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:
(X) Preliminary Proxy Statement ( ) Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
( ) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
DIAGNON CORPORATION
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Michael P. O'Flaherty, Diagnon Corporation
9600 Medical Center Drive
Rockville, MD 20850
Payment of Filing Fee (Check the appropriate box):
(X) No fee required
( ) 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:
2) Aggregate number of securities to which transaction applies:
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):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
( ) 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:
2) Form, Schedule, or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
PRELIMINARY COPY DATED 9/15/97
--------------------------------------
DIAGNON CORPORATION
9600 MEDICAL CENTER DRIVE
ROCKVILLE, MARYLAND 20850
------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OCTOBER 22, 1997
------
The Annual Meeting of Shareholders of Diagnon Corporation (the "Company"), a
Delaware corporation, will be held at the Holiday Inn Gaithersburg, #2
Montgomery Village Avenue, Gaithersburg, Maryland, on October 22, 1997 at 10:00
a.m. for the following purposes:
1. To elect four directors each to hold office until the next
Annual Meeting of shareholders or otherwise as provided in the
By-Laws; and
2. To approve the appointment of Deloitte & Touche LLP as
independent public accountants for the Company; and
3. To amend the Company's 1988 Stock Option Plan; and
4. To adopt a new stock option plan; and
5. To amend the Certificate of Incorporation to authorize,
ratify, and approve the issuance of 17,390 shares of Common
Stock; and
6. To amend and restate the Certificate of Incorporation (i) to
eliminate the authorization to issue 325,000 shares of
Convertible Preferred Stock, all of which was previously
issued and converted to Common Stock, and (ii) to authorize
the issuance of 500,000 shares of new Preferred Stock; and
7. To amend and restate the Certificate of Incorporation (i) to
effect a reverse split of the shares of the Common Stock in
which each six shares of Common Stock shall become one share
of Common Stock, and (ii) to establish the number of
authorized shares of Common Stock at 25,000,000; and
8. To transact such other business as may properly come before
the meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on September 8, 1997, as
the record date for the determination of shareholders entitled to notice of and
vote at the Annual Meeting.
A list of shareholders of the Company entitled to vote at the Annual Meeting
will be available for examination by shareholders of the Company at the offices
of the Company, 9600 Medical Center Drive, Rockville, Maryland, during the ten
days immediately preceding the date of the Annual Meeting.
The Annual Report to Shareholders for the year ended May 31, 1997, accompanies
this notice.
Shareholders who do not expect to attend the meeting in person are urged to fill
out, sign and mail promptly, the enclosed form of proxy.
/s/ Michael P. O'Flaherty
-------------------------
Michael P. O'Flaherty
Secretary
Rockville, Maryland
October 3, 1997
<PAGE>
PRELIMINARY COPY DATED 9/15/97
--------------------------------------
DIAGNON CORPORATION
9600 MEDICAL CENTER DRIVE
ROCKVILLE, MARYLAND 20850
------
PROXY STATEMENT
------
This proxy statement is furnished in connection with the solicitation by Diagnon
Corporation (the "Company") of proxies to be voted at the Annual Meeting of the
shareholders to be held at the Holiday Inn Gaithersburg, #2 Montgomery Village
Avenue, Gaithersburg, Maryland, on October 22, 1997, at 10:00 a.m., or at any
adjournment thereof, for the purposes set forth in the accompanying Notice of
Annual Meeting. Shares represented by duly executed proxies at the meeting will
be voted at the meeting. Where shareholders specify in the proxy a choice with
respect to any matter to be acted upon, the shares represented by such proxies
will be voted as specified. A shareholder who signs and returns a proxy in the
accompanying form may revoke it at any time before it is voted.
The Company, at the close of business on September 8, 1997, the record date for
determination of shareholders entitled to vote at the meeting (the "Record
Date"), had outstanding 5,398,244 shares of Common Stock, par value one Cent
($0.01) per share, each share being entitled to one vote with respect to each
matter to be voted on at the meeting. Votes submitted prior to the Annual
Meeting by proxy will be counted by the Company's transfer agent, ChaseMellon
Shareholder Service, and the results will be provided to the Company prior to
the Annual Meeting. Shares voted by shareholders present at the meeting will be
manually tabulated by the inspector of elections and added to the totals
provided by ChaseMellon Shareholder Service. Abstentions by proxy or in person
will be counted as present for the purposes of determining whether a quorum is
present. Abstentions will be counted as votes against the matter being voted
upon. Proxies submitted by brokers without indications that do not indicate
whether an item is being voted for will be voted in favor of such item.
The solicitation of proxies is made by and on behalf of the Board of Directors
of the Company. This statement is being mailed to the shareholders on or about
October 3, 1997.
SECURITY OWNERSHIP
To the knowledge of the Company on the Record Date, the only persons known to
hold more than 5 percent of the Common Stock of the Company are:
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP (1) CLASS (2)
---------------- ------------- ---------
J. Thomas August........... 1,022,140 18.9
Carole K. Bishop............. 363,040 6.7
100 W. 57th St.
New York, NY 10019
John C. Landon (3)(4).... 1,208,092 21.7
<PAGE>
S. David Leibowitt.......... 598,840 11.1
2295 South Ocean Blvd.
Palm Beach, FL 33480
(1) As used in this section, the term beneficial ownership with respect to a
security is defined by Rule 13(d)(3) under the Securities Exchange Act as
consisting of sole or shared voting power (including the power to vote or
direct the vote) and/or sole or shared investment power (including the
power to dispose or direct the disposition) with respect to the security
through any contract, arrangement, understanding, relationship or
otherwise. Unless otherwise indicated, beneficial ownership consists of
sole voting and investment power.
(2) Assumes the exercise by such person or persons of the currently exercisable
options owned by him or them and does not give effect to any shares
issuable upon exercise by any other person or persons of options.
(3) Includes 54,330 shares in the names of members of Dr. Landon's family.
(4) Assumes the exercise of currently exercisable options to purchase
160,000 shares.
The Company has been advised that the shares of Common Stock owned by Dr. August
and Dr. Landon will be voted in favor of the four nominees for director, and in
favor of all propositions above stated.
ITEM 1 - ELECTION OF DIRECTORS
Four persons have been nominated for election as directors to serve until the
next Annual Meeting of shareholders and until their respective successors are
duly elected and qualified. IN THE ABSENCE OF A CONTRARY SPECIFICATION, THE
ENCLOSED PROXY WILL BE VOTED FOR THE ELECTION AS DIRECTORS OF THE PERSONS NAMED
BELOW. If any nominee becomes unavailable as a candidate for election for any
reason, it is intended that votes will be cast for a substitute nominee
designated by the Board of Directors. The Company has no reason to believe that
any nominees named below will be unable to serve if elected.
All four of the nominees currently are directors of the Company. J. Thomas
August has been a director of the Company since 1982, John C. Landon has been a
director since 1986, Charles C. Francisco has been a director since 1991, and
Charles F. Gauvin has been a director since 1992. The terms of all four
directorships will run from October, 1997, to the next Annual Meeting of the
Company's shareholders. Election of the four (4) nominees will require the
affirmative vote of the holders of a plurality of the shares of the Company's
Common Stock present in person or represented by proxy at the Annual Meeting.
The following table sets forth the name and principal occupation of each
nominee, the period without interruption for which he has been a director of the
Company, the names and titles of the Executive Officers of the Company, and the
amount and percent of class of stock of the Company beneficially owned by each
nominee, each Executive Officer, and the Executive Officers and Directors as a
group as of the Record Date. Unless otherwise indicated, beneficial ownership
consists of sole voting and investment power.
<PAGE>
<TABLE>
<CAPTION>
Director of
Company
Principal Occupation Without Nature of Percent
& Business Experience Interruption Beneficial of
Name and Address Age Past Five Years Since Ownership Class Class (1)
- ---------------- --- --------------- ----- --------- ----- ---------
<S> <C>
J. Thomas August 70 Nominee; Prof. & 1982 1,022,140 Common 18.9
School of Medicine Director of the Dept. of (sole)(6)
Johns Hopkins Univ. Pharmacology and
725 N. Wolfe St. Molecular Sciences at
Baltimore, MD 21205 The Johns Hopkins Univ.
School of Medicine,
Baltimore, MD for more
than five years.
John C. Landon 60 Nominee; Chairman of the 1986 1,153,762 Common 21.7
9600 Medical Ctr. Dr. Board (since February, (sole)(2)
Rockville, MD 20850 1987) & CEO & President 54,340
(since 1986) of the (joint)(3)
Company. President of
BIOQUAL, Inc.
("BIOQUAL"), a
subsidiary of the
Company.
Charles C. Francisco 59 Nominee; from 1992 to 1991 20,000 Common 0.3
25 Ridge Creek Trail the present, President, sole(4)
Moreland Hills, OH 44022 CEO & a Director of
Victoreen, Inc., Cleveland, OH, a
manufacturer of radiation measuring
instrumentation; from 1992 to 1995,
Director of Environmental Restoration
Systems, Inc., Middletown, PA,
pollution removal equipment makers;
from 1996 to present, Director of R.E.
Wright Environmental, Inc.,
Middletown, PA, an earth resources
consulting company; from June 1991 to
June 1992, President & Director of AMC
Group, Inc., Rye, NY, a private
investment holding company.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Director of
Company
Principal Occupation Without Nature of Percent
& Business Experience Interruption Beneficial of
Name and Address Age Past Five Years Since Ownership Class Class (1)
- ---------------- --- --------------- ----- --------- ----- ---------
<S> <C>
Charles F. Gauvin 41 Nominee; currently 1992 20,000 Common 0.3
Trout Unlimited President and CEO and (sole)(4)
1500 Wilson Blvd. from 1991 to 1994
Arlington, VA 22209 Executive Director of
Trout Unlimited, Arlington, VA, a
nonprofit organization dedicated to
protection and conservation of trout
and salmon and their habitats; from
1986-1991, associated with the law
firm of Beveridge & Diamond, P.C.,
Washington, D.C.
Michael P. O'Flaherty 59 Company Secretary and 109,000 Common 1.98
Diagnon Corporation Corporate Vice President (sole)(5)
9600 Medical Center Dr. since June, 1988, and
Rockville, Maryland 20850 Chief Operating Officer
since June, 1994; Mr.
O'Flaherty's duties for
the Company include most
functions of general
management.
David A. Newcomer 36 Appointed Company Acting 16,000 Common 0.3
Diagnon Corporation Controller in May, 1989, (sole)(6)
9600 Medical Center Dr. Controller in June,
Rockville, MD 20850 1990, and Chief
Financial Officer in
June 1994; Mr.
Newcomer's duties
include the management
of the Company's
financial functions.
Leanne DeNenno 43 Appointed Vice 14,000 Common 0.23
BIOQUAL, Inc. President of Division (sole)(7)
9600 Medical Center Dr. of Animal Sciences in
Rockville, MD 20850 June 1997, Vice
President of the Medical Center Drive
Division of BIOQUAL since 1991, and
Head of Animal Research Programs since
1988; an employee of BIOQUAL since
1982.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Director of
Company
Principal Occupation Without Nature of Percent
& Business Experience Interruption Beneficial of
Name and Address Age Past Five Years Since Ownership Class Class (1)
- ---------------- --- --------------- ----- --------- ----- ---------
<S> <C>
Richard P. Bradbury 62 Appointed as Vice 14,000 Common 0.26
BIOQUAL, Inc. President of the (sole)(7)
2501 Research Blvd. Division of Primate
Rockville, MD 20850 Biology and Medicine in
June 1997, Vice President of the
Company's SEMA subsidiary in November,
1989; concurrent with the merger of
SEMA into BIOQUAL in 1991, was
appointed Vice President of the
Research Blvd. Division of BIOQUAL.
Jerry R. Reel 59 Appointed as Vice 11,000 Common 0.2
BIOQUAL, Inc. President of the (sole)(8)
9600 Medical Center Dr. Division of Reproductive
Rockville, Maryland 20850 Endocrinology and
Toxicology in June 1997, Vice
President, Science, of BIOQUAL since
October, 1991; private consultant from
1989 to 1990.
All Executive Officers and 2,404,232 Common 41.9
Directors as a group (9
Persons)(2)(3)(4)(5)(6)(7)(8)
</TABLE>
(1) Assumes the exercise by such person or persons of the currently
exercisable options owned by him or them and does not give effect to
any shares issuable upon exercise by any other person or persons of
options.
(2) Assumes the exercise of currently exercisable options to purchase
160,000 shares.
(3) Includes 54,330 shares in the names of members of Dr. Landon's
family.
(4) Assumes the exercise of currently exercisable options to purchase
20,000 shares.
(5) Assumes the exercise of currently exercisable options to purchase
105,000 shares.
(6) Assumes the exercise of currently exercisable options to purchase
16,000 shares.
(7) Assumes the exercise of currently exercisable options to purchase
14,000 shares.
(8) Assumes the exercise of currently exercisable options to purchase
11,000 shares.
<PAGE>
THE BOARD OF DIRECTORS AND CERTAIN COMMITTEES OF THE BOARD
The Board of Directors held three meetings in fiscal year 1997. All board
members were present at each meeting.
The Board has established two committees, the Compensation Committee and the
Audit Committee.
The Compensation Committee (currently consisting of Messrs. Francisco and
Gauvin) meets as necessary to determine Dr. Landon's compensation. Dr. Landon
determines the compensation of the Company's other employees. The Compensation
Committee had one formal meeting during fiscal year 1997.
The responsibilities of the Audit Committee (currently consisting of Messrs.
Francisco and Gauvin) include recommending to the full Board the selection of
the Company's independent public accountants, discussing the arrangements for
the proposed scope, and the results of the annual audit with management and the
independent public accountants; reviewing the scope of non-audit professional
services provided by the independent public accountants; obtaining from both
management and the independent public accountants their observations on the
Company's system of internal accounting controls; and reviewing the overall
activities and recommendations of the Company's internal auditors. There was one
formal meeting of the Audit Committee in fiscal year 1997.
Messrs. Francisco, August and Gauvin have agreements with the Company extending
through the term of their election. The agreements for Messrs. Francisco, August
and Gauvin provide for quarterly payments of $1,000 each as directors fees and
payments of $500 for attendance at Board of Directors meetings. The agreement
with Dr. August also provides payments of $2,500 per quarter for services
rendered to the Company as Scientific Adviser. The Company also reimburses
Company related travel expenses incurred by any of the directors.
During fiscal year 1997, the Company paid the following cash compensation to
directors:
<TABLE>
<CAPTION>
DIRECTORS ATTENDANCE OF BOARD MEETINGS TRAVEL TO
FEES MEETINGS AND CONSULTATION BOARD MEETINGS
---- ------------------------- --------------
<S> <C>
Dr. J. Thomas August $4,000 $11,500 $100
Charles C. Francisco 4,000 1,500 627
Charles F. Gauvin 4,000 1,500 0
</TABLE>
7
<PAGE>
REMUNERATION OF EXECUTIVE OFFICERS AND RELATED MATTERS
The following table sets forth information with respect to remuneration
paid during the last three fiscal years to the Chief Executive Officer and
the other Company Officers whose compensation exceeded $ 100,000.
<TABLE>
<CAPTION>
Name and Principal Salary Bonus Other Annual Compensation
Position Year ($) ($) ($)(1,2)
------------------ ---- --- --- -------------------------
<S> <C>
John C. Landon 1997 160,000 101,863 32,723
CEO, President, Chairman 1996 160,000 116,946 32,723
of the Board 1995 160,000 139,963 32,723
Michael P. O'Flaherty 1997 116,690 21,660 10,593
Chief Operating Officer, 1996 120,818 11,944 10,593
Secretary 1995 108,695 17,115
Jerry R. Reel 1997 118,614 9,179
Vice President, BIOQUAL, Inc., 1996 109,481 2,949
Subsidiary 1995 110,636 3,405
Richard P. Bradbury 1997 99,573 4,000
Vice President, BIOQUAL, Inc., 1996 99,205 3,102
Subsidiary 1995 91,504 1,160
</TABLE>
(1) Other annual compensation for the CEO for the years 1997,
1996, and 1995 represents premiums for a $1,000,000 Split
Dollar Life Insurance Policy.
(2) Other annual compensation for the Chief Operating Officer for
the years 1997 and 1996 represents premiums for a $250,00
Split Dollar Life insurance Policy.
Dr. Landon had an employment agreement with the Company, which expired on May
31, 1996; subsequently, the Board of Directors extended Dr. Landon's agreement
until May 31, 1997, on the same terms and conditions. Pursuant to this
agreement, Dr. Landon's base compensation was $160,000 per year. The agreement
provided for various additional incentive compensation dependent upon the
results of the Company's operations each year through the term of employment. On
April 30, 1993, Dr. Landon requested and received Board of Directors concurrence
to reduce his base salary for fiscal year 1994 by 3.5% to assist the Company in
its efforts to contain operating costs. On June 1, 1994, Dr. Landon's base
compensation returned to $160,000 per year. A new employment contract for Dr.
Landon is currently being negotiated by Dr. Landon and the Compensation
Committee of the Board of Directors.
On June 1, 1988 the Company and Dr. Landon agreed to consolidate the previous
loan facilities available to Dr. Landon into a single loan of $100,000. The
consolidated loan had a five year term with repayment of principal deferred for
three years. The loan bore interest at the six month certificate of deposit rate
paid by Signet Bank, Maryland, and the rate was adjusted quarterly. On September
29, 1989, the Company agreed to increase the loan to $125,000. On September 21,
1990, the Company agreed to increase the loan to $150,000. Under Dr. Landon's
employment agreement (as amended), the loan was to be repaid in five
installments of $30,000 plus interest within six weeks after the end of each of
the next five fiscal years beginning with fiscal year 1992.
The largest amount owed by Dr. Landon during the fiscal year ended May 31, 1997,
with respect to his loan facilities was $90,000, excluding interest accrued
amounting to $8,955. There was no addition to the loan during this fiscal year.
On July 1, 1994, Dr. Landon made a payment of $2,745 on accrued interest. On
June 6, 1994, the Company agreed to defer Dr. Landon's third $30,000 repayment
and make the payment due as two $15,000 installments paid with the fourth and
fifth $30,000 repayments respectively. On October 11, 1995, the Company's
shareholders affirmatively voted to approve the purchase of Company's stock from
Dr. Landon at market value to fund repayment by Dr. Landon of the remainder of
the Company loan. As of September 13, 1997, that transaction has not occurred.
In October of 1996, the Board of Directors affirmatively voted to extend the due
date of the loan, maintaining all other terms and conditions, until October 31,
1998.
<PAGE>
STOCK OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of % of Total
Securities Stock Options
Underlying Granted to Exercise
Stock Options Employees in Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date
---- ----------- ----------- ------ ----
<S> <C>
John C. Landon 10,000 (1) 10.3% $.378125 7/29/01
CEO, President and
Chairman of the Board
Michael P. O'Flaherty 10,000 (1) 10.3% $.42 5/30/07
Chief Operating Officer
Secretary
Jerry R. Reel 4,000 (1) 4.1% $.42 5/30/07
Vice President, Subsidiary
Richard P. Bradbury 3,000 (1) 3.1% $.42 5/30/07
</TABLE>
- ----------
(1) All options reported in this table are fully exercisable
AGGREGATED STOCK OPTION EXERCISED IN LAST FISCAL, AND FY-END OPTION VALUE
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Shares Options Options
Acquired Value at FY-End(#) at FY-End($)
on Exercise Realized
Name (#) ($) Exercisable Exercisable
- ---------------------- ----------- -------- ------------ ------------
<S> <C>
John C. Landon 150,000 (1,2) N/A
CEO, President, 10,000 (1) 438
Chairman of the Board
Michael P. O'Flaherty 95,000 (1) 14,114
Chief Operating Officer 10,000 (1,2) N/A
Secretary
Jerry R. Reel 7,000 (1) 373
Vice President, Subsidiary 4,000 (1,2) N/A
Richard P. Bradbury 10,000 (1) 1,959
Vice President, Subsidiary 4,000 (1,2) N/A
</TABLE>
- ----------
(1) All options reported in the table are fully exercisable.
(2) All options are out-of-the-money.
9
<PAGE>
ITEM 2 - RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors recommends the ratification of the firm of Deloitte &
Touche LLP as independent public accountants for fiscal year 1998. As in prior
years, representatives of Deloitte & Touche LLP will be present at the Annual
Meeting with the opportunity to make a statement if they desire to do so and
will be available to respond to appropriate questions raised at the meeting.
Deloitte & Touche LLP has audited the financial statements of Diagnon since
1982. Services provided in connection with the audit function by Deloitte &
Touche LLP for the fiscal year 1997 included primarily the examination of
Diagnon consolidated financial statements, and the review of filings with the
Securities and Exchange Commission.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF DELOITTE & TOUCHE
LLP AS INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR 1998. PROXIES
SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS SHAREHOLDERS SPECIFY A CONTRARY
CHOICE ON THE PROXY CARD.
ITEM 3 - TO AMEND THE COMPANY'S 1988 STOCK OPTION PLAN
The Company has an existing Stock Option Plan, initially adopted in 1988, and
subsequently amended (as amended, the "1988 Plan"). The purpose of the 1988 Plan
is to encourage key employees to exert maximum effort for the welfare of the
Company by extending the opportunity to acquire equity interests in the Company
and to participate in its success. The 1988 Plan allows for the issuance of
options in an amount up to 10 percent of the then issued and outstanding Common
Stock of the Company. The Plan is intended to qualify as an incentive stock
option plan under Section 422 of the Internal Revenue Code (the "Code"), and the
options granted that so qualify would be incentive stock options under the Code
("Incentive Stock Options"); however, the 1988 Plan also permits the granting of
options that do not qualify as Incentive Stock Options under the Code
("Non-Qualified Options"). Options granted to consultants and members of the
Board of Directors who are not also salaried officers or key employees of the
Company are not eligible for treatment as Incentive Stock Options and would be
Non-Qualified Options.
As of May 31, 1997, from the 1988 Stock Option Plan, options to purchase an
aggregate of 438,000 (408,000 qualified, 30,000 non-qualified) were outstanding,
all which were fully exercisable. The outstanding options had exercise prices
ranging from $.08 to $. 56.
The 1988 Plan does not include provisions allowing the Company to adjust the
options granted in the event of stock splits (such as the stock split proposed
pursuant to Item 7 of this Proxy Statement), recapitalizations,
reclassifications, combination or exchange of shares, stock dividends, mergers,
consolidations, other reorganizations and similar transactions so as to maintain
the proportionate interest of the holder of each option as before the occurrence
of such event.
The Company desires the ability to adjust the options issued to reflect business
changes without changing the proportionate interest of the holders of options,
and the Board of Directors therefore has proposed an amendment to the 1988 Plan,
subject to approval by the Company's stockholders, to provide for such
adjustments.
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES OF THE COMPANY ENTITLED TO VOTE
AND VOTING IN PERSON OR BY PROXY AT THE ANNUAL MEETING IS REQUIRED FOR THE
PASSAGE OF THE AMENDMENT TO THE 1988 PLAN. THE BOARD OF DIRECTORS RECOMMENDS A
VOTE FOR APPROVAL TO AMEND THE 1988 PLAN. PROXIES SOLICITED BY THE BOARD WILL BE
SO VOTED UNLESS SHAREHOLDERS SPECIFY A CONTRARY CHOICE ON THE PROXY CARD.
10
<PAGE>
ITEM 4 - TO ADOPT A NEW STOCK OPTION PLAN
The Board of Directors has approved, subject to approval of the Company's
stockholders, the adoption of a new Stock Option Plan (the "New Plan"), to
replace the 1988 Plan, which expires in July of 1998. The New Plan will be
substantially similar to the 1988 Plan, with the exception of those changes
necessary to conform the New Plan to the Internal Revenue Services requirements
and laws. Like the 1988 Plan, the purpose of the New Plan is to encourage key
employees to exert maximum effort for the welfare of the Company by extending
the opportunity to acquire equity interests in the Company and to participate in
its success. The New Plan would allow for the issuance of options in an amount
up to 10 percent of the then issued and outstanding Common Stock of the Company.
The Plan will have two components: one is intended to qualify as an incentive
stock option plan under Section 422 of the Internal Revenue Code (the "Code"),
and the options granted that so qualify would be incentive stock options under
the Code ("Incentive Stock Options"); the second component of the New Plan would
permit the granting of options that do not qualify as Incentive Stock Options
under the Code ("Non-Qualified Options"). The Company does not yet have any
specific plans to grant options under the New Plan.
The Incentive Stock Option component of the New Plan will be administered by the
Incentive Committee of the Board of Directors (the "Incentive Committee"),
consisting of not fewer that 2 Directors of the Company who shall be
"disinterested" as defined in Rule 16b-3 of the General Rules and Regulations
under the Securities Exchange Act of 1934. Members of the Incentive Committee,
as well as members of the Board of Directors who are not officers or managerial
employees of the Company, would not be eligible to receive Incentive Options
under the New Plan. The Board of Directors may also administer Incentive Stock
Options under the Plan. The Non-Qualified Stock Option component of the New Plan
will be administered by the Compensation Committee of the Board of Directors
(the "Compensation Committee"), consisting of not fewer that 2 Directors of the
Company. The Board of Directors may also administer the Non-Qualified Option
component of the Plan. The New Plan will allow issuance of options in an amount
up to 10 percent of the Company's issued and outstanding shares of Common Stock,
which currently would result in a limit of 539,824 shares being subject to
options (89,970 if the reverse split proposed in Item 7, below, is approved and
effectuated).
Eligible recipients of Incentive Stock Options under the New Plan shall be
salaried officers and employees of the Company and its subsidiaries (being
companies in which the Company owns more than 50 percent of the voting capital
stock), as the Incentive Committee, in its discretion, shall determine.
Currently there are approximately 100 persons in this group of potentially
eligible recipients of Incentive Stock Options. Directors of the Company are
also eligible to receive Incentive Options under the Plan if they are officers
or managerial employees of the Company or a subsidiary and are not members of
the Incentive Committee. Currently there is 1 person in this group of
potentially eligible recipients of Incentive Stock Options. No person may
receive Incentive Stock Options prior to the date on which employment by the
Company actually commences.
Eligible recipients of Non-Qualified Options under the New Plan shall be
Directors, officers, and selected employees and consultants of the Company and
its subsidiaries. Currently there are approximately 125 persons in this group of
potentially eligible recipients of Non-Qualified Options. Recipients will be
selected by the Compensation Committee.
The recipient of an Incentive Stock Option does not recognize income at the time
of the grant or upon the exercise of the option. Rather (subject to certain
holding period requirements), the gain upon sale of the stock received pursuant
to the exercise the Incentive Stock Option is treated as a capital gain. Stock
options that do not qualify as Incentive Stock Options (i.e., Non-Qualified
Options) are treated like any other form of compensation. As such, the recipient
of a Non-Qualified Stock Option generally recognizes the option as ordinary
income at the time the option is granted. If the option does not have a readily
ascertainable value, however, no income recognition occurs until the option is
exercised. When a corporation grants a Non-Qualified Option, it treats the
option as compensation, and can take a corresponding business expense deduction
when the employee recognizes the income. A corporation that grants an Incentive
Stock Option cannot take a business expense deduction with respect to the
option.
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The term of an option granted under the New Plan cannot exceed ten years from
the date it is granted. The Incentive Committee or the Compensation Committee,
as the case may be, determines the number of shares of Common Stock subject to
the grant and the terms of such option at the time of the grant of an option.
For Incentive Stock Options, the exercise price must be at least the fair market
value of the shares on the date of the grant, except that the exercise price of
each option granted to an employee who owns more than 10 percent of the
Company's voting stock must be at least 110 percent of the fair market value of
the shares on the date of the grant. A stock option may not be exercised unless
the recipient has remained an employee or director of, or consultant to, the
Company for six months from the date of the grant. In order to obtain treatment
of an option as an Incentive Stock Option, a recipient may not dispose of shares
acquired through the exercise of an option within two years of the grant of the
option or within one year after the transfer of the shares to the recipient.
Options may not be transferred except by the laws of descent and distribution,
and during the lifetime of the recipient, may only be exercised by the
recipient.
The New Plan provides that no option may be granted if the number of shares
subject to the option, when added to the number of shares subject to options
already issued under the Plan and the 1988 Plan, would exceed 10 percent of the
Company's issued and outstanding shares. The New Plan may be amended by the
Board of Directors, except that any amendment that would increase the number of
shares subject to options under the New Plan or would change the provisions
regarding the persons eligible to receive Incentive Stock Options shall be
subject to the approval of a majority of the shares of the Company entitled to
vote and voting in person or by proxy at a meeting of the Company's
stockholders.
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES OF THE COMPANY ENTITLED TO VOTE
AND VOTING IN PERSON OR BY PROXY AT THE ANNUAL MEETING IS REQUIRED FOR THE
ADOPTION OF THE NEW PLAN. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
ADOPTION OF THE NEW PLAN. PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS
SHAREHOLDERS SPECIFY A CONTRARY CHOICE ON THE PROXY CARD.
ITEM 5 - TO AMEND THE CERTIFICATE OF INCORPORATION TO AUTHORIZE, RATIFY, AND
APPROVE THE ISSUANCE OF 17,390 SHARES OF COMMON STOCK
The Board of Directors of the Company has declared the advisability of, and has
voted to submit to the shareholders for their consideration, the above amendment
to be included in a restatement of the Certificate of Incorporation of the
Company.
In the 1983 Certificate of Incorporation, the Company authorized, and
subsequently issued, Convertible Preferred Stock which was to be converted to
Common Stock at the option of the holder at any time after May 1, 1986. The
Company's shareholders, in the April 2, 1986 Annual Meeting, changed the
convertibility date to mean November 30, 1985. The shares of Convertible
Preferred Stock were to be converted to Common Stock on a 1 to 1 basis. However,
due to a misunderstanding of whether certain transactions affected the
conversion ratio, beginning in June 1986, certain of the Convertible Preferred
Stock was converted using a ratio of 1 share of Convertible Preferred Stock to
1.1 shares of Common Stock.
The purpose of this proposal is to facilitate the listing of the Company's
capital stock on the Chicago Stock Exchange, by authorizing and ratifying the
issuance of such previously issued Common Stock on the basis of a 1 to 1.1
conversion ratio. Accordingly, subject to shareholder approval, Article Fourth
of the Certificate of Incorporation shall be amend to authorize, ratify, and
approve the issuance of 4,610 shares of Common Stock to Fifty-Third Street
Ventures, Inc., 6,390 shares of Common Stock to Panorama Venture Capital Fund
Limited, and 6,390 shares of Common Stock to Excelsior Fund (for a total of
17,390 shares) in June through August 1987, at a conversion ratio of 1.1 share
of Common Stock to 1.0 share of Convertible Preferred Stock notwithstanding any
other provisions of the Certificate of Incorporation with respect to the
conversion of Convertible Preferred Stock into Common Stock.
The proposal, if adopted, would have the effect of authorizing and ratifying the
issuance of 17,390 shares of Common Stock to the three above entities, who had
possession of the shares in 1986 prior to their resale.
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THE AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES OF THE COMPANY ENTITLED TO VOTE
AND VOTING IN PERSON OR BY PROXY AT THE ANNUAL MEETING IS REQUIRED FOR THE
PASSAGE OF THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION. THE BOARD OF
DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT TO THE CERTIFICATE OF
INCORPORATION. PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS
SHAREHOLDERS SPECIFY A CONTRARY CHOICE ON THE PROXY CARD.
ITEM 6 - TO AMEND THE CERTIFICATE OF INCORPORATION (I) TO ELIMINATE THE
AUTHORIZATION TO ISSUE 325,000 SHARES OF CONVERTIBLE PREFERRED STOCK ALL OF
WHICH WAS PREVIOUSLY ISSUED AND CONVERTED TO COMMON STOCK AND (II) TO AUTHORIZE
THE ISSUANCE OF 500,000 SHARES OF NEW PREFERRED STOCK
The Board of Directors of the Company has declared the advisability of, and has
voted to submit to the stockholders for their consideration, the above amendment
to be included in a restatement of the Certificate of Incorporation of the
Company.
In 1983 the Company issued 325,000 shares of Convertible Preferred Stock to
certain investors. By August 1987, all the Convertible Preferred Stock had been
converted to Common Stock. (See Item 5 above.) The Company is only able to
re-issue these shares of Convertible Preferred Stock under the same terms and
conditions as set forth in the provisions of the Certificate of Incorporation
authorizing the issuance of such Convertible Preferred Stock. Those terms and
conditions no longer meet the business needs of the Company.
In the past 2 fiscal years, the Company has expended significant amounts of its
profits on research and development. In addition, as disclosed in the Company's
April 11, 1997, report of Form 10-QSB for the quarter ended February 28, 1997,
the Company entered into an exclusive agreement with Slusser Associates, Inc.,
of New York on March 12, 1997, to develop and implement a plan to attempt to
raise $2,000,000 through a private placement of the Company's securities.
Neither the structure of the offer nor whether it will consist of debt, equity,
or a combination of the two, has been finally determined. The proceeds of the
private offering tentatively are planned to be used to supplement the Company's
funding to expand production and marketing of its Lyphomune(R) product, to
support the development of ancillary products, and to support continuing
research efforts with Helicobacter pylori. Although there can be no assurance
that any or all of the proposed funding will be obtained, the Company seeks to
authorize the issuance of 500,000 shares of new Preferred Stock in order to
facilitate such private offering, and otherwise to enable the Company to pursue
possible opportunities to obtain additional equity financing for research and
development activities, including further development of veterinary products,
and possibly the diversification of the Company. The Board's resolution was
approved (4-0) and authorized that this proposal be voted on by the shareholders
at the Annual Meeting. Although the Company believes the issuance of additional
equity for the purposes set forth above would be beneficial to the long term
growth of the Company, such issuance could result in a dilution of the interests
of the current stockholders.
The Preferred Stock to be authorized by the proposed amendment would be issued
by the Board of Directors without the requirement of further authorization by
the stockholders. The terms of the Preferred Stock to be authorized, including
but not limited to liquidation preferences, dividend or interest rates,
convertibility, conversion prices, voting rights, redemption prices, and similar
matters will be determined by the Board of Directors upon the issuance of such
Preferred Stock.
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES OF THE COMPANY ENTITLED TO VOTE
AND VOTING IN PERSON OR BY PROXY AT THE ANNUAL MEETING IS REQUIRED FOR THE
PASSAGE OF THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION. THE BOARD OF
DIRECTORS RECOMMENDS A VOTE FOR THE ADOPTION OF THE AMENDMENT TO THE CERTIFICATE
OF INCORPORATION. PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS
SHAREHOLDERS SPECIFY A CONTRARY CHOICE ON THE PROXY CARD.
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ITEM 7 - TO AMEND THE CERTIFICATE OF INCORPORATION (I) TO EFFECT A
REVERSE SPLIT OF THE SHARES OF THE COMMON STOCK IN WHICH EACH 6 SHARES OF COMMON
STOCK SHALL BECOME 1 SHARE OF COMMON STOCK; AND (II) TO ESTABLISH THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK AT 25,000,000.
The Board of Directors of the Company has declared the advisability of, and has
voted to submit to the shareholders for their consideration, the following
amendment to be included in a restatement of the Certificate of Incorporation of
the Company.
The Company proposes to amend the Certificate of Incorporation (i) to effect a
reverse split of the shares of Common Stock in which 6 shares shall become 1
share of Common Stock; and (ii) to establish the number of authorized shares of
Common Stock at 25,000,000.
The purpose of the reverse split is to facilitate the listing of the Company's
Common Stock on the Chicago Stock Exchange. The Chicago Stock Exchange has given
the Company preliminary approval for listing provided the Company effects a
reverse split at no less than 6 to 1 and meets all other requirements of the
Exchange. The listing on an exchange will give the Company better visibility to
attract new investors, shareholders, and joint ventures. The Company will have
an assigned market specialist to conduct a market in the Company's Common Stock.
If approved by the shareholders, each 6 shares of Common Stock par value of one
cent ($0.01) per share) of the Company, issued and outstanding at the close of
business on the date of the taking effect of said amendment, beginning the date
of the filing and recording of said amendment, on or about October 29, 1997, in
the Office of Secretary of State of Delaware, be changed into 1 fully paid and
nonassessable share of Common Stock (par value one cent ($0.01) per share) of
the Company; that all certificates of shares of Common Stock (par value one cent
($0.01) per share) which are then issued and outstanding shall thereupon and
thereafter be deemed to be a certificate for 1/6th the number of shares of
Common Stock respectively (par value one cent ($0.01) per share); and that each
holder of record of said certificates at the close of business on the effective
date of said amendment shall be entitled to receive certificates representing 1
share of Common Stock (par value of one cent ($0.01) per share) for each 6
outstanding shares of Common Stock (par value one cent ($0.01) per share) held
by such holder of record, provided that no fractional shares shall be issued,
and in lieu thereof each record holder of less than 6 shares of Common Stock
(par value one cent ($0.01) per share) shall receive for each such share the
mean between the bid and asked price per share of such Common Stock as reported
by Koonce Securities on the date of the meeting of stockholders at which the
amendment to the Certificate of Incorporation with respect to such reverse split
shall be approved by a majority of the stockholders entitled to vote thereon,
and each holder of record of a number of shares of Common Stock (par value one
cent ($0.01) per share) not divisible by 6 shall receive, for each such share in
excess of highest number of such shares divisible by 6, the mean between the bid
and the asked price per share of such Common Stock as reported by Koonce
Securities on the date of the meeting of stockholders at which the amendment to
the Certificate of Incorporation with respect to such reverse stock split shall
be approved by a majority of the stockholders entitled to vote thereon.
The purpose of the proposed amendment and restatement of the Certificate of
Incorporation establishing the authorized shares of Common Stock at 25,000,000,
which maintains the current number of authorized shares, is to allow the Company
flexibility to issue a significant number of shares should a future offering be
necessary or advisable. The Board of Directors would have full authority to
issue such authorized but unissued shares of Common Stock, subject to the
provisions of the Certificate of Incorporation with respect thereto, without
further shareholder authorization. Although the Company believes the issuance of
additional equity for the purposes set forth above would be beneficial to the
long term growth of the Company, such issuance could result in a dilution of the
interests of the current stockholders.
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES OF THE COMPANY ENTITLED TO VOTE
AND VOTING IN PERSON OR BY PROXY AT THE ANNUAL MEETING IS REQUIRED FOR THE
PASSAGE OF THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION. THE BOARD OF
DIRECTORS RECOMMENDS A VOTE FOR THE ADOPTION OF THE AMENDMENT TO THE CERTIFICATE
OF INCORPORATION. PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS
SHAREHOLDERS SPECIFY A CONTRARY CHOICE ON THE PROXY CARD.
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SHAREHOLDERS PROPOSALS
Shareholders who wish to submit proposals at a the next Annual Meeting of
shareholders should submit such proposals to the Company at its headquarters at
9600 Medical Center Drive, Rockville, Maryland 20850. Such proposals must be
received by the Company by June 3, 1998.
The Company will not be required to include in its Proxy Statement or form of
proxy a shareholder proposal which is received after that date or which
otherwise fails to meet requirements for shareholder proposals established by
regulations of the Securities and Exchange Commission.
OTHER MATTERS
The expense of preparing, assembling, printing and mailing the form of proxy
material used for the solicitation of proxies by use of mails will be borne by
the Company. The Company has not retained any firm to solicit proxies on behalf
of the Company. Company directors and officers of the Company may solicit
proxies in person or by telephone and may request brokerage houses and other
custodians, nominees and fiduciaries to forward soliciting material to
beneficial owners of Common Stock. So far as the Board of Directors is aware,
only the aforementioned matters will be acted upon at the meeting. If any other
matters properly come before the meeting, it is intended that the accompanying
proxy may be voted on such matters in accordance with the best judgment of the
person or persons voting said proxy.
THE COMPANY'S REPORT ON FORM 10-KSB FOR ITS FISCAL YEAR ENDED MAY 31, 1997,
ACCOMPANIES THIS PROXY STATEMENT. UPON THE WRITTEN REQUEST OF A SHAREHOLDER OF
THE COMPANY ADDRESSED TO MICHAEL P. O'FLAHERTY, SECRETARY OF THE COMPANY, AT
9600 MEDICAL CENTER DRIVE, ROCKVILLE, MARYLAND 20850, THE COMPANY WILL PROVIDE
WITHOUT CHARGE TO SUCH SHAREHOLDER A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM
10-KSB FOR ITS FISCAL YEAR ENDED MAY 31, 1997, INCLUDING THE FINANCIAL
STATEMENTS AND FINANCIAL STATEMENT SCHEDULES REQUIRED TO BE FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 13A-A UNDER THE SECURITIES
EXCHANGE ACT OF 1934.
By Order of the Board of Directors
/s/ John C. Landon
----------------------------------
John C. Landon
Chairman of the Board and
Chief Executive Officer
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APPENDIX A
FORM OF PROXY
DIAGNON CORPORATION
-------------------
1998 STOCK OPTION PLAN
----------------------
1. GENERAL
1.1 This 1998 Stock Option Plan ("Plan") is intended to encourage the
ownership of Common Stock of the Diagnon Corporation (the
"Corporation") by eligible key employees of the Corporation and to
provide incentives for them to exert maximum efforts for the welfare of
the Corporation. By extending to key employees the opportunity to
acquire equity interests in the Corporation and to participate in its
success, this Plan is expected to benefit the Corporation and its
stockholders by making it possible for the Corporation to attract and
retain the best available talent and by rewarding key management and
technical personnel for their part in increasing the value of the
Corporation's shares. The Corporation also recognizes that it relies
heavily upon the contributions of independent consultants retained on a
regular basis and on the efforts of members of the Board of Directors
who are not employees. The Corporation also wishes to extend to these
consultants and directors the opportunity to acquire equity interests
in the Corporation and participate in its success. This Plan also is
intended to replace the Corporation's 1988 Stock Option Plan, as
amended (the "1988 Plan").
1.2 This plan shall have two (2) components: one component provides for
Incentive Stock Options ("Incentive Options") as defined in Section 422
of the Internal Revenue Code ("the Code"); and the other component
provides for Non-Qualified Stock Options ("Non-Qualified Options"),
which are not intended to be options as defined in Section 422 of the
Code. The Incentive Options and the Non-Qualified Options are sometimes
referred to together as the "Options." A participant who has been
granted an Incentive or a Non-Qualified Option may be granted an
additional Option or Options under this Plan.
1.3 This Plan was adopted by the Board of Directors of the Corporation
(the "Board") on July 17, 1997, subject to the approval of the
Corporation's shareholders.
2. STOCK SUBJECT TO THIS PLAN
There will be reserved for issue upon the exercise of Options up to 10
percent (539,824 shares) of the Corporation's Common Stock, par value
one cent ($0.01), which may be unissued or reacquired shares. The
Corporation, during the terms of Options granted under this Plan, shall
at all times keep available the number of shares of stock required to
satisfy the Options. If any Option previously granted shall expire or
terminate for any reason without having been fully exercised, the
unpurchased shares shall again become available for the purposes of
this Plan.
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3. INCENTIVE OPTIONS
3.1 All provisions of this Plan relating to Incentive Options shall be
administered by a committee (the "Incentive Committee"), consisting of
not fewer than two (2) Directors of the Corporation who shall be
disinterested within the meaning of Rule 16b-3 of the General Rules and
Regulations under the Securities Exchange Act of 1934, and who shall
serve at the pleasure of the Board. The determinations of the Incentive
Committee shall be made in accordance with their judgment as to the
best interests of the Corporation and its stockholders and in
accordance with the purposes of this Plan. No member of the Incentive
Committee shall be liable for any action taken or determination made in
good faith with respect to this Plan or any Incentive Option granted
hereunder. Subject to the provisions of this Plan and the requirements
of the Code with respect to Incentive Options, the Incentive Committee
shall have full authority to interpret this Plan with respect to
Incentive Options, to establish and amend rules and regulations
relating to Incentive Options, to determine the terms and provisions of
Incentive Option agreements (which need not be identical), and to make
all other determinations necessary or advisable for the administration
of Incentive Options granted under this Plan, including but not limited
to determining: (i) which eligible employees, officers, and directors,
of the Corporation shall be granted Incentive Options under this Plan;
(ii) the time or times, during the term of each Incentive Option,
within which all or portions of the Incentive Option may be exercised;
(iii) whether, on the date of exercise of an Incentive Option or
portion thereof, the recipient must pay the entire Incentive Option
price or only some part thereof, the balance to be paid within one year
from the date of exercise of the Incentive Option, provided that
payment tendered on the date of exercise equals or exceeds the
aggregate par value of the shares purchased; (iv) the number of shares
for which an Incentive Option or Incentive Options shall be granted;
and (v) generally all questions of policy and expediency that may
arise, including the correction of any defect or omission in this Plan
and the reconciliation of any inconsistency in this Plan or any
Incentive Option agreement in any manner and to the extent the
Incentive Committee shall deem necessary or expedient to make this Plan
fully effective. The Incentive Committee's interpretation, construction
and adoption of any provisions of this Plan relating to Incentive
Options or any Incentive Option granted hereunder shall be binding and
conclusive, unless otherwise determined by the Board. Any power that
may be exercised or action that may be taken by the Incentive Committee
under this Plan may also be exercised or taken by the Board. The Board
may, at any time by resolution, revoke the delegation of the Incentive
Committee and revest in the Board all or any part of the powers
hereinabove vested in the Incentive Committee.
3.2 Whenever the term "officers" is used in this Plan, such term shall
be deemed to include assistant officers of the Corporation and officers
of subsidiaries of the Corporation. The term "subsidiary" shall mean
any domestic or foreign corporation of which the Corporation owns,
directly or indirectly, at least fifty (50%) percent of the total
combined voting power of all classes of stock of such corporation. In
determining the
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employees to whom Incentive Options shall be granted and the number of
shares to be subject to purchase under such Incentive Options, the
Incentive Committee shall take into account the duties of the
respective employees, their present and potential contributions to the
success of the Corporation, and such other factors as the Incentive
Committee shall deem relevant in connection with accomplishing the
purposes of the Incentive Plan. Membership on the Board of Directors
shall not disqualify a person from receiving an Incentive Option grant
hereunder, although Directors who are members of the Incentive
Committee or who are not officers or managerial employees of the
Corporation or a subsidiary are not eligible to receive Incentive
Options under this Plan.
3.3 The exercise price of any Incentive Option granted to an employee
who at the time such Incentive Option is granted, owns, as defined in
Section 424 of the Code, stock possessing not more than ten (10%)
percent of the total combined voting power of all classes of stock of:
3.3.1 the Corporation; or
3.3.2 if applicable, any subsidiary of the Corporation
qualifying as a "Subsidiary Corporation" as defined in Section
424 of the Code (any such corporation being hereinafter
referred to as a "Subsidiary"); or
3.3.3 If applicable, any parent of the Corporation qualifying
as a "Parent Corporation" as defined in Section 424 of the
Code (any such corporation being hereinafter referred to as
the "Parent"),
shall be at least equal to the fair market value of the Common Stock at
the time of granting of the Incentive Option.
3.4 The exercise price of any Incentive Option granted to an employee
who, at the time such Incentive Option is granted, owns, as defined in
Section 424 of the Code, stock possessing more than (10%) percent of
the total combined voting power of all classes of stock of:
3.4.1 the Corporation; or
3.4.2 if applicable, a Subsidiary; or
3.4.3 if applicable, the Parent,
shall be at least equal to one hundred ten (110%) percent of the fair
market value of the Common Stock at the time of granting of the
Incentive Option.
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3.5 For all purposes of this Plan, the fair market value of the Common
Stock at the time of granting an Option shall be deemed to be the mean
between the high and the low prices of the Common Stock on the national
securities exchange on the day on which the Option is granted, if the
Common Stock is then being traded on a national securities exchange,
and if the Common Stock is then being traded on such an exchange but
there are no sales on such day, the fair market value shall be deemed
to be the mean between the high and low prices of the Common Stock on
the national securities exchange on the day on which the most recent
sales occurred prior to the date of grant, and if the Common Stock is
not then traded on such an exchange, then the fair market value shall
be deemed to be the mean between the high and low bid and asked prices
for the Common Stock on the over-the-counter market on the day on which
the option is granted. If the Common Stock is not publicly traded at
the time of the grant, the fair market value shall be determined in
good faith at the time of the grant of any Incentive Option by decision
of the Incentive Committee.
3.6 The date of grant of an Incentive Option granted hereunder shall be
the date on which the Incentive Committee acts in granting the
Incentive Option.
3.7 Incentive Options granted hereunder shall be exercisable for a term
of not more than ten (10) years from the date of grant thereof, but
shall be subject to Section 3.8 and to earlier termination as
hereinafter provided. Each Incentive Option agreement issued hereunder
shall specify the term of the Incentive Option, which term shall be
determined by the Incentive Committee in accordance with its
discretionary authority hereunder.
3.8 Notwithstanding anything herein to the contrary, in the event an
Incentive Option is granted to an employee who, at the time such option
is granted, owns, as defined in Section 424 of the Code, stock
possessing more than ten (10%) percent of the total combined voting
power of all classes of stock of:
3.8.1 the Corporation; or
3.8.2 if applicable, a Subsidiary; or
3.8.3 if applicable, the Parent,
then such Incentive Option shall not be exercisable more than five (5)
years from the date of grant thereof, but shall be subject to earlier
termination as hereinafter provided.
3.9 No Option will be treated as an Incentive Option to the extent that
the aggregate fair market value (determined at the time the Option is
granted) of the stock with respect to which the Option is exercisable
for the first time by any individual during any calendar year (under
all plans of the Corporation and any subsidiary) exceeds one hundred
thousand ($100,000) dollars.
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3.10 No person may receive Incentive Options prior to the date on which
employment of such person by the Corporation actually commences.
4. NON-QUALIFIED OPTIONS
4.1 All provisions of this Plan relating to Non-Qualified Options shall
be administered by the Compensation Committee (the "Compensation
Committee") appointed by the Board. The Compensation Committee shall
consist of not less than two (2) members of the Board. The
determinations of the Compensation Committee shall be made in
accordance with their judgment as to the best interests of the
Corporation and its stockholders and in accordance with the purposes of
this Plan. No member of the Compensation Committee shall be liable for
any action taken or determination made in good faith with respect to
this Plan or any Non-Qualified Option granted hereunder. Subject to the
provisions of this Plan and the requirements of the Code, the
Compensation Committee shall have full authority to interpret this Plan
with respect to Non-Qualified Options, to establish and amend rules and
regulations relating to Non-Qualified Options, to determine the terms
and provisions of Non-Qualified Option agreements (which need not be
identical), and make all other determinations necessary or advisable
for the administration of Non-Qualified Options granted under this
Plan, including but not limited to determining: (i) which eligible
employees, officers, directors, and consultants of the Corporation
shall be granted Non-Qualified Options under this Plan; (ii) the time
or times, during the term of each Non-Qualified Option, within which
all or portions of the Non-Qualified Option may be exercised; (iii)
whether, on the date of exercise of a Non-Qualified Option or portion
thereof, the recipient must pay the entire Non-Qualified Option price
or only some part thereof, the balance to be paid within one year from
the date of exercise of the Non-Qualified Option, provided that payment
tendered on the date of exercise equals or exceeds the aggregate par
value of the shares purchased; (iv) the number of shares for which a
Non-Qualified Option or Non-Qualified Options shall be granted; and (v)
generally all questions of policy and expediency that may arise,
including the correction of any defect or omission in this Plan and the
reconciliation of any inconsistency in this Plan or any Non-Qualified
Option agreement in any manner and to the extent the Committee shall
deem necessary or expedient to make this Plan fully effective. The
Compensation Committee's interpretation, construction and adoption of
any provisions of this Plan relating to Non-Qualified Options or any
Non-Qualified Option granted hereunder shall be binding and conclusive,
unless otherwise determined by the Board. Any power that may be
exercised or action that may be taken by the Compensation Committee
under this Plan may also be exercised or taken by the Board. The Board
may, at any time by resolution, revoke the delegation of the
Compensation Committee and revest in the Board all or any part of the
powers hereinabove vested in the Compensation Committee.
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<PAGE>
4.2 The Compensation Committee and the Incentive Committee may be
combined into one (1) committee of the Board so long as the membership
requirements set forth herein for both committees are met by the
members of the combined committee.
4.3 Eligible recipients of Non-Qualified Options under this Plan shall
be Directors, officers, and selected employees and consultants of the
Corporation and its Subsidiaries. Recipients will be selected by the
Compensation Committee. The granting of a Non-Qualified Option under
this Plan shall not affect any outstanding stock option previously
granted to an optionee under this Plan or any other plan of the
Corporation.
4.4 On the date a Non-Qualified Option is granted, the exercise price
per share shall be such price that the Committee deems appropriate.
5. TERMS OF OPTION AND OPTION AGREEMENTS
5.1 Each Incentive Option granted to a person eligible to receive such
Incentive Option (a "Qualifying Optionee") shall be evidenced by a
written agreement (an "Incentive Option Agreement") which shall
expressly identify the Incentive Options as "Incentive Stock Options,"
i.e., Options within the meaning of Section 422 of the Code. Each Non-
Qualified Option granted to each other person eligible to receive
Non-Qualified Options hereunder shall be evidenced by a written
agreement (a "Non-Qualified Option Agreement") which shall expressly
identify the Non-Qualified options as other than "Incentive Stock
Options." Unless specifically identified herein as applicable to
Incentive Options, the provisions of' this Plan shall apply to both
Incentive Options and Non-Qualified Options. Each Incentive Option
Agreement and each Non-Qualified Option Agreement shall: (a) be in such
form and contain such provisions as the Board or the Committee shall
from time to time deem appropriate, and (b) include in substance, by
appropriate language, all of the applicable following provisions.
5.2 The Option may be granted at any time within ten (10) years from
the earlier of the date on which this Plan is approved by the
stockholders or was adopted by the Corporation's Board of Directors.
5.3 Incentive Options granted under this Plan to a Qualifying Optionee
are not required to be exercised in the order in which they are
granted.
5.4 An Option may not be exercised, to any extent, either by the person
to whom it was granted or by any person after his death, unless the
person to whom the Option was granted has remained in the continuous
employ of the Corporation, or has been a consultant to or director of
the Corporation, for not less than six months from the date of the
grant.
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<PAGE>
5.5 A Qualifying Optionee may not dispose of shares acquired through
exercise of an Incentive Option (i) within two (2) years from the date
of the granting of the Incentive Option or (ii) within one (1) year
after the transfer of the shares to him by the Corporation and qualify
for the tax treatment provided by Section 421(a) of the Code.
5.6 The Corporation will seek from every regulatory commission or
agency having jurisdiction such authority as may be required to issue
and sell shares of stock to satisfy the Options. The Corporation's
inability to obtain from any such regulatory commission or agency
authority which counsel for the Corporation deems necessary for the
lawful issuance and sale of the Corporation's stock to satisfy the
Options, shall relieve the Corporation from any liability for failure
to issue and sell stock to satisfy otherwise properly exercised Options
until such time as such authority is obtained or is obtainable.
5.7 Neither a person to whom an Option is granted nor his legal
representative, heir, legatee or distributee, shall be deemed to be a
holder of, or to have any of the rights of a holder with respect to,
any shares subject to such Option unless and until he has exercised his
Option in complete accordance with the terms thereof.
5.8 An Option shall not be transferable except by will or by the laws
of descent and distribution. During the lifetime of the person to whom
the Option is granted, he alone may exercise it.
5.9 An Incentive Option granted to a Qualifying Optionee shall
terminate if the person to whom it is granted ceases to be continuously
employed by the Corporation, except (i) if such person's employment is
terminated for a reason other than death, permanent or total disability
(within the meaning of Section 22(e)(3) of the Code) or dismissal for
cause, he may exercise his Incentive Option to the extent that he was
entitled to do so at the date of his termination at any time within
three (3) months following the date of such termination; (ii) if his
continuous employment is terminated for reason of permanent or total
disability (within the meaning of Section 22(e)(3) of the Code), he or
his legal representative, in the event the employee is legally
incapable of doing so, may exercise his Incentive Option to the extent
that he was entitled to do so at the date of his termination at any
time within one (1) year following the date of such termination; or
(iii) if his continuous employment is terminated by death or the
employee's death occurs within three(3) months of his termination of
employment, such termination being for reason other than dismissal for
cause, his Incentive Option may be exercised at any time within one (1)
year following his death by the person or persons to whom his rights
under the Incentive Option shall pass by will or by the laws of descent
or distribution, but only to the extent that such Incentive Option was
exercisable by him on the date of termination of his employment.
Nothing in this paragraph is intended to extend the stated term of the
Incentive Option and in no event may an Option be exercised by anyone
after the expiration of its stated term.
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<PAGE>
5.10 Nothing in this Plan or in any Option granted hereunder shall
confer on any Optionee any right to continue in the employ of the
Corporation or to interfere in any way with the right of the
Corporation to terminate his employment at any time. In the event that
the Corporation has not registered the shares with respect to which
Options are being exercised under the Securities Act of 1933, as
amended, each Optionee electing to purchase shares will be required to
represent that he is acquiring such shares for investment purposes only
and not with a view to the sale or distribution thereof and to make
such other representations as are deemed necessary by counsel to the
Corporation. Stock certificates evidencing such unregistered shares
acquired upon exercise of Options shall bear a restrictive legend
(unless, in the opinion of counsel for the Corporation, such a legend
is not necessary) stating as follows:
The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares have
been acquired for investment and may not be pledged or
hypothecated and may not be sold or transferred in the absence
of an effective registration statement for the shares under
the Securities Act of 1933 or an opinion of counsel
satisfactory to the Corporation that registration is not
required under said Act.
5.11 If the Corporation shall at any time change the number of shares
of its Common Stock without new consideration to the Corporation (such
as by stock dividends or stock splits), the aggregate number of shares
which may be issued pursuant to Options granted under this Plan and the
total number of shares then remaining subject to purchase under an
outstanding Option shall be changed in proportion to such change in
issued shares. The Option price per share also shall be adjusted so
that the total consideration payable to the Corporation upon the
purchase of all shares not theretofore purchased shall not be changed.
5.12 If, during the term of any outstanding Option, the Corporation
shall issue other securities of the Corporation or distribute other
property (other than cash) as a distribution or dividend on or in
exchange for Common Stock of the Corporation, the Corporation shall
take such steps as the Incentive Committee, the Compensation Committee,
and the Board deem appropriate: (a) equitably to adjust the kind and
amount of securities then remaining subject to purchase thereunder and
the exercise price per share; or (b) equitably to adjust the rights of
the optionee thereunder in order to reflect such issuance or
distribution of securities or other property.
5.13 If, during the term of an outstanding Option, the Common Stock of
the Corporation shall be changed into another kind of security of the
Corporation or into cash, securities, or evidences of indebtedness of
another corporation, other property or any combination thereof, as a
result of a reorganization, sale, merger, consolidation, or other
similar transaction, the optionee shall be entitled to receive, at the
election of the optionee (a) upon the due exercise of the Option or (b)
upon the effective date of the
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<PAGE>
reorganization, sale, merger, consolidation or similar transaction, the
cash, securities, evidences of indebtedness, other property or any
combination thereof the optionee would have been entitled to receive
for Common Stock acquired through exercise of the Option (net of the
exercise price) immediately prior to the effective date of such
reorganization, sale, merger, consolidation or other similar
transaction. If appropriate, the exercise price of the shares or
securities remaining subject to purchase following such reorganization,
sale, merger, consolidation or other similar transaction may be
adjusted in each case in such equitable manner as the relevant
Committee and the Board may determine.
6. LIMIT ON STOCK SUBJECT TO OPTIONS
6.1 No Option may be granted under this Plan if the number of shares
that may be issued upon the exercise of that Option, when added to the
number of shares that may be issued (i) upon the exercise of unexpired
options already granted under the 1988 Plan, and (ii) upon the exercise
of unexpired Options already granted under this Plan, would exceed ten
(10%) percent of the then issued and outstanding Common Stock of the
Corporation.
6.2 The aggregate fair market value (determined at the time Options are
granted) of stock with respect to which Incentive Options are
exercisable for the first time by a Qualifying Optionee during any
calendar year shall not exceed one hundred thousand ($100,000) dollars.
7. LISTING REQUIREMENTS
The Corporation shall not be required to issue or deliver any
certificate for shares of its stock purchased upon the exercise of any
Option issued under this Plan prior to the admission of such shares to
listing on any stock exchange on which the stock may at that time be
listed; provided, however, that the Corporation shall take all
necessary steps to secure the admission of such stock to listing on any
such stock exchange and shall secure admission of such shares at the
earliest practicable date.
8. TIME OF GRANTING OPTION
The date on which an Option shall be deemed granted shall be the date
on which a majority of the members of the Board or the Committee shall,
at a meeting, make such determination.
9. AMENDMENT OF THE PLAN
9.1 The Board or the Incentive Committee or the Compensation Committee,
as the case may be, may, at any time, amend this Plan; provided,
however, that no amendment
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<PAGE>
shall be made, except upon approval by a majority of the shares of the
Corporation entitled to vote and voting in person or by proxy at a
meeting of the Corporation's stockholders, which will:
9.1.1 increase the number of shares reserved for Options under
this Plan; or
9.1.2 change in substance the provisions designating the
employees eligible to receive and exercise Incentive Options
under this Plan.
9.2 The rights and obligations created under any Option granted before
amendment of this Plan shall not be altered or impaired by such
amendment without consent of the person to whom the Option was granted
or to whom rights under an Option shall have passed by will or by laws
of descent or distribution.
10. TERMINATION OR SUSPENSION OF THE PLAN
10.1 The Board may at any time suspend or terminate this Plan. This
Plan, unless sooner terminated, shall terminate upon the earlier of ten
(10) years (i) from the date on which this Plan is approved by the
stockholders, or (ii) the date on which this Plan is adopted by the
Corporation's Board of Directors.
10.2 This Plan will also terminate if Incentive Options are exercised
for all the Common Stock reserved for issuance under this Plan. An
Option may not be granted while this Plan is suspended or after it is
terminated.
10.3 The rights and obligations created under any Option granted while
this Plan is in effect shall not be altered or impaired by suspension
or termination of this Plan, except with the consent of the person to
whom the Option was granted. The termination of this Plan shall not
affect any restrictions previously imposed on shares issued pursuant to
this Plan.
11. EFFECTIVE DATE
This Plan shall be deemed adopted upon the earlier of (i) approval by
vote of the holders of the majority of the shares of the Corporation
entitled to vote and voting in person or by proxy on the matter, or
(ii) the date on which this Plan is adopted by the Corporation's Board
of Directors. This Plan shall not be effective (and no Options can be
granted), however, until it is approved by vote of the holders of the
majority of shares of the Corporation entitled to vote and voting in
person or by proxy on the matter.
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<PAGE>
APPENDIX B
PRELIMINARY COPY DATED 9/15/97
--------------------------------------
COMMON STOCK
PROXY
DIAGNON CORPORATION
ANNUAL MEETING OF STOCKHOLDERS, OCTOBER 22, 1997
The undersigned hereby appoints John C. Landon and Michael P.
O'Flaherty and each of them, with power of substitution in each, as proxies or
proxy to represent the undersigned at the Annual Meeting of the Stockholders of
Diagnon Corporation (the "Company") to be held at the Holiday Inn Gaithersburg,
#2 Montgomery Village Avenue, Gaithersburg, Maryland, on Wednesday, October 22,
1997, at 10:00 a.m., local time, and at any adjournment or adjournments thereof,
and to vote the number of shares of Common Stock which the undersigned would be
entitled to vote if personally present, (a) in the manner designated on the
reverse side hereof with respect to the election of directors and the other
identified proposals and (b) in their discretion on such other matters as may
properly come before the meeting or any adjournments thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
This proxy when properly executed will be voted in the manner directed
herein. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" ALL NOMINEES AND
PROPOSALS LISTED ON THE REVERSE SIDE HEREOF.
DIAGNON CORPORATION ANNUAL MEETING
OF STOCKHOLDERS
WEDNESDAY, OCTOBER 22, 1997
10:00 A.M.
THE HOLIDAY INN GAITHERSBURG
#2 MONTGOMERY VILLAGE AVENUE
GAITHERSBURG, MARYLAND
STOCKHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING AND DESIRE TO HAVE THEIR
STOCK VOTED AT THE MEETING ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ABOVE
PROXY ON THE REVERSE SIDE AND RETURN THE SAME IN THE ENCLOSED ENVELOPE, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
PRELIMINARY COPY DATED 9/15/97
--------------------------------------
1. ELECTION OF DIRECTORS: J. Thomas August, M.D., Charles C. Francisco, Charles
F. Gauvin, John C. Landon, Ph.D.
FOR ALL NOMINEES WITHHOLD (To withhold authority to vote for any
listed except as AUTHORITY individual nominees, write the name of
otherwise indicated to vote for such nominee(s) on the following line.)
with respect to all nominees
Individual nominees listed _______________________________________
[ ] [ ]
2. RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS:
Ratification of the selection of Deloitte and Touche LLP as the Company's
independent public accountants.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. TO AMEND THE COMPANY's 1988 STOCK OPTION PLAN:
To amend the Company's 1988 Stock Option Plan to provide that options shall
be adjusted in the event of stock splits, recapitalizations,
reclassifications, combinations or exchanges of shares, stock dividends,
mergers, consolidations, other reorganizations and similar transactions so as
to maintain the proportionate interest of the holder of each option as before
the occurrence of such event.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. TO ADOPT A NEW STOCK OPTION PLAN:
To adopt a new Stock Option Plan, to replace the 1988 Stock Option Plan, and
providing for the grant of both Incentive Stock Options as under Section 422
of the Internal Revenue Code and options not so qualified, in the aggregate
not to exceed 10% of the outstanding shares of the Company' capital stock.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
5. TO AMEND THE CERTIFICATE OF INCORPORATION TO AUTHORIZE , RATIFY, AND APPROVE
THE ISSUANCE OF 17,390 SHARES OF COMMON STOCK:
To amend the Certificate of Incorporation to authorize, ratify, and approve
the issuance of 4,610 shares of Common Stock to Fifty-Third Street Ventures,
Inc., 6,390 share of Common Stock to Panorama Venture Capital Fund Limited,
and 6,390 shares of Common Stock to Excelsior Fund in June through August
1986, and August, 1987, at a conversation ratio of 1.1 share of Common Stock
to 1.0 share of Convertible Preferred Stock not withstanding any other
provisions of the Certificate of Incorporation with respect to the conversion
of Convertible Preferred Stock into Common Stock.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
6. TO AMEND THE CERTIFICATE OF INCORPORATION TO ELIMINATE THE AUTHORIZATION TO
ISSUE 325,000 SHARES OF CONVERTIBLE PREFERRED STOCK, ALL OF WHICH WAS
PREVIOUSLY ISSUED AND CONVERTED TO COMMON STOCK, AND TO AUTHORIZE THE
ISSUANCE OF 325,000 SHARES OF NEW PREFERRED STOCK:
To Amend the Certificate of Incorporation to eliminate the 1983 authorization
to issue 325,000 shares of Convertible Preferred Stock all which was issued
and converted to Common Stock, AND to authorize the issuance of 500,000
shares of new Preferred Stock (par value One Dollar ($1.00) per share).
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
7. TO AMEND THE CERTIFICATE OF INCORPORATION TO EFFECT A REVERSE SPLIT OF THE
SHARES OF COMMON STOCK IN WHICH EACH 6 SHARES OF COMMON STOCK SHALL BECOME
ONE (1) SHARE OF COMMON STOCK, AND TO ESTABLISH THE NUMBER OF AUTHORIZED
SHARES OF COMMON STOCK AT 25,000,000:
To Amend the Certificate of Incorporation, in order to facilitate the listing
of the Company's Common Stock on the Chicago Stock Exchange, to effect a
reverse split of the shares of the Common Stock in which each 6 shares of
Common Stock shall become 1 share of Common Stock, and to establish the
number of authorized shares of Common Stock at 25,000,000.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Dated: _________________________________
________________________________________
________________________________________
Signature(s)
Please sign exactly as your name appears
on this proxy. When signing as attorney,
executor, administrator, trustee,
guardian, etc. or as an officer of a
corporation, give full title. For joint
accounts obtain both signatures.
