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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
ACUSON CORPORATION
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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[LOGO OF ACUSON CORPORATION]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
July 23, 1996
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Acuson
Corporation, a Delaware corporation (the "Company"), will be held on Tuesday,
July 23, 1996 at 10:00 a.m., local time, at the Acuson Education Center, 1393
Shorebird Way, Mountain View, California, for the following purposes:
1. To elect a Board of Directors to serve for the ensuing year and
until their successors are elected.
2. To approve an amendment to the Company's 1995 Stock Incentive Plan
to increase the number of shares underlying the options
automatically granted to non-employee directors on an annual basis
from 5,000 to 7,500.
3. To ratify the appointment of Arthur Andersen LLP as independent
public accountants of the Company.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on May 28, 1996 are
entitled to notice of and to vote at the meeting and at any continuation or
adjournment thereof.
BY ORDER OF THE BOARD OF DIRECTORS
/S/ CHARLES H. DEARBORN
Charles H. Dearborn
Secretary
Mountain View, California
June 4, 1996
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
HOWEVER, TO ENSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE URGED TO VOTE,
SIGN, AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE POSTAGE-
PAID ENVELOPE ENCLOSED FOR THAT PURPOSE.
<PAGE>
ACUSON CORPORATION
1220 CHARLESTON ROAD
P.O. BOX 7393
MOUNTAIN VIEW, CA 94039-7393
PROXY STATEMENT
----------------
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 23, 1996
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Acuson Corporation, a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders to be held on Tuesday, July 23, 1996, at 10:00
a.m., local time (the "Annual Meeting"), or at any continuation or adjournment
of that meeting, for the purposes set forth in the Notice of Annual Meeting of
Stockholders dated the date hereof. The Annual Meeting will be held at the
Acuson Education Center, 1393 Shorebird Way, Mountain View, California.
SOLICITATION
The Company will bear the entire cost of solicitation, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional material furnished to stockholders. Copies of solicitation
material will be furnished to brokerage houses, fiduciaries, and custodians
holding shares in their names which are beneficially owned by others to
forward to such beneficial owners. In addition, the Company may reimburse such
persons for their cost of forwarding the solicitation material to such
beneficial owners. Original solicitation of proxies by mail may be
supplemented by one or more of telephone, telegram, facsimile, or personal
solicitation by directors, officers, or employees of the Company. No
additional compensation will be paid for any such services. Except as
described above, the Company does not intend to solicit proxies other than by
mail.
The Company intends to mail this proxy statement and accompanying proxy on
approximately June 5, 1996.
VOTING
Only holders of Common Stock of record at the close of business on May 28,
1996, will be entitled to notice of and to vote at the Annual Meeting. As of
May 28, 1996, the Company had outstanding 27,338,212 shares of Common Stock.
Each share of Common Stock is entitled to one vote. The presence, in person or
by proxy duly authorized, of the holders of a majority of the outstanding
shares of Common Stock authorized to vote will constitute a quorum for the
transaction of business at the Annual Meeting and any continuation or
adjournment thereof. Abstentions and broker non-votes will be counted in
determining whether a quorum is present at the Annual Meeting. Directors are
elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors. The other proposals submitted to the stockholders in the enclosed
proxy must be approved by the vote of the holders of a majority of the shares
of the Company present in person or represented by proxy and entitled to vote
at the Annual Meeting. In determining whether such proposal has been approved,
abstentions are counted as votes against the proposal and broker non-votes are
not counted as votes for or against the proposal.
REVOCABILITY OF PROXIES
Any person giving a proxy in the form accompanying this proxy statement has
the power to revoke it at any time before its exercise. It may be revoked by
filing with the Secretary of the Company at the Company's
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principal executive office, 1220 Charleston Road, P.O. Box 7393, Mountain
View, California, 94039-7393, an instrument of revocation or a duly executed
proxy bearing a later date, or it may be revoked by attending the Annual
Meeting and voting in person.
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the Company's
1997 Annual Meeting of Stockholders (the "1997 Annual Meeting") must be
received by the Company no later than February 5, 1997 in order to be included
in the proxy statement and proxy relating to the 1997 Annual Meeting.
PROPOSAL 1
NOMINATION AND ELECTION OF DIRECTORS
One of the purposes of the Annual Meeting is the election of the Board of
Directors of the Company to hold office until the 1997 Annual Meeting or until
their successors are elected and have qualified. Shares represented by
executed proxies will be voted, if authority to do so is not withheld, for the
election of the nominees named below, unless one or more of such nominees
should become unavailable for election by reason of death or other unexpected
occurrence, in which event such shares shall be voted for the election of such
substitute nominees as the Board of Directors may propose. Each person
nominated has agreed to serve if elected, and the Company knows of no reason
why any of the listed nominees would be unavailable to serve.
NOMINEES AND PRESENT DIRECTORS
The By-Laws of the Company provide that the number of directors of the
Company shall be fixed from time to time by the Board of Directors. At
present, the authorized size of the Board of Directors is six. The Board of
Directors has nominated five persons for election to the Board of Directors.
Mr. Royce Diener, a current director of the Company, has decided to retire
from the Board of Directors as of the Annual Meeting and will not be standing
for re-election. Effective upon Mr. Diener's retirement, the authorized number
of directors will be reduced from six to five. Proxies cannot be voted for
more than five persons.
Set forth below is information regarding the nominees for election as
directors, including information furnished by them as to their principal
occupations for the last five years, certain other directorships held by them,
and their ages as of June 4, 1996. Each nominee is currently a director of the
Company.
<TABLE>
<CAPTION>
NAME AGE POSITION DIRECTOR SINCE
---- --- -------- --------------
<C> <C> <S> <C>
Samuel H. Maslak............ 47 Chairman of the Board and September 1981
Chief Executive Officer
Robert J. Gallagher......... 52 President, Chief Operating May 1994
Officer and Director
Albert L. Greene............ 46 Director March 1995
Karl H. Johannsmeier........ 67 Director March 1995(/1/)
Alan C. Mendelson........... 48 Director March 1995
</TABLE>
- --------
(1) Mr. Johannsmeier also served as a director of the Company from September
1981 to May 1994.
Samuel H. Maslak co-founded the Company in September 1981 and has been Chief
Executive Officer and a director since that date. He was President of the
Company from September 1981 until May 1995. He was appointed Chairman of the
Board in May 1995.
Robert J. Gallagher joined the Company in January 1983 as Vice President,
Finance and Chief Financial Officer. He became Executive Vice President in
March 1991, Chief Operating Officer of the Company in January 1994 and was
elected director of the Company in May 1994. He became President of the
Company in May 1995.
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Albert L. Greene became a director of the Company in March 1995. Mr. Greene
has served as the President and Chief Executive Officer of Alta Bates Medical
Center in Berkeley, California since 1990 and is a member of the American
College of Healthcare Executives, the American Hospital Association, the Alta
Bates Medical Center Board of Trustees, the Alta Bates Health System Board of
Directors, and other hospital associations.
Karl H. Johannsmeier served as a director of the Company from September 1981
to May 1994 and has also served as a director from March 1995 to the present.
He founded Optimetrix Corporation, a semiconductor processing equipment
company, where he served as President and Chief Executive Officer from 1976 to
1981 and as Chairman of the Board of Directors from 1976 to 1984. Optimetrix
Corporation was acquired by Eaton Corporation in 1982. Mr. Johannsmeier has
been a private investor over the last twenty years.
Alan C. Mendelson became a director of the Company in March 1995. Mr.
Mendelson has been a partner in the law firm of Cooley Godward Castro
Huddleson & Tatum since January 1980 and served as Managing Partner of its
Palo Alto office between May 1990 and March 1995. Mr. Mendelson also served as
Secretary and Acting General Counsel of Amgen Inc., a biopharmaceutical
company, from April 1990 through March 1991 and served as Acting General
Counsel of Cadence Design Systems, Inc., an electronic design automation
software company, from November 1995 through May 1996. Mr. Mendelson is also a
director of Isis Pharmaceuticals, Inc., a biopharmaceutical company, CoCensys,
Inc., a biopharmaceutical company, and Elexsys International, Inc., a
manufacturer of interconnect products used in advanced electronic equipment.
There are no family relationships between any director or executive officer
of the Company.
BOARD OF DIRECTORS COMMITTEES AND MEETINGS
The Board of Directors has three standing committees: the Compensation
Committee, the Audit Committee and the Non-Officer Stock Option Administration
Committee. The Board does not have a nominating committee.
The Compensation Committee was established in February 1993 to determine
compensation to be paid to the Company's executive officers and to administer
the Company's stock plans generally. The current members of the Compensation
Committee are Messrs. Diener, Greene, Johannsmeier and Mendelson.
The Audit Committee was established in October 1986 to recommend engagement
of the Company's independent public accountants, to approve services performed
by such accountants and to review, in consultation with the independent public
accountants, the Company's accounting system and system of internal controls.
The current members of the Audit Committee are Messrs. Diener, Greene,
Johannsmeier and Mendelson.
The Non-Officer Stock Option Administration Committee was established in
July 1987 to administer the Company's stock option plan only for non-officer
employees of the Company. Its member is Dr. Maslak.
During the fiscal year ended December 31, 1995, the Board of Directors held
five meetings, the Audit Committee held three meetings and the Compensation
Committee held three meetings. The Non-Officer Stock Option Administration
Committee acted solely by unanimous written consent in accordance with the
Company's By-Laws and Delaware law. Each director attended at least 75% of the
aggregate of all meetings of the Board of Directors and of the committees, if
any, upon which such director served, except Mr. Johannsmeier, who was unable
to attend the Board of Directors, Audit Committee and Compensation Committee
meetings held on July 25, 1995.
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PROPOSAL 2
AMENDMENT OF 1995 STOCK INCENTIVE PLAN
A proposal to amend the Company's 1995 Stock Incentive Plan (the "1995
Incentive Plan") will be presented to stockholders at the Annual Meeting. The
proposed amendment would increase from 5,000 to 7,500 the number of shares of
Common Stock underlying options automatically granted to each non-employee
director of the Company immediately following each annual meeting of the
Company's stockholders during the term of the 1995 Incentive Plan, beginning
immediately following the Annual Meeting. The 1995 Incentive Plan was adopted
by the Board of Directors of the Company in March 1995 and by the stockholders
of the Company at the 1995 Annual Meeting.
Approval of the proposed amendment to the 1995 Incentive Plan requires the
affirmative vote of the holders of record of a majority of the shares
represented and voting, in person or by proxy, at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE PROPOSED AMENDMENT
TO THE 1995 INCENTIVE PLAN.
The persons designated in the enclosed proxy will vote your shares FOR
approval of the proposed amendment to the 1995 Incentive Plan unless
instructions to the contrary are indicated in the proxy.
The Proposed Amendment
Description of the Proposed Amendment. The 1995 Incentive Plan presently
provides for the automatic, non-discretionary grant of options ("Non-
Discretionary Options") covering 5,000 shares of Common Stock to each non-
employee director of the Company immediately following each annual meeting of
the Company's stockholders during the term of the 1995 Incentive Plan. If
approved by the stockholders, the proposed amendment to the 1995 Incentive
Plan would increase that number from 5,000 to 7,500, effective immediately
following the Annual Meeting. The proposed amendment will not change any other
terms of the 1995 Incentive Plan.
Reasons for the Proposed Amendment. The Chairman of the Board (who will not
benefit from this amendment) has proposed this amendment. Such proposal is
designed to preserve the Company's ability to attract and retain the services
of highly qualified non-employee directors, and to more closely align the
interests of such persons with those of the Company's stockholders. The number
of shares underlying options granted to the Company's non-employee directors
has not increased since 1991.
Terms of Non-Discretionary Options. Under the 1995 Incentive Plan, each Non-
Discretionary Option shall be evidenced by a written stock option agreement,
shall have a term of ten years (subject to earlier termination in the
circumstances described below), or such shorter term as may be required to
comply with applicable law, shall have an exercise price no less than the fair
market value of the underlying shares on the grant date, and shall vest as to
50% of the shares covered thereby on the six-month anniversary of the grant
date, and thereafter in daily increments equal to 1/365 of such shares so that
the Non-Discretionary Option becomes fully vested on the first anniversary of
the grant date. The term of each Non-Discretionary Option will terminate early
in the following circumstances: (a) if the optionee ceases to be a director
for any reason other than death, disability or cause, the Option will
terminate on the last day of the period beginning on the date after the
optionee ceases to be a director and running thereafter for a period of time
equal to the duration of such director's continuous service on the Board (but
in no event more than three years); (b) if the optionee ceases to be a
director due to death or disability, the Option will terminate on the third
anniversary of the date the optionee ceases to be a director; and (c) if the
optionee's service on the Board is terminated for cause, the Option will
terminate immediately. In any of the foregoing cases, vesting of the Option
will cease on the date the optionee ceases to be a director.
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Remaining Provisions of the 1995 Incentive Plan
The remaining essential features of the 1995 Incentive Plan, none of which
will be changed by the proposed amendment, are as follows:
Purpose. The purpose of the 1995 Incentive Plan is to allow the Company to
provide incentives to Eligible Individuals (as defined below) for employment,
increased efforts and successful achievements on behalf of or in the interest
of the Company and its affiliates and to maximize the rewards due them for
those efforts and achievements.
Administration. The 1995 Incentive Plan is administered by the Board of
Directors of the Company (the "Board"), by one or more separate committees
appointed by the Board with respect to specified groups of participants (each
such committee, a "Committee"), and by the Secretary of the Company, as set
forth below. As used herein, the term "Plan Administrator" shall refer to the
Board, or any Committee, as applicable, that is administering the provisions
of the 1995 Incentive Plan being referred to.
(a) With respect to awards to Eligible Individuals who are officers or
directors of the Company subject to Section 16(b) ("Section 16(b) Persons")
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and
to "covered employees" ("Covered Employees") within the meaning of Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), the
1995 Incentive Plan is administered by a Committee constituted to comply
with the rules governing a plan intended to qualify as a discretionary plan
under Rule 16b-3 or its successors under the Exchange Act ("Rule 16b-3")
and a "committee comprised solely of two or more outside directors" within
the meaning of Section 162(m) of the Code.
(b) With respect to awards made to Eligible Individuals who are neither
Section 16(b) Persons nor Covered Employees, the 1995 Incentive Plan may be
administered by the Board or by any Committee consisting of one or more
persons.
(c) The Secretary of the Company administers the provisions of the 1995
Incentive Plan providing for the grant of stock options to Eligible
Individuals who are non-employee directors. This function is limited to
matters of interpretation and administrative oversight.
The Plan Administrator, except with respect to grants of stock options to
non-employee directors, determines the Eligible Individuals who are to receive
awards under the 1995 Incentive Plan, the timing of such awards, the type of
award and the terms thereof. The Plan Administrator has the sole authority, in
its absolute discretion, to adopt, amend and rescind such rules and
regulations as, in its opinion, may be advisable for the administration of the
1995 Incentive Plan, to construe and interpret the 1995 Incentive Plan, the
rules and regulations thereof, and the instruments evidencing awards granted
thereunder, and to make all other determinations deemed necessary or advisable
for the administration of the 1995 Incentive Plan. All decisions,
determinations and interpretations of the Plan Administrator are binding on
all participants. Notwithstanding the foregoing, the Plan Administrator may
not exercise any discretionary functions with respect to options granted to
non-employee directors.
Types of Awards. Awards under the 1995 Incentive Plan may consist of (a)
options to purchase Common Stock that are designed to qualify as "incentive
stock options" under Section 422 of the Code ("Incentive Stock Options"), (b)
options to purchase Common Stock that are not described in Sections 422 or 423
of the Code ("Non-Qualified Stock Options" and, collectively with Incentive
Stock Options, "Options"), (c) the sale or bonus grant of restricted shares of
Common Stock ("Restricted Stock"), and (d) the grant of stock appreciation
rights ("SARs"), either independently of ("Independent SARs"), or in tandem
with ("Tandem SARs"), Options.
Available Shares. A total of 3,500,000 shares of Common Stock have been
reserved for issuance under the 1995 Incentive Plan, subject to adjustment in
the event of any merger, consolidation, reorganization, reincorporation, stock
split, stock dividend (in excess of 2%) or other change in the corporate
structure of the Company. Such number of shares is subject to adjustment as
described below.
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(a) The following awards count against and reduce the number of shares
available under the 1995 Incentive Plan: (i) shares of Common Stock subject
to outstanding Options issued under the 1995 Incentive Plan; (ii)
outstanding shares of Restricted Stock issued under the 1995 Incentive
Plan; (iii) shares subject to Independent SARs issued under the 1995
Incentive Plan; and (iv) with respect to Tandem SARs issued under the 1995
Incentive Plan, the number of shares subject to such Tandem SAR or to the
related Option, whichever is greater.
(b) The following shares are added back to the number of shares available
under the 1995 Incentive Plan: (i) shares underlying Options issued under
the 1995 Incentive Plan that are cancelled or terminate before being
exercised; (ii) shares of Restricted Stock issued under the 1995 Incentive
Plan that are cancelled or repurchased pursuant to their vesting
restrictions; (iii) shares underlying Independent SARs issued under the
1995 Incentive Plan that are cancelled or terminate before being exercised;
(iv) shares as to which an Option related to a Tandem SAR issued under the
1995 Incentive Plan has been surrendered in connection with the exercise of
such Tandem SAR; and (v) shares underlying Independent SARs issued under
the 1995 Incentive Plan that are exercised and paid in cash; but only, in
each case, if the holder of such award did not receive dividends or other
benefits of ownership with respect to such shares.
Eligible Individuals. Employees, officers (including officers who are
directors of the Company), independent contractors, and consultants of the
Company and of any subsidiary of the Company designated by the Plan
Administrator (collectively, the "Eligible Individuals") are eligible to
participate in the 1995 Incentive Plan. Non-employee directors are not
eligible to receive any awards under the 1995 Incentive Plan other than Non-
Discretionary Options.
Limitation on Awards. No Eligible Individual may be granted Options or SARs
covering more than 1,000,000 shares during any calendar year.
Discretionary Option Grants.
(a) Option Grants. The Plan Administrator may, in its discretion, grant
Options ("Discretionary Options") to Eligible Individuals from time to time
during the term of the 1995 Incentive Plan, provided that only employees of
the Company may receive Incentive Stock Options. All grants of Discretionary
Options will be evidenced by a written option agreement.
(b) Option Term. The Plan Administrator shall determine the term of any
Discretionary Option granted by it, provided that the term of any Incentive
Stock Option may not be longer than ten years, and provided further that the
term of any Incentive Stock Option granted to an Eligible Individual
possessing more than 10% of the combined voting power of the Company or an
affiliate (a "10% Holder") may not be longer than five years.
(c) Number of Underlying Shares. The Plan Administrator shall determine the
number of shares underlying any Discretionary Option it elects to grant,
provided that the aggregate fair market value of all shares underlying
Incentive Stock Options granted to an Eligible Individual that first become
exercisable in any calendar year may not exceed $100,000.
(d) Exercise Price. The Plan Administrator shall determine the exercise
price of any Discretionary Option it elects to grant, provided that (i) the
exercise price of Incentive Stock Options may not be less than the fair market
value of the underlying shares on the grant date, and (ii) the exercise price
of any Incentive Stock Option granted to a 10% Holder may not be less than
110% of the fair market value of the underlying shares on the grant date.
(e) Vesting. The Plan Administrator shall determine the vesting schedule, if
any, with respect to each Discretionary Option it elects to grant.
Exercise of Options. The exercise price for all Options must be paid to the
Company at the time of exercise in cash, personal or certified check, bank
draft, or postal or express money order, provided, however, that the
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Plan Administrator may, in its discretion, (a) permit the exercise price of
Discretionary Options to be paid in any one, or any combination, of the
following manners: (i) with shares of Common Stock owned by the optionee; (ii)
with shares of Common Stock withheld from the shares otherwise deliverable to
the optionee upon exercise of the Option; (iii) by delivery of an irrevocable
direction to a securities broker to sell shares of Common Stock and deliver
the proceeds to the Company; and (iv) by delivery of a promissory note with
recourse, interest, security, redemption and other terms as the Plan
Administrator shall determine; and (b) permit the exercise price of any Non-
Discretionary Option to be paid in any one, or any combination, of the manners
specified in clauses (i), (ii) and (iii) above. Any shares of Common Stock
used to exercise an Option shall be valued at their fair market value as of
the exercise date. The Plan Administrator also may, in its discretion, permit
the holder of a Discretionary Option to surrender all or part of such option
in exchange for a payment (in cash, shares of Common Stock valued at fair
market value on the date of surrender, or any combination thereof) in an
amount equal to the difference between the aggregate fair market value (as of
the surrender date) and the aggregate exercise price of the shares as to which
such option is surrendered. As of May 28, 1996, the closing sale price of the
Common Stock on the New York Stock Exchange was $19.125 per share.
Reload Feature. If, upon the exercise of any Discretionary Option, shares
otherwise issuable to the optionee are withheld to satisfy the exercise price
or federal, state and local withholding tax obligations, the Plan
Administrator may, in its discretion, issue a new Option to such optionee
covering the number of shares withheld. Any such new Option will be identical
to the Discretionary Option being exercised, except that the exercise price
will be equal to the fair market value of the Common Stock as of the grant
date of such new Option.
Restricted Stock Awards. The Plan Administrator may, in its discretion,
grant awards of Restricted Stock to Eligible Individuals from time to time
during the term of the 1995 Incentive Plan. Each such award may be either a
sale or a bonus grant, and will be evidenced by a written Restricted Stock
purchase or bonus agreement, as applicable. The Plan Administrator has the
discretion to fix the terms applicable to each Restricted Stock award,
including without limitation payment terms, transfer restrictions, and
forfeiture, repurchase and vesting provisions, subject only to the
restrictions contained in the 1995 Incentive Plan. The Plan Administrator may,
in its discretion, condition any Restricted Stock award on the attainment of
one or more preestablished objective performance goals meeting the
requirements of Section 162(m) of the Code and the regulations thereunder.
SAR Awards. The Plan Administrator may, in its discretion, grant awards of
SARs to Eligible Individuals from time to time during the term of the 1995
Incentive Plan. Each such award will be evidenced by a written agreement,
which will specify the term of the SAR and may contain any other provisions
that the Plan Administrator deems appropriate and that are consistent with the
provisions of the 1995 Incentive Plan.
Acceleration upon Change in Ownership. On the twenty-second day after any
Share Acquisition Date (as defined below), each Option, SAR, Restricted Stock
bonus or Restricted Stock purchase agreement evidencing an Option, SAR or
Restricted Stock automatically will become fully vested, nonforfeitable and
exercisable, and any Restricted Stock covered by any such agreement will be
released from all restrictions on transfer and all repurchase and forfeiture
restrictions, unless, before such twenty-second day, a majority of the
directors of the Company who are not affiliated with the Acquiring Person (as
defined below) have approved the transaction pursuant to which such person
became an Acquiring Person. A "Share Acquisition Date" means the first date of
public announcement that a person (other than the Company, a subsidiary of the
Company, or an employee benefit plan of the Company or any subsidiary) (an
"Acquiring Person") has become the beneficial owner of 20% or more of the
outstanding shares of Common Stock.
Certain Other Corporate Changes. The Plan Administrator has the discretion,
to the extent permitted by applicable law, to include provisions in any
agreements evidencing awards granted under the 1995 Incentive Plan providing
that, in the event of a dissolution, liquidation, merger or consolidation of
the Company, or any other event that the Plan Administrator deems to have
effected a change in control of the Company, any such awards shall accelerate
and become fully vested, and all forfeiture and/or transfer restrictions with
respect thereto shall lapse, regardless of whether such awards are otherwise
to be assumed or replaced in connection with such event.
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Term and Early Termination. The 1995 Incentive Plan became effective on May
31, 1995 upon its approval by the stockholders at the 1995 Annual Meeting, and
will terminate with respect to the grant of additional awards on May 31, 2005,
unless sooner terminated by the Board of Directors. The Board of Directors may
terminate or suspend the 1995 Incentive Plan at any time and for any reason,
subject to certain restrictions on the ability to adversely affect awards
previously granted thereunder.
Amendment. The Board of Directors may amend the 1995 Incentive Plan, and any
agreements evidencing awards granted thereunder (other than agreements
evidencing Non-Discretionary Options), at any time and for any reason, subject
to certain restrictions on the ability to adversely affect awards previously
granted thereunder and to any legal requirement to obtain stockholder
approval. Such amendments may include, without limitation, accelerating
vesting provisions of, and repricing, awards other than Non-Discretionary
Options. In addition, terms of the 1995 Incentive Plan relating to Non-
Discretionary Options may not be amended more than once every six months,
except if necessary to comport with changes in the Code, the Employee
Retirement Income Security Act of 1974, as amended, or any applicable rules
and regulations thereunder. With the holder's written consent, the Plan
Administrator also may cancel any outstanding Option or SAR or accept any
outstanding Option or SAR in exchange for a new Option or SAR.
Rule 16b-3 Compliance. Transactions under the 1995 Incentive Plan are
intended to comply with all applicable conditions of Rule 16b-3. To the extent
any provision of the 1995 Incentive Plan, or any action of the Plan
Administrator, fails so to comply, such provision or action will be deemed
null and void to the extent that is permitted by applicable law and that the
Plan Administrator deems advisable. If the 1995 Incentive Plan does not
include any provision required by Rule 16b-3 in order to qualify awards of
Non-Discretionary Options as awards under a non-discretionary formula within
the meaning of that Rule, such provision (other than one relating to
eligibility requirements or the price or amount of awards) will be deemed
automatically to be incorporated by reference into the 1995 Incentive Plan
with respect to awards of Non-Discretionary Options.
Expenses. The Company makes no cash contributions to the 1995 Incentive
Plan, but bears the expenses of administration. In addition, the Company also
will incur cash expenses in connection with the exercise of SARs.
U.S. Federal Income Tax Consequences Relating to the 1995 Incentive Plan
The following is a brief summary of the current U.S. federal income tax
rules generally applicable to the awards under the 1995 Incentive Plan.
Non-Qualified Stock Options. An optionee is not subject to federal income
tax upon grant of a Non-Qualified Stock Option. At the time of exercise, the
optionee will realize ordinary income (subject to withholding) to the extent
that the then fair market value of the Common Stock exceeds the option price.
The amount of such income will constitute an addition to the optionee's tax
basis in the optioned stock. Sale of the shares will result in capital gain or
loss (long-term or short-term depending on the optionee's holding period). The
Company is entitled to a business expense deduction at the same time and to
the same extent that the optionee realizes compensation income.
Incentive Stock Options. Incentive Stock Options awarded under the 1995
Incentive Plan are intended to constitute "incentive stock options" under
Section 422 of the Code. An optionee is not subject to federal income tax upon
either the grant or exercise of an Incentive Stock Option. If the optionee
holds the shares acquired upon exercise for at least one year after issuance
of the optioned shares and until at least two years after grant of the option,
then the difference between the amount realized on a subsequent sale or other
disposition of shares and the option price will constitute long-term capital
gain or loss. The Company will not be entitled to any deduction with respect
to the grant or exercise of the Incentive Stock Option.
If the optionee sells the shares acquired under an Incentive Stock Option
before the requisite holding period, he/she will be deemed to have made a
"disqualifying disposition" of the shares and will realize ordinary income in
the year of disposition equal to the lesser of the fair market value of the
shares at exercise less the exercise
8
<PAGE>
price or the amount realized on their disposition over the option price of the
shares. Any gain recognized upon a disqualifying disposition in excess of the
ordinary income portion will constitute either short-term or long-term capital
gain. In the event of a disqualifying disposition, the Company will be
entitled to a business expense deduction in the amount of the ordinary income
realized by the optionee.
The option spread on the exercise of an Incentive Stock Option is an
adjustment in computing alternative minimum taxable income. No adjustment is
required, however, if the optionee made a disqualifying disposition of the
shares in the same year as he/she is taxed on the exercise.
Stock Appreciation Rights. An optionee is not taxed upon the grant of SARs.
An optionee exercising SARs will realize ordinary income (subject to
withholding) in the amount of the cash or the fair market value of the shares
received. The Company will be entitled to a business expense deduction at the
same time and to the same extent that the optionee realizes compensation
income.
Restricted Stock. An awardee of Restricted Stock will generally realize
ordinary income (subject to withholding) when and to the extent that the
restrictions on the shares lapse, as measured by the value of the shares at
the time of lapse. The awardee's holding period for the shares will not
commence until the date of lapse, and dividends paid during the restriction
period will be treated as compensation. The income realized on lapse of the
restrictions will constitute an addition to the awardee's tax basis in the
shares.
In lieu of deferred recognition of income, the awardee may formally elect,
within 30 days of the award, to realize income at the time of award, as
measured by the fair market value of the stock on the date of the award
determined without regard to the restrictions. The income realized will
constitute an addition to the tax basis of the shares. In the case of such
election, any appreciation (or depreciation) on the shares during the
restriction period will give rise to capital gain (or capital loss). In the
event that the awardee terminates employment during the restriction period and
forfeits his/her shares, no deduction may be claimed and the taxes paid on
award of the shares shall be forfeited.
The Company will be entitled to a business expense deduction at the same
time and to the same extent that the awardee realizes compensation income.
New Plan Benefits
The following table sets forth information regarding the awards to be
granted under the 1995 Incentive Plan to the persons named below, to the
extent that such awards are presently determinable.
<TABLE>
<CAPTION>
NAME AND POSITION NUMBER OF OPTIONS
----------------- --------------------------
<S> <C>
All Executive Officers as a Group.............. Not presently determinable
Non-Employee Directors as a Group.............. 22,500(/1/)
All Employees as a Group....................... Not presently determinable
</TABLE>
- --------
(1) Consists of a grant of Non-Discretionary Options covering 7,500 shares to
each of Messrs. Greene, Johannsmeier and Mendelson immediately following
the Annual Meeting, assuming such persons are reelected as directors of
the Company.
9
<PAGE>
PROPOSAL 3
RATIFICATION OF SELECTION OF
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Arthur Andersen LLP as the Company's
independent public accountants for the fiscal year ending December 31, 1996,
and has further directed that management submit the selection of independent
public accountants for ratification by the stockholders at the Annual Meeting.
Arthur Andersen LLP has audited the Company's financial statements annually
since the Company's inception. Its representatives are expected to be present
at the Annual Meeting, will have the opportunity to make a statement if they
desire to do so and will be available to respond to appropriate questions.
Stockholder ratification of the selection of Arthur Andersen LLP as the
Company's independent public accountants is not required by the Company's By-
Laws or otherwise. The Board of Directors is submitting the selection of
Arthur Andersen LLP to the stockholders for ratification as a matter of good
corporate practice. In the event the stockholders fail to ratify the
selection, the Board of Directors will reconsider whether or not to retain
that firm. Even if the selection is ratified, the Board of Directors in its
discretion may direct the appointment of a different independent accounting
firm at any time during the year if the Board of Directors determines that
such a change would be in the best interests of the Company and its
stockholders.
SHARE OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND
CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of May 4, 1996, by (i) all those
known by the Company to be beneficial owners of more than five percent (5%) of
its Common Stock; (ii) all directors and nominees for director; (iii) the
executive officers of the Company included in the Summary Compensation Table
set forth under the caption "Compensation of Directors and Executive Officers"
below; and (iv) all current executive officers and directors of the Company as
a group. Mr. Johannsmeier and Dr. Maslak can be contacted at the offices of
the Company. Except as indicated in the footnotes to this table and pursuant
to applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common Stock
beneficially owned by them.
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP
-----------------
BENEFICIAL OWNER SHARES PERCENT
---------------- --------- -------
<S> <C> <C>
State of Wisconsin Investment Board(/1/).................. 2,760,700 10.2%
P. O. Box 7842
Madison, WI 53707
Delphi Asset Management(/2/).............................. 1,637,500 6.1%
485 Madison Avenue
New York, NY 10022
Karl H. Johannsmeier...................................... 5,183,423 19.2%
Samuel H. Maslak(/3/)..................................... 2,109,657 7.6%
Robert J. Gallagher(/4/).................................. 369,651 1.4%
Stephen T. Johnson(/5/)................................... 159,078 *
Bradford C. Anker(/6/).................................... 151,687 *
Daniel R. Dugan(/7/)...................................... 140,633 *
Royce Diener(/8/)......................................... 38,670 *
Alan C. Mendelson(/9/).................................... 6,950 *
Albert L. Greene(/10/).................................... 5,500 *
All Executive Officers and Directors as a group (13
persons)(/11/)........................................... 8,548,230 29.7%
</TABLE>
- --------
* Less than 1%
(1) Based on information contained in a statement on Schedule 13G filed by
such stockholder with the Securities and Exchange Commission on February
2, 1996.
10
<PAGE>
(2) Based on information contained in a statement on Schedule 13G filed by
such stockholder with the Securities and Exchange Commission on February
13, 1996.
(3) Includes 603,670 unissued shares of Common Stock subject to options
exercisable within 60 days of May 4, 1996, which are deemed to be
outstanding for the purpose of computing the percentage of Common Stock
owned pursuant to Rule 13d-3(d)(1) under the Exchange Act. Also includes
7,280 shares of Common Stock for which Dr. Maslak disclaims beneficial
ownership.
(4) Includes 282,030 unissued shares of Common Stock subject to options
exercisable within 60 days of May 4, 1996. Also includes 12,000 shares
for which Mr. Gallagher disclaims beneficial ownership.
(5) Includes 151,000 unissued shares of Common Stock subject to options
exercisable within 60 days of May 4, 1996. Also includes 900 shares for
which Mr. Johnson disclaims beneficial ownership.
(6) Includes 149,650 unissued shares of Common Stock subject to options
exercisable within 60 days of May 4, 1996.
(7) Includes 134,424 unissued shares of Common Stock subject to options
exercisable within 60 days of May 4, 1996.
(8) Includes 21,670 unissued shares of Common Stock subject to options
exercisable within 60 days of May 4, 1996. Also includes 2,000 shares of
Common Stock for which Mr. Diener disclaims beneficial ownership.
(9) Includes 5,000 unissued shares of Common Stock subject to options
exercisable within 60 days of May 4, 1996. Also includes 950 shares for
which Mr. Mendelson disclaims beneficial ownership.
(10) Includes 5,000 unissued shares of Common Stock subject to options
exercisable within 60 days of May 4, 1996.
(11) Includes 23,130 shares as to which beneficial ownership is disclaimed by
certain executive officers of the Company. Also includes 1,726,371
unissued shares of Common Stock subject to options exercisable within 60
days of May 4, 1996.
11
<PAGE>
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The following table discloses compensation received by the Company's Chief
Executive Officer and the four other most highly paid executive officers
serving as executive officers at the end of the fiscal year, for the three
fiscal years ended December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
NAME AND ---------------------- ------------ ALL OTHER
PRINCIPAL SALARY COMPENSATION
POSITION YEAR ($) BONUS ($) OPTIONS (#) ($)
--------- ---- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Samuel H.
Maslak 1995 $ 679,000 $ 67,900 0 $ 500(/7/)
Chairman and
Chief 1994 $ 679,000 $ 0 0 $ 500(/7/)
Executive Of-
ficer 1993 $ 650,000 $ 48,100 316,775(/2/) $ 500(/7/)
Robert J.
Gallagher 1995 $ 415,000 $ 41,500 100,000 $ 500(/7/)
President and
Chief 1994 $ 350,000 $ 35,000 0 $ 500(/7/)
Operating Of-
ficer 1993 $ 293,000 $ 23,440 123,360(/3/) $ 500(/7/)
Daniel R.
Dugan 1995 $ 300,000 $ 60,000 50,000 $57,597(/8/)
Sr. Vice
President, 1994 $ 270,000 $ 54,000 100,000 $57,597(/9/)
Worldwide
Sales, 1993 $ 209,000 $ 49,720(/1/) 130,040(/4/) $57,344(/1//0/)
Service, Mar-
keting
Bradford C.
Anker 1995 $ 250,000 $ 25,000 20,000 $ 500(/7/)
Vice Presi-
dent, 1994 $ 232,000 $ 18,000 0 $ 500(/7/)
Manufacturing 1993 $ 222,000 $ 17,760 157,738(/5/) $ 500(/7/)
Stephen T.
Johnson 1995 $ 250,000 $ 37,500 25,000 $ 500(/7/)
Vice Presi-
dent, 1994 $ 195,000 $ 11,700 50,000 $ 500(/7/)
Chief Finan-
cial 1993 $ 169,000 $ 13,520 66,680(/6/) $ 500(/7/)
Officer and
Treasurer
</TABLE>
- --------
(1) Consisting of $16,720 as a year-end bonus pursuant to the Company's
officer bonus plan and $33,000 as a bonus based upon the performance of
the Company's domestic field organization.
(2) Includes options for 216,775 shares granted in exchange for the
cancellation of options for 325,000 shares during a Company-wide option
repricing.
(3) Includes options for 53,360 shares granted in exchange for the
cancellation of options for 80,000 shares during a Company-wide option
repricing.
(4) Includes options for 80,040 shares granted in exchange for the
cancellation of options for 120,000 shares during a Company-wide option
repricing.
(5) Includes options for 142,738 shares granted in exchange for the
cancellation of options for 214,000 shares during a Company-wide option
repricing.
(6) Includes options for 26,680 shares granted in exchange for the
cancellation of options for 40,000 shares during a Company-wide option
repricing.
(7) Consisting of an employer contribution of $500 to each employee's 401(k)
plan account.
(8) Consisting of an employer contribution of $500 to Mr. Dugan's 1995 401(k)
plan account and partial forgiveness of a loan from the Company in the
amount of $57,097. See "Certain Relationships and Other Transactions" for
a description of such loan.
(9) Consisting of an employer contribution of $500 to Mr. Dugan's 1994 401(k)
plan account and partial forgiveness of a loan from the Company in the
amount of $57,097. See "Certain Relationships and Other Transactions" for
a description of such loan.
(10) Consisting of an employer contribution of $500 to Mr. Dugan's 1993 401(k)
plan account and partial forgiveness of a loan from the Company in the
amount of $56,844. See "Certain Relationships and Other Transactions" for
a description of such loan.
12
<PAGE>
During 1995, each non-employee director received an annual fee of $24,000 in
connection with his service on the Board of Directors of the Company and was
reimbursed for all travel expenses incurred in attending meetings of the
Board. In addition, after May 1995, each non-employee director received $500
for each committee meeting he attended when that committee meeting was not
held in conjunction with a Board meeting. Pursuant to the 1995 Incentive Plan,
each non-employee director who was elected at the 1995 Annual Meeting was
granted an option on May 31, 1995 to purchase 5,000 shares of the Company's
Common Stock at an exercise price equal to the then fair market value.
OPTIONS GRANTED TO EXECUTIVE OFFICERS
The following two tables set forth certain information regarding stock
options granted to, exercised by, and owned by the executive officers named in
the foregoing Summary Compensation Table during 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
RATES OF STOCK PRICE
% OF TOTAL APPRECIATION FOR
OPTIONS GRANTED OPTION TERM(2)
OPTIONS TO EMPLOYEES IN EXERCISE EXPIRATION ---------------------
NAME GRANTED(#) FISCAL YEAR PRICE/SHARE DATE 5% 10%
---- ---------- --------------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Samuel H. Maslak........ 0 -- -- --
Robert J. Gallagher..... 100,000(/1/) 7.16% $11.00 05/31/05 $ 691,784 $ 1,753,117
Daniel R. Dugan......... 50,000(/1/) 3.58% $12.375 03/01/05 $ 389,129 $ 986,128
Bradford C. Anker....... 20,000(/1/) 1.43% $13.625 02/10/05 $ 171,374 $ 434,295
Stephen T. Johnson...... 25,000(/1/) 1.79% $12.375 03/01/05 $ 194,564 $ 493,064
</TABLE>
- --------
(1) Granted at fair market value on the date of grant; vesting over five years
with 10% of the shares vesting six months after the date of grant and the
balance vesting daily over the remaining 4 1/2 years. Vesting may be
accelerated and the options may be repriced at the discretion of the Board
of Directors. In the event of a dissolution, merger or other
reorganization of the Company in which more than 50% of the Company's
stock is exchanged, any surviving corporation shall assume the options
outstanding, substitute similar rights for outstanding options, or the
options shall continue. If the surviving corporation refuses to assume or
continue the options, vesting on such options shall be accelerated.
Subject to certain exceptions and conditions, in the event that a person
or entity acquires more than 20% of the Company's then outstanding stock
without the approval of the Board of Directors, vesting of outstanding
options is automatically accelerated.
(2) The dollar amounts under these columns are the result of calculations at
the 5% and 10% annual rates of stock appreciation prescribed by the
Securities and Exchange Commission and are not intended to forecast
possible future appreciation, if any, of the Company's stock price.
Assuming 5% and 10% compounded annual appreciation of the stock price over
the term of the option, the price of a share of Common Stock underlying an
option issued February 10, 1995 with an exercise price of $13.625 would be
$22.19 and $35.34, respectively, on February 10, 2005, the price of a
share of Common Stock underlying an option issued March 1, 1995 with an
exercise price of $12.375 would be $20.16 and $32.10, respectively, on
March 1, 2005, and the price of a share of Common Stock underlying an
option issued May 31, 1995 with an exercise price of $11.00 would be
$17.92 and $28.53, respectively, on May 31, 2005. The closing sale price
of Acuson stock on the New York Stock Exchange on December 29, 1995 was
$12.375.
13
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END(#) AT FY-END ($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE(1)
---- --------------- ----------- ---------------------- --------------------
<S> <C> <C> <C> <C>
Samuel H. Maslak........ -- -- 568,082/108,693 $267,262/$84,997
Robert J. Gallagher..... -- -- 258,056/146,804 $149,995/$152,340
Daniel R. Dugan......... -- -- 104,036/176,004 $ 83,683/$46,382
Bradford C. Anker....... 5,000 $53,500 129,938/ 51,800 $ 234,529/$43,721
Stephen T. Johnson...... -- -- 135,976/ 91,704 $ 85,185/$15,462
</TABLE>
- --------
(1) Value per share is defined as the market price of Acuson stock at year end
minus the per share exercise price of the option. The closing sale price
of Acuson stock on the New York Stock Exchange on December 29, 1995 was
$12.375.
REPORT OF THE COMPENSATION COMMITTEE AND BOARD OF
DIRECTORS--EXECUTIVE COMPENSATION
The Company believes that compensation of the Company's key executives
should be sufficient to attract and retain highly qualified personnel in the
competitive Silicon Valley area, and should also provide meaningful incentives
for measurably superior performance. The Company seeks to reward achievement
of long and short-term performance goals measured by successful development of
new products, sales volume, meeting or exceeding financial targets, and other
factors. In addition, the Company's performance is considered on an absolute
basis and in comparison to other ultrasound companies in the United States and
other high technology companies in the San Francisco Bay Area in determining
executive remuneration.
The Company's executive compensation generally consists of a base salary, a
cash bonus and long-term incentive compensation in the form of stock options.
When appropriate, a numerically based bonus based on sales or order
performance has been used for certain executive officers. The overall officer
cash compensation structure is designed so that, in general, a combination of
base salary and a 10% bonus is aimed to pay officers at approximately the 75th
percentile, based on the surveys described below used to obtain comparable
compensation data. The compensation for any individual may be above or below
this target, based on a number of factors, also described below.
Salaries for the Company's executive officers, other than for the Chief
Executive Officer, are recommended by the Chief Executive Officer, and
reviewed and approved by the Compensation Committee of the Board of Directors.
However, with respect to the February 1995 determination of officer salaries
for 1995, because one of the two members of the Compensation Committee was
unable to attend the February 1995 Compensation Committee meeting, Dr.
Maslak's recommendations were reviewed and approved by the full Board of
Directors.
In determining his recommendations for salaries of executive officers, Dr.
Maslak generally does not employ a formulaic approach or assign a
predetermined weight to any specific objective or subjective criteria. Rather,
he relies on a number of factors he deems important in making his
recommendation. These factors include the performance of the executive over
the past year, his view of the value of the executive's position at the
Company and the importance of the output of the functional area managed by the
executive, both on an absolute basis and on a relative basis in comparison to
the challenges facing that functional area and the results achieved, as well
as his view of the Company's performance and the ultrasound market in general.
He also relies on publicly available executive compensation surveys chosen for
their reputability and relevance to the Company in terms of geographic area
and size of companies surveyed and on a study of executive compensation in
publicly-held high technology companies, including competitors and neighboring
companies in the San Francisco Bay Area. The publicly available survey data
may be adjusted by the Company's Employee Relations Department to make the
14
<PAGE>
data more consistent with positions and responsibilities at the Company.
Neither the surveys nor the study specifically use data for the companies
included in the groups listed in the performance graph in this proxy
statement.
The salary for the Chief Executive Officer is determined in much the same
manner by the Compensation Committee, with the Committee considering the
survey data, an assessment of the Company's performance and Dr. Maslak's
performance and contributions to the Company. In general, there has been no
formulaic tie between the Company's stated goals and performance and Dr.
Maslak's salary; instead the Committee's judgment and discretion has been
used. However, as noted above, because of the absence of one of the two
members of the Compensation Committee in February 1995, the full Board (other
than Dr. Maslak) reviewed and approved Dr. Maslak's salary for 1995.
When the Board of Directors met in February 1995 to determine executive
officer salaries for 1995, Dr. Maslak noted that 1994 revenues had increased
over 1993 revenues in a very difficult environment, and the Company had
successfully controlled expenses. He also reported that survey data received
placed the Company's officers' salary compensation, including bonuses, between
the 50th and 75th percentile of executive compensation for high technology
companies of a similar size in the Northern California area. Dr. Maslak noted
that in order to retain and motivate officers, the Company's goal was to place
officer cash compensation, based on salary and a 10% bonus, at or near the
75th percentile. Based on the performance of the Company and in order to
achieve this goal, he recommended that a 7.5% target raise be used as the
basis for determining salary increases for executive officers. Using this 7.5%
target, Dr. Maslak then recommended specific raises for the officers, other
than himself. In most cases he recommended that raises be greater than 7.5%
based, in some cases on the officers being promoted to greater
responsibilities and in some cases on his assessment of the officer's
individual performance during 1994. The Board accepted these recommendations.
Dr. Maslak then requested that he receive no salary raise for 1995, his
preference being that the Company make significant progress in its research
and development activities and be better situated for improved profit
performance before he accept an increase. The Board agreed to accept his
recommendation.
The Company's Officer Bonus Plan is designed to pay a bonus of up to 25% of
an officer's base salary. The target amount is not established on an annual
basis. The amount of any particular annual bonus awarded under the Bonus Plan,
other than for the Chief Executive Officer, is recommended by the Chief
Executive Officer based on his assessment of a number of factors. These
factors include financial results, including orders, shipments and profit
margins, relative market share, meeting in a timely manner product development
milestones and expense controls, as a well as qualitative factors such as
achievement vs. difficulty of corporate objectives and positioning the Company
for the future. These goals are not formally established at any point in time
and no specific target amounts are included in these goals, but they are
discussed on a subjective basis with the Committee at the time the Committee
considers the bonuses. The Chief Executive Officer reviews the Company's
performance in these areas in light of his assessment of overall market
conditions, as well as his assessment of the officer's performance during the
prior year. The bonus for the Chief Executive Officer is determined in the
same way by the Compensation Committee.
Officer bonuses for 1995 were determined in February 1996. The Chief
Executive Officer reported to the Committee that during 1995 the Company had
made significant progress toward its strategic objectives; successfully
controlled expenses; maintained its overall market share in an increasingly
competitive market; and was now in a position to launch a significant new
product. Based on these factors, Dr. Maslak recommended that bonuses of 10% of
salary for all executive officers other than himself be granted, with the
exception of two officers, who, because of exceptional performance, should be
granted a larger bonus. The Compensation Committee accepted these
recommendations.
Dr. Maslak's bonus was reviewed by the Compensation Committee independently.
The Committee considered the factors outlined by Dr. Maslak above, as well as
the survey data covering total compensation for chief executive officers. In
light of the Company's progress and Dr. Maslak's request not to receive a
salary
15
<PAGE>
increase for 1995, the Compensation Committee determined that a 10% bonus,
i.e. comparable to that recommended for the other officers, would be
appropriate. Dr. Maslak's 1995 total cash compensation is between the 50th and
75th percentile of the total cash compensation, including bonuses, of CEOs in
the survey data.
The Company also has a merit bonus program that applies to employees
(including officers) to recognize special accomplishments or significant
efforts. The Chief Executive Officer has the discretion to grant a bonus to
any officer consistent with the principles of this program. No bonuses were
awarded to executive officers under this program in 1995.
Stock options are awarded to encourage a long-term commitment to the Company
and to direct officers' focus on long-term appreciation of shareholder value,
as opposed to short-term results or functional area goals. In general, options
align rewards with long-term increased value for shareholders. Options also
serve as reward and recognition for past work and as an incentive to perform
well in the future. The Chief Executive Officer recommends a pool of shares
available for option grants to officers as a whole and he compares the
recommended pool with survey data drawn from high technology companies in the
San Francisco Bay Area and other ultrasound companies. According to this data,
the overall pool of shares allocated for officer grants was comparable to
officer option grants among the companies in the survey data. Dr. Maslak's
recommendation of which individual officers should receive grants of options
and the size of those grants are based primarily on his view of individual
performance, the potential of the individual to influence positively the long-
term growth and value of the Company, on his evaluation of the relative
importance of that individual in meeting the Company's objectives, and on
advice from the Company's Employee Relations department on compensation
necessary to hire and retain senior executives in the Silicon Valley area. The
Compensation Committee, for options granted in May 1995, and the Board of
Directors, for options granted in February and March 1995, accepted all of the
Chief Executive Officer's recommendations. The Chief Executive Officer did not
receive an option grant during 1995.
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 limitation applies only to compensation which is not considered to be
performance-based. The non-performance based compensation to be paid to the
Company's executive officers in 1995 did not exceed the $1 million limit per
officer nor is it expected that the non-performance based compensation to be
paid to the Company's executive officers in 1996 will exceed that limit. The
Company's 1991 and 1995 Stock Incentive Plans are structured so that any
compensation deemed paid to an executive officer in connection with the
exercise of option grants made under either plan will qualify as performance-
based compensation which will not be subject to the $1 million limitation.
Because 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 Compensation 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 officers. The Compensation Committee will
reconsider this decision should the individual compensation of any executive
officer ever approach the $1 million level.
The February 1995 Board of Directors The current Compensation Committee
Royce Diener Royce Diener
Robert J. Gallagher Karl H. Johannsmeier
Samuel H. Maslak Albert L. Greene
Thomas J. Perkins Alan C. Mendelson
16
<PAGE>
PERFORMANCE GRAPH
LOGO
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN/1/
AMONG S&P 500 INDEX, S&P MEDICAL PRODUCTS AND SUPPLIES INDEX/2/
AND ACUSON CORPORATION
<TABLE>
<CAPTION>
Measurement Period S&P MEDICAL PRODUCTS ACUSON
(Fiscal Year Covered) 500 INDEX & SUPPLIES CORP
- ------------------- ---------- ---------------- ------
<S> <C> <C> <C>
Measurement Pt- 12/31/90 $100 $100 $100
FYE 12/31/91 $130 $164 $118
FYE 12/31/92 $140 $140 $58
FYE 12/31/93 $155 $107 $45
FYE 12/31/94 $157 $127 $60
FYE 12/31/95 $215 $214 $45
</TABLE>
Assumes $100 invested on December 31, 1990 in S&P 500 Index, S&P Medical
Products and Supplies Index and Acuson Corporation
Notes: (1) Total Return assumes reinvestment of dividends.
(2) Medical Products & Supplies Index includes C.R. Bard Inc., Baxter
International Inc., Becton Dickinson & Co., Bausch & Lomb, Medtronic
Inc., St. Jude Medical, Biomet, Inc., and U.S. Surgical.
COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION
During the first part of 1995, until May 31, 1995, the Compensation
Committee consisted of Messrs. Diener and Perkins. However, Mr. Perkins was
unable to attend the meeting at which 1995 executive officer salaries were to
be determined, and as a result the decisions with respect to such salaries
were made by the Board of Directors. Dr. Maslak, Chairman of the Board and
Chief Executive Officer, and Mr. Gallagher, President and Chief Operating
Officer, serve on the Board of Directors and participated in the deliberations
(although Dr. Maslak received no salary increase for 1995). In May 1995, Mr.
Perkins retired from the Board, and the newly elected directors, Messrs.
Greene, Johannsmeier and Mendelson, joined Mr. Diener on the Compensation
Committee. The decisions with respect to bonuses for 1995, which were made in
February 1996, were made by the Compensation Committee. Dr. Maslak recommended
the bonus amounts to the Committee for all executive officers, other than
himself, and did not participate in the deliberations with respect to his
bonus. Messrs. Diener, Greene, Johannsmeier, Mendelson and Perkins are not and
have never been officers or employees of the Company.
17
<PAGE>
CERTAIN RELATIONSHIPS AND OTHER TRANSACTIONS
In connection with Mr. Dugan's relocation to the San Francisco Bay Area in
August 1991, the Company loaned Mr. Dugan $400,000 to assist him in the
purchase of a home in the San Francisco Bay Area. The loan is secured by Mr.
Dugan's residence.
The loan to Mr. Dugan is interest-free and will be fully forgiven on a daily
basis over a seven year period which commenced on August 8, 1991. The loan
will be automatically forgiven upon termination of Mr. Dugan's employment by
the Company without "cause" as defined in the promissory note, Mr. Dugan's
death, reduction of Mr. Dugan's salary below $200,000, or a "change in
control" of the Company, as defined in the note. If Mr. Dugan voluntarily
terminates his employment with the Company or if he is terminated by the
Company for "cause," he must repay the outstanding balance of the loan plus
any tax savings to him resulting from any repayment of the loan, no later than
the second anniversary of the date of termination.
As of December 31, 1995, approximately $148,617 of the loan to Mr. Dugan was
outstanding and the largest aggregate amount outstanding during the year was
approximately $205,558.
ANNUAL REPORT AND FORM 10-K
The Company's 1995 Annual Report, including financial statements and
financial statement schedules, has been mailed or is being mailed with this
proxy statement to stockholders entitled to notice of the meeting. A COPY OF
THE COMPANY'S REPORT ON FORM 10-K FOR THE YEAR 1995 WILL BE PROVIDED UPON
WRITTEN REQUEST AND WITHOUT CHARGE TO EACH SUCH STOCKHOLDER. Requests should
be sent to Stockholder Relations, Acuson Corporation, P.O. Box 7393, Mountain
View, California 94039-7393.
OTHER BUSINESS
The Board of Directors knows of no other business that will be presented for
consideration at the Annual Meeting. If other matters are properly brought
before the meeting, it is the intention of the persons named in the
accompanying proxy to vote the shares represented thereby on such matters in
accordance with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS
/S/ CHARLES H. DEARBORN
Charles H. Dearborn
Secretary
18
<PAGE>
DETACH HERE
ACUSON CORPORATION
Proxy Solicited by Board of Directors
P For Annual Meeting of Stockholders to be held July 23, 1996
R
O The undersigned hereby appoints Samuel H. Maslak and Robert J.
X Gallagher, and each of them, with full power of substitution, as proxies
Y and attorneys-in-fact to vote the shares of Common Stock of Acuson
Corporation (the "Company") which the undersigned is entitled to vote at
the Annual Meeting of Stockholders of the Company to be held July 23, 1996
and at any adjournment(s) thereof, on the following matters as set forth in
the Notice of said meeting and Proxy Statement related thereto, and, in
their discretion, upon such other matters which may properly come before
the meeting or any adjournment(s) thereof.
---------------
SEE REVERSE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE. SIDE
---------------
<PAGE>
--DETACH HERE--
[X] PLEASE MARK
VOTES AS IN
THIS EXAMPLE.
This proxy will be voted as specified, or if no choice is specified, FOR
items 1, 2 and 3.
1. ELECTION OF DIRECTORS:
Nominees: Robert J. Gallagher, Albert L. Greene, Karl H. Johannsmeier,
Samuel H. Maslak, Alan C. Mendelson
FOR [ ] WITHHELD [ ]
[ ]
--------------------------------------
For all nominees except as noted above
2. To approve an amendment to the Company's 1995 Stock Incentive Plan to
increase the number of shares underlying the options automatically
granted to non-employee directors on an annual basis from 5,000 to 7,500.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. To ratify the appointment of Arthur Andersen LLP as independent public
accountants of the Company.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
MARK HERE FOR ADDRESS
CHANGE AND NOTE AT
LEFT [ ]
Please sign below exactly as your name or names appear hereon. If more than one
name appears, all persons so designated should sign. When signing in a
representative capacity, please give your full title.
Signature: Date:
--------------------------------- ------------------------------
Signature: Date:
--------------------------------- ------------------------------
<PAGE>
EXHIBIT 99
ACUSON CORPORATION
1995 STOCK INCENTIVE PLAN
-------------------------
1. Establishment, Purpose, and Definitions.
---------------------------------------
(a) Acuson Corporation (the "Company") hereby adopts the Acuson Corporation
1995 Stock Incentive Plan (the "Plan").
(b) The purpose of the Plan is to allow the Company to provide incentives to
Eligible Individuals (as defined in Section 4, below) for employment, increased
efforts and successful achievements on behalf of or in the interests of the
Company and its Affiliates and to maximize the rewards due them for those
efforts and achievements. In the case of Employees (including officers and
directors who are Employees) of the Company and of its Affiliates such
incentives include (i) an opportunity to purchase shares of common stock, par
value $.0001 per share, of the Company ("Stock") pursuant to options which may
qualify as incentive stock options (referred to as "incentive stock options")
under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
(ii) an opportunity to purchase shares of Stock pursuant to options which are
not described in Sections 422 or 423 of the Code (referred to as "nonqualified
stock options"), (iii) the sale or bonus of restricted Stock ("Restricted
Stock"), and (iv) the grant of stock appreciation rights ("SARs"), either
separately or in relation ("tandem") with stock options, entitling holders to
compensation measured by appreciation in the value of Stock. The Plan also
provides for the grant of similar incentives (other than incentive stock
options) to independent contractors and consultants to the Company and its
Affiliates. Finally, the Plan provides for the automatic, nondiscretionary grant
of nonqualified stock options to directors of the Company who are not Employees
of the Company or any Affiliate ("Non-Employee Directors").
(c) Except for purposes of Section 12, the term "Affiliate" means parent or
subsidiary corporations of the Company, as defined in Sections 424(e) and (f) of
the Code (but substituting "the Company" for "employer corporation"), including
parents or subsidiaries of the Company that become such after adoption of the
Plan.
(d) The term "Employee" means any person, including officers and directors,
who is an employee of the Company or an Affiliate for purposes of income tax
withholding under the Code. Neither service as a director nor payment of a
director's fee by the Company shall be sufficient to constitute a person an
Employee.
2. Administration of the Plan.
--------------------------
(a) If permitted by Rule 16b-3 (or any successor thereto) promulgated under
the Securities Exchange Act of 1934, as amended ("Rule 16b-3"), the Plan may be
administered by different committees with respect to: (i) Non-Employee
Directors; (ii) Eligible Individuals who are (A) officers or directors subject
to Section 16(b) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or (B) "covered employees" within the meaning of Section
162(m)(3) of the Code ("Covered Employees"); and (iii) Eligible Individuals who
are neither officers or directors subject to Section 16(b) of the Exchange Act
nor Covered Employees. Each committee, in addition to satisfying any specific
requirements imposed by this Section 2, shall also satisfy any legal
requirements relating to the administration of stock-based compensation plans
under applicable state corporate and securities laws and the Code ("Applicable
Laws"). References herein to the "Plan Administrator" shall refer to the
applicable committee(s) or, if the Board of
1
<PAGE>
Directors of the Company (the "Board") does not delegate administration of some
aspects of the Plan to a committee, shall be construed to refer to the Board.
(b) The Secretary of the Company shall administer the provisions of Section
5 of the Plan (providing for stock option grants to Non-Employee Directors).
This function shall be limited to matters of interpretation and administrative
oversight.
(c) With respect to awards made to Eligible Individuals who are officers or
directors subject to Section 16(b) of the Exchange Act or Covered Employees, the
Plan shall be administered by a committee of the Board, which committee shall be
constituted to comply with the rules governing a plan intended to qualify as a
discretionary plan under Rule 16b-3 and a "committee comprised solely of two or
more outside directors" for purposes of Section 162(m) of the Code. Once
appointed, such committee shall continue to serve in its designated capacity
until otherwise directed by the Board. From time to time, the Board may increase
the size of the committee and appoint additional members, remove members (with
or without cause) and substitute new members, fill vacancies (however caused),
all to the extent permitted by Rule 16b-3, Section 162(m) of the Code, the rules
and regulations with respect to each, and Applicable Laws. The committee shall
select one of its members as chair of the committee and shall hold meetings at
such times and places as it may determine. To the extent permitted by Rule 16b-
3, Section 162(m) of the Code, the rules and regulations with respect to each,
and Applicable Laws, a majority of the committee shall constitute a quorum, and
acts of the committee at which a quorum is present, or acts reduced to or
approved in writing by all the members of the committee, shall be the valid acts
of the committee.
(d) With respect to awards made to Eligible Individuals who are neither
officers nor directors subject to Section 16(b) of the Exchange Act nor Covered
Employees, the Plan shall be administered by (i) the Board; or (ii) a committee
of one or more persons (which may be the committee established pursuant to
Section 2(c), above) designated by the Board. Once appointed, such committee
shall continue to serve in its designated capacity until otherwise directed by
the Board. From time to time, the Board may increase the size of the committee
and appoint additional members, remove members (with or without cause) and
substitute new members, fill vacancies (however caused), and remove all members
of the committee and thereafter directly administer the Plan, all to the extent
permitted by Applicable Laws. The committee shall select one of its members as
chair of the committee and shall hold meetings at such times and places as it
may determine. To the extent permitted by Applicable Laws, a majority of the
committee shall constitute a quorum, and acts of the committee at which a quorum
is present, or acts reduced to or approved in writing by all the members of the
committee, shall be the valid acts of the committee.
(e) The Plan Administrator shall determine which Eligible Individuals shall
be granted options under the Plan, the timing of such grants, the terms thereof
(including any restrictions on the Stock), and the number of shares subject to
such options.
(f) The Plan Administrator shall also determine which Eligible Individuals
shall be granted or issued SARs or Restricted Stock (other than pursuant to the
exercise of options) under the Plan, the timing of such grants or issuances, the
terms thereof (including any restrictions and the consideration, if any, to be
paid therefor) and the number of shares or SARs to be granted.
(g) Except for options granted to Non-Employee Directors pursuant to Section
5, the Plan Administrator may amend the terms of any outstanding option or SAR
granted under this Plan, but any amendment that would adversely affect the
holder's rights under an outstanding option or SAR shall not be made without the
holder's written consent. The Plan Administrator may, with the holder's written
consent, cancel any outstanding option or SAR or accept any outstanding option
or SAR in exchange for a new option or SAR. The Plan Administrator also may
amend any Restricted Stock purchase agreement or Restricted Stock bonus
agreement relating to sales or bonuses of Restricted Stock under the Plan, but
any
2
<PAGE>
amendment that would adversely affect the individual's rights to the Restricted
Stock shall not be made without his or her written consent.
(h) The Plan Administrator shall have the sole authority, in its absolute
discretion, to adopt, amend, and rescind such rules and regulations as, in its
opinion, may be advisable for the administration of the Plan, to construe and
interpret the Plan, the rules and the regulations, and the instruments
evidencing options, SARs or Restricted Stock granted or issued under the Plan
and to make all other determinations deemed necessary or advisable for the
administration of the Plan. All decisions, determinations, and interpretations
of the Plan Administrator shall be binding on all participants. Notwithstanding
the foregoing, the Plan Administrator shall not exercise any discretionary
functions with respect to options granted to Non-Employee Directors pursuant to
Section 5.
3. Stock Subject to the Plan.
-------------------------
(a) The maximum aggregate number of shares of Stock available for issuance
under the Plan and during the life of the Plan shall equal 3,500,000 shares,
subject to adjustment from time to time in accordance with this Section 3. The
Stock subject to the Plan may be unissued shares, treasury shares or shares
purchased by the Company on the open market or otherwise.
(b) For purposes of the limitation specified in Section 3(a), the following
principles shall apply, provided that no Stock shall be treated as issuable
under the Plan to persons subject to Section 16 of the Exchange Act if otherwise
prohibited from issuance under Rule 16b-3:
(1) the following transactions, if granted pursuant to this Plan, shall
count against and decrease the number of shares of Stock that may be
issued for purposes of Section 3(a): (i) shares of Stock subject to
outstanding options, outstanding shares of Restricted Stock, and shares
subject to SARs granted independently of options (based upon a good
faith estimate by the Company or the Plan Administrator of the maximum
number of shares for which the SAR may be settled (assuming payment in
full in shares of Stock), and (ii) in the case of options granted in
tandem with SARs, the greater of the number of shares of Stock that
would be counted if one or the other alone was outstanding (determined
as described in clause (i) above);
(2) the following shall be added back to the number of shares of Stock
that may be issued for purposes of Section 3(a): (i) shares of Stock
with respect to which options, SARs granted independent of options, or
Restricted Stock awards expire, are cancelled, or otherwise terminate
without being exercised, converted, or vested, as applicable, and (ii)
in the case of options granted in tandem with SARs, shares of Stock as
to which an option has been surrendered in connection with the exercise
of a tandem SAR, to the extent the number surrendered exceeds the
number issued upon exercise of the SAR; provided that, in any case, the
-------------
holder of such awards did not receive any dividends or other benefits
of ownership with respect to the underlying shares being added back,
other than voting rights and the accumulation (but not payment) of
dividends of Stock;
(3) shares of Stock subject to SARs granted independently of options
(calculated as provided in clause (1) above) that are exercised and
paid in cash shall be added back to the number of shares of Stock that
may be issued for purposes of Section 3(a), provided that the holder of
such SAR did not receive any dividends or other benefits of ownership,
other than
3
<PAGE>
voting rights and the accumulation (but not payment) of dividends,
relative to the shares of Stock subject to the SARs;
(4) shares of Stock that are transferred by a holder of an award (or
withheld by the Company) as full or partial payment to the Company of
the purchase price of shares of Stock subject to an option or the
Company's or any Affiliate's tax withholding obligations shall not be
added back to the number of shares of Stock that may be issued for
purposes of Section 3(a) and shall not again be subject to awards; and
(5) if the number of shares of Stock counted against the number of
shares that may be issued for purposes of Section 3(a) is based upon an
estimate made by the Company or the Plan Administrator as provided in
clause (1) above and the actual number of shares of Stock issued
pursuant to the applicable award is greater or less than the estimated
number, then upon such issuance, the number of shares of Stock that may
be issued pursuant to Section 3(a) shall be further reduced by the
excess issuance or increased by the shortfall, as applicable.
(c) If there is any change in the Stock through merger, consolidation,
reorganization, recapitalization, reincorporation, stock split, stock dividend
(in excess of 2%), or other change in the capital structure of the Company,
appropriate adjustments shall be made by the Plan Administrator, in order to
preserve but not to increase the benefits to the outstanding options, SARs and
Restricted Stock purchase or Restricted Stock bonus awards under the Plan,
including adjustments to the aggregate number and kind of shares subject to the
Plan, or to outstanding Restricted Stock purchase or Restricted Stock bonus
agreements, or SAR agreements, and the number and kind of shares and the price
per share subject to outstanding options.
(d) The Plan Administrator shall have the discretion, to the extent
permitted by Applicable Law, to include provisions in any agreements evidencing
awards granted under the Plan providing that, in the event of a dissolution,
liquidation, merger or consolidation of the Company, or any other event that the
Plan Administrator deems to have effected a change in control of the Company,
any such awards shall accelerate and become fully vested, and all forfeiture
and/or transfer restrictions with respect thereto shall lapse, regardless of
whether such awards are otherwise to be assumed or replaced in connection with
such event.
4. Eligible Individuals. Individuals who shall be eligible to have the Plan
--------------------
Administrator grant to them options, SARs or Restricted Stock under the Plan
("Eligible Individuals") shall be such employees, officers (including officers
who are directors of the Company), independent contractors, and consultants of
the Company or an Affiliate as the Plan Administrator, in its discretion, shall
designate from time to time. Notwithstanding the foregoing, only Employees
shall be eligible to receive incentive stock options. Eligible Individuals
shall not include Non-Employee Directors. Non-Employee Directors shall receive
automatic and nondiscretionary option grants pursuant to Section 5 and will not
be otherwise eligible to receive any other option grants or awards of SARs or
Restricted Stock under the Plan or any other stock plan of the Company or any
Affiliate.
5. Automatic Option Grants to Non-Employee Directors.
-------------------------------------------------
(a) All grants of options pursuant to this Section 5 shall be automatic and
nondiscretionary and shall be made strictly in accordance with the provisions of
this Section 5. No person shall have any discretion to determine which Non-
Employee Directors shall be granted options, the number of shares of Stock to be
covered by options granted to Non-Employee Directors, the timing of such option
grants or the exercise price thereof.
4
<PAGE>
(b) An option to purchase 7,500 shares of Stock shall be granted to each
Non-Employee Director continuing in office immediately following each annual
meeting of the Company's stockholders which occurs on or after the date of
approval of the Plan by the stockholders of the Company and prior to the
termination of the Plan.
(c) The term of each option granted pursuant to this Section 5 shall be ten
years from the date of grant, unless a shorter period is required to comply with
any Applicable Law, and except for the early termination provisions contained in
the written stock option agreement in the form of Exhibit A hereto, in either of
which cases such shorter period shall apply.
(d) Each option granted pursuant to this Section 5 shall vest and become
fully exercisable as to fifty percent (50%) of the shares subject to the option
on the date which is six (6) months from the date the option is granted, then
daily thereafter as to 1/365th of the total shares subject to the option so that
the option is fully exercisable no later than one year following the date the
option is granted.
(e) Each option grant to an Non-Employee Director pursuant to this Section 5
shall be evidenced by a written stock option agreement, in the form of Exhibit A
hereto, executed by the Company and the Non-Employee Director to whom such
option is automatically granted.
(f) This Section 5 shall be deemed to contain such additional conditions and
restrictions as may be required for the Plan with respect to options granted
pursuant to this Section 5 to qualify as a "formula plan" under Rule 16b-3 as
then applicable to the Company or any Affiliate.
6. Terms and Conditions of Options.
-------------------------------
(a) Each option granted pursuant to the Plan will be evidenced by a written
stock option agreement executed by the Company and the person to whom such
option is granted.
(b) Except for options granted under Section 5 above, the Plan Administrator
shall determine the term of each option granted under the Plan; provided,
however, that the term of an incentive stock option shall not be for more than
ten years and that, in the case of an incentive stock option granted to a person
possessing more than 10% of the combined voting power of the Company or an
Affiliate on the date the option is granted, the term of each incentive stock
option shall be no more than five years.
(c) In the case of incentive stock options, the aggregate fair market value
(determined as of the time such option is granted) of the Stock with respect to
which incentive stock options are exercisable for the first time by an Eligible
Individual in any calendar year (under this Plan and any other plans of the
Company or its Affiliates) shall not exceed $100,000. If the aggregate fair
market value of the Stock with respect to which incentive stock options are
exercisable by an optionee for the first time in any calendar year exceeds
$100,000, such options shall be treated, to the minimum extent required to
preserve incentive stock option treatment for as many options as possible, as
nonqualified stock options. The rule set forth in the preceding sentence shall
be applied by taking options into account in the order in which they were
granted.
(d) The exercise price of each incentive stock option shall be not less than
the per share fair market value of the Stock subject to such option on the date
the option is granted. The exercise price of each nonqualified stock option
shall be as determined by the Plan Administrator. Notwithstanding the
foregoing, (i) in the case of an incentive stock option granted to a person
possessing more than 10% of the combined voting power of the Company or an
Affiliate on the date the option is granted, the exercise price shall be not
less than 110% of the fair market value of the Stock on the date the option is
granted, and
5
<PAGE>
(ii) in the case of an option granted pursuant to Section 5 above, the exercise
price shall be not less than the per share fair market value of the Stock
subject to such option on the date the option is granted. The exercise price of
an option shall be subject to adjustment to the extent provided in Section 3(c),
above.
(e) Except for options granted under Section 5 above, the stock option
agreement may contain such other terms, provisions, and conditions consistent
with this Plan as may be determined by the Plan Administrator. If an option, or
any part thereof, is intended to qualify as an incentive stock option, the stock
option agreement shall contain those terms and conditions which are necessary to
so qualify it.
(f) The maximum number of shares of Stock with respect to which SARs or
options to acquire Stock may be granted to any individual during any calendar
year shall not exceed 1,000,000 shares (which number may be increased without
stockholder approval to reflect adjustments under Section 3(c), above, to the
extent such increase does not cause the grant to fail to qualify as remuneration
payable solely on account of one or more performance goals within the meaning of
Section 162(m) of the Code). To the extent required by Section 162(m) of the
Code or the regulations thereunder, in applying the foregoing limitation with
respect to any employee, if any option is cancelled, the cancelled option shall
continue to count against the maximum number of shares for which options may be
granted to the employee under this Section 6(f). For this purpose, the repricing
of an option shall be treated as a cancellation of the existing option and the
grant of a new option to the extent required by Section 162(m) of the Code or
the regulations thereunder.
7. Payment Upon Exercise of Options.
--------------------------------
(a) Payment of the purchase price upon exercise of any option granted under
this Plan shall be made in cash, by optionee's personal check, a certified
check, bank draft, or postal or express money order payable to the order of the
Company in lawful money of the United States (collectively, "Cash
Consideration"); provided, however, that, except for options granted under
Section 5 above, the Plan Administrator, in its sole discretion, may permit an
optionee to pay the option price in whole or in part (i) with shares of Stock
owned by the optionee or with shares of Stock withheld from the shares otherwise
deliverable to the optionee upon exercise of an option; (ii) by delivery on a
form prescribed by the Company of an irrevocable direction to a securities
broker approved by the Company to sell shares of Stock and deliver all or a
portion of the proceeds to the Company in payment for the Stock; (iii) by
delivery of the optionee's promissory note with such recourse, interest,
security, and redemption provisions as the Plan Administrator in its discretion
determines appropriate; or (iv) in any combination of the foregoing. The
exercise price of any options granted under Section 5 above, shall be paid in
Cash Consideration, the consideration specified in clauses (i) or (ii) of the
preceding sentence or in any combination thereof. Any Stock used to exercise
options shall be valued at its fair market value on the date of the exercise of
the option. In addition, the Plan Administrator, in its sole discretion, may
authorize the surrender by an optionee of all or part of an unexercised option
(excluding options granted under Section 5 above) and authorize a payment in
consideration thereof of an amount equal to the difference between the aggregate
fair market value of the Stock subject to such option and the aggregate option
price of such Stock. In the Plan Administrator's discretion, such payment may
be made in cash, shares of Stock with a fair market value on the date of
surrender equal to the payment amount, or some combination thereof.
(b) In the event that the exercise price is satisfied by shares withheld
from the shares of Stock otherwise deliverable to the optionee, the Plan
Administrator may issue the optionee an additional option, with terms identical
to the option agreement under which the option was exercised, entitling the
optionee to purchase additional shares of Stock equal to the number of shares so
withheld but at an exercise price equal to the fair market value of the Stock on
the grant date of the new option; provided, however, that no such additional
options may be granted with respect to options granted pursuant to Section 5,
above.
6
<PAGE>
8 Terms and Conditions of Restricted Stock Purchases and Bonuses
--------------------------------------------------------------
(a) Each sale (other than upon exercise of options) or bonus grant of
Restricted Stock pursuant to the Plan will be evidenced by a written Restricted
Stock purchase or Restricted Stock bonus agreement, as applicable, executed by
the Company and the person to whom such Restricted Stock is sold or granted.
(b) The Restricted Stock purchase agreement or Restricted Stock bonus
agreement may contain such terms, provisions, and conditions consistent with
this Plan as may be determined by the Plan Administrator, including not by way
of limitation, payment terms, restrictions on transfer, forfeiture provisions,
repurchase provisions, and vesting provisions.
(c) The Plan Administrator may condition the award or the exercise of any
right under an award under this Section 8 upon the attainment of one or more
preestablished objective performance goals meeting the requirements of Section
162(m) of the Code and the regulations thereunder.
9. Terms and Conditions of SARs. The Plan Administrator may, under such terms
----------------------------
and conditions as it deems appropriate, authorize the issuance of SARs evidenced
by a written SAR agreement (which, in the case of tandem options, may be part of
the option agreement to which the SAR relates) executed by the Company and the
person to whom the SARs are granted. The SAR agreement shall specify the term
for the SARs covered thereby and contain such other terms, provisions and
conditions consistent with this Plan as may be determined by the Plan
Administrator.
10. Withholding Taxes.
-----------------
(a) No Stock shall be granted or sold under the Plan to any Eligible
Individual, and no SAR may be exercised, until the individual has made
arrangements acceptable to the Plan Administrator for the satisfaction of
federal, state, and local income and employment tax withholding obligations,
including without limitation obligations incident to the receipt of Stock under
the Plan, the lapsing of restrictions applicable to such Stock, the failure to
satisfy the conditions for treatment as incentive stock options under applicable
tax law, or the receipt of cash payments. Upon the exercise of an option or the
lapsing of a restriction on Stock issued under the Plan, the Company (or the
optionee's or stockholder's employer) may withhold from the shares otherwise
deliverable to the optionee upon such exercise, or require the stockholder to
surrender shares of Stock as to which the restriction has lapsed, such number of
shares having a fair market value sufficient to satisfy federal, state and local
income and employment tax withholding obligations.
(b.) In the event that such tax withholding is satisfied by the Company or
the optionee's employer withholding shares of Stock otherwise deliverable to the
optionee, the Plan Administrator may issue the optionee an additional option,
with terms identical to the option agreement under which the option was
exercised, entitling the optionee to purchase additional shares of Stock equal
to the number of shares so withheld but at an exercise price equal to the fair
market value of the Stock on the grant date of the new option; provided,
however, that no such additional options may be granted with respect to options
granted pursuant to Section 5, above.
11. Assignability. To the extent required by Rule 16b-3, no option or SAR
-------------
granted pursuant to this Plan shall be transferable by the holder except by
operation of law or by will or the laws of descent and distribution; provided
that, if Rule 16b-3 is amended after the date of the Board's adoption of the
Plan to permit broader transferability of options or SARs under that Rule, (i)
options granted under Section 5 to Non-Employee Directors shall be transferable
to the fullest extent permitted by Rule 16b-3 as so amended, (ii) any other
option or SAR shall be transferable to the extent provided in the option
agreement or SAR agreement covering the option or SAR, and the Plan
Administrator shall have the discretion to amend any
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such outstanding option or SAR to provide for broader transferability of the
option or SAR as the Plan Administrator may authorize within the limitations of
Rule 16b-3. Stock subject to a Restricted Stock purchase agreement or a
Restricted Stock bonus agreement shall be transferable only as provided in such
agreement. Notwithstanding the foregoing, if required by the Code, each
incentive stock option under the Plan shall be transferable by the optionee only
by will or the laws of descent and distribution, and, during the optionee's
lifetime, be exercisable only by the optionee. In the event of any Rule 16b-3
permitted transfer of an option hereunder, the transferee shall be entitled to
exercise the option in the same manner and only to the same extent as the
optionee (or his/her personal representative or the person who would have
acquired the right to exercise the option by bequest or intestate succession)
would have been entitled to exercise the option under Sections 5, 6 and 7 had
the option not been transferred.
12. Change in Control.
-----------------
(a) Notwithstanding anything to the contrary contained in the Plan, each
stock option, SAR, Restricted Stock bonus or Restricted Stock purchase agreement
(or an amendment thereto) evidencing an option, SAR, Restricted Stock bonus or
Restricted Stock purchase hereunder shall automatically and without further
action be fully vested, nonforfeitable and become exercisable, and any
Restricted Stock covered by such an agreement shall be released from
restrictions on transfer and repurchase or forfeiture rights, on the twenty-
second day after any Share Acquisition Date, unless prior to such twenty-second
day a majority of the Continuing Directors then in office has determined that
the transaction pursuant to which a Person has become an Acquiring Person is an
Approved Transaction.
(b) Certain Definitions. For purposes of this Section 12, the following
-------------------
definitions shall apply:
"Acquiring Person" means any Person who or which, together with all
----------------
Affiliates and Associates of such Person, shall be the Beneficial Owner
of 20% or more of the Common Shares then outstanding, but shall not
include the Company, any Subsidiary of the Company or any employee
benefit plan of the Company or any Subsidiary of the Company, or any
entity holding Common Shares for or pursuant to the terms of any such
plan. Notwithstanding the foregoing, no Person shall become an
"Acquiring Person" as the result of an acquisition of Common Shares by
the Company which, by reducing the number of shares outstanding,
increases the proportionate number of shares beneficially owned by such
Person to 20% or more of the Common Shares of the Company then
outstanding; provided, however, that if a Person becomes the Beneficial
-------- -------
Owner of 20% or more of the Common Shares of the Company then
outstanding by reason of share purchases by the Company and shall,
after such share purchases by the Company, becomes the Beneficial Owner
of any additional Common Shares of the Company, then such Person shall
be deemed to be an "Acquiring Person".
"Affiliate" and "Associate" have the respective meanings ascribed to
--------- ---------
such terms in Rule 12b-2 of the General Rules and Regulations under the
Exchange Act.
"Approved Transaction" means any transaction that occurs at a time when
--------------------
Continuing Directors are in office and a majority of the Continuing
Directors then in office has determined that the transaction is in the
best interest of the Company and its stockholders.
A Person shall be deemed the "Beneficial Owner" of and shall be deemed
----------------
to "beneficially own" any securities: (i) which such Person or any of
such Person's Affiliates or Associates beneficially owns, directly or
indirectly; (ii) which such Person or any of such Person's Affiliates
or Associates has (A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant to
any agreement, arrangement or
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<PAGE>
understanding, or upon the exercise of conversion rights, exchange
rights, rights (other than the Rights), warrants or options, or
otherwise; provided, however, that a Person shall not be deemed the
-------- -------
Beneficial Owner of, or to beneficially own, securities tendered
pursuant to a tender or exchange offer made by or on behalf of such
Person or any of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase or exchange; or (B) the
right to vote pursuant to any agreement, arrangement or understanding;
provided, however, that a Person shall not be deemed the Beneficial
-------- -------
Owner of, or to beneficially own, any security if the agreement,
arrangement or understanding to vote such security (1) arises solely
from a revocable proxy or consent given to such person in response to a
public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable rules and regulations of the Exchange
Act and (2) is not also then reportable on Schedule 13D under the
Exchange Act (or any comparable or successor report); or (iii) which
are beneficially owned, directly or indirectly, by any other Person
with which such Person or any of such Person's Affiliates or Associates
has any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting (except to the extent contemplated by the
proviso to clause (ii)(B) of this definition) or disposing of any
securities of the Company; provided further, however, that nothing in
this Section 12 shall cause a Person to be the Beneficial Owner of, or
to beneficially own, any securities (x) acquired through such Person's
participation in the business of underwriting securities in good faith
in a firm commitment underwriting until the expiration of forty days
after the date of such acquisition or (y) which such Person has
reported on Schedule 13G under the Exchange Act and has not ceased to
be eligible to report on Schedule 13G pursuant to Rule 13d-1 under the
Exchange Act.
"Common Shares" means the shares of common stock, par value $.0001 per
-------------
share, of the Company.
"Continuing Director" means (i) any member of the Board of Directors of
-------------------
the Company, while such Person is a member of the Board, who is not an
Acquiring Person, or an Affiliate or Associate of an Acquiring Person,
or a representative of an Acquiring Person or of any such Affiliate or
Associate, and who was, if applicable, a member of the Board prior to
the time that any Person becomes an Acquiring Person, or (ii) any
Person who subsequently becomes a member of the Board, while such
Person is a member of the Board, who is not an Acquiring Person, or an
Affiliate or Associate of an Acquiring Person, or a representative of
an Acquiring Person or of any such Affiliate or Associate, if such
Person's nomination for election or election to the Board is
recommended or approved by a majority of Continuing Directors.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations promulgated thereunder.
"Person" means any individual, firm, partnership, corporation or other
------
entity, and shall include any successor (by merger or otherwise) of
such entity.
"Rights" means the rights granted to the Company's shareholders to
------
purchase additional Common Shares under certain circumstances, as
described in that certain Rights Agreement, dated as of May 5, 1988, by
and between the Company and The First National Bank of Boston, as
rights agent.
"Share Acquisition Date" means the first date of public announcement by
----------------------
the Company or an Acquiring Person that a Person has become an
Acquiring Person.
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<PAGE>
"Subsidiary" of any Person means any corporation or other entity of
----------
which a majority of the voting power of the voting equity securities or
equity interest is owned, directly or indirectly, by such Person, or
which is otherwise controlled by such Person.
13. Amendment, Suspension, or Termination of the Plan.
-------------------------------------------------
(a) The Board may at any time amend, suspend or terminate the Plan as it
deems advisable; provided that such amendment, suspension or termination
complies with all applicable requirements of state and federal law, including
any applicable requirement that the Plan or an amendment to the Plan be approved
by the stockholders, and provided further that, except as provided in Section
3(c) above, the Board shall in no event amend the Plan in the following respects
without the consent of stockholders then sufficient to approve the Plan in the
first instance:
(1) To materially increase the benefits accruing to participants under
the Plan;
(2) To materially increase the number of shares of Stock available
under the Plan or to increase the number of shares of Stock available
for grant of incentive stock options under the Plan; or
(3) To materially modify the eligibility requirements for participation
in the Plan or the class of employees eligible to receive options under
the Plan or to change the designation or class of persons eligible to
receive incentive stock options under the Plan.
(b) No option or SAR may be granted nor may any Stock be issued (other than
upon exercise of outstanding options) under the Plan during any suspension or
after the termination of the Plan, and no amendment, suspension, or termination
of the Plan shall, without the affected individual's consent, alter or impair
any rights or obligations under any option or SAR previously granted under the
Plan.
(c) In addition to the limitations on amendments provided in Sections 13(a)
and 13(b) above, the provisions set forth in Section 5 of the Plan (and any
other sections of the Plan that affect the formula award terms of option grants
to Non-Employee Directors required to be specified in the Plan by Rule 16b-3)
shall not be amended periodically and in no event more than once every six
months, other than to comport with changes in the Code, the Employee Retirement
Income Security Act of 1974, as amended, or any applicable rules and regulations
thereunder.
14. Term of Plan. The Plan shall terminate with respect to the grant of
------------
additional awards on the tenth anniversary of the date the Plan is approved by
the stockholders, unless previously terminated by the Board pursuant to Section
13.
15. Use of Proceeds. Cash proceeds realized from the exercise of options
---------------
granted under the Plan or from other sales of Stock under the Plan shall
constitute general funds of the Company.
16. Stockholder Approval. The Plan shall become effective, and awards may be
--------------------
granted hereunder, only upon approval by the holders of a majority of the
Company's shares voting (in person or by proxy) at a stockholders' meeting held
within 12 months of the Board's adoption of the Plan.
17. Rule 16b-3 Compliance. Transactions under the Plan are intended to comply
---------------------
with all applicable conditions of Rule 16b-3 or its successors under the
Exchange Act. To the extent any provision of the Plan or action by the Board or
the Plan Administrator fails to so comply, it shall be deemed null and void, to
the extent permitted by law and deemed advisable by the Board or the Plan
Administrator. Moreover, in the
10
<PAGE>
event the Plan does not include a provision required by Rule 16b-3 to be stated
therein in order to qualify the grants under Section 5 hereof as grants under a
non-discretionary formula under Rule 16b-3 such provision (other than one
relating to eligibility requirements, or the price and amount of awards) shall
be deemed automatically to be incorporated by reference into the Plan with
respect to grants of options to Non-Employee Directors.
18. No Employment Right. Nothing in this Plan or any instrument executed or any
-------------------
award granted pursuant thereto shall confer upon any employee, independent
contractor, consultant or director any right to continue in the employ of the
Company or any Affiliate (or to continue acting as an independent contractor,
consultant or director) or shall affect the right of the Company or any
Affiliate to terminate the employment, contractual or consulting relationship or
directorship of any person, with or without cause.
11
