UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
DIAGNON CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 13-3078199
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
9600 MEDICAL CENTER DRIVE, ROCKVILLE, MARYLAND 20850
(Address of Principal Executive Offices)
DIAGNON CORPORATION 1988 STOCK OPTION PLAN
DIAGNON CORPORATION 1998 STOCK OPTION PLAN
(Full Title of the Plan)
KEVIN O'NEILL
DIAGNON CORPORATION
9600 MEDICAL CENTER DRIVE, ROCKVILLE, MARYLAND 20850
(301) 251-2801
(Name and Address of Agent for Service)
CALCULATION OF REGISTRATION FEE
================================================================================
PROPOSED PROPOSED
TITLE OF MAXIMUM MAXIMUM
SECURITIES AMOUNT OFFERING AGGREGATE AMOUNT OF
TO BE TO BE PRICE PER OFFERING REGISTRATION
REGISTERED REGISTERED UNIT PRICE FEE
- --------------------------------------------------------------------------------
Common Shares
$.01 Par Value 100,000 $ 2.50 $ 250,000.00 $ 69.50
================================================================================
<PAGE>
PART I
INFORMATION REQUIRED IN THE SECTION 10(a) PROSPECTUS
ITEM 1. PLAN INFORMATION
The information required by Item 1 is omitted from this Registration
Statement in accordance with the Note to Part I of Form S-8.
ITEM 2. REGISTRANT INFORMATION AND EMPLOYEE PLAN ANNUAL INFORMATION
The information required by Item 2 is omitted from this Registration
Statement in accordance with the Note to Part I of Form S-8.
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents filed by Diagnon Corporation (the "Company" or
"Registrant") with the Securities and Exchange Commission under the Securities
and Exchange Act of 1934 are hereby incorporated by reference in this
Registration Statement:
(a) the Company's Annual Report on Form 10-KSB for the fiscal
year ended May 31, 1998 which was filed with the Securities and
Exchange Commission on August 28, 1998;
(b) the Company's Quarterly Report on Form 10-QSB, which the
Registrant filed for the quarter ended August 31, 1998, which was filed
with the Securities and Exchange Commission on October 14, 1998;
(c) the Company's Quarterly Report on Form 10-QSB, which the
Registrant filed for the quarter ended November 30, 1998, which was
filed with the Securities and Exchange Commission on January 14, 1999;
(d) the description of the Registrant's Common Stock, par
value $.01 per share, contained in the Registration Statement on Form
8-A, which the Registrant filed on October 22, 1997, together with any
amendment or report that the Registrant may file for the purpose of
updating such description; and
(e) all documents filed by the Registrant pursuant to Sections
13(a), 13(c), 14 and 15(d) of the 1934 Act, after the date of filing of
this Registration Statement and prior to the filing of a post-effective
amendment which (i) indicates that all securities offered hereunder
have been sold, or which (ii) deregisters all securities then remaining
unsold, shall be deemed to be incorporated by reference in this
Registration Statement and to be
<PAGE>
part of it from the date of the filing of such documents.
ITEM 4. DESCRIPTION OF SECURITIES
Not applicable.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL
Not applicable.
ITEM 6: INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Delaware law, a corporation may include provisions in its
certificate of incorporation that will relieve its directors of monetary
liability for breaches of their fiduciary duty to the corporation, except under
certain circumstances, including a breach of the directors' duty of loyalty,
acts or omissions of the director not in good faith or which involve intentional
misconduct or a knowing violation of law, the approval of an improper payment of
a dividend or an improper purchase by the corporation of stock or any
transaction from which the director derived an improper personal benefit. The
Company's Certificate of Incorporation provides that the Company's directors are
not liable to the Company or its stockholders for monetary damages for breach of
their fiduciary duty, subject to the described exceptions specified by Delaware
law.
Section 145 of the Delaware General Corporation Law grants to the
Company the power to indemnify each officer and director of the Company against
liabilities and expenses incurred by reason of the fact that he is or was an
officer or director of the Company if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the Company
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful. The Bylaws of the Company provide for
indemnification of each officer and director of the Company to the fullest
extent permitted by Delaware law.
Section 145 of the Delaware General Corporation Law also empowers the
Company to purchase and maintain insurance on behalf of any person who is or was
an officer or director of the Company against liability asserted against or
incurred by him in any such capacity, whether or not the Company would have the
power to indemnify such officer or director against such liability under the
provisions of Section 145. The Company has purchased and maintains a directors'
and officers' liability policy for such purpose.
<PAGE>
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED
The Registrant relied upon the exemption provided in Section 4(2) of
the Securities Act of 1933, for transactions by an issuer not involving any
public offering, to justify the issuance, in the absence of a registration
statement, of the restricted securities to be reoffered pursuant to this
registration statement. The issuer offered these restricted securities under
isolated circumstances to a very limited number of persons, all of whom agreed
to hold these securities for investment purposes only.
ITEM 8. EXHIBITS
4.1. Registrant's Second Restated Certificate of
Incorporation (incorporated by reference to Registrant's Registration
Statement No. 1-13527)
4.2. Registrant's By-laws (incorporated by reference to
Registrant's Registration Statement on Form 8-A (File No. 1-13527).
4.3. Form of Common Stock Certificate (incorporated by
reference to Registrant's Registration Statement on Form 8-A (File No.
1-13527).
4.4 Diagnon Corporation, 1988 Stock Option Plan
4.5. Diagnon Corporation, 1998 Stock Option Plan.
23.1. Consent of Deloitte & Touche LLP.
ITEM 9. UNDERTAKINGS
The undersigned Registrant undertakes:
(1) to file, during any period in which it offers or sells
securities, a post-effective amendment to this Registration Statement
to include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement;
(2) that, for the purpose of determining any liability under
the Securities Act, each post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered
therein, and the offering of the securities at that time shall be
deemed to be the initial bona fide offering thereof;
<PAGE>
(3) to file a post-effective amendment to remove from
registration any of the securities that remain unsold at the
termination of the offering; and
(4) insofar as indemnification for liabilities arising under
the Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling persons of the small business issuer pursuant
to the foregoing provisions, or otherwise, the small business issuer
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer, or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act of 1933
and will be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-8 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Gaithersburg, State of Maryland, on February 24,
1999.
DIAGNON CORPORATION
By /s/ John C. Landon
Chairman of the Board and President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
Signature) /s/ John C. Landon
(Title) Chairman of the Board, President (C.E.O.) and Director
(Date) February 24, 1999
(Signature) /s/ David A. Newcomer
(Title) Chief Financial Officer
(Date) February 24, 1999
(Signature) /s/ Michael P. O'Flaherty
(Title) Chief Operating Officer and Secretary
(Date) February 24, 1999
(Signature) /s/ J. Thomas August
(Title) Director
(Date) February 24, 1999
(Signature) /s/ Charles C. Francisco
(Title) Director
(Date) February 24, 1999
(Signature) /s/ Charles F. Gauvin
(Title) Director
(Date) February 24, 1999
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
- --------------- ----------------------------------------------------------------------------------------
<S> <C>
4.1. Registrant's Second Restated Certificate of Incorporation (incorporated by reference to
Registrant's Registration Statement No. 1-13527)
4.2 Registrant's By-laws (incorporated by reference to Registrant's Registration Statement No.
1-13527)
4.3 Form of Common Stock Certificate (incorporated by reference to Registrant's Registration
Statement No.1-13527)
4.4 1988 Stock Option Plan
4.5 1998 Stock Option Plan
23.1 Consent of Deloitte & Touche LLP
</TABLE>
Exhibit 4.4
DIAGNON CORPORATION (THE "COMPANY")
1988 STOCK OPTION PLAN
1. PURPOSE
This 1988 Stock Option Plan (the "Plan") is intended to encourage the
ownership of Common Stock of the Company by eligible key employees of the
Company and to provide incentives for them to exert maximum efforts for the
welfare of the Company. By extending to key employees the opportunity to acquire
equity interests in the Company and to participate in its success, the Plan is
expected to benefit the Company and its stockholders by making it possible for
the Company 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
Company's shares. The Company 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 Company
also wishes to extend to these consultants and directors the opportunity to
acquire equity interests in the Company and participate in its success.
2. STOCK SUBJECT TO THE PLAN
The Company may issue a maximum of eighty-three thousand, three
hundred, and thirty-three (83,333) shares of the Company's Common Stock, par
value one cent (0.01), to satisfy Options granted under this Plan. The Company
shall at all times reserve a sufficient number of shares, which may be unissued
or reacquired, to honor all Options then exercisable. 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 the Plan.
3. ADMINISTRATION
3.1 The Plan shall be administered by a Compensation Committee (the
"Committee") initially consisting of two directors to be appointed by the Board
of Directors (the "Board"), none of whom shall be eligible to be granted Options
under this Plan.
1
<PAGE>
3.2 The Committee shall have the power, subject to and within the
limits of the express provisions of the Plan, to determine:
(a) which eligible employees, officers, directors, and
consultants of the Company shall be granted Options under the Plan;
(b) the time or times, during the term of each Option,' within
which all or portions of the Option may be exercised;
(c) whether, on the date of exercise of an Option or portion thereof,
the Optionee must pay the entire Option price or only some part thereof, the
balance to be paid within one year from the date of exercise of the Option,
provided that payment tendered on ,the date of. exercise equals or exceeds the
aggregate par value of the shares purchased;
(d) the number of shares for which an Option or Options shall
be granted;
(e) the terms and provisions of each Option granted; (f) the proper
construction and interpretation of the Plan and Options granted under it and the
establishment, amendment and revocation of rules and regulations for its
administration; and
(g) generally all questions of policy and expediency that may arise,
including the correction of any defect or omission in the Plan and the
reconciliation of any inconsistency in the Plan or any Option agreement in any
manner and to the extent the Committee shall deem necessary or expedient to make
the Plan fully effective.
3.3 The Board may, at any time by resolution, revoke the delegation of
the Committee and revest in the Board all or any part of the powers hereinabove
vested in the Committee.
4. PERSONS ELIGIBLE TO RECEIVE OPTIONS
Options may be granted only to 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) selected by the' Committee
(including members of the Board who are salaried employees of the Company or its
subsidiaries and perform services for the Company beyond those customarily
performed by members of the Board of Directors) ("Qualifying Optionees"), (ii)
consultants who provide services to the Company in the research and development
of its products and (iii) members of the Board other than those who are
Qualifying Optionees or who are members of the Compensation Committee.
Qualifying Optionees may not receive Options prior to the date on which
employment by the Company actually commences.
5. TERMS OF OPTION AND OPTION AGREEMENTS
2
<PAGE>
Each Option granted to a Qualifying Optionee (being "Incentive Stock
Options") shall be evidenced by a written Stock Option Agreement (a "Qualifying
Option Agreement") which shall expressly identify the Options as "Incentive
Stock Options," i.e., Options within the meaning of Section 422A at the Internal
Revenue Code. Each Option granted to each other person eligible to receive
Options hereunder shall be evidenced by a written Stock Option Agreement which
shall expressly identify the Options"as other than "Incentive Stock Options."
Unless specifically identified herein as applicable to Incentive Stock Options,
the provisions of' this Plan shall apply to both Incentive Stock Options and
Options other than Incentive Stock Options. Each Qualifying Option Agreement and
each Stock 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, (b) include in substance, by appropriate language, all of the
applicable following provisions:
5.1 The Option price shall equal or exceed the Fair Market Value of the
stock at the time the Option is granted as the Committee determines. For the
purposes of this Plan, "Fair Market Value" means, on a per share basis, if
shares of Common Stock are traded in the over-the-counter market, the mean of
the bid and ask prices for Common Stock on the trading day immediately preceding
the date on which the Committee shall grant the Options or, if Common Stock is
listed on any national securities exchange, the closing price for Common Stock
on the trading day immediately preceding the date on which the Committee shall
grant the Options (or if no sale was made on such exchange on that date, on the
next preceding day on which there was such a sale). If the Committee grants an
Option to a person who owns, on the date of the grant, more than 10 percent of
the voting stock of the Company, the Option price shall be at least 110 percent
of the Fair Market Value of the stock on the date the Option .is granted.
5.2 The Option may be granted at any time within ten years from the
date on which the Plan is approved by the stockholders.
5.3 No Option may be exercised more than ten years after the date such
Option is granted.
5.4 Incentive Stock Options granted under this Plan to a Qualifying
Optionee are not required to be exercised in the order in which they are
granted. Incentive Stock Options granted before January 1, 1987 under any
previous Stock Option Plan, however, must be exercised in the order in which
they were granted.
5.5 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
Company, or has been a consultant to or director of the Company, for not less
than six months from the date of grant.
5.6 A Qualifying Optionee may not dispose of shares acquired through
exercise of an
3
<PAGE>
Option (I) within two years from the date of the granting of the Option or (ii)
within one year after the transfer of the shares to him by the Company and
qualify for the tax treatment provided by Section 421(a) of the Internal Revenue
Code.
5.7 The Company 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 Company's inability to obtain from any such
regulatory commission or agency authority, which counsel for the Company deems
necessary for the lawful issuance and sale of the Company's stock to satisfy the
Options, shall relieve the Company 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.
5.8 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.
5.9 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.
5.10 An Option granted to a Qualifying Optionee shall terminate if the
person to whom it is granted ceases to be continuously employed by the Company,
except (I) if such person's employment is terminated for reason other than
death, permanent or total disability (within the meaning of Section 105(d)(4) of
the Internal Revenue Code) or dismissal for cause, he may exercise his Option to
the extent that he was entitled to do so at the date of his termination at any
time within three 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 105(d)(4) of the Internal Revenue Code), he or
his legal representative, in the event the employee is legally incapable of
doing so, may exercise his Option to the extent that he was entitled to do so at
the date of his termination at any time within one 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 months of his termination of
employment, such termination being for reason other than dismissal for cause,
his Option may be exercised at any time within one year following his death by
the person or persons to whom his rights under the Option shall pass by will or
by the laws of descent or distribution, but only to the extent that such 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 Option and in no
event may an Option be exercised by anyone after the expiration of its stated
term.
5.11 Purchase for Investment. Nothing in this Plan or in any Option
granted hereunder shall confer on any Optionee any right to continue in the
employ of the Company or to interfere in any way with the right of the Company
to terminate his employment at any time. In the event
4
<PAGE>
that the Company 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 Company. Stock certificates evidencing such
unregistered shares acquired upon exercise of Options shall. bear a restrictive
legend (unless, in the opinion of counsel for the Company, 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 Company that registration is not required
under said Act.
6. LIMIT ON STOCK SUBJECT TO OPTIONS
6.1 No Option may be granted under this Plan if, when added to the
number of shares that may be issued upon the exercise of Options already granted
under this Plan, the number of shares that may be issued upon the exercise of
that Option would exceed 5 percent of the then issued and outstanding Common
Stock of the Company.
6.2 The aggregate Fair Market Value (determined at the time Options are
granted) of stock with respect to which Incentive Stock Options are exercisable
for the first time by a Qualifying Optionee during any calendar year shall not
exceed $100,000.
7. 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.
8. AMENDMENT OF THE PLAN
The Board or the Committee may, at any time, amend the Plan; provided,
however, that no amendment shall be made, except upon approval by a majority of
the shares of the Company entitled to vote and voting in person or by proxy at
the Company's Annual Meeting of stockholders, which will:
(a) Increase the number of shares reserved for Options under
the Plan.
5
<PAGE>
(b) Change in substance Section 4, designating the employees
eligible to receive and exercise Incentive Stock Options under the Plan.
The rights and obligations created under any Option granted before
amendment of the 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.
6
<PAGE>
9. TERMINATION OR SUSPENSION OF THE PLAN
The Board may at any time suspend or terminate the Plan. The Plan,
"unless sooner terminated, shall terminate upon the earlier of (I) ten from the
date on which the Plan is approved by the stockholders, or (ii) the date on
which the Plan is adopted by the Company's Board of Directors.
The Plan will also terminate if Incentive Stock Options are exercised
for all the common stock reserved for issuance under the plan. An Option may not
be granted while the Plan is suspended or after it is terminated.
The rights and obligations created under any Option granted while the
Plan is in effect shall not be altered or impaired by suspension or termination
of the Plan, except with the consent of the person to whom the Option was
granted. The termination of this Plan shall not affect and restrictions
previously imposed on shares issued pursuant to this Plan.
10. EFFECTIVE DATE
The Plan shall be deemed adopted upon the earlier of (I) approval by
vote of the holders of the majority of the shares of the Company entitled to
vote and voting in person or by proxy on the matter, or (ii) the date on which
the Plan is adopted by the Company's Board of Directors. The 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 Company entitled to vote and
voting in person or by proxy on the matter.
7
Exhibit 4.5
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
The Corporation may issue a maximum of eighty-three thousand,
three hundred, and thirty-three (83,333) shares of the Corporation's
Common Stock, par value one cent (0.01), to satisfy Options granted
under this Plan. The Corporation shall at all times reserve a
sufficient number of shares, which may be unissued or reacquired, to
honor all Options then exercisable. 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 the Plan.
<PAGE>
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 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
<PAGE>
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.
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.
<PAGE>
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.
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
<PAGE>
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.
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.
<PAGE>
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.
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.
<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 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
<PAGE>
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 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
<PAGE>
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.
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Diagnon Corporation on Form S-8 of our report dated July 24, 1998, appearing in
the Annual Report on Form 10-KSB of Diagnon Corporation for the year ended May
31, 1998.
DELOITTE & TOUCHE LLP
Baltimore, Maryland
February 25, 1999
