale
transaction.
The interest rate and other terms and conditions of any Note or
partly-paid issuance shall be determined by the authorizing Committee in its
sole discretion; PROVIDED, however, that such Note shall be a full-recourse
obligation of the Optionee and shall not have a maximum term in excess of five
(5) years. The Note shall bear interest at the minimum rate required by the
Federal tax laws to avoid the imputation of interest income to the Company and
compensation income to the Optionee. The Company may require the Optionee to
pledge to the Company any or all of the Shares acquired upon exercise of the
Option as security for payment of the Note and execute an assignment separate
from certificate with respect to the pledged Shares. The Company (or a
pledgeholder selected by it) may retain possession of the stock certificate(s)
representing the pledged Shares and the assignment separate from certificate in
order to perfect such security interest.
1.7 TERM AND NON-TRANSFERABILITY. Each Option shall state the time
or times when it is to become exercisable for the Option Shares. No Option
shall be exercisable after the expiration of ten (10) years from the Grant Date,
and no Option granted to a 10% Stockholder shall have a term in excess of five
(5) years from the Grant Date. During the lifetime of the Optionee, the Option,
together with any stock appreciation rights pertaining to such Option, shall be
exercisable only by the Optionee and shall not be assignable or transferable.
In the event of the Optionee's death, neither the Option nor any stock
appreciations rights pertaining to such Option shall be transferable by the
Optionee other than by will or by the laws of descent and distribution.
1.8 ACCELERATION OF VESTING/STOCK APPRECIATION RIGHTS.
(a) Provided (i) a period of six (6) months shall have elapsed from
the Grant Date of the Option and (ii) the Optionee is at the time of exercise an
active Consultant, Employee or Director, then such Optionee shall have the right
(without regard to the normal vesting schedule set forth in the Option
Agreement) to exercise such Option in whole or in part for fully-vested Shares:
(i) Within thirty (30) days following the consummation of any
transaction approved by the stockholders of the Company in which the
Company will cease to be an independent corporation (including, without
limitation, a reverse merger transaction in which the Company becomes the
subsidiary of another corporation) or the sale or other disposition of all
or substantially all of the assets of the Company;
(ii) Within thirty (30) days following the first date on which
there is a change in the composition of the Board effected through one or
more contested elections for Board membership such that less than two
thirds of the individual members of the Board (determined by rounding up to
the
12.
<PAGE>
next whole number) is comprised of individuals who: (A) were Directors of
the Company on a date three (3) years prior to the date of such change or
(B) were elected or nominated for election as such Directors during the
intervening three (3)-year period by affirmative vote of at least a
majority of those Directors described in clause (A) above who were still in
office as of the date the Board approved such election or nomination;
(iii) Within thirty (30) days after any "person" (as such term is
used in Sections 13(d) and 14(d) of the 1934 Act) or any related group of
persons (other than such a group that includes the Company) acquires
beneficial ownership of (A) 40% or more of the outstanding Common Stock
pursuant to a tender or exchange offer that the Board does not recommend
the stockholders to accept or (B) 50% or more of the outstanding Common
Stock in a single transaction or in a series of related transactions; and
(iv) Within the thirty (30)-day period ending with the effective
date of any dissolution or liquidation of the Company or any merger or
consolidation in which the Company is not the surviving corporation (except
for a transaction the principal purpose of which is to change the State of
the Company's incorporation), but not earlier than the date on which any
required stockholder approval is obtained.
If the accelerated Option is not exercised during the applicable 30-
day period described in subparagraph (i) or (iv) above, then such Option shall
terminate at the close of business on the last day of such 30-day period, unless
such Option is assumed by the successor corporation or its parent. Should an
outstanding Option not qualify for acceleration under subparagraph (i) or (iv),
then such Option shall be subject to adjustment under Section 3.1 of this
Article Two, to the extent such Option is to continue in effect after the
subparagraph (i) or (iv) transaction. The Primary Committee shall have full
power and authority to extend (either at the time of the Option grant or at any
time prior to the acceleration event) the period of time for which the Option is
to remain exercisable following the occurrence of any acceleration event
described in subparagraph (i) through (iii) above from the thirty (30)-day
period specified in such subparagraph to such greater period of time as the
Primary Committee shall deem appropriate.
(b) In the sole discretion of the Primary Committee, a stock
appreciation right ("SAR") may be granted in connection with all or any part of
an Option granted under this Article Two, either at the time of such Option
grant or at any time thereafter during the term of the Option. The SAR shall
give the Optionee the right to surrender all or part of the Option subject to
the SAR during any of the 30-day periods described in subparagraphs (i) through
(iv) of paragraph (a) above (PROVIDED AND ONLY IF a period of at least six (6)
months shall have elapsed from the Grant Date of such Option) and thereby to
obtain payment in cash from the Company of an amount equal to the difference
obtained by subtracting the aggregate Exercise Price of the Option Shares
subject to the portion of
13.
<PAGE>
the Option surrendered from the Fair Market Value of such Option Shares on the
date of such surrender. In the case of an SAR exercised during either of the
30-day periods described in subparagraphs (i) and (iv) of paragraph (a) above,
"Fair Market Value" shall be deemed to be equal to the GREATER of (A) the value
of the consideration per share that the Optionee would have received in
connection with the subparagraph (i) or (iv) transaction as a stockholder of the
Company if he/she had exercised the Option (or part thereof) prior to the
consummation of such transaction or (B) the Fair Market Value determined in good
faith by the Primary Committee (as composed on the day preceding the date of
consummation of the subparagraph (i) or (iv) transaction), taking into
consideration all relevant facts and circumstances. When an SAR is exercised,
the underlying Option, to the extent surrendered, shall no longer be
exercisable. An SAR may only be exercised when the Fair Market Value of the
underlying Option Shares exceeds the Exercise Price payable for such shares.
For purposes of Section 4 of Article One of the Plan, the exercise of an SAR
shall be deemed to be an exercise of the underlying Option, and the number of
Shares subject to such Option shall not be available for subsequent Option or
Purchase Right grants under the Plan.
1.9 EMPLOYMENT TERMINATION (EXCEPT BY DEATH OR PERMANENT
DISABILITY). If an Optionee's Employment Termination occurs for any reason
other than death or Permanent Disability, any outstanding Option held by such
Optionee under this Article Two shall not remain exercisable for more than a
ninety (90)-day period following the date of such Employment Termination;
PROVIDED, however that under no circumstances shall such Option be exercisable
after the specified expiration date of the option term. During such limited
exercise period, the Option may not be exercised for more than that number of
vested Shares (if any) for which the Option is exercisable at the time of the
Optionee's Employment Termination. Upon the expiration of such limited exercise
period or (if earlier) upon the expiration of the option term, the Option shall
terminate and cease to be exercisable. In the case of an Optionee who is an
Employee, no Employment Termination shall occur while such Employee is on
military leave, sick leave or other bona fide leave of absence (to be determined
in the sole discretion of the Committee authorizing the grant). The foregoing
notwithstanding, in the case of an Incentive Stock Option, Employment
Termination shall be deemed to have occurred on the ninetieth (90th) day after
the Employee ceases active Employee status, unless the Employee's reemployment
rights are guaranteed by statute or contract.
1.10 DEATH OR PERMANENT DISABILITY OF OPTIONEE. If an Optionee's
Employment Termination occurs by reason of death or Permanent Disability, then
any Option held by such Optionee under this Article Two may be exercised, for up
to that number of vested Shares (if any) for which the Option is exercisable on
the date of such Employment Termination, at any time prior to the EARLIER of (i)
twelve months (or such shorter period as the Committee may have specified in the
Option Agreement) after the date of the Optionee's death or Permanent Disability
or (ii) the specified expiration date of the option term. In the case of the
Optionee's death, the exercise may be made by the executors or administrators of
the Optionee's estate or by any person or persons who have
14.
<PAGE>
acquired the Option directly from the Optionee by bequest or inheritance, but
only to the extent that the Option has not previously been exercised.
1.11 CONDITIONS ON EXERCISE. An Option shall be exercisable at such
time or times as the Committee authorizing the grant shall specify in the Option
Agreement and the Shares acquired upon exercise of the Option shall be subject
to such restrictions (including repurchase rights of the Company or first
refusal restrictions) as the Committee may specify in such Option Agreement or
any related stock purchase agreement.
1.12 STOCKHOLDER RIGHTS. An Optionee (or a transferee of an
Optionee) shall have no stockholder rights with respect to any Shares covered by
the Option until such individual shall have exercised the Option, paid the
Purchase Price and been issued a stock certificate for the purchased Shares. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property), distributions or other rights for which the
record date is prior to the date such stock certificate is issued, except as may
otherwise be provided in Section 4.4 of Article One.
1.13 MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. Within the
limitations of the Plan, the Primary Committee may, without the consent of the
Optionees, modify, extend or renew one or more outstanding Options or cancel
outstanding Options (to the extent not previously exercised), whether or not in
exchange for the grant of new Options in substitution therefor.
1.14 METHOD OF EXERCISE. Subject to all of the provisions hereof, an
Option may be exercised from time to time in whole or in part (to the extent
exercisable) by delivery of a written notice to the Company setting forth the
number of Shares with respect to which the Option is being exercised. The
notice shall specify the address to which stock certificates for the purchased
Shares should be mailed and shall be accompanied by payment of the Purchase
Price (unless the sale and remittance procedure of clause (vi) of Section 1.6 of
this Article Two is utilized in connection with the Option exercise) and any
documents required pursuant to the last paragraph of such Section 1.6. Within a
reasonable time after receipt of such written notice and payment, the Company
shall cause the stock certificates for the purchased Shares to be delivered to
or on behalf of the Optionee.
1.15 OTHER PROVISIONS. The Option Agreements authorized under the
Plan may contain such other provisions not inconsistent with the terms of the
Plan as the Committee authorizing the grant shall deem advisable.
2. CANCELLATION AND NEW GRANT OF OPTION.
2.1 The Primary Committee shall have the authority to effect, at any
time and from time to time, the cancellation of any or all outstanding Options
under this Article Two and to grant in substitution therefor new Options under
this Article Two covering the same or different numbers of shares of Common
Stock but with an Exercise Price not less
15.
<PAGE>
than one hundred percent (100%) of the Fair Market Value of the Option Shares on
the new Grant Date (or, in the case of a 10% Stockholder, not less than one
hundred ten percent (110%) of such Fair Market Value).
3. SPECIAL ADJUSTMENTS.
3.1 TRANSACTIONS. Subject to the acceleration and termination
provisions of Section 1.8(a) of this Article Two and any required stockholder
action, should the Company be a party to any merger or consolidation, each
continuing or assumed Option under this Article Two shall pertain and apply to
the securities which a holder of the number of Shares subject to the Option
would have been entitled to receive in consummation of such merger or
consolidation, with such appropriate adjustment in the Exercise Price as may be
determined by the Primary Committee. Appropriate adjustments shall also be made
to (i) the maximum number and kind of securities which may be issued pursuant to
this Article Two and (ii) the maximum number and kind of securities for which
any one person may be granted Options, separately exercisable stock appreciation
rights and direct Share issuances per calendar year under the Plan. Upon the
dissolution or liquidation of the Company, each outstanding Option under this
Article Two shall, subject to the acceleration provisions of Section 1.8(a) of
this Article Two, terminate on the effective date of such dissolution or
liquidation.
3.2 LIMITATION.
(a) To the extent that the foregoing adjustments of this Section 3
relate to securities of the Company, such adjustments shall be made by the
Primary Committee, whose determination shall be conclusive and binding on all
persons. Except as expressly provided in Section 4.4 of Article One and Section
1.8 of this Article Two:
(i) the Optionee shall have no rights by reason of any
subdivision or consolidation of shares of stock of any class, the payment
of any stock dividend or any other increase or decrease in the number of
shares of stock of any class or by reason of any dissolution, liquidation,
merger or consolidation or spin-off of assets or stock of another
corporation; and
(ii) no issuance by the Company of shares of stock of any class,
or securities convertible into shares of stock of any class, shall affect,
and no adjustment by reason thereof shall be made with respect to, the
number of Shares or Exercise Price subject to an outstanding Option.
(b) The grant of an Option pursuant to this Article Two shall not
affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure, to merge or consolidate or to dissolve, liquidate, sell or transfer
all or any part of its business or assets.
16.
<PAGE>
4. SPECIAL POWERS.
4.1 ACCELERATION. The Committee granting the Option shall have
complete discretion, exercisable either at the time the Option grant is made
under this Article Two or at any time while the Option remains outstanding, to
provide that the Option shall, within the limited period following the
Optionee's Employment Termination during which the Option is to remain
exercisable in accordance with the applicable provisions of Section 1.9 or 1.10
of this Article Two, be exercisable not only with respect to the number of
Option Shares for which it is exercisable at the time of such Employment
Termination but also with respect to one or more subsequent installments of
Option Shares for which the Option would otherwise have become exercisable had
the Optionee's Employment Termination not occurred.
4.2 EXTENSION OF EXERCISE PERIOD. The Committee granting the
Option shall have full power and authority to extend the period of time for
which the Option is to remain exercisable following the Optionee's Employment
Termination from the applicable period specified in Section 1.9 or 1.10 of this
Article Two to such greater period of time as the Committee shall deem
appropriate; PROVIDED, however, that in no event shall such Option be
exercisable after the specified expiration date of the option term.
17.
<PAGE>
ARTICLE THREE
STOCK PURCHASE PROGRAM
1. ELIGIBILITY; SALE OF STOCK.
1.1 ELIGIBILITY. The applicable Committee under Section 5.1 of
Article One shall select the Participants to receive Purchase Rights under this
Article Three from eligible Employees, non-employee Directors or individuals who
may become Employees, non-employee Directors or Consultants. Only the Primary
Committee shall have the authority to grant Purchase Rights to individuals who
are at the time either Officers or Directors. Any Purchase Rights granted to an
individual who is not an Employee, non-employee Director or Consultant at the
time of grant shall be conditioned upon such individual's becoming an Employee,
Director or Consultant, and any and all Shares purchased pursuant to such grant
shall be subject to the Company's Right of Repurchase in the event such
individual does not become such an Employee, Director or Consultant within the
time period designated for such by the Committee authorizing the grant.
Each Committee authorized pursuant to the provisions of the Plan to
grant Purchase Rights hereunder shall, within the scope of its authority, have
complete discretion (subject to the express provisions of the Plan) to select
the Participants who are to receive such grants, establish the number of Shares
purchasable by each Participant and the terms and conditions of the Purchase
Agreement applicable to such purchase (including any vesting schedule to be in
effect for the Shares) and determine all other matters relating to the Shares
issuable pursuant to the grant.
The Purchase Right, together with any other derivative security issued
under this Article Three, shall be exercisable only by the Participant to whom
issued and shall not be assignable or transferable.
1.2 PURCHASE AGREEMENT. Each purchase of Shares under the Plan
shall be effected pursuant to a Purchase Agreement incorporating the terms and
conditions of this Article Three. Each Purchase Agreement shall be signed by
the Participant purchasing the Shares and by an officer of the Company (other
than the Participant) on behalf of the Company, and shall contain any provisions
not in conflict with the Plan that the Committee authorizing the grant deems
appropriate, including (without limitation) restrictions on the purchased Shares
in addition to those specified in the Plan. The Purchase Agreement must be
signed by the Participant and returned to the Company within thirty (30) days
after the Grant Date of the Purchase Right, unless the Committee effecting such
grant authorizes a longer period for the execution of the Purchase Agreement.
1.3 PURCHASE PRICE. The Purchase Price for Shares issuable under
this Article Three shall be not less than the Fair Market Value of such Shares
on the Grant Date.
18.
<PAGE>
2. PAYMENT FOR SHARES.
2.1 CONSIDERATION. The Purchase Price for Shares issued under this
Article Three may be paid in cash, in shares of Common Stock valued at Fair
Market Value and held for the requisite period necessary to avoid a charge to
the Company's earnings for financial reporting purposes or, in the case of an
Employee, through the Participant's execution, issuance and delivery of a Note
made payable to the order of the Company. Shares may also be sold to Employees,
non-employee Directors or Consultants for cash on a partly-paid basis in
accordance with the applicable provisions of Delaware law.
2.2 PROMISSORY NOTE. The interest rate and other terms and
conditions of each Note delivered in payment of the Purchase Price shall be as
determined by the Committee authorizing the grant; PROVIDED, however, that such
Note shall be a full-recourse obligation of the Participant and shall be payable
in full not later than five (5) years after the Grant Date. The Note shall bear
interest at a rate not less than the minimum rate required by the Federal tax
laws in order to avoid the imputation of interest income to the Company and
compensation income to the Participant. The Company may require that a
Participant pledge his/her Shares to the Company for the purpose of securing
payment of the Note (and may also require the Participant to execute in blank an
assignment separate from certificate with respect to the pledged Shares), and
the Company (or its designee) may retain possession of the stock certificates
representing such pledged Shares (and such assignment separate from certificate)
in order to perfect the Company's security interest.
3. PURCHASE PROCEDURE.
3.1 GRANT AND EXERCISE. Promptly after the Grant Date, the Company
shall notify the Participant of the Purchase Right granted to him/her. The
notice shall specify the number of Shares purchasable under such Purchase Right,
the Purchase Price payable for such Shares and the proposed terms and conditions
of the Purchase Agreement relating to such Shares (including the applicable
vesting schedule, if any). Unless within thirty (30) days after receipt of such
notice (or such additional time as the Committee authorizing the grant may
determine) the Participant shall both have accepted the terms and conditions of
the Purchase Right and have executed and returned to the Company the
documentation (including the applicable Purchase Agreement) required by the
Company to effect such purchase, the Purchase Right shall terminate and cease to
be exercisable. The Purchase Right may be exercised by the Participant to whom
it was granted only if he/she is at the time of exercise an Employee, non-
employee Director or Consultant or has at such time agreed in writing to become
an Employee, non-employee Director or Consultant.
19.
<PAGE>
4. RIGHT OF REPURCHASE.
4.1 VESTING PROVISIONS.
(a) The Shares issued to the Participant shall, at the option of
the Committee authorizing the grant, be subject to a right (but not obligation)
of repurchase by the Company (the "Right of Repurchase") exercisable for any
unvested Shares held by the Participant at the time of his/her Employment
Termination. The percentage of purchased Shares in which the Participant is
vested at the time of his/her Employment Termination shall be determined in
accordance with the following vesting schedule (or such other longer or shorter
vesting schedule as the Committee authorizing the grant may specify in the
Purchase Agreement):
(i) If such Employment Termination occurs during the initial
twelve-month period following the Grant Date of the Purchase Right for such
Shares, the Participant shall not be vested in any of the Shares and the
Right of Repurchase shall apply to 100 percent of the Shares.
(ii) If such Employment Termination occurs during the second
twelve-month period following such Grant Date, the Participant shall be
vested in 20 percent of the Shares and the Right of Repurchase shall apply
to 80 percent of the Shares.
(iii) If such Employment Termination occurs during the third
twelve-month period following such Grant Date, the Participant shall be
vested in 40 percent of the Shares and the Right of Repurchase shall apply
to 60 percent of the Shares.
(iv) If such Employment Termination occurs during the fourth
twelve-month period following such Grant Date, the Participant shall be
vested in 60 percent of the Shares and the Right of Repurchase shall apply
to 40 percent of the Shares.
(v) If such Employment Termination occurs during the fifth
twelve-month period following such Grant Date, the Participant shall be
vested in 80 percent of the Shares and the Right of Repurchase shall apply
to 20 percent of the Shares.
(vi) If such Employment Termination occurs more than 60 months
after the Grant Date of the Purchase Right for the Shares, the Participant
shall be vested in all the Shares, and the Company shall have no right to
repurchase any of those Shares pursuant to this Section 4.1.
20.
<PAGE>
The Repurchase Price payable by the Company for any Shares so
repurchased shall be determined in accordance with the provisions of Section 4.3
of this Article Three.
(b) The foregoing provisions of subparagraph (a) notwithstanding, if
a period of at least six (6) months shall have elapsed after the Grant Date of
the Purchase Right for the particular Shares held by the Participant, then the
Right of Repurchase shall automatically lapse with respect to, and the
Participant shall immediately vest in, those Shares upon the occurrence of any
of the following events, provided the Participant is at the time of the
applicable event an active Employee, Consultant or Director:
(i) The consummation of any transaction approved by the
stockholders of the Company in which the Company will cease to be an
independent corporation (including, without limitation, a reverse merger
transaction in which the Company becomes the subsidiary of another
corporation) or the sale or other disposition of all or substantially all
of the assets of the Company;
(ii) The first date on which there is a change in the composition
of the Board effected through one or more contested elections for Board
membership such that less than two-thirds of the individual members of the
Board (determined by rounding up to the next whole number) is comprised of
individuals who: (A) were Directors of the Company on a date three (3)
years prior to the date of such change and (B) were elected or nominated
for election as such Directors during the intervening three (3)-year period
by affirmative vote of at least a majority of those Directors described in
clause (A) above who were still in office as of the date the Board approved
such election or nomination;
(iii)The acquisition by any "person" (as such term is used in
Sections 13(d) and 14(d) of the 1934 Act) or any related group of persons
(other than such a group that includes the Company) of beneficial ownership
of (A) 40% or more of the outstanding Common Stock pursuant to a tender or
exchange offer that the Board does not recommend the stockholders to accept
or (B) 50% or more of the outstanding Common Stock in a single transaction
or in a series of related transactions; and
(iv) The effective date of any dissolution or liquidation of the
Company or any merger or consolidation in which the Company is not the
surviving corporation (except for a transaction the principal purpose of
which is to change the State of the Company's incorporation), but not
earlier than the date on which any required stockholder approval is
obtained.
(c) The Company's rights under this Section 4.1 shall be freely
assignable, in whole or in part.
21.
<PAGE>
4.2 REPURCHASE PROCEDURE. Should the Participant's Employment
Termination occur at a time when one or more of his/her Shares are subject to
the Right of Repurchase under Section 4.1 above, then such Participant shall
immediately endorse and deliver to the Company the stock certificates
representing the Shares subject to such right. The Company shall have a one-
year period following such Employment Termination in which to decide whether to
repurchase such Shares pursuant to the Right of Repurchase. To the extent the
Company elects to repurchase the Shares, the Company shall (within such one-year
period) notify the Participant in writing and concurrently pay to such
Participant, pursuant to the provisions of Section 4.3 below, the total
Repurchase Price for the Shares to be repurchased. If, at the time the Shares
are sold to the Participant, the Company requires the Participant to pledge the
Shares and execute in blank an assignment separate from certificate with respect
thereto, then the Company may exercise the Right of Repurchase, without any
further action on the part of the Participant, by sending written notice of the
repurchase to the pledge holder and effecting the payment of the Repurchase
Price, in accordance with the Section 4.3 procedure below, within the applicable
one-year exercise period. If the Company does not elect to repurchase the
Shares, the Company shall, within thirty (30) days after the expiration of the
one-year exercise period, so advise the Participant in writing and return the
stock certificate or certificates for the Shares to the Participant. The
Company's failure to give any written notice of its decision under this Section
4.2 within the applicable one-year exercise period shall be deemed to be an
election by the Company to exercise the Right of Repurchase, at the end of such
one-year period, with respect to all Shares subject to such right at the time of
the Participant's Employment Termination, and payment of the Repurchase Price
for such shares shall be made to the Participant within thirty (30) days after
the expiration of such one-year period.
4.3 REPURCHASE PRICE. The Repurchase Price for any Shares purchased
pursuant to Section 4 of this Article Three shall be the LESSER of A or B, where
A equals the Purchase Price paid for the Shares and B equals the greater of the
Fair Market Value of the Shares on the date of Employment Termination or their
Fair Market Value on the date the Company elects to exercise the Right of
Repurchase. If, at the time of repurchase, any Notes are outstanding which
represent any portion of the Purchase Price paid for the Shares, the Repurchase
Price shall be paid first by cancellation of any obligation for accrued but
unpaid interest under such Notes, next by cancellation of the principal balance
outstanding under such Notes, and finally by payment of cash.
4.4 BINDING EFFECT. Except to the extent such right is to lapse in
connection with an event specified in Section 4.1(b) of this Article Three, the
Company's Right of Repurchase shall inure to the benefit of the successors and
assigns of the Company and shall be binding upon any representative, executor,
administrator, heir, legatee or other successor of the Participant.
4.5 RESTRICTIVE LEGEND. The Company may also place legends on the
stock certificates for the Shares which evidence the Company's Right of
Repurchase contained in
22.
<PAGE>
this Section 4 and the restrictions on the sale, transfer, assignment or pledge
of the Shares (other than a pledge of the Shares as security for the Note) while
subject to such Right of Repurchase.
23.
<PAGE>
ARTICLE FOUR
AUTOMATIC OPTION GRANT PROGRAM
1. ELIGIBILITY
1.1 ELIGIBLE OPTIONEES. The eligibility provisions of the Automatic
Option Grant Program have been revised, effective with the 1996 Annual
Stockholders Meeting, to allow non-employee Directors to participate, whether or
not they have previously been in Employee status. Accordingly, the individuals
eligible to receive an automatic Option grant pursuant to the revised provisions
of this Article Four shall be limited to the following:
(i) Each individual who is elected or reelected as a non-
employee Board member at any Annual Stockholders Meeting beginning with the
1996 Annual Meeting; and
(ii) Each individual who is first appointed or elected as a non-
employee Board member at any time after the 1996 Annual Meeting but other
than at an Annual Stockholders Meeting.
An individual who satisfies the criteria of clause (i) or (ii) above
shall be designated an Eligible Board Member for purposes of this Article Four.
The maximum number of Shares which any Eligible Board Member may
acquire pursuant to automatic Option grants under this Article Four shall not
exceed 15,000 shares of Common Stock, subject to periodic adjustment under
Section 4.4 of Article One.
1.2 LIMITATION. Except for the Option grants to be made pursuant to
the provisions of this Automatic Option Grant Program and any other grants or
issuances otherwise permitted without loss of disinterested person status under
SEC Rule 16b-3(c)(2)(i) under the 1934 Act, non-employee Directors serving as
members of the Primary Committee shall NOT, during such period of service, be
eligible to receive any additional Option grants or Share issuances under this
Plan or any other stock plan of the Company or its Subsidiary corporations.
2. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
2.1 GRANT DATE. On the date of each Annual Stockholders Meeting,
beginning with the 1996 Annual Meeting, each individual who is at such time
elected or reelected as an Eligible Board Member shall automatically be granted,
on the date of such Annual Stockholders Meeting, a Nonstatutory Stock Option to
purchase 5,000 shares of Common Stock upon the terms and conditions of this
Article Four. Should an individual first be appointed or elected as an Eligible
Board Member at any time after the 1996 Annual Meeting but other than at an
Annual Stockholders Meeting, then such individual
24.
<PAGE>
shall automatically be granted, at the time of such initial election or
appointment, a Nonstatutory Stock Option to purchase 5,000 shares of Common
Stock upon the terms and conditions of this Article Four; PROVIDED, however,
that such individual shall not be eligible to receive his or her next automatic
Option grant under this Article Four until the first Annual Stockholders Meeting
which is at least six (6) months after the date of the initial automatic Option
grant made to such individual. In no event, however, shall any Eligible Board
Member be granted Options under this Article Four which would allow such
individual to purchase more than 15,000 shares of Common Stock in the aggregate
under this Automatic Option Grant Program. Both the 5,000-share limitation per
annual automatic Option grant to each Eligible Board Member and the 15,000-share
limitation upon the number of shares of Common Stock purchasable in the
aggregate per Eligible Board Member shall be subject to periodic adjustment
pursuant to the applicable provisions of Section 4.4 of Article One.
2.2 EXERCISE PRICE. 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 automatic grant date.
2.3 PAYMENT. The Exercise Price shall become immediately due upon
exercise of the Option and shall be payable in one of the alternative forms
specified below:
(i) full payment in cash or check made payable to the Company's
order; or
(ii) full payment in shares of Common Stock held for the
requisite period necessary to avoid a charge to the Company's reported
earnings and valued at Fair Market Value on the Exercise Date (as such term
is defined below); or
(iii) full payment in a combination of shares of Common Stock held
for the requisite period necessary to avoid a charge to the Company's
reported earnings and valued at Fair Market Value on the Exercise Date and
cash or check payable to the Company's order; or
(iv) full payment through a broker-dealer sale and remittance
procedure pursuant to which the Optionee (I) shall provide irrevocable
written instructions to a Company-designated brokerage firm to effect the
immediate sale of the purchased Shares and to remit to the Company out of
the sale proceeds available on the settlement date, an amount equal to the
aggregate Exercise Price payable for the purchased Shares and (II) shall
provide written directives to the Company to deliver the certificates for
the purchased Shares directly to such brokerage firm in order to complete
the sale transaction.
25.
<PAGE>
The Exercise Date shall be the date on which written notice of the
exercise of the Option is delivered to the Company. Except to the extent the
sale and remittance procedure of clause (iv) above is utilized in connection
with such exercise of the Option, payment of the Exercise Price for the
purchased Shares must accompany the exercise notice.
2.4 OPTION TERM. Each granted Option under this Article Four shall
have a maximum term of ten (10) years measured from the automatic grant date.
2.5 EXERCISABILITY. The Option shall become exercisable for the
Option Shares in a series of three (3) successive equal annual installments upon
the Optionee's completion of each year of Board service over the three (3)-year
measured from the automatic grant date.
2.6 NON-TRANSFERABILITY. During the lifetime of the Optionee, the
Option, together with any stock appreciation rights pertaining to such Option,
shall be exercisable only by the Optionee and shall not be assignable or
transferable by the Optionee, except for a transfer of the Option by will or by
the laws of descent and distribution following the Optionee's death.
2.7 EFFECT OF TERMINATION OF BOARD SERVICE.
(a) Should the Optionee cease to serve as a Board member for any
reason (other than death) while holding one or more automatic Option grants
under this Automatic Option Grant Program, then such Optionee shall have up to a
six (6) month period following the date of such cessation of Board service in
which to exercise each such Option for any or all of the shares of Common Stock
for which the Option is exercisable at the time Board service ceases.
(b) Should the Optionee die while holding one or more outstanding
automatic Option grants under this Automatic Option Grant Program, then each
such Option may subsequently be exercised, for any or all of the shares of
Common Stock for which the Option is exercisable at the time of the Optionee's
cessation of Board service, by the personal representative of the optionee's
estate or by the person or persons to whom the Option is transferred pursuant to
the optionee's will or in accordance with the laws of descent and distribution.
Any such exercise must, however, occur within twelve (12) months after the date
of the Optionee's death.
(c) In no event shall any Option granted under this Automatic Option
Grant Program remain exercisable after the specified expiration date of the ten
(10)-year option term. Upon the expiration of the applicable exercise period
specified in subparagraphs (a) and (b) above or (if earlier) upon the expiration
of the ten (10) year option term, such Option shall terminate and cease to be
exercisable.
26.
<PAGE>
2.8 STOCKHOLDER RIGHTS. The holder of an automatic Option grant
under this Automatic Option Grant Program shall have none of the rights of a
stockholder with respect to any Shares covered by such Option until such
individual shall have exercised the Option, paid the Exercise Price and been
issued a stock certificate for the purchased Shares. No adjustment shall be
made for dividends (ordinary or extraordinary, whether in cash, securities or
other property), distributions or other rights for which the record date is
prior to the date such stock certificate is issued, except as may otherwise be
provided in Section 4.3 of Article One.
2.9 REMAINING TERMS. The remaining terms and conditions of each
automatic Option grant shall be as set forth in the prototype Nonstatutory Stock
Option Agreement attached as Exhibit A to the restated Plan.
3. CHANGE IN CONTROL
3.1 ACCELERATION OF VESTING.
(a) Each automatic Option grant which has been outstanding under
this Automatic Option Grant Program for a period of at least six (6) months and
which is not otherwise at the time fully exercisable for all the Option Shares
shall automatically accelerate in full immediately prior to the specified
effective date for any Change in Control event identified below and shall
thereupon become exercisable for any or all of the Shares at the time subject to
such Option.
(b) For purposes of this Automatic Option Grant Program, a Change in
Control shall be deemed to occur upon:
(i) the consummation of any transaction approved by the
stockholders of the Company in which the Company will cease to be an
independent corporation (including, without limitation, a reverse merger
transaction in which the Company becomes the subsidiary of another
corporation) or the sale or other disposition of all or substantially all
of the assets of the Company;
(ii) the first date on which there is a change in the composition
of the Board effected through one or more contested elections for Board
membership such that less than two thirds of the individual members of the
Board (determined by rounding up to the next whole number) is comprised of
individuals who: (A) were Directors of the Company on a date three (3)
years prior to the date of such change or (B) were elected or nominated for
election as such Directors during the intervening three (3)-year period by
affirmative vote of at least a majority of those Directors described in
clause (A) above who were still in office as of the date the Board approved
such election or nomination;
27.
<PAGE>
(iii) the acquisition by any "person" (as such term is used in
Sections 13(d) and 14(d) of the 1934 Act) or any related group of persons
(other than such a group that includes the Company) of beneficial ownership
of (A) 40% or more of the outstanding Common Stock pursuant to a tender or
exchange offer that the Board does not recommend the stockholders to accept
or (B) 50% or more of the outstanding Common Stock in a single transaction
or in a series of related transactions; or
(iv) any dissolution or liquidation of the Company or any merger
or consolidation in which the Company is not the surviving corporation
(except for a transaction the principal purpose of which is to change the
State of the Company's incorporation), but not earlier than the date on
which any required stockholder approval is obtained.
Each accelerated Option under this Section 3.1 shall, except to the
extent assumed by the successor entity, terminate on the effective date of the
subparagraph (i) or (iv) Change in Control event or thirty (30) days after the
occurrence of the subparagraph (ii) or (iii) Change in Control event (other than
a subparagraph (iii) Change in Control triggering the immediate cancellation of
the Option under Section 3.2(a)) and shall thereupon cease to be exercisable.
Options which do not qualify for acceleration upon the occurrence of a
subparagraph (i) or (iv) Change in Control event shall be subject to adjustment
under Section 5.1 of this Article Four, to the extent they continue in effect or
are assumed in connection with that Change in Control event.
(c) The automatic Option grants outstanding under this Automatic
Option Grant Program shall in no way affect the right of the Company 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.
3.2 STOCK APPRECIATION RIGHT
(a) Each Option granted under this Automatic Option Grant Program
shall include a limited stock appreciation right exercisable in accordance with
the following terms and conditions:
PRE-JUNE 4, 1992 GRANTS. Upon the consummation of a Change in
Control event of the type specified in subparagraph (iii) of Section 3.1(a) of
this Article Four, each Eligible Board Member holding at the time one or more
automatic Options granted under this Automatic Option Grant Program prior to
June 4, 1992 shall have a thirty (30)-day period immediately following such
Change in Control event to surrender each such Option to the Company in return
for an appreciation distribution from the Company in an amount equal to the
excess of (i) the Change in Control Price of the shares of Common Stock at the
time subject to the surrendered Option over (ii) the aggregate
28.
<PAGE>
Exercise Price payable for such Shares. For purposes of such appreciation
distribution, the Change in Control Price per share shall be deemed to be equal
to the GREATER of (a) the Fair Market Value per share on the date of the Option
surrender or (b) the highest reported price per share paid in effecting such
Change in Control event.
POST-JUNE 3, 1992 GRANTS. Upon the consummation of a Change in
Control event of the type specified in clause (A) of subparagraph (iii) of
Section 3.1(a) of this Article Four, each automatic Option granted under this
Automatic Option Grant Program on or after June 4, 1992 and outstanding for a
period of at least six (6) months shall, to the extent such Option is at the
time held by an Eligible Board Member, be automatically cancelled, and such
Eligible Board Member shall in return receive an appreciation distribution from
the Company in an amount equal to the excess of (i) the Change in Control Price
of the shares of Common Stock at the time subject to the cancelled Option over
(ii) the aggregate Exercise Price payable for such Shares. For purposes of such
appreciation distribution, the Change in Control Price per share shall be deemed
to be equal to the GREATER of (a) the Fair Market Value per share on the date of
the Option cancellation or (b) the highest reported price per share paid by the
tender offeror in effecting the hostile Change in Control. In no event,
however, shall any Option be cancelled pursuant to the foregoing provisions of
this subparagraph, unless more than fifty percent (50%) of the Common Stock
which is acquired in such hostile Change in Control is purchased from persons
other than officers or directors of the Company subject to Section 16(b) of the
1934 Act.
(b) All appreciation distributions under this Section 3.2 shall be
made entirely in cash, and neither the approval of the Primary Committee or the
Board shall be required in connection with the option surrender or option
cancellation and the resulting cash distribution. The shares of Common Stock
subject to each surrendered or cancelled Option shall NOT be available for
subsequent issuance under this Plan.
4. AMENDMENT OF THE AUTOMATIC GRANT PROVISIONS
4.1 LIMITED AMENDMENTS. The provisions of this Automatic Option
Grant Program, together with the outstanding option grants under such program,
may not be amended more than once every six (6) months other than to comply with
applicable Federal income tax laws and regulations.
5. SPECIAL ADJUSTMENTS.
5.1 TRANSACTIONS. Subject to the acceleration and termination
provisions of Section 3.1(a) of this Article Four, should the Company be a party
to any merger or consolidation, each continuing or assumed Option under this
Article Four shall pertain and apply to the securities which a holder of the
number of Shares subject to the Option would have been entitled to receive in
consummation of such merger or consolidation, with such appropriate adjustment
in the Exercise Price as may be necessary to preclude the dilution
29.
<PAGE>
or enlargement of benefits thereunder. Appropriate adjustments shall also be
made to the aggregate number and kind of securities which may subsequently be
issued pursuant to this Article Four. Upon the dissolution or liquidation of
the Company, each outstanding Option under this Article Four shall, subject to
the acceleration provisions of Section 3.1(a) of this Article Four, terminate on
the effective date of such dissolution or liquidation.
30.
<PAGE>
ARTICLE FIVE
MISCELLANEOUS
1. REQUIREMENTS OF LAW.
1.1 LEGALITY OF ISSUANCE. The Company shall not be required to
grant any Option or Purchase Right under the Plan or to issue or sell Shares
upon the exercise of any such Option or Purchase Right and shall not have any
liability for its failure to do so if, in the opinion of the Company and the
Company's counsel, such grant, issuance or sale could reasonably constitute a
violation by the Company of any provision of law, including (without limitation)
any provision of the 1933 Act or any State securities law.
1.2 RESTRICTIONS ON TRANSFER; REPRESENTATIONS OF PARTICIPANT.
Regardless of whether the grant of Options or Purchase Rights and the sale of
Shares pursuant thereto have been registered under the 1933 Act or have been
registered or qualified under the securities laws of any State, the Company may
impose restrictions upon the sale, pledge or other transfer of the granted
Options or Purchase Rights or the issued Shares (including the placement of
appropriate legends on stock certificates) if, in the judgment of the Company
and the Company's counsel, such restrictions are necessary or desirable in order
to achieve compliance with the provisions of the 1933 Act, the securities laws
of any State, or any other law. In the event that the grant of Options or
Purchase Rights or the sale of Shares is not registered under the 1933 Act, but
an exemption is available which requires an investment representation or other
representations, each Optionee and/or Participant will be required to represent
that the granted Option or Purchase Right or the Shares issued pursuant thereto
are being acquired for investment and not with a view to the sale or
distribution thereof, and to make such other representations as are deemed
necessary or appropriate by the Company and the Company's counsel. Stock
certificates evidencing any Shares acquired pursuant to an unregistered
transaction shall, unless the Company otherwise determines, bear a restrictive
legend to the following effect and such other restrictive legends as are
required or deemed advisable under the provisions of any applicable laws:
"THE SALE OF THE SECURITIES REPRESENTED HEREBY HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE 'Act'). ANY TRANSFER OF SUCH
SECURITIES WILL BE INVALID UNLESS A REGISTRATION STATEMENT UNDER THE
ACT IS IN EFFECT AS TO SUCH TRANSFER OR IN THE OPINION OF COUNSEL FOR
THE COMPANY SUCH REGISTRATION IS UNNECESSARY IN ORDER FOR SUCH
TRANSFER TO COMPLY WITH THE ACT."
Any determination by the Company and the Company's counsel in
connection with any of the matters set forth in this Section 1.2 shall be final
and binding on all persons.
31.
<PAGE>
1.3 REGISTRATION OR QUALIFICATION OF SECURITIES. The Company may,
but shall not be obligated to, register, perfect an exemption for, or qualify
the grant of Options or Purchase Rights and the issuance of Shares under the
1933 Act or any other applicable law, or list the Shares on any securities
exchange. The Company shall not be obligated to take any affirmative action in
order to cause the grant of Options or Purchase Rights or the issuance and sale
of Shares pursuant thereto to comply with any securities laws.
1.4 EXCHANGE OF CERTIFICATES. If, in the opinion of the Company and
the Company's counsel, any legend placed on a stock certificate representing
Shares is no longer required, the holder of such certificate shall be entitled
to exchange the certificate for a certificate representing the like number of
Shares lacking the legend.
2. TAX WITHHOLDING.
2.1 WITHHOLDING REQUIREMENTS. The Company's obligation to deliver
Shares upon the exercise or surrender of Options or SARs under Article Two or
Article Four or upon the sale or vesting of Shares under Article Three shall be
subject to the satisfaction of all applicable Federal, State and local income
and employment tax withholding requirements.
2.2 WITHHOLDING OF SHARES. The Primary Committee may, in its
discretion and upon such terms and conditions as it may deem appropriate
(including the applicable safe-harbor provisions of SEC Rule 16b-3 or any
successor rule or regulation) provide any or all Optionees or Participants with
the election to have the Company withhold, from the Shares purchased pursuant to
Articles Two and Three of the Plan, a portion of such Shares with an aggregate
Fair Market Value equal to the designated percentage (any multiple of 5%
specified by the Optionee or Participant) of the Federal and State income and
employment taxes ("Taxes") incurred in connection with the acquisition or
subsequent vesting of such Shares. In lieu of such direct withholding, one or
more Optionees or Participants may also be granted the right to deliver already
outstanding shares of Common Stock to the Company in satisfaction of such Taxes.
The withheld or delivered shares of Common Stock shall be valued at the Fair
Market Value on the applicable determination date for such Taxes.
3. AMENDMENT OR TERMINATION OF THE PLAN.
3.1 AMENDMENT. The Board may from time to time, amend or modify the
Plan; PROVIDED, however that any such amendment shall not adversely affect
rights and obligations with respect to Options, Purchase Rights or unvested
Shares at the time outstanding under the Plan and any amendment to the Automatic
Option Grant Program shall be in compliance with the limitation of Section 4.1
of Article Four. In addition, no such revision or amendment shall:
32.
<PAGE>
(a) Increase the maximum number of Shares issuable in the aggregate
under this Plan, except for permissible adjustments under Section 4.4 of Article
One, Section 3.1 of Article Two and Section 5.1 of Article Four;
(b) Increase the maximum number of Shares for which any one person
may be granted Options, separately exercisable stock appreciation rights and
Share issuances per calendar year under this Plan, except for permissible
adjustments under Section 4.4 of Article One, Section 3.1 of Article Two and
Section 5.1 of Article Four;
(c) Decrease the authority of the Primary Committee;
(d) Materially modify the eligibility requirements for the grant of
Options or Purchase Rights under the Plan;
(e) Materially increase the benefits accruing to Optionees or
Participants under the Plan; or
(f) Amend this Section 3.1 to defeat its purpose.
3.2 TERMINATION. This Plan shall terminate on December 31, 1999.
No Options or Purchase Rights shall be granted after that date, but any Options
or Purchase Rights outstanding on that date shall not be affected by such
termination.
4. EMPLOYMENT RIGHTS.
The fact that a person is eligible for or receives an Option or
Purchase Right under Article Two or Three of the Plan shall not affect the right
of the Company or any Subsidiary (as applicable) to terminate such person's
relationship with the Company or such Subsidiary as an Employee or Consultant,
which right is hereby reserved, nor the right of the stockholders of the Company
or any Subsidiary (as applicable) to terminate such person's relationship to the
Company or such Subsidiary as a Director.
5. APPLICATION OF FUNDS.
Any cash proceeds received by the Company from the sale of Common
Stock under the Plan will be used for general corporate purposes.
6. EFFECTIVE DATE.
(a) This Plan was originally established on April 16, 1990 as the
successor to each of the Predecessor Plans. The provisions of the Plan in
effect on such date were, however, to apply only to Options or Purchase Rights
granted under the Plan from and after
33.
<PAGE>
such date. Each Option or Purchase Right issued and outstanding under any of the
Predecessor Plans immediately prior to the original April 16, 1990 effective
date of this Plan are to continue to be governed by the terms and conditions of
that Predecessor Plan (and the respective instrument evidencing each such Option
or Purchase Right) as in effect on the date such Option or Purchase Right was
previously granted, and nothing in this Plan shall be deemed to affect or
otherwise modify the rights or obligations of the holder of such Option or
Purchase Right with respect to the acquisition of Shares thereunder.
(b) The Board amended and restated the Plan effective May 1, 1991 to
include the Automatic Option Grant Program, and the stockholders approved such
restatement on June 25, 1991. The Board further amended the Plan effective June
4, 1992 to (i) maintain the Plan in compliance with the applicable requirements
of SEC Rule 16b-3, as amended May 1, 1991, under the 1934 Act and (ii) authorize
the sale and remittance procedure for the exercise of outstanding Options. Such
sale and remittance procedure shall be available for all Options granted under
the Plan from and after June 4, 1992 and for all Nonstatutory Stock Options
exercised under the Plan on or after May 1, 1991. The Primary Committee may
also allow such procedure to be utilized in connection with one or more
disqualifying dispositions of Incentive Stock Option shares effected on or after
May 1, 1991, whether or not the Option was granted on or before such date.
(c) On July 14, 1993, the Board restated the Plan to increase the
number of shares issuable thereunder by 1,000,000 shares, and such increase was
approved by the stockholders at the 1993 Annual Meeting.
(d) On June 8, 1995, the Board amended the provisions of the Plan to
extend the eligibility provisions of the Discretionary Option Grant and Stock
Purchase Programs to permit non-employee Directors (other than those individuals
at the time serving as members of the Primary Committee) to receive Option
grants and direct Share issuances under those program. Such amendment is
subject to stockholder approval at the 1996 Annual Meeting, and any Option
grants made to non-employee Directors under the amended Discretionary Option
Grant Program shall not become exercisable in whole or in part unless such
stockholder approval is obtained. If such stockholder approval is not obtained,
then such Option grants shall immediately terminate without ever becoming
exercisable for any of the option shares. On March 26, 1996, the Board amended
and restated the Plan in order to effect the following changes: (i) increase the
number of shares issuable thereunder by an additional 500,000 shares, (ii) limit
the maximum number of shares of Common Stock for which any one person may be
granted Options, separately exercisable stock appreciation rights and direct
Share issuances per calendar year and (iii) allow non-employee Directors to
participate in the Automatic Option Grant Program, whether or not they have
previously been in Employee status. The changes to the Plan effected by the
1996 restatement are subject to stockholder approval at the 1996 Annual Meeting.
Any Options or Purchase Rights granted on the basis of the 500,000-share
increase included within the 1996 restatement shall not become exercisable in
whole or in part unless and until such stockholder approval is obtained. If
such stockholder approval
34.
<PAGE>
is not obtained, then such Options and Purchase Rights shall immediately
terminate without ever becoming exercisable for any of the Shares subject to
those Options or Purchase Rights. Those Options (together with any SARs) and
Purchase Rights granted under the restated Plan which are NOT based on such
share increase shall remain outstanding in accordance with the terms and
conditions of the respective instruments evidencing such Options and Purchase
Rights, whether or not the requisite stockholder approval is obtained. Subject
to the foregoing limitations, each Committee may grant Options and Purchase
Rights under the Plan at any time before the date fixed herein for termination
of the Plan.
7. APPLICABLE LAW.
The provisions of the Plan relating to the exercise of Options and
Purchase Rights granted hereunder and any subsequent vesting of the issued
Shares shall be subject to and construed under the laws of the State of Utah
without resort to that state's conflict-of-laws rules.
35.
<PAGE>
OEC MEDICAL SYSTEMS, INC.
1993 EMPLOYEE INCENTIVE
STOCK ACQUISITION PLAN
(AS AMENDED EFFECTIVE MARCH 26, 1996)
SECTION 1. PURPOSE.
The Plan has been established to provide Eligible Employees with an
opportunity to increase their proprietary interest in the Company's success by
purchasing Stock directly from the Company on favorable terms and to pay for
such purchases through payroll deductions. The Plan is intended to qualify
under section 423 of the Code. The Plan is the successor to the Company's
Employee Incentive Stock Acquisition Plan (the "Original Plan") which was
terminated on June 30, 1993, and no further shares of Stock will be issuable
under the Original Plan.
SECTION 2. DURATION; PARTICIPATION PERIODS; SHARES AUTHORIZED.
The Plan shall be in effect from January 1, 1994 to December 31, 2002.
While the Plan is in effect, there shall be eighteen (18) Participation Periods
of six months each commencing on January 1 and July 1 of each calendar year.
The maximum number of shares of Stock available for purchase over the term of
the Plan shall be 275,000 shares, subject to adjustment as provided in Section
11. Such share reserve is comprised of (i) the 175,000 shares originally
reserved for issuance under the Plan plus (ii) an additional increase of 100,000
shares authorized by the Board on March 26, 1996, subject to stockholder
approval at the 1996 Annual Stockholders Meeting.
SECTION 3. ADMINISTRATION.
The Plan shall be administered by the Committee, which shall have full
authority to interpret and construe any provision of the Plan and to adopt such
rules and regulations for administering the Plan as it may deem necessary in
order to comply with the requirements of Section 423 of the Code. Decisions of
the Committee shall be final and binding on all parties who have an interest in
the Plan. No member of the Board or of the Committee shall be liable to any
Eligible Employee, or to any person whose rights derive from an Eligible
Employee, for any act or omission made in good faith.
<PAGE>
SECTION 4. ELIGIBILITY AND PARTICIPATION.
(a) Each Eligible Employee may elect to become a Participant in the
Plan for a Participation Period by executing the enrollment form prescribed for
such purpose by the Committee. The enrollment form shall be filed with the
Company not later than the 10th working day prior to the commencement of the
Participation Period. The Eligible Employee shall designate on the enrollment
form the percentage of his or her Compensation which he or she elects to have
withheld for the purchase of Stock, which shall be a whole percentage of the
Eligible Employee's Compensation, but not less than two percent (2%) nor more
than twenty percent (20%).
(b) By enrolling in the Plan, a Participant is given the right to
purchase the maximum number of whole shares of Stock which can be purchased with
the amount of the Participant's Compensation which has been withheld during the
Participation Period; PROVIDED, however, that with respect to any Participation
Period, no Participant shall purchase more than a maximum of 2,000 shares of
Stock nor shares of Stock in excess of the amounts set forth in Section 12.
SECTION 5. EMPLOYEE CONTRIBUTIONS.
A Participant shall purchase shares of Stock by means of payroll
deductions. Payroll deductions as designated by the Participant pursuant to
Section 4(a) shall commence with the first payroll period in the Participation
Period and shall continue in each subsequent payroll period during participation
in the Plan. If a Participant wishes to change the rate of payroll withholding,
he or she may do so by filing a new enrollment form with the Company not later
than the 10th working day prior to the commencement of the Participation Period
for which such change is to be effective.
SECTION 6. PLAN ACCOUNTS; PURCHASE OF SHARES.
(a) The Company shall maintain a Plan Account on its books in the
name of each Participant. As of the close of each payroll period in a
Participation Period, the amount deducted from the Participant's Compensation
shall be credited to the Participant's Plan Account. No interest shall be
credited to Plan Accounts.
(b) As of the last day of each Participation Period, the Participant
is deemed to have elected to purchase the number of whole shares of Stock
calculated in accord with this Subsection (b), unless the Participant has
previously elected to withdraw from the Plan in accord with Section 8. The
amount then in the Participant's Plan Account shall be divided by the Purchase
Price, and the number of whole shares which results (subject to the limitations
described in Section 4(b) and Subsection (c) below) shall be purchased from the
Company with the funds in the Participant's Plan Account. Share certificates
representing
2.
<PAGE>
the number of shares of Stock so purchased shall be issued and delivered to the
Participant as soon as reasonably practicable after the close of the
Participation Period.
(c) In the event that the aggregate number of shares which all
Participants elect to purchase during the Participation Period exceeds the
number of shares remaining available for issuance under the Plan, then the
number of shares to which each Participant is entitled shall be determined by
multiplying the number of shares available for issuance by a fraction, the
numerator of which is the number of shares which such Participant has elected to
purchase and the denominator of which is the number of shares which all
Participants have elected to purchase.
(d) Any amount remaining in the Participant's Plan Account which
represents the Purchase Price for a fractional share shall be carried over in
the Participant's Plan Account to the next Participation Period. Any amount
remaining in the Participant's Plan Account which represents the Purchase Price
for whole shares which could not be purchased under Section 4(b) or Subsection
(c) above shall be refunded to the Participant in cash, without interest.
SECTION 7. PURCHASE PRICE.
The Purchase Price for each share of Stock shall be the LESSER of (a)
eighty-five percent (85%) of the Fair Market Value of such share on the last
trading day before the commencement of the Participation Period, or (b) eighty-
five percent (85%) of the Fair Market Value of such share on the last trading
day in the Participation Period.
SECTION 8. WITHDRAWAL FROM THE PLAN.
A Participant may elect to withdraw from the Plan at any time before
the last day of a Participation Period by filing the prescribed form with the
Company, and payroll deductions shall cease as soon as reasonably practicable
thereafter. Within 45 days after the close of such Participation Period, the
amount credited to the Plan Account of any Participant who has withdrawn from
the Plan shall be refunded to him or her in cash, without interest.
A Participant who has withdrawn from the Plan shall not be a Participant in
future Participation Periods, unless he or she again enrolls under Section 4.
SECTION 9. EFFECT OF TERMINATION OF EMPLOYMENT.
Termination of employment as an Eligible Employee for any reason,
including death, shall be treated as an automatic withdrawal from the Plan under
Section 8. Such withdrawal shall be deemed to occur as of the date when
employment terminates. A transfer from one Participating Company to another
shall not be treated as a termination of employment.
3.
<PAGE>
SECTION 10. RIGHTS NOT TRANSFERABLE.
The rights of any participant under the Plan, or any Participant's
interest in any Stock or moneys to which he or she may be entitled under the
Plan, shall not be transferable by voluntary or involuntary assignment or by
operation of law, or in any other manner other than by will or the laws of
descent and distribution. If a Participant in any manner attempts to transfer,
assign or otherwise encumber his or her rights or interest under the Plan, other
than by will or the laws or descent and distribution, then such act shall be
treated as an election by the Participant to withdraw from the Plan under
Section 8.
SECTION 11. RECAPITALIZATIONS, ETC.
(a) The class and maximum number of securities offered under the
Plan, the class and maximum number of securities purchasable per Participant
during any one Participation Period and the class and number of securities and
the Purchase Price per share in effect under each outstanding purchase right
under the Plan shall be adjusted proportionately by the Committee for any
increase or decrease in the number of outstanding shares of Stock resulting from
a subdivision or consolidation of shares, the payment of a stock dividend, or
any recapitalization or other increase or decrease in such shares effected
without receipt or payment of consideration by the Company. The foregoing
notwithstanding, no adjustment shall be made if it would cause the Plan to fail
to meet the requirements of Section 423 of the Code.
(b) In the event of a dissolution or liquidation of the Company, or a
merger, consolidation or reorganization to which the Company is a constituent
corporation, the Plan shall terminate, unless the plan of merger, consolidation
or reorganization provides otherwise, and all amounts which have been paid
toward the Purchase Price of Stock hereunder shall be refunded without interest.
The Plan shall in no event be construed to restrict in any way the Company's
right to undertake a dissolution, liquidation, merger, consolidation or other
reorganization.
SECTION 12. LIMITATION ON STOCK OWNERSHIP.
Any other provision hereof to the contrary notwithstanding, the
following limitations on acquisition of shares of Stock shall apply:
(a) No Participant shall be granted a right to purchase Stock under
the Plan if such Participant, immediately after his or her election to purchase
such Stock, would own stock possessing more than five percent (5%) of the total
combined voting power or value of all classes of stock of the Company (or any
parent or Subsidiary of the Company). For purposes of this Section 12(a), each
Participant shall be considered to own any stock
4.
<PAGE>
which he or she has a right or option to purchase under this or any other plan,
and each Participant shall be considered to have the right to purchase 2,000
shares of Stock under this Plan with respect to each Participation Period.
(b) No Participant shall be granted a right to purchase Stock under
the Plan if such Participant's rights to purchase stock under this and all other
qualified employee stock purchase plans of the Company or any parent or
Subsidiary of the Company would accrue at a rate which exceeds $25,000 of the
Fair Market Value of such stock (determined at the time when such right is
granted) for each calendar year for which such right is outstanding at any time.
Ownership of stock shall be determined after applying the attribution rules of
Section 424(d) of the Code. For purposes of this Section 12(b), the right to
acquire Stock under each purchase right shall accrue as and when the purchase
right first becomes exercisable on the last day of the Participation Period for
which such right is granted.
SECTION 13. NO RIGHTS AS AN EMPLOYEE.
Nothing in the Plan shall be construed to give any person the right to
remain in the employ of a Participating Company or to affect the right of the
Participating Company to terminate the employment of any person at any time,
with or without cause.
SECTION 14. NO RIGHTS AS A SHAREHOLDER.
A Participant shall have no rights as a shareholder with respect to
any shares of Stock which he or she may have a right to purchase under the Plan
until shares are actually purchased on the Participant's behalf in accordance
with Section 6.
SECTION 15. AMENDMENT OR DISCONTINUANCE.
The Board shall have the right to amend, modify or terminate the Plan
at any time and without notice, provided that no change in the class of
employees eligible to participate in the Plan or the benefits accruing to
Participants under the Plan and, except as provided in Section 11, no increase
in the aggregate number of shares of Stock to be issued under the Plan or the
maximum number of shares of Stock purchasable per Participant during any one
Participation Period shall be effective, unless approved by the vote of the
stockholders of the Company in the manner provided in Section 16.
SECTION 16. SHAREHOLDER APPROVAL.
The Plan and all elections to purchase shares hereunder shall be void,
and all amounts which have been paid toward the Purchase Price of Stock
hereunder shall be
5.
<PAGE>
refunded without interest, unless the Plan is approved and ratified by the
holders of a majority of the Company's outstanding shares within 12 months
before or after the date when the Plan is adopted by the Board. The provisions
of Section 6 notwithstanding, no stock certificates shall be issued to any
Participant until the Plan has been approved and ratified in the above manner.
The Plan was amended by the Board on March 26, 1996 in order to
increase the reserve of Stock available for issuance under the Plan by an
additional 100,000 shares. Such increase is subject to stockholder approval at
the 1996 Annual Stockholders Meeting, and no shares of Stock shall be issued
under the Plan on the basis of that increase unless and until such stockholder
approval is obtained.
SECTION 17. DEFINITIONS.
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Committee" means the committee of two or more non-employee Board
members appointed from time to time by the Board to administer the Plan, as
provided in Section 3(b).
(d) "Company" means OEC Medical Systems, Inc., a Delaware corporation
which is the successor to Diasonics, Inc.
(e) "Compensation" means the aggregate cash compensation paid to a
Participant by the Participating Companies, including cash bonuses, commissions,
shift differentials, overtime and similar cash payments, but excluding income
recognized in connection with the exercise of stock options and other noncash
items, all as determined by the Committee.
(f) "Eligible Employee" means any employee of a Participating
Company.
(g) "Fair Market Value" shall mean the market price of Stock,
determined by the Committee as follows:
(i) If Stock is traded on the over-the-counter market on the
date in question but is not classified as a national market issue,
then the Fair Market Value shall be equal to the mean between the last
reported representative bid and asked prices quoted by the NASDAQ
system for such date.
6.
<PAGE>
(ii) If Stock is traded over-the-counter on the date in question
and is classified as a national market issue, then the Fair Market
Value shall be equal to the last-transaction price quoted on the
Nasdaq National Market for such date.
(iii) If Stock is traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing
price reported by the applicable composite-transaction report for such
date.
(iv) If none of the foregoing provisions is applicable, then the
Fair Market Value shall be determined by the Committee in good faith
on such basis as it deemed appropriate.
In all cases, the determination of Fair Market Value by the Committee
shall be conclusive and binding on all persons.
(h) "Participant" means an Eligible Employee who elects to
participate in the Plan, as provided in Section 4(a).
(i) "Participating Company" means the Company and such present or
future Subsidiaries as the Board shall designate.
(j) "Participation Period" means a period during which contributions
may be made toward the purchase of Stock under the Plan, as determined pursuant
to Section 2.
(k) "Plan" means this OEC Medical Systems, Inc. 1993 Employee
Incentive Stock Acquisition Plan.
(l) "Plan Account" means the account established for each Participant
pursuant to Section 6.
(m) "Purchase Price" means the price at which Participants may
purchase Stock under the Plan, as determined pursuant to Section 7.
(n) "Stock" means the Common Stock of the Company, par value $0.01
per share.
(o) "Subsidiary" means a corporation 50 percent or more of the total
combined voting power of all classes of stock of which is owned, directly or
indirectly, by the Company.
7.
<PAGE>
OEC MEDICAL SYSTEMS, INC.
ANNUAL MEETING OF STOCKHOLDERS BALLOT
JUNE 11, 1996
The undersigned hereby votes the number of shares which he or she is entitled
to vote as follows:
DIRECTOR'S PROPOSALS
Election of Directors
FOR The election of each of the persons named below as a director of the
Corporation (cross out the names of any persons as to whom vote is withheld):
DO NOT VOTE:
Gregory K. Hinckley Benno P. Lotz Allan W. May Ruediger Naumann-Etienne
Chase N. Peterson
Amendment to the 1990 Stock Option/Stock Purchase Plan
FOR
AGAINST
ABSTAIN
THE FOLLOWING RESOLUTION:
RESOLVED: That the 1990 Stock Option/Stock Purchase Plan be amended to (i)
increase the number of shares of the Company's common stock authorized for
issuance under the Plan by an additional 500,000 shares, (ii) allow non
employee Board members to receive discretionary option grants and stock awards
under the Plan, (iii) allow non-employee Board members to participate in the
Automatic Option Grant Program, whether or not they have previously been in the
Company's employ, and (iv) impose a limit on the maximum number of shares of the
Company's common stock any one participant in the 1990 Plan may receive per
calendar year.
Amendment to the 1993 Employee Incentive Stock Acquisition Plan
FOR
AGAINST
ABSTAIN
THE FOLLOWING RESOLUTION:
RESOLVED: That the 1993 Employee Incentive Stock Acquisition Plan be amended
to increase the number of shares of Company's common stock authorized for
issuance under such Plan by an additional 100,000 shares.
Selection of Auditors
FOR
AGAINST
ABSTAIN
THE FOLLOWING RESOLUTION:
RESOLVED: That the selection by the Board of Directors of Deloitte & Touche
LLP as auditors for the Corporation for the year Ending December 31, 1996 be
ratified.
_______________________________________________________________________________
FOLD AND DETACH HERE
<PAGE>
Please mark
your votes as
indicated in
this example X
FOR all nominees WITHHOLD AUTHORITY
listed at left to vote for all nominees
listed at left
1. BALLOT for the election of the following
named persons as directors of the Corporation
to hold office until the next Annual Meeting of
Stockholders and until their respective successors
shall be elected and shall qualify:
NOMINEE
Gregory K. Hinckley
Benno P. Lotz
Allan W. May
Ruediger Naumann-Etienne
Chase N. Peterson
FOR AGAINST ABSTAIN
2. BALLOT to approve an amendment to the 1990 Stock Option/Stock Purchase Plan
to (i) increase the number of shares of the Company's common stock
authorized for issuance under the 1990 plan by an additional 500,000
shares and (ii) allow non-employee Board members to receive discretionary
option grants and stock awards under the 1990 plan, (iii) allow non-employee
Board members to participate in the Automatic Option Grant Program, whether
of not they have previously been in the Company's employ, and (iv) impose a
limit on the maximum number of shares of the Company's common stock any one
participant in the Plan may receive per calendar year.
3. BALLOT to approve an amendment to the 1993 Employee Incentive Stock
Acquisition Plan to increase the number of shares of the Company's common
stock authorized for issuance under such Plan by an additional 100,000
shares.
4. BALLOT to ratify the appointment of Deloitte &Touche LLP, certified
public accountants, as independent auditors for the fiscal year ending
December 31, 1996.
OEC Medical Systems, Inc.
Proxy Committee
Allan W. May
V.P./Secretary
________________________________________
Number of Shares:
________________________________________
Signature
________________________________________
Name (please print)
_______________________________________________________________________________
FOLD AND DETACH HERE
