SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
[Amendment No. _____ ]
Filed by the Registrant: [X]
Filed by a Party other than the Registrant: [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
MEDICAL STERILIZATION, INC.
(Name of Registrant as Specified in Its Charter)
The Board of Directors of Medical Sterilization, Inc.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or
14a-6(i)(2), or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1) Title of each class of securities to which transaction applies:
not applicable
2) Aggregate number of securities to which transaction applies:
not applicable
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):
not applicable
4) Proposed maximum aggregate value of transaction:
not applicable
5) Total fee paid:
not applicable
[ ] 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: not applicable
2) Form, Schedule, or Registration Statement No.: not applicable
3) Filing Party: not applicable
4) Date Filed: not applicable
MEDICAL STERILIZATION, INC.
225 UNDERHILL BOULEVARD
SYOSSET, NEW YORK 11791
---------------
NOTICE OF SPECIAL MEETING IN LIEU OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 30, 1996
---------------
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Special Meeting in Lieu of Annual
Meeting of Shareholders of Medical Sterilization, Inc., a New York corporation
(the "Corporation"), will be held on Thursday, May 30, 1996, at 4:00 P.M. New
York time, at the offices of the Company at 225 Underhill Boulevard, Syosset,
New York 11791, for the following purposes:
1. To elect a Board of Directors for the ensuing year.
2. To consider and act upon a proposal to approve the adoption of the
Corporation's 1996 Stock Plan.
3. To approve an amendment to the Corporation's Restated Certificate of
Incorporation to permit the Corporation to issue certain additional securities
without triggering anti-dilution provisions with respect to the Corporation's
Preferred Stock.
4. To ratify the selection of the firm of Coopers & Lybrand L.L.P. as
auditors for the fiscal year ending December 31, 1996.
5. To transact such other business as may properly come before the
meeting and any postponements or adjournments thereof.
Only shareholders of record at the close of business on April 18, 1996
are entitled to notice of and to vote at the meeting and any adjournments
thereof.
By Order of the Board of Directors
Harvey Cohen
Secretary
Syosset, New York
April 26, 1996
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED STAMPED ENVELOPE BY RETURN MAIL PRIOR TO THE DATE
OF THE MEETING IN ORDER TO ASSURE REPRESENTATION OF YOUR SHARES.
MEDICAL STERILIZATION, INC.
225 UNDERHILL BOULEVARD
SYOSSET, NEW YORK 11791
(516) 496-8822
-----------------
PROXY STATEMENT
FOR THE SPECIAL MEETING IN LIEU OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 30, 1996
-----------------
APRIL 26, 1996
Proxies in the form enclosed with this proxy statement are solicited by
the Board of Directors of Medical Sterilization, Inc. (the "Corporation") for
use at the Special Meeting in Lieu of Annual Meeting of Shareholders to be held
on Thursday, May 30, 1996, at 4:00 P.M., at the offices of the Corporation at
225 Underhill Boulevard, Syosset, New York 11791, or at any adjournments thereof
(the "Special Meeting").
Only holders of Common Stock, $.01 par value per share, and holders of
Series B Convertible Preferred Stock and Series C Convertible Preferred Stock
(collectively, "Preferred Stock"), of record as of the close of business on
April 18, 1996, the record date (the "Record Date") fixed by the Board of
Directors, will be entitled to notice of, and to vote at, the Special Meeting
and any adjournments thereof. As of the Record Date, 2,980,496 shares of Common
Stock of the Corporation were issued and outstanding. Holders of Common Stock
are entitled to cast one vote for each share held of record by them on each
proposal submitted to a vote at the Special Meeting. As of the Record Date,
747,078 shares of Series B Convertible Preferred Stock and 1,945,575 shares of
Series C Convertible Preferred Stock of the Corporation were issued and
outstanding. Shares of Preferred Stock vote together with the shares of Common
Stock on each proposal submitted to a vote at the Special Meeting. Holders of
shares of Preferred Stock are entitled to cast one vote for each share of Common
Stock into which each share of Preferred Stock is convertible. As of the Record
Date, each share of Preferred Stock is convertible into one share of Common
Stock. Shareholders may vote in person or by proxy. Execution of a proxy will
not in any way affect a shareholder's right to attend the Special Meeting and
vote in person. Any shareholder giving a proxy has the right to revoke that
proxy by (i) filing a later-dated proxy or a written notice of revocation with
the Secretary of the Corporation at any time before it is exercised, or (ii)
voting in person at the Special Meeting. The holders of a majority of the
outstanding shares of Common Stock and Preferred Stock in the aggregate entitled
to vote at the Special Meeting will constitute a quorum for the transaction of
business.
The persons named as attorneys in the proxies, D. Michael Deignan and
Paul V. Rossi, were selected by the Board of Directors and are directors and/or
officers of the Corporation. All properly executed proxies returned in time to
be counted at the Special Meeting will be voted as stated below under "Voting
Procedures." Any shareholder giving a proxy has the right to withhold authority
to vote for any individual nominee to the Board of Directors by so marking the
proxy in the space provided thereon.
In addition to the election of directors, the shareholders will
consider and vote upon proposals (i) to approve the adoption of the
Corporation's 1996 Stock Plan, (ii) to approve an amendment to the Corporation's
Restated Certificate of Incorporation to permit the Corporation to issue certain
additional securities without triggering anti-dilution provisions with respect
to the Preferred Stock, and (iii) to ratify the selection of the firm of Coopers
& Lybrand L.L.P. as the Corporation's auditors for the fiscal year ending
December 31, 1996, all as further described in this proxy statement. Where a
choice has been specified on the proxy with respect to the foregoing matters,
including the election of directors, the shares represented by the proxy will be
voted in accordance with the specifications and will be voted FOR any such
proposal if no specification is indicated.
The Board of Directors of the Corporation knows of no other matters to
be presented at the Special Meeting. If any other matter should be presented at
the Special Meeting upon which a vote properly may be taken, including any
proposal to adjourn the Special Meeting, shares represented by all proxies
received by the Board of Directors will be voted with respect thereto in
accordance with the judgment of the persons named as attorneys in the proxies.
An Annual Report to Shareholders, containing financial statements for
the fiscal year ended December 31, 1995, is being mailed together with this
proxy statement to all shareholders entitled to vote. This proxy statement and
the form of proxy were first mailed to shareholders on or about April 26, 1996.
MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth as of April 18, 1996 certain information
regarding the ownership of the Corporation's voting securities by (i) each
person who, to the knowledge of the Corporation, beneficially owned more than 5%
of the Corporation's voting securities outstanding at such date, (ii) each
director (or nominee for director) of the Corporation, (iii) each Named
Executive Officer (as defined below under "Compensation and Other Information
Concerning Directors and Officers--Executive Compensation") and (iv) all
directors (and nominees for director) and executive officers as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF TOTAL
NAME AND ADDRESS (1) BENEFICIAL OWNERSHIP (2) VOTING SECURITIES (3)
-------------------- ------------------------ ---------------------
<S> <C> <C>
Kenneth W. Rind (4)....................................... 2,418,836 42.6%
c/o Oxford Partners
315 Post Road West
Westport, CT 06880
Entities affiliated with Oxford Partners (5).............. 2,418,836 42.6%
315 Post Road West
Westport, CT 06880
Dr. William C. Cartinhour, Jr. Trust (6).................. 638,717 11.3%
c/o Carol Haynes
First Potomac Investment Services
125 Rowell Court
Falls Church, VA 22046
Kennard H. Morganstern (7)................................ 597,400 10.0%
c/o Medical Sterlization, Inc.
225 Underhill Boulevard
Syosset, New York 11791
Harvey Cohen (8).......................................... 117,557 2.0%
D. Michael Deignan (9).................................... 88,300 1.5%
Paul V. Rossi (10)........................................ 85,000 1.5%
Steven M. Nyman (11)...................................... 61,000 1.1%
John R. Hoover (12)....................................... 55,000 *
William R. Lonergan (13).................................. 12,500 *
Forrest R. Whittaker......................................
All officers and directors as a
group (11 persons)(14).................................... 3,289,225 51.5%
</TABLE>
2
- ------------------
* Less than 1% of total voting securities.
(1) Pursuant to rules of the Securities and Exchange Commission ("SEC"),
addresses are provided only for 5% beneficial owners.
(2) Except as otherwise noted in the footnotes to this table, each person
or entity named in the table has sole voting and investment power with
respect to all shares shown as owned, based on information provided to
the Corporation by the persons and entities named in the table.
(3) Total Voting Securities includes 2,980,496 shares of Common Stock,
747,078 shares of Series B Convertible Preferred Stock ("Series B
Preferred") and 1,945,575 shares of Series C Convertible Preferred
Stock, ("Series C Preferred") outstanding as of April 18, 1996. As of
that date, each outstanding share of Preferred Stock was convertible
into one share of Common Stock. Pursuant to SEC rules, all outstanding
options and warrants which are exercisable within 60 days of April 18,
1996 ("Presently Exercisable Securities") held by the relevant person
or entity are included as outstanding Total Voting Securities for
purposes of determining that person's or entity's Percent of Total
Voting Securities, but are not included for purposes of determining any
other person's or entity's Percent of Total Voting Securities.
(4) Consists of (i) 253,554 shares of Series B Preferred and 714,001 shares
of Series C Preferred held by Oxford Venture Fund III, Limited
Partnership ("Oxford III"), (ii) 63,389 shares of Series B Preferred
and 178,501 shares of Series C Preferred held by Oxford Venture Fund
III Adjunct, Limited Partnership ("Oxford Adjunct"), and (iii) 316,942
shares of Series B Preferred and 892,449 shares of Series C Preferred
held by Oxford Venture Fund II, Limited Partnership ("Oxford II"). The
sole general partner of Oxford III is Oxford Partners III, Limited
Partnership ("Oxford Partners III"). The sole general partner of Oxford
Adjunct is Oxford Partners III-A, Limited Partnership ("Oxford Partners
III-A"). The sole general partner of Oxford II is Oxford Partners II
("Partners II"). Mr. Rind is a general partner of Oxford Partners III,
Oxford Partners III-A and Partners II, and may be deemed to share
voting and investment power over the shares held by Oxford III, Oxford
Adjunct and Oxford II. Mr. Rind disclaims beneficial ownership of the
shares held by Oxford III, Oxford Adjunct and Oxford II, except to the
extent of his pecuniary interests therein.
(5) Consists of 253,554 shares of Series B Preferred and 714,001 shares of
Series C Preferred held by Oxford III, 63,389 shares of Series B
Preferred and 178,501 shares of Series C Preferred held by Oxford
Adjunct, and 316,942 shares of Series B Preferred and 892,449 shares of
Series C Preferred held by Oxford II. Does not include 166,429 shares
of Common Stock which Mr. Rind has a right to purchase from another
shareholder of the Corporation. See note 4.
(6) Consists of 364,900 shares of Common Stock, 113,193 shares of Series B
Preferred and 160,924 shares of Series C Preferred held by the Dr.
William C. Cartinhour, Jr. Trust (the "Trust") of which Dr. Cartinhour
is the beneficiary and Ms. Marie C. Woods is the sole trustee. Ms.
Woods disclaims beneficial ownership of all shares held by the Trust.
(7) Consists of 17,000 shares of Common stock jointly held by Mrs. Rosalee
M. Morganstern over which Dr. Morganstern has shared voting and
investment power, 305,400 shares of Common Stock owned by Dr.
Morganstern and 275,000 Presently Exercisable Securities.
(8) Consists of 35,057 shares of Common Stock held by the Harvey Cohen
Trust U/A dated December 22, 1992 of which Mr. Cohen is the trustee and
82,500 Presently Exercisable Securities.
(9) Consists of 38,300 shares of Common Stock owned and 50,000 Presently
Exercisable Securities.
(10) Consists of 10,000 shares of Common Stock owned and 75,000 Presently
Exercisable Securities.
(11) Consists of 1,000 shares of Common Stock owned and 60,000 Presently
Exercisable Securities.
(12) Consists of 15,000 shares of Common Stock owned and 40,000 Presently
Exercisable Securities.
(13) Consists of 12,500 Presently Exercisable Securities.
(14) Consists of 108,857 shares of Common Stock, 676,667 shares of Series B
Preferred, 1,784,951 shares of Series C Preferred and 718,750 Presently
Exercisable Securities. See notes 7, 8, 9, 10, 11, 12 and 13.
3
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The business and affairs of the Corporation are managed under the
direction of its Board of Directors. The Board of Directors met five (5) times
during the fiscal year ended December 31, 1995. The Audit Committee of the Board
of Directors, consisting of Mr. Rind, Mr. Hoover and Mr. Whittaker reviews with
the Corporation's independent auditors the scope and timing of their audit
services and any other services they are asked to perform, the auditor's report
on the Corporation's financial statements following completion of their audit
and the Corporation's policies and procedures with respect to internal
accounting and financial controls. In addition, the Audit Committee makes annual
recommendations to the Board of Directors for the appointment of independent
auditors for the ensuing year. The Audit Committee met one (1) time during the
fiscal year ended December 31, 1995. The Compensation Committee of the Board of
Directors, consisting of Mr. Hoover, Mr. Rind and Mr. Lonergan, reviews and
evaluates the compensation and benefits of all officers of the Corporation,
reviews general policy matters relating to compensation and benefits of
employees of the Corporation and makes recommendations concerning these matters
to the Board of Directors. The Compensation Committee also administers the
Corporation's stock plans. The Compensation Committee met three (3) times during
the fiscal year ended December 31, 1995. The Executive Committee of the Board of
Directors, consisting of Dr. Morganstern, Mr. Deignan, Mr. Cohen and Mr. Rind,
acts while the Board of Directors is not in session to determine questions of
general policy, appointments for the Corporation and to borrow money and issue
evidences of indebtedness. The Executive Committee is also responsible for
identifying and evaluating potential nominees for election to the Board and
recommends candidates for all vacancies in the Board of Directors which are to
be filled by the Board of Directors or the holders of the Corporation's Common
Stock. The Executive Committee did not meet during the fiscal year ended
December 31, 1995. The Board of Directors does not currently have a standing
nominating committee. Each of the directors attended at least 75% of the
aggregate of all meetings of the Board of Directors and all committees on which
he serves which were held during his period of service during 1995.
4
OCCUPATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the Nominees to be elected at the
Special Meeting and the executive officers of the Corporation, their ages, and
the positions currently held by each such person with the Corporation.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Kennard H. Morganstern 71 Chairman of the Board of Directors
D. Michael Deignan (1) 52 President, Chief Executive Officer, and Director
Kenneth W. Rind (1)(2)(3) 60 Director
William R. Lonergan (2) 71 Director
John R. Hoover (2)(3) 67 Director
Forrest R. Whittaker (3) 46 Director
Harvey Cohen (1) 77 Secretary and Director
Steven M. Nyman 44 Senior Vice President, Hospital Division and
Management Information Systems
Michael S. Fogarty 62 Vice President, Quality Assurance and
Regulatory Affairs
Paul V. Rossi 47 Treasurer, Chief Financial Officer, and
Assistant Secretary
</TABLE>
- ----------------------
(1) Member of Executive Committee.
(2) Member of Compensation Committee.
(3) Member of Audit Committee.
NOMINEES FOR ELECTION AT THE SPECIAL MEETING
Kennard H. Morganstern has been Chairman of the Board, President and
Chief Executive Officer of the Corporation since 1982, except for a brief period
of approximately six months during 1991. He previously served as Chairman of the
Board and President of Radiation Dynamics, Inc., a manufacturer of radiation
accelerators. Dr. Morganstern resigned as President on September 8, 1995 and as
Chief Executive Officer on December 31, 1995 to allow Mr. Deignan to assume
those positions.
D. Michael Deignan was elected President and Chief Operating Officer of
the Corporation on September 8, 1995 and Chief Executive Officer on December 31,
1995. For approximately two years prior thereto he was President and Chief
Executive Officer of Tonometrics, Inc., a developer of a patented regional
tissue oxygenation monitoring system. For approximately eight years prior
thereto he held various executive positions with Baxter Healthcare Inc., a
manufacturer and distributor of medical supplies and equipment.
Kenneth W. Rind has been a Director since January, 1989. Dr. Rind is
Chairman of Oxford Venture Corporation, an independent venture capital
management company which he co-founded in 1981. He also co-founded
Nitzanim-AVX/Kyocera Venture Capital Fund Ltd. in 1993 and is a member of its
Board of Directors. From 1976 to 1981, Dr. Rind was a principal at Xerox
Development Corporation responsible for acquisitions and venture capital
investments. From 1970 to 1976, he was Vice-President of Corporate Finance at
Oppenheimer & Co., Inc., and managed its venture capital and high technology
corporate finance activities. He is a director of ESC Medical Systems Ltd.,
Alpha Technologies Group, Inc., Vasomedical, Inc., Computer Power Inc. and VTX
Electronics Corp. and several private companies. Dr. Rind received a B.A. in
chemistry from Cornell University and a doctorate in nuclear chemistry from
Columbia University. Mr. Rind is a nominee of the Oxford Funds which, as the
holders of approximately 89.8% of the outstanding Preferred Stock, have the
power pursuant to the Corporation's Certificate of Incorporation to elect three
directors.
5
William R. Lonergan has been a Director since February 8, 1995. He is
retired but serves as a consultant to the Oxford Funds. For more than five years
prior thereto he was a general partner of Oxford Partners, an independent
venture capital firm. He is also a Director of Zitel Corp., a manufacturer of
memory systems; Dataware Technologies, Inc., a marketer of CD ROM authoring and
retrieval software; and Kurzweil Applied Intelligence, Inc., a manufacturer of
advance speech recognition systems. Mr. Lonergan is a nominee of the Oxford
Funds which, as the holders of approximately 89.8% of the outstanding Preferred
Stock, have the power pursuant to the Corporation's Certificate of Incorporation
to elect three directors.
John R. Hoover has been a Director since May, 1983. He is retired, but
was for more than five years the director of the Medical Products Division of
W.L. Gore & Associates, Inc., a manufacturer of wire and cabling, Teflon
products and medical products. He also serves on the Board of Directors of W.L.
Gore & Associates, Inc.
Harvey Cohen has been Secretary and Director since June, 1982. He is
and has been a practicing attorney for more than forty-eight years. He is a
partner in Murtagh, Cohen & Byrne, Garden City, New York.
Forrest R. Whittaker has been a director of the Corporation since
January 17, 1996. He is the President and Chief Executive Officer of Paidos
Healthcare, Inc. Mr. Whittaker is a nominee of the Oxford Funds which, as the
holders of approximately 89.8% of the outstanding Preferred Stock, have the
power pursuant to the Corporation's Certificate of Incorporation to elect three
directors.
EXECUTIVE OFFICERS
Steven M. Nyman is Senior Vice President, Hospital Division and
Management Information Systems. Prior to assuming that position in October 1994,
he was Vice President, Hospital Division of Management Information Systems from
February 1, 1993. He was also Director of Management Information Systems from
July, 1992 to January, 1993. From June, 1988 until July, 1992, Mr. Nyman was
President of Micro Information Service, Inc., a consultant in computer matters.
Michael G. Fogarty has been Vice President, Quality Assurance and
Regulatory Affairs since May 1983. For more than five years prior thereto he was
employed as a microbiologist by Becton, Dickinson and Company in their Medical
Devices Division. With Becton, Dickinson and Company, he was Division Manager,
Bacteriology and Sterilization from 1968 to 1980, and was Corporate Manager,
Project Coordination and Liaison, from 1980 to January, 1984.
Paul V. Rossi has been Treasurer and Chief Financial Officer of the
Corporation since April 11, 1994. On January 17, 1996, the Board of Directors
elected Mr. Rossi Assistant Secretary. In 1993, he was Chief Financial Officer
of Melville Bilogics, Inc., a blood fractionation company. For four years prior
thereto he was Chief Financial Officer and Chief Operating Officer of Medical
Action Industries, Inc., a manufacturer and distributor of disposable medical
products.
6
COMPENSATION AND OTHER INFORMATION
CONCERNING DIRECTORS AND OFFICERS
EXECUTIVE COMPENSATION
Summary Compensation. The following table sets forth the compensation
earned by the Corporation's Chief Executive Officer and each of the three other
most highly compensated executive officers of the Corporation whose total salary
and bonus for 1995 exceeded $100,000 (collectively, the "Named Executive
Officers") for services rendered in all capacities to the Corporation for each
of the fiscal years ended December 31, 1994 and 1995:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION SECURITIES UNDERLYING ALL OTHER
NAME & PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
<S> <C> <C> <C> <C> <C>
D. Michael Deignan (1) 1995 $ 43,269 0 200,000 $1,284 (2)
President and Chief 1994 -- -- -- --
Executive Officer
Paul V. Rossi 1995 119,519 0 25,000 2,762.78 (3)
Chief Financial Officer, 1994 74,716 0 75,000 970 (4)
Treasurer and Assistant
Secretary
Steven M. Nyman 1995 107,673 0 60,000 2,967.06 (5)
Senior Vice President, 1994 84,612 0 0 1,740 (6)
Hospital Division and
Management
Information Systems
Kennard H. Morganstern, Ph.D (7) 1995 130,596 0 0 2,219.28 (8)
Chairman of the Board 1994 119,124 0 275,000 912 (9)
of Directors
</TABLE>
- ---------------
(1) Mr. Deignan became President and Chief Operating Officer on September 15,
1995. He then became Chief Executive Officer on December 31, 1995.
(2) Includes $519 contributed by the Corporation to vested and unvested
defined contribution plans for Mr. Deignan's benefit and $765 of term life
insurance premiums paid by the Corporation for Mr. Deignan's benefit.
(3) Includes $1,792.78 contributed by the Corporation to vested and unvested
defined contribution plans for Mr. Rossi's benefit and $970 of term life
insurance premiums paid by the Corporation for Mr. Rossi's benefit.
(4) Represents term life insurance premiums paid by the Corporation for Mr.
Rossi's benefit.
(5) Includes $1,227.06 contributed by the Corporation to vested and unvested
defined contribution plans for Mr. Nyman's benefit and $1,740 of term life
insurance premiums paid by the Corporation for Mr. Nyman's benefit.
(6) Represents term life insurance premiums paid by the Corporation for Mr.
Nyman's benefit.
(7) Dr. Morganstern served as the Corporation's President and Chief Executive
Officer since 1982. Upon the hiring of Mr. Deignan on September 15, 1995,
Dr. Morganstern resigned as President.
7
Dr. Morganstern then resigned to allow Mr. Deignan to become Chief
Executive Officer on December 31, 1995. Dr. Morganstern continues to serve
the Corporation as Chairman of its Board of Directors.
(8) Includes $1,307.28 contributed by the Corporation to vested and unvested
defined contribution plans for Dr. Morganstern's benefit and $912.00 of
term life insurance premiums paid by the Corporation for Dr. Morganstern's
benefit.
(9) Represents term life insurance premiums paid by the Corporation for Dr.
Morganstern's benefit.
Option Grants. The following table sets forth information concerning
stock options granted during the fiscal year ended December 31, 1995 under the
Corporation's 1994 Stock Plan to the Named Executive Officers (the Corporation
did not grant any stock appreciation rights during fiscal 1995):
OPTION GRANTS IN 1995
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
PERCENT OF
TOTAL OPTIONS
GRANTED TO
EMPLOYEES EXERCISE PRICE
NAME OPTIONS GRANTED IN YEAR (1) ($/SHARE)(2) EXPIRATION DATE
---- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
D. Michael Deignan.......... 75,000 (3) 26.3% $0.75 9/11/05
75,000 (3) 26.3 0.74 9/11/05
50,000 (4) 17.5 0.74 9/11/05
Kennard H. Morganstern, Ph.D. 0 0 0 0
Paul V. Rossi............... 25,000 (5) 8.8 0.74 9/11/05
Steven M. Nyman............. 60,000 (6) 21.1 0.74 7/20/05
</TABLE>
- --------------------
(1) A total of 285,000 options were granted to employees (including the Named
Executive Officers) in fiscal 1995 under the Corporation's 1994 Stock
Plan.
(2) The exercise price was the fair market value of a share of the
Corporation's Common Stock at the time of grant as determined in
accordance with the Corporation's 1994 Stock Plan. The exercise price may
be paid in cash or in shares of the Corporation's Common Stock valued at
fair market value on the exercise date.
(3) These options have a term of ten years from the date of grant and become
exercisable as to 33.3% of the shares covered thereby on the date of
grant, and an additional 33.3% on each year anniversary thereafter until
such options are fully exercisable.
(4) These options will become fully exercisable on September 9, 1996 if
certain performance thresholds are achieved.
(5) These options have a term of ten years from the date of grant and become
100% exercisable on April 11, 1997.
(6) These options have a term of ten years from the date of grant, and became
100% exercisable on July 21, 1995.
8
Unexercised Option Holdings. The following table sets forth certain
information concerning unexercised stock options held as of December 31, 1995 by
each of the Named Executive Officers (no options were exercised during fiscal
1995 by the Named Executive Officers):
YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT
OPTIONS AT YEAR-END YEAR-END (1)
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
D. Michael Deignan........... 50,000 150,000 $9,750 $29,500
Paul V. Rossi................ 75,000 25,000 15,000 5,000
Steven M. Nyman.............. 60,000 0 12,000 0
Kennard H. Morganstern, Ph.D. 275,000 0 55,000 0
</TABLE>
- ---------------------
(1) Value is based on the difference between the option exercise price and
the fair market value of the Corporation's Common Stock on December 29,
1995, multiplied by the number of shares underlying the options.
Employment Agreements and Severance Policy. None of the Named Executive
Officers has a long-term employment agreement with the Corporation. The
employment of each of the Named Executive Officers may be terminated by the
Corporation at any time. The Corporation's policy is to make a severance payment
of six months' base salary and benefits to Mr. Nyman and nine months' base
salary and benefits to Messrs. Deignan and Rossi if their employment is
terminated by the Corporation. In September of 1994, the Corporation entered
into a transition agreement with Dr. Kennard H. Morganstern, then its President
and Chief Executive Officer. The transition agreement provides, among other
things, that for a period of three years after a new President has been in
office for one year Dr. Morganstern will continue to serve as Chairman of the
Board of Directors and, at the option of the President, make available 50% of
his time for consulting purposes. The transition agreement provides for Dr.
Morganstern to receive 50% of his former compensation plus normal benefits
provided to other officers of the Corporation during the consulting period. See
"-Summary Compensation."
COMPENSATION OF DIRECTORS
Directors who are not employees of the Corporation receive a
participation fee of $500 for each meeting of the Board of Directors attended
and for each committee meeting attended, unless the committee meeting is held on
the same date as a meeting of the Board of Directors. No employee of the
Corporation receives separate compensation for services rendered as a director.
All directors are reimbursed for expenses in connection with attending Board and
committee meetings.
On February 8, 1995, the Corporation granted Mr. Lonergan a warrant to
purchase 25,000 shares of Common Stock at $2.00 per share, exercisable in units
of 6,250 shares each on August 8, 1995, February 8, 1996, August 8, 1997 and
February 8, 1997. On September 11, 1995, the Corporation granted Mr. Deignan a
non-qualified stock option to purchase 75,000 shares of Common Stock at $0.74
per share and an incentive stock option to purchase 75,000 shares of Common
Stock at $0.75 per share. These options are 33.3% exercisable on 9/11/95, 66.3%
exercisable on September 11, 1996 and 100% exercisable on September 11, 1997.
The Corporation also granted to Mr. Deignan a non-qualified stock option to
purchase 50,000 shares of Common Stock at $0.74 per share which will become
exercisable on September 8, 1996, provided certain performance thresholds are
achieved.
9
The Corporation has purchased directors' and officers' liability
insurance from National Union Fire Insurance Corporation of Pittsburgh, PA
covering all of the Corporation's directors and officers. The aggregate premium
for this insurance policy in 1995 was $22,770.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1994, the Corporation processed polytetrafluoroethylene ("PTFE") at
an approximate price of $2,511,000 for Precision Micron Powders, Inc., a company
engaged in the sale and marketing of PTFE in which Robert S. Luniewski, former
Senior Vice President of the Corporation, was the sole shareholder. Mr.
Luniewski resigned in November, 1994. On September 29, 1994, Mr. Cohen, the
Corporation's Secretary and a member of the Corporation's Board of Directors,
and Mr. Hoover, a member of the Corporation's Board of Directors, each received
warrants to purchase 40,000 shares of Common Stock at $2.00 per share. Mr. Cohen
is a partner of Murtagh, Cohen & Byrne, which has provided legal services to the
Corporation. During the 1995 fiscal year, Murtagh, Cohen & Byrne performed legal
services for the Corporation for fees of approximately $80,000. Also, during the
1995 fiscal year, the Corporation made a payment of $100,000 on a $300,000 note
payable to Dr. Morganstern, which note bears interest at the rate of 1% per
annum over the prime rate. Dr. Morganstern is Chairman of the Corporation's
Board of Directors. No payments were made on Dr. Morganstern's note during
fiscal 1994.
PROPOSAL RELATING TO ELECTION OF DIRECTORS
The Board of Directors of the Corporation has nominated four persons
for election as directors of the Corporation at the Special Meeting (the "Board
Nominees"). All of the Board Nominees are currently members of the Corporation's
Board of Directors. The Board Nominees and the year they first joined the Board
of Directors are:
Nominee Year First Joined Board
Harvey Cohen 1982
D. Michael Deignan 1995
John R. Hoover 1983
Kennard H. Morganstern 1982
The Corporation's amended Certificate of Incorporation provides that
the holders of the Series B Preferred and Series C Preferred are entitled to
elect three directors of the Corporation. The entities affiliated with Oxford
Partners, which in the aggregate own 89% of the outstanding Series B Preferred
and Series C Preferred, have nominated the following persons for election as
directors of the Corporation at the Special Meeting, (the "Preferred Stockholder
Nominees"):
Nominee Year First Joined Board
William R. Lonergan 1995
Kenneth W. Rind 1989
Forrest A. Whittaker 1996
The directors of the Corporation are elected annually and hold office
until the next Annual Meeting of Shareholders and until their successors have
been elected and qualified or until their earlier death, resignation or removal.
Shares represented by all proxies received by the Board of Directors and not
marked so as to withhold authority to vote for any individual Board Nominee or
Preferred Stock Nominee (collectively, the "Nominees") or
10
for all Nominees will be voted (unless one or more Nominees are unwilling or
unable to serve) FOR the elections of the Nominees. The Board of Directors knows
of no reason why any Nominee should be unwilling or unable to serve, but if such
should be the case, proxies will be voted for the election of another person or
the Board of Directors may vote to fix the number of directors at a lesser
number. The shares of Series B Preferred and Series C Preferred will vote in the
aggregate as a separate class with respect to the election of the Preferred
Stock Nominees. The holders of Common Stock will vote as a separate class on the
election of the four Board Nominees. The affirmative vote of a majority of the
aggregate outstanding shares of Series B Preferred and Series C Preferred is
required to elect the Preferred Nominees. A plurality of the votes cast by the
holders of Common Stock present or represented by proxy and entitled to vote at
the Special Meeting is required for the elections of the Board Nominees. See
"Voting Procedures" below.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ELECTION OF
THE NOMINEES AS DIRECTORS OF THE CORPORATION
PROPOSAL TO APPROVE THE 1996 STOCK PLAN
The 1996 Stock Plan ("1996 Plan") was adopted by the Board of Directors
on March 21, 1996, subject to shareholder approval at the Special Meeting, and
provides for the issuance of 500,000 shares of Common Stock upon the exercise of
options or in connection with awards or direct purchases of Common Stock. The
1996 Plan is intended to succeed the Corporation's 1994 Stock Plan which has no
shares remaining available for option grants. The Board of Directors believes
that the Corporation's ability to continue to attract and retain qualified
employment candidates is in large part dependent upon the Corporation's ability
to provide such employment candidates long-term, equity-based incentives in the
form of stock options, awards and direct purchases as part of their
compensation. Also, the Board of Directors believes that the ability to grant
options, awards and direct purchases under the 1996 Plan will allow the
Corporation greater flexibility to motivate its employees, consultants, officers
and directors.
Approval of the Corporation's 1996 Plan will require the affirmative
vote of a majority of the votes cast by the holders of Common Stock, Series B
Preferred and Series C Preferred, voting together as a single class on an "as
converted" basis, represented in person or by proxy at the Special Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL
OF THE CORPORATION'S 1996 PLAN.
DESCRIPTION OF THE 1996 PLAN
The purpose of the 1996 Plan is to provide incentives to officers,
directors, employees and consultants of the Corporation and any subsidiaries of
the Corporation (collectively, "Related Corporations"). Under the 1996 Plan,
officers and employees of the Corporation and any Related Corporations may be
granted "incentive stock options" ("ISO" or "ISOs") within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and
directors, officers, employees and consultants of the Corporation and any
Related Corporations may be granted options which do not qualify as ISOs
("Non-Qualified Option" or "Non-Qualified Options") and, in addition, such
persons may be granted awards of stock in the Corporation ("Awards") and
opportunities to make direct purchases of stock in the Corporation
("Purchases"). Both ISOs and Non-Qualified Options are referred to hereafter
individually as an "Option" and collectively as "Options." Options, Awards and
Purchases are referred to hereafter collectively as "Stock Rights."
Approximately 110 employees, consultants, directors and officers will be
eligible to participate in the 1996 Plan.
Anything in the 1996 Plan to the contrary notwithstanding, the
effectiveness of the 1996 Plan and of the grant of all options thereunder is in
all respects subject to the approval of the 1996 Plan by the affirmative vote of
the a majority of the votes cast on the matter at the Special Meeting by the
holders of Common Stock, Series B Preferred and Series C Preferred, voting
together as a single class on an "as converted" basis. In the event that such
shareholder approval is not received at the 1996 Special Meeting, then the 1996
Plan and any options granted thereunder shall be void.
11
Administration. The 1996 Plan will be administered by the Compensation
Committee, which currently consists of Messrs. Hoover, Rind, and Lonergan.
Subject to the terms of the 1996 Plan, the Compensation Committee has the
authority to determine the persons to whom Stock Rights shall be granted
(subject to certain eligibility requirements for grants of ISOs), the number of
shares covered by each such grant, the exercise or purchase price per share, the
time or times at which Stock Rights shall be granted, and other terms and
provisions governing the Stock Rights, as well as the restrictions, if any,
applicable to shares of Common Stock issuable upon exercise of Stock Rights. The
Compensation Committee also has the authority to determine the duration, vesting
and rate of each Option and whether restrictions such as repurchase rights of
the Corporation are to be imposed on shares of stock subject to Stock Rights.
The Compensation Committee has the authority to interpret the 1996 Plan and to
prescribe and rescind regulations pertaining to it.
Eligible Employees and Others. Subject to the above mentioned
limitations, ISOs under the 1996 Plan may be granted to any employee of the
Corporation or any Related Corporation. Only those officers and directors of the
Corporation who are employees of the Corporation or any Related Corporation may
be granted ISOs under the 1996 Plan. To the extent that the aggregate fair
market value (determined on the date of grant of an ISO) of Common Stock for
which ISOs granted to any employee are exercisable for the first time by such
employee during any calendar year (under all stock option plans of the
Corporation and any Related Corporation) exceeds $100,000, the Corporation
intends to designate such excess options as Non-Qualified Options. In addition,
under the terms of the 1996 Plan, no employee may be granted Options to acquire
more than 300,000 shares of Common Stock. Otherwise, there is no restriction as
to the maximum or minimum amount of Options an employee may receive.
Non-Qualified Options, Awards and Purchases may be granted to any director,
officer, employee or consultant of the Corporation or any Related Corporation.
Shares Subject to the 1996 Plan. The 1996 Plan authorizes the grant of
Stock Rights to acquire 500,000 shares of Common Stock. The number of shares of
Common Stock issuable under the 1996 Plan or subject to outstanding Stock Rights
is subject to adjustment as described hereinafter under "Changes in Stock;
Recapitalization and Reorganization." Pursuant to the terms of the 1996 Plan,
shares subject to Stock Rights which for any reason expire or are terminated
unexercised as to such shares may again be the subject of a grant under the 1996
Plan. The market value of the Common Stock is $1.08, based on the average of the
bid and ask prices of the Common Stock as reported by Nasdaq Bulletin Board on
March 21, 1996.
Granting of Options. Stock Rights may be granted under the 1996 Plan at
any time after March 21, 1996 and prior to March 21, 2006. The Compensation
Committee may, with the consent of the optionee, convert an ISO granted under
the 1996 Plan to a Non-Qualified Option.
Non-Qualified Option Price. The exercise price per share of
Non-Qualified Options granted under the 1996 Plan cannot be less than the
minimum legal consideration required therefor under the laws of any jurisdiction
in which the Corporation or its successors in interest may be organized.
ISO Price. The exercise price per share of ISOs granted under the 1996
Plan cannot be less than the fair market value of the Common Stock on the date
of grant, or, in the case of ISOs granted to employees holding more than 10% of
the total combined voting power of all classes of stock of the Corporation or
any Related Corporation, 110% of the fair market value of the Common Stock on
the date of grant.
Option Duration. The 1996 Plan requires that each Option shall expire
on the date specified by the Compensation Committee, but not more than ten years
from its date of grant in the case of Options generally. However, in the case of
any ISO granted to an employee owning more than 10% of the total combined voting
power of all classes of stock of the Corporation or any Related Corporation,
such ISO shall expire on the date specified by the Compensation Committee, but
not more than five years from its date of grant.
Exercise of Options and Payment for Stock. Each Option granted under
the 1996 Plan shall be exercisable as follows:
12
A. The Option will either be fully exercisable at the time of
grant or shall become exercisable in such installments as the Compensation
Committee may specify.
B. Once an installment becomes exercisable, it remains
exercisable until expiration or termination of the Option, unless otherwise
specified by the Compensation Committee.
C. Each Option may be exercised from time to time, in whole or
in part, up to the total number of shares with respect to which it is then
exercisable.
D. The Compensation Committee shall have the right to
accelerate the date that any installment of any Option becomes exercisable.
However, the Compensation Committee may not accelerate the permitted exercise
date of any ISO granted to an employee if the acceleration would violate Section
422(d) of the Code.
Effect of Termination of Employment, Death or Retirement. If the holder
of an ISO ceases to be employed by the Corporation or any Related Corporation
other than by reason of death or disability, no further installments of his or
her ISOs will become exercisable, and the ISOs will terminate on the earliest of
3 months from the date of termination of employment or their specified
expiration dates, except to the extent that such ISOs shall have been converted
into Non-Qualified Options.
If an optionee dies, any ISO held by the optionee may be exercised, to
the extent otherwise exercisable on the date of death, by the optionee's estate,
personal representative or beneficiary who acquires the ISO by will or by the
laws of descent and distribution, at any time within 180 days from the date of
the optionee's death (but not later than the specified expiration date of the
ISO). If an ISO optionee ceases to be employed by the Corporation or any Related
Corporation by reason of his or her permanent and total disability, the optionee
may exercise any ISO held by him or her on the date of termination of
employment, to the extent otherwise exercisable on that date, at any time within
180 days from the date of termination of employment (but not later than the
specified expiration date of the ISO).
Non-Qualified Options, Awards and Purchases are subject to such
termination and cancellation provisions as may be determined by the Compensation
Committee.
Non-Assignability of Stock Rights. During the lifetime of the grantee,
only the grantee may exercise a Stock Right. No assignment or transfers are
permitted, except that Stock Right may be transferred by will or by the laws of
descent and distribution and, with respect to Non-Qualified Options only,
transfers pursuant to a valid domestic relations order are permitted.
Changes in Stock; Recapitalization and Reorganization. In the event the
shares of Common Stock of the Corporation are subdivided or combined into a
greater or smaller number of shares or if the Corporation issues any shares of
Common Stock as a stock dividend on its outstanding Common Stock, the number of
shares of Common Stock of the Corporation deliverable upon the exercise of
Options shall be appropriately increased or decreased proportionately, and
appropriate adjustments shall be made in the purchase price per share to reflect
such event.
Upon a consolidation, merger, or sale of all or substantially all of
the Corporation's assets (an "Acquisition"), the Board of Directors, the
Compensation Committee or the Board of Directors of any entity assuming the
obligations of the Corporation under the 1996 Plan ("Successor Board"), shall,
as to outstanding Options, take one or more of the following actions: continue
such Options by substituting on an equitable basis for the shares then subject
to such Options either the consideration payable with respect to the outstanding
shares of Common Stock in connection with the Acquisition; or shares of stock of
the surviving corporation; or any equity securities of the successor corporation
or other securities as the Successor Board deems appropriate (the fair market
value of which may not exceed the fair market value of shares of Common Stock
subject to such Options immediately preceding the transaction). Alternatively,
upon written notice to the optionees, the Board of Directors, Compensation
Committee or the Successor Board may provide that all Options must be exercised,
to the extent then exercisable, within a specified number of days; or terminate
all Options in exchange for a cash payment equal to the
13
excess of the fair market value of the shares subject to such Options (to the
extent then exercisable) over the exercise price thereof.
In the event of a recapitalization or reorganization of the Corporation
pursuant to which securities of the Corporation or of another corporation are
issued with respect to the outstanding shares of Common Stock, upon exercising
an Option, the holder thereof is entitled to receive for the purchase price paid
upon such exercise the securities he would have received if he had exercised his
Option prior to such recapitalization or reorganization.
Upon the happening of any of the foregoing events, the class and
aggregate number of shares that are subject to Stock Rights which previously
have been or subsequently may be granted under the 1996 Plan will also be
appropriately adjusted to reflect the events described above. Notwithstanding
the foregoing, with respect to ISOs, the foregoing adjustments may be made only
after the Compensation Committee, in consultation with legal counsel, determines
that such adjustments would not constitute a modification of such ISOs or would
not cause adverse tax consequences to the holders of the ISOs.
In the event of the proposed dissolution or liquidation of the
Corporation, each Option will terminate immediately prior to the consummation of
such proposed action or at such other time and subject to such other conditions
as may be determined by the Compensation Committee.
Amendment, Suspension and Termination of the 1996 Plan. The Board of
Directors may terminate or amend the 1996 Plan in any respect at any time,
except that, without the approval of the Corporation's shareholders within
twelve months before or after the Board of Directors adopts a resolution
authorizing any of the following actions, (a) the total number of shares that
may be issued under the 1996 Plan may not be increased except as previously
described under "Changes in Stock; Recapitalization and Reorganization"; (b) the
benefits accruing to participants under the 1996 Plan may not be increased
(except by adjustment referred to above); (c) the requirements as to eligibility
for participation in the Plan may not be materially modified; (d) the provisions
regarding eligibility for grants of ISOs may not be modified; (e) the provisions
regarding the exercise price at which shares may be offered pursuant to ISOs may
not be modified (except by adjustment referred to above); (f) the expiration
date of the 1996 Plan may not be extended; and (g) the Board of Directors may
not take any action which would cause the 1996 Plan to fail to comply with Rule
16b-3. No action of the Board of Directors or shareholders, however, may,
without the consent of an optionee, alter or impair his rights under any Stock
Right previously granted to him.
Miscellaneous. The proceeds received by the Corporation from the sale
of shares pursuant to the 1996 Plan will be used for general corporate purposes.
The Corporation's obligations to deliver shares is subject to the approval of
any governmental authority required in connection with the sale or issuance of
such shares. The exercise of Non-Qualified Options, Awards or Purchases for less
than fair market value may require the holder to recognize ordinary income and
pay additional withholding taxes in respect of such income, and the Compensation
Committee may condition the grant or exercise of an Option, Award or Purchase on
the payment to the Corporation of such taxes. Unless terminated earlier by the
Board of Directors, the 1996 Plan will expire at the end of the day on March 21,
2006.
Terms and Conditions of Options. Options will be evidenced by
instruments (which need not be identical) in such forms as the Compensation
Committee may from time to time approve. Such instruments will conform to such
terms and conditions as are applicable under the 1996 Plan and may contain such
other provisions as the Compensation Committee deems advisable which are not
inconsistent with the 1996 Plan, including restrictions applicable to shares of
Common Stock issuable upon exercise of Options.
Exercise of Options. Options may be exercised by giving written notice
to the Corporation at its principal office address. Such notice must identify
the Option being exercised and specify the number of shares as to which such
Option is being exercised, accompanied by full payment of the purchase price
therefor either (a) in United States dollars in cash or by check, or (b) at the
discretion of the Compensation Committee, through delivery of shares of Common
Stock having a fair market value equal as of the date of the exercise to the
cash exercise price of the Option, or (c) at the discretion of the Compensation
Committee, by delivery of the grantee's personal recourse
14
note bearing interest payable not less than annually at no less than 100% of the
lowest applicable Federal rate, as defined in Section 1274(d) of the Code, or
(d) at the discretion of the Compensation Committee and consistent with
applicable law, through the delivery of an assignment to the Corporation of a
sufficient amount of the proceeds from the sale of the Common Stock acquired
upon the exercise of the Option and authorization to the broker or selling agent
to pay that amount to the Corporation, which sale must be at the grantee's
direction at the time of exercise; or (e) at the discretion of the Compensation
Committee, by any combination of (a), (b), (c) and (d) above. The holder of an
Option will not have the rights of a shareholder with respect to the shares
covered by his Option until the date of issuance of a stock certificate to him
for such shares. Except as expressly provided in the 1996 Plan with respect to
changes in capitalization and stock dividends, no adjustment will be made for
dividends or similar rights for which the record date is before the date such
stock certificate is issued.
FEDERAL INCOME TAX CONSEQUENCES
A. Incentive Stock Options. The following general rules are applicable
to holders of ISOs and to the Corporation for Federal income tax purposes under
existing law:
1. Generally, no taxable income results to the optionee upon
the grant of an ISO or upon the issuance of shares to him or her upon
exercise of the ISO.
2. No federal income tax deduction is allowed to the
Corporation upon either grant or exercise of an ISO under the 1996
Plan.
3. If shares acquired upon exercise of an ISO are not disposed
of within two years following the date the ISO was granted or within
one year following the date the shares are transferred to the optionee
pursuant to the ISO exercise (the "Holding Periods"), the difference
between the amount realized on any subsequent disposition of the shares
and the exercise price will generally be treated as capital gain or
loss to the optionee.
4. If shares acquired upon exercise of an ISO are disposed of
on or before the expiration of one or both of the requisite Holding
Periods (a "Disqualifying Disposition"), then in most cases the lesser
of (i) any excess of the fair market value of the shares at the time of
exercise of the ISO over the exercise price or (ii) the actual gain on
disposition, will be treated as compensation to the optionee and will
be taxed as ordinary income in the year of such disposition.
5. In any year that an optionee recognizes compensation income
on a Disqualifying Disposition of stock acquired by exercising an ISO,
the Corporation generally will be entitled to a corresponding deduction
for federal income tax purposes.
6. Any excess of the amount realized by the optionee as the
result of a Disqualifying Disposition over the sum of (i) the exercise
price and (ii) the amount of ordinary income recognized under the above
rules generally will be treated as capital gain.
7. Capital gain or loss recognized on a disposition of shares
will be long-term capital gain or loss if the optionee's holding period
for the shares exceeds one year.
8. An optionee may be entitled to exercise an ISO by
delivering shares of the Corporation's Common Stock to the Corporation
in payment of the exercise price, if the optionee's ISO agreement so
provides. If an optionee exercises an ISO in such fashion, special
rules will apply.
9. In addition to the tax consequences described above, the
exercise of ISOs may result in a further "minimum tax" under the Code.
The Code provides that an "alternative minimum tax" (at a maximum rate
of 28%) will be applied against a taxable base which is equal to
"alternative minimum taxable income," reduced by a statutory exemption
(subject to a phase-out). In general, the amount by
15
which the value of the Common Stock received upon exercise of the ISO
exceeds the exercise price is included in the optionee's alternative
minimum taxable income. A taxpayer is required to pay the higher of his
regular tax or the alternative minimum tax. A taxpayer who pays
alternative minimum tax attributable to the exercise of an ISO may be
entitled to a tax credit against his or her regular tax liability in
later years.
10. Special rules apply if the Common Stock acquired through
the exercise of an ISO is subject to vesting, or is subject to certain
restrictions on resale under federal securities laws applicable to
directors, officers or 10% stockholders.
B. Non-Qualified Stock Options. The following general rules are
applicable to holders of Non-Qualified Options and to the Corporation for
Federal income tax purposes under existing law:
1. The optionee generally does not recognize any taxable
income upon the grant of a Non-Qualified Option, and the Corporation is
not allowed a federal income tax deduction by reason of such grant.
2. The optionee generally will recognize ordinary compensation
income at the time of exercise of the Non-Qualified Option in an amount
equal to the excess, if any, of the fair market value of the shares on
the date of exercise over the exercise price. The Corporation may be
required to withhold income tax on this amount.
3. When the optionee sells the shares acquired pursuant to the
exercise of a Non-Qualified Option, he or she generally will recognize
a capital gain or loss in an amount equal to the difference between the
amount realized upon the sale of the shares and his or her basis in the
shares (generally, the exercise price plus the amount taxed to the
optionee as compensation income). If the optionee's holding the shares
exceeds one year, such gain or loss will be a long-term capital gain or
loss.
4. In general, the Corporation will be entitled to a federal
income tax deduction when compensation is recognized by the optionee.
5. An optionee may be entitled to exercise a Non-Qualified
Option by delivering shares of the Corporation's Common Stock to the
Corporation in payment of the exercise price. If an optionee exercises
a Non-Qualified Option in such fashion, special rules will apply.
6. Special rules apply if the Common Stock acquired through
the exercise of a Non-Qualified Option is subject to vesting, or is
subject to certain restrictions on resale under federal securities laws
applicable to directors, officers or 10% stockholders.
C. Special Rules for Restricted Stock. Officers, directors and 10%
shareholders of the Corporation may in some instances acquire Common Stock
subject to special rules under Section 83 of the Code because of certain
securities laws restrictions on resale ("Restricted Stock"). If an optionee
acquires Restricted Stock, the amount included in compensation income (in the
case of a Non-Qualified Option, or of an ISO if a disqualifying disposition of
such stock is made) or in alternative minimum taxable income (in the case of an
ISO) generally will be determined as of some later date and will equal the
difference between the amount paid for the Restricted Stock and its fair market
value at that time, unless the optionee files a timely election under Section
83(b) of the Code electing to determine the amount of income at the time of
exercise.
D. Awards and Purchases. Persons receiving Common Stock pursuant to an
Award or Purchase generally will recognize ordinary compensation income equal to
the fair market value of the shares received, in the case of an Award, or the
excess of the fair market value of the shares over the purchase price, in the
case of a Purchase. The Corporation generally will be entitled to a
corresponding federal income tax deduction. When Common Stock acquired pursuant
to an Award or Purchase is sold, the seller generally will recognize capital
gain or loss equal to the difference between the amount realized upon the sale
of shares and his or her basis in the shares (generally, the fair market value
of the shares when acquired) which will be short- or long-term capital gain or
loss
16
depending upon the seller's holding period. Special rules apply if the purchase
price (in the case of a Purchase) is paid by delivering shares of Common Stock,
or if the stock acquired pursuant to an Award or Purchase is Restricted Stock
(as described above).
E. Capital Gains and Losses. Although capital gain is generally subject
to federal income tax on individuals at the same rates as ordinary income, the
maximum rate of tax on "net capital gain" (i.e., the excess of net long-term
capital gain over net short-term capital loss) is 28%, whereas the maximum rate
of tax on ordinary income and net short-term capital gain currently is 39.6%. In
addition, capital losses may be used to offset an equal amount of capital gains,
whereas at most $3,000 of net capital loss may be deducted against ordinary
income each year.
F. $1,000,000 Annual Deduction Limitation. Section 162(m) of the Code
provides that compensation paid to certain highly paid executive officers is not
deductible by the Corporation for federal income tax purposes to the extent such
compensation exceeds $1,000,000 in any taxable year of the Corporation unless
the excess compensation qualifies for an exception. One exception is for
"qualified performance-based compensation." Compensation recognized pursuant to
the exercise of Non-Qualified Options (or with respect to ISOs, perhaps pursuant
to a Disqualifying Disposition of stock) may qualify for the performance based
exception if certain requirements are met. The provisions of the proposed 1996
Plan are designed to enable the Corporation to qualify options granted
thereunder for the performance-based exception in the discretion of the Board of
Directors and the Compensation Committee.
PROPOSAL TO APPROVE AN AMENDMENT TO THE CORPORATION'S
RESTATED CERTIFICATE OF INCORPORATION
The Board of Directors has resolved to recommend to the shareholders
that the Corporation amend (the "Amendment") the Corporation's Restated
Certificate of Incorporation ("Restated Certificate") to permit the Corporation
to issue certain additional securities without triggering anti-dilution
provisions with respect to the Corporation's Preferred Stock.
Paragraph "FOURTH A" of the Restated Certificate provides for certain
anti-dilution protections for the holders of the Corporation's Preferred Stock.
Generally, these provisions provide for a decrease in the conversion price of
the Preferred Stock if the Corporation issues securities for consideration less
than the then existing conversion price. The Restated Certificate currently
exempts from these anti-dilution provisions up to 1,000,000 shares of Common
Stock which may be issued pursuant to stock options or other derivative
securities issued to officers, directors, consultants or employees of the
Corporation in connection with their employment.
The Corporation has over time issued options or derivative securities
for 1,000,000 shares of Common Stock and, as such, cannot issue further options
or derivative securities to officers, directors, consultants or employees,
including under the 1996 Plan, without triggering the anti-dilution provisions
of the Restated Certificate. As described above under "Proposal to Approve the
1996 Stock Plan," the Board of Directors believes that the Corporation's ability
to continue to attract and retain qualified employment candidates is in large
part dependent upon the Corporation's ability to provide such candidates
long-term, equity based incentives as part of their compensation. The Board of
Directors has, therefore, resolved to amend the Restated Certificate to permit
the Corporation to issue Common Stock and options and other derivative
securities to acquire Common Stock pursuant to any stock plan adopted and
approved by the Corporation's Board of Directors, including at least one
director nominated by the holders of the Preferred Stock, without triggering the
anti-dilution provisions of the Restated Certificate. The text of the Amendment
is attached to this proxy statement as Attachment I.
Approval of the Amendment to the Restated Certificate will require the
affirmative vote of the holders of two-thirds of the outstanding shares of
Series B Preferred and Series C Preferred in the aggregate, and a majority of
the votes cast by the holders of Common Stock represented in person or by proxy
at the Special Meeting.
17
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
AMENDMENT TO THE RESTATED CERTIFICATE.
RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors, upon the recommendation of the Audit Committee,
has selected the firm of Coopers and Lybrand L.L.P., independent certified
public accountants, to serve as auditors for the fiscal year ending December 31,
1996. Coopers & Lybrand L.L.P. has served as the Corporation's auditors for the
past two fiscal years. It is expected that a member of Coopers & Lybrand L.L.P.
will be present at the Special Meeting with the opportunity to make a statement
if so desired and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION
OF COOPERS & LYBRAND L.L.P. AS AUDITORS
VOTING PROCEDURES
The presence, in person or by proxy, of at least a majority of the
outstanding shares of Common Stock and Series B Preferred and Series C Preferred
shares entitled to vote at the meeting is necessary to constitute a quorum for
the transaction of business. Under the laws of the State of New York, the
Corporation's state of incorporation, "votes cast" at a meeting of shareholders
by the holders of shares entitled to vote are determinative of the outcome of
the matter subject to vote. Abstentions, broker non-votes, and withheld votes
will not be considered "votes cast" based on the Corporation's understanding of
state law requirements and the Corporation's Certificate of Incorporation and
By-laws. A "non-vote" occurs when a broker or other nominee holding shares for a
beneficial owner votes on one proposal, but does not vote on another proposal
because, in respect of such other proposal, the broker or other nominee does not
have discretionary voting power and has not received instructions from the
beneficial owner. The affirmative vote of a majority of the aggregate
outstanding shares of Series B Preferred and Series C Preferred is required to
elect the Preferred Nominees. A plurality of the votes cast by holders of the
outstanding Common Stock is required to elect the Board Nominees. On all other
matters being submitted to shareholders at the Special Meeting, the affirmative
vote of a majority of the shares present, in person or represented by proxy, and
voting on that matter is required for approval, with the exception of approval
of the Amendment to the Restated Certificate which also requires the separate
affirmative vote of the holders of two-thirds of the outstanding shares of
Series B Preferred and Series C Preferred in the aggregate. On these other
matters, the holders of shares of Preferred Stock vote together with the shares
of Common Stock and are entitled to cast one vote for each share of Common Stock
into which each share of Preferred Stock is convertible. An automated system
administered by the Corporation's transfer agent tabulates the votes. The vote
on each matter submitted to shareholders is tabulated separately. All Special
Meeting proxies, ballots, and tabulations that identify individual shareholders
are kept secret, and no such document shall be available for examination, nor
shall the identity or the vote of any shareholder be disclosed except as may be
necessary to meet legal requirements under the laws of New York, the
Corporation's state of incorporation.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended for inclusion in the proxy statement
to be furnished to all shareholders entitled to vote at the next Annual Meeting
of Shareholders of the Corporation must be received at the Corporation's
principal executive offices not later than January 1, 1997. In order to curtail
controversy as to the date on which a proposal was received by the Corporation,
it is suggested that proponents submit their proposals by Certified Mail, Return
Receipt Requested.
18
EXPENSES AND SOLICITATION
The cost of solicitation of proxies will be borne by the Corporation,
and in addition to soliciting shareholders by mail through its regular
employees, the Corporation may request banks, brokers and other custodians,
nominees and fiduciaries to solicit their customers who have stock of the
Corporation registered in the names of a nominee and, if so, will reimburse such
banks, brokers and other custodians, nominees and fiduciaries for their
reasonable out-of-pocket costs. Solicitation by officers and employees of the
Corporation may also be made of some shareholders in person or by mail,
telephone or telegraph following the original solicitation.
19
Attachment I
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
MEDICAL STERILIZATION, INC.
- --------------------------------------------------------------------------------
Under Section 805 of the New York Business Corporation Law
- --------------------------------------------------------------------------------
IT IS HEREBY CERTIFIED THAT:
FIRST: The name of the corporation is Medical Sterilization,
Inc. (the "Corporation"). The original name under which the Corporation was
formed was General Sterilization Services, Inc.
SECOND: The Certificate of Incorporation of the Corporation
was filed by the Department of State of New York on May 27, 1982. Restated
Certificates of Incorporation and Certificates of Amendment were filed on May
12, 1983, August 5, 1983, May 24, 1989, January 4, 1990 and November 22, 1994.
THIRD: The amendment of the Restated Certificate of
Incorporation of the Corporation effected by this Certificate of Amendment is to
permit the Corporation to issue certain additional securities without triggering
anti-dilution provisions with respect to the Corporation's Series B Convertible
Preferred Stock and Series C Convertible Preferred Stock.
20
FOURTH: To accomplish the foregoing amendment, Paragraph
FOURTH A(g)(vi) of the Restated Certificate of Incorporation of the Corporation
is hereby amended to read in its entirety as follows:
(vi) Certain Issues of Common Stock Excepted.
Anything herein to the contrary notwithstanding, the
Corporation shall not be required to make any adjustment of
the Conversion Price in the case of the issuance of: stock
options, stock awards or rights to purchase shares of Common
Stock issued or awarded pursuant to any stock plan adopted and
approved by the Board of Directors of the Corporation,
provided that, for so long as any shares of Series B
Convertible Preferred Stock of Series C Convertible Preferred
Stock are outstanding, at least one director nominated by the
holders of the then outstanding shares of Series B Convertible
Preferred Stock and Series C Convertible Preferred Stock shall
have voted in favor of the adoption and approval of such stock
plan; the issuance of 1,542,000 shares of Series C Convertible
Preferred Stock with a conversion price of $1.00 per share;
and the issuance of warrants to purchase 80,000 shares of
common stock of the Corporation at a price of $1.00 per share.
FIFTH: The foregoing amendment of the Restated Certificate of
Incorporation of the Corporation was authorized by the Board of Directors of the
Corporation, followed by the consent of the holders of two-thirds of the
outstanding shares of Series B Convertible Preferred Stock and Series C
Convertible Preferred Stock in the aggregate, and a majority of the votes cast
by the holders of Common Stock entitled to vote on the said amendment of the
Restated Certificate of Incorporation.
IN WITNESS WHEREOF, the undersigned subscribed this document
on the date set forth below and do hereby affirm, under the penalties of
perjury, that the statements contained herein have been examined by the
undersigned and are true and correct.
Dated: April __, 1996
-------------------------------------------
D. Michael Deignan, Chief Executive Officer
and President
-------------------------------------------
Harvey Cohen, Secretary
MEDICAL STERILIZATION, INC.
1996 STOCK PLAN
1. PURPOSE. The purpose of the Medical Sterilization, Inc. 1996 Stock
Plan (the "Plan") is to encourage key employees of Medical Sterilization, Inc.
(the "Company") and of any present or future parent or subsidiary of the Company
(collectively, "Related Corporations") and other individuals who render services
to the Company or a Related Corporation, by providing opportunities to
participate in the ownership of the Company and its future growth through (a)
the grant of options which qualify as "incentive stock options" ("ISOs") under
Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code");
(b) the grant of options which do not qualify as ISOs ("Non-Qualified Options");
(c) awards of stock in the Company ("Awards"); and (d) opportunities to make
direct purchases of stock in the Company ("Purchases"). Both ISOs and
Non-Qualified Options are referred to hereafter individually as an "Option" and
collectively as "Options." Options, Awards and authorizations to make Purchases
are referred to hereafter collectively as "Stock Rights." As used herein, the
terms "parent" and "subsidiary" mean "parent corporation" and "subsidiary
corporation," respectively, as those terms are defined in Section 424 of the
Code.
2. ADMINISTRATION OF THE PLAN.
A. BOARD OR COMMITTEE ADMINISTRATION. The Plan shall be
administered by the Board of Directors of the Company (the "Board") or by a
committee appointed by the Board (the "Committee"); provided that the Plan shall
be administered: (i) to the extent required by applicable regulations under
Section 162(m) of the Code, by two or more "outside directors" (as defined in
applicable regulations thereunder) and (ii) to the extent required by Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or any successor provision ("Rule 16b-3"), by a disinterested
administrator or administrators within the meaning of Rule 16b-3. Hereinafter,
all references in this Plan to the "Committee" shall mean the Board if no
Committee has been appointed. Subject to ratification of the grant or
authorization of each Stock Right by the Board (if so required by applicable
state law), and subject to the terms of the Plan, the Committee shall have the
authority to (i) determine to whom (from among the class of employees eligible
under paragraph 3 to receive ISOs) ISOs shall be granted, and to whom (from
among the class of individuals and entities eligible under paragraph 3 to
receive Non-Qualified Options and Awards and to make Purchases) Non-Qualified
Options, Awards and authorizations to make Purchases may be granted; (ii)
determine the time or times at which Options or Awards shall be granted or
Purchases made; (iii) determine the purchase price of shares subject to each
Option or Purchase, which prices shall not be less than the minimum price
specified in paragraph 6; (iv) determine whether each Option granted shall be an
ISO or a Non-Qualified Option; (v) determine (subject to paragraphs 7 and 8) the
time or times when each Option shall become exercisable and the duration of the
exercise period; (vi) extend the period during which outstanding Options may be
exercised; (vii) determine whether restrictions such as repurchase options and
rights of first refusal are to be imposed on
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shares subject to Options, Awards and Purchases and the nature of such
restrictions, if any, and (viii) interpret the Plan and prescribe and rescind
rules and regulations relating to it. If the Committee determines to issue a
Non-Qualified Option, it shall take whatever actions it deems necessary, under
Section 422 of the Code and the regulations promulgated thereunder, to ensure
that such Option is not treated as an ISO. The interpretation and construction
by the Committee of any provisions of the Plan or of any Stock Right granted
under it shall be final unless otherwise determined by the Board. The Committee
may from time to time adopt such rules and regulations for carrying out the Plan
as it may deem advisable. No member of the Board or the Committee shall be
liable for any action or determination made in good faith with respect to the
Plan or any Stock Right granted under it.
B. COMMITTEE ACTIONS. The Committee may select one of its
members as its chairman, and shall hold meetings at such time and places as it
may determine. A majority of the Committee shall constitute a quorum and acts of
a majority of the members of the Committee at a meeting at which a quorum is
present, or acts reduced to or approved in writing by all the members of the
Committee (if consistent with applicable state law), shall be the valid acts of
the Committee. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies
however caused, or remove all members of the Committee and thereafter directly
administer the Plan.
C. GRANT OF STOCK RIGHTS TO BOARD MEMBERS. Subject to the
provisions of the first sentence of paragraph 2(A) above, if applicable, Stock
Rights may be granted to members of the Board. All grants of Stock Rights to
members of the Board shall in all other respects be made in accordance with the
provisions of this Plan applicable to other eligible persons. Consistent with
the provisions of the first sentence of Paragraph 2(A) above, members of the
Board who either (i) are eligible to receive grants of Stock Rights pursuant to
the Plan or (ii) have been granted Stock Rights may vote on any matters
affecting the administration of the Plan or the grant of any Stock Rights
pursuant to the Plan, except that no such member shall act upon the granting to
himself or herself of Stock Rights, but any such member may be counted in
determining the existence of a quorum at any meeting of the Board during which
action is taken with respect to the granting to such member of Stock Rights.
3. ELIGIBLE EMPLOYEES AND OTHERS. ISOs may be granted only to employees
of the Company or any Related Corporation. Non-Qualified Options, Awards and
authorizations to make Purchases may be granted to any employee, officer or
director (whether or not also an employee) or consultant of the Company or any
Related Corporation. The Committee may take into consideration a recipient's
individual circumstances in determining whether to grant a Stock Right. The
granting of any Stock Right to any individual or entity shall neither entitle
that individual or entity to, nor disqualify such individual or entity from,
participation in any other grant of Stock Rights.
4. STOCK. The stock subject to Stock Rights shall be authorized but
unissued shares of Common Stock of the Company, $. 01 par value (the "Common
Stock"), or shares of Common Stock reacquired by the Company in any manner. The
aggregate number of shares
-3-
which may be issued pursuant to the Plan is 500,000, subject to adjustment as
provided in paragraph 13. If any Stock Right granted under the Plan shall expire
or terminate for any reason without having been exercised in full or shall cease
for any reason to be exercisable in whole or in part or shall be repurchased by
the Company, the shares of Common Stock subject to such Stock Right shall again
be available for grants of Stock Rights under the Plan.
Subject to adjustments as provided in paragraph 13, no employee of the
Company or any Related Corporation may be granted Options to acquire, in the
aggregate, more than 300,000 shares of Common Stock under the Plan. If any
Option granted under the Plan shall expire or terminate for any reason without
having been exercised in full or shall cease for any reason to be exercisable in
whole or in part or shall be repurchased by the Company, the shares subject to
such Option shall be included in the determination of the aggregate number of
shares of Common Stock deemed to have been granted to such employee under the
Plan.
5. GRANTING OF STOCK RIGHTS. Stock Rights may be granted under the Plan
at any time on or after March 21, 1996 and prior to March 21, 2006. The date of
grant of a Stock Right under the Plan will be the date specified by the
Committee at the time it grants the Stock Right; provided, however, that such
date shall not be prior to the date on which the Committee acts to approve the
grant.
6. MINIMUM OPTION PRICE; ISO LIMITATIONS.
A. PRICE FOR NON-QUALIFIED OPTIONS, AWARDS AND PURCHASES. The
exercise price per share specified in the agreement relating to each
Non-Qualified Option granted, and the purchase price per share of stock granted
in any Award or authorized as a Purchase, under the Plan shall in no event be
less than the minimum legal consideration required therefor under the laws of
any jurisdiction in which the Company or its successors in interest may be
organized. The Committee may, in its discretion, subject any Non-Qualified
Option granted under the Plan or Award made or Purchase authorized under the
Plan to any terms or conditions necessary for such Stock Right to qualify as
performance-based compensation under Section 162(m) of the Code and any
applicable regulations thereunder.
B. PRICE FOR ISOS. The exercise price per share specified in
the agreement relating to each ISO granted under the Plan shall not be less than
the fair market value per share of Common Stock on the date of such grant. In
the case of an ISO to be granted to an employee owning stock possessing more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or any Related Corporation, the price per share specified
in the agreement relating to such ISO shall not be less than one hundred ten
percent (110%) of the fair market value per share of Common Stock on the date of
grant. For purposes of determining stock ownership under this paragraph, the
rules of Section 424(d) of the Code shall apply.
C. $100,000 ANNUAL LIMITATION ON ISO VESTING. Each eligible
employee may be granted Options treated as ISOs only to the extent that, in the
aggregate under this Plan and all incentive stock option plans of the Company
and any Related Corporation, ISOs do not become exercisable for the first time
by such employee during any calendar year with respect to stock having a fair
market value (determined at the time the ISOs were granted) in excess of
-4-
$100,000. The Company intends to designate any Options granted in excess of such
limitation as Non-Qualified Options.
D. DETERMINATION OF FAIR MARKET VALUE. If, at the time an
Option is granted under the Plan, the Company's Common Stock is publicly traded,
"fair market value" shall be determined as of the date of grant or, if the
prices or quotes discussed in this sentence are unavailable for such date, the
last business day for which such prices or quotes are available prior to the
date of grant and shall mean (i) the average (on that date) of the high and low
prices of the Common Stock on the principal national securities exchange on
which the Common Stock is traded, if the Common Stock is then traded on a
national securities exchange; or (ii) the last reported sale price (on that
date) of the Common Stock on the Nasdaq National Market, if the Common Stock is
not then traded on a national securities exchange; or (iii) the closing bid
price (or average of bid prices) last quoted (on that date) by an established
quotation service for over-the-counter securities, if the Common Stock is not
reported on the Nasdaq National Market. If the Common Stock is not publicly
traded at the time an Option is granted under the Plan, "fair market value"
shall mean the fair value of the Common Stock as determined by the Committee
after taking into consideration all factors which it deems appropriate,
including, without limitation, recent sale and offer prices of the Common Stock
in private transactions negotiated at arm's length.
7. OPTION DURATION. Subject to earlier termination as provided in
paragraphs 9 and 10 or in the agreement relating to such Option, each Option
shall expire on the date specified by the Committee, but not more than (i) ten
years from the date of grant in the case of Options generally and (ii) five
years from the date of grant in the case of ISOs granted to an employee owning
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Related Corporation, as determined
under paragraph 6(B). Subject to earlier termination as provided in paragraphs 9
and 10, the term of each ISO shall be the term set forth in the original
instrument granting such ISO, except with respect to any part of such ISO that
is converted into a Non-Qualified Option pursuant to paragraph 16.
8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 9
through 12, each Option granted under the Plan shall be exercisable as follows:
A. VESTING. The Option shall either be fully exercisable on
the date of grant or shall become exercisable thereafter in such installments as
the Committee may specify.
B. FULL VESTING OF INSTALLMENTS. Once an installment becomes
exercisable it shall remain exercisable until expiration or termination of the
Option, unless otherwise specified by the Committee.
C. PARTIAL EXERCISE. Each Option or installment may be
exercised at any time or from time to time, in whole or in part, for up to the
total number of shares with respect to which it is then exercisable.
-5-
D. ACCELERATION OF VESTING. The Committee shall have the right
to accelerate the date that any installment of any Option becomes exercisable;
provided that the Committee shall not, without the consent of an optionee,
accelerate the permitted exercise date of any installment of any Option granted
to any employee as an ISO (and not previously converted into a Non-Qualified
Option pursuant to paragraph 16) if such acceleration would violate the annual
vesting limitation contained in Section 422(d) of the Code, as described in
paragraph 6(C).
9. TERMINATION OF EMPLOYMENT. Unless otherwise specified in the
agreement relating to such ISO, if an ISO optionee ceases to be employed by the
Company and all Related Corporations other than by reason of death or disability
as defined in paragraph 10, no further installments of his or her ISOs shall
become exercisable, and his or her ISOs shall terminate on the earlier of (a)
three (3) months after the date of termination of his or her employment, or (b)
their specified expiration dates, except to the extent that such ISOs (or
unexercised installments thereof) have been converted into Non-Qualified Options
pursuant to paragraph 16. For purposes of this paragraph 9, employment shall be
considered as continuing uninterrupted during any bona fide leave of absence
(such as those attributable to illness, military obligations or governmental
service) provided that the period of such leave does not exceed 90 days or, if
longer, any period during which such optionee's right to reemployment is
guaranteed by statute. A bona fide leave of absence with the written approval of
the Committee shall not be considered an interruption of employment under this
paragraph 9, provided that such written approval contractually obligates the
Company or any Related Corporation to continue the employment of the optionee
after the approved period of absence. ISOs granted under the Plan shall not be
affected by any change of employment within or among the Company and Related
Corporations, so long as the optionee continues to be an employee of the Company
or any Related Corporation. Nothing in the Plan shall be deemed to give any
grantee of any Stock Right the right to be retained in employment or other
service by the Company or any Related Corporation for any period of time.
10. DEATH; DISABILITY.
A. DEATH. If an ISO optionee ceases to be employed by the
Company and all Related Corporations by reason of his or her death, any ISO
owned by such optionee may be exercised, to the extent otherwise exercisable on
the date of death, by the estate, personal representative or beneficiary who has
acquired the ISO by will or by the laws of descent and distribution, until the
earlier of (i) the specified expiration date of the ISO or (ii) 180 days from
the date of the optionee's death.
B. DISABILITY. If an ISO optionee ceases to be employed by the
Company and all Related Corporations by reason of his or her disability, such
optionee shall have the right to exercise any ISO held by him or her on the date
of termination of employment, for the number of shares for which he or she could
have exercised it on that date, until the earlier of (i) the specified
expiration date of the ISO or (ii) 180 days from the date of the termination of
the optionee's employment. For the purposes of the Plan, the term "disability"
shall mean
-6-
"permanent and total disability" as defined in Section 22(e)(3) of the Code or
any successor statute.
11. ASSIGNABILITY. No Stock Right shall be assignable or transferable
by the grantee except by will, by the laws of descent and distribution or, in
the case of Non-Qualified Options only, pursuant to a valid domestic relations
order. Except as set forth in the previous sentence, during the lifetime of a
grantee each Stock Right shall be exercisable only by such grantee.
12. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Options. The Committee may specify that any
Non-Qualified Option shall be subject to the restrictions set forth herein with
respect to ISOs, or to such other termination and cancellation provisions as the
Committee may determine. The Committee may from time to time confer authority
and responsibility on one or more of its own members and/or one or more officers
of the Company to execute and deliver such instruments. The proper officers of
the Company are authorized and directed to take any and all action necessary or
advisable from time to time to carry out the terms of such instruments.
13. ADJUSTMENTS. Upon the occurrence of any of the following events, an
optionee's rights with respect to Options granted to such optionee hereunder
shall be adjusted as hereinafter provided, unless otherwise specifically
provided in the written agreement between the optionee and the Company relating
to such Option:
A. STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common
Stock shall be subdivided or combined into a greater or smaller number of shares
or if the Company shall issue any shares of Common Stock as a stock dividend on
its outstanding Common Stock, the number of shares of Common Stock deliverable
upon the exercise of Options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend.
B. CONSOLIDATIONS OR MERGERS. If the Company is to be
consolidated with or acquired by another entity in a merger, sale of all or
substantially all of the Company's assets or otherwise (an "Acquisition"), the
Committee or the board of directors of any entity assuming the obligations of
the Company hereunder (the "Successor Board"), shall, as to outstanding Options,
either (i) make appropriate provision for the continuation of such Options by
substituting on an equitable basis for the shares then subject to such Options
either (a) the consideration payable with respect to the outstanding shares of
Common Stock in connection with the Acquisition, (b) shares of stock of the
surviving corporation or (c) such other securities as the Successor Board deems
appropriate, the fair market value of which shall not exceed the fair market
value of the shares of Common Stock subject to such Options immediately
preceding the Acquisition; or (ii) upon written notice to the optionees, provide
that all Options must be exercised, to the extent then exercisable, within a
specified number of days of the date of such notice, at the end of which
-7-
period the Options shall terminate; or (iii) terminate all Options in exchange
for a cash payment equal to the excess of the fair market value of the shares
subject to such Options (to the extent then exercisable) over the exercise price
thereof.
C. RECAPITALIZATION OR REORGANIZATION. In the event of a
recapitalization or reorganization of the Company (other than a transaction
described in subparagraph B above) pursuant to which securities of the Company
or of another corporation are issued with respect to the outstanding shares of
Common Stock, an optionee upon exercising an Option shall be entitled to receive
for the purchase price paid upon such exercise the securities he or she would
have received if he or she had exercised such Option prior to such
recapitalization or reorganization.
D. MODIFICATION OF ISOS. Notwithstanding the foregoing, any
adjustments made pursuant to subparagraphs A, B or C with respect to ISOs shall
be made only after the Committee, after consulting with counsel for the Company,
determines whether such adjustments would constitute a "modification" of such
ISOs (as that term is defined in Section 424 of the Code) or would cause any
adverse tax consequences for the holders of such ISOs. If the Committee
determines that such adjustments made with respect to ISOs would constitute a
modification of such ISOs or would cause adverse tax consequences to the
holders, it may in its discretion refrain from making such adjustments.
E. DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such proposed action or at such other
time and subject to such other conditions as shall be determined by the
Committee.
F. ISSUANCES OF SECURITIES. Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares subject to Options. No adjustments shall be made for dividends paid in
cash or in property other than securities of the Company.
G. FRACTIONAL SHARES. No fractional shares shall be issued
under the Plan and the optionee shall receive from the Company cash in lieu of
such fractional shares.
H. ADJUSTMENTS. Upon the happening of any of the events
described in subparagraphs A, B or C above, the class and aggregate number of
shares set forth in paragraph 4 hereof that are subject to Stock Rights which
previously have been or subsequently may be granted under the Plan shall also be
appropriately adjusted to reflect the events described in such subparagraphs.
The Committee or the Successor Board shall determine the specific adjustments to
be made under this paragraph 13 and, subject to paragraph 2, its determination
shall be conclusive.
14. MEANS OF EXERCISING OPTIONS. An Option (or any part or installment
thereof) shall be exercised by giving written notice to the Company at its
principal office address, or to such transfer agent as the Company shall
designate. Such notice shall identify the Option being exercised and specify the
number of shares as to which such Option is being exercised,
-8-
accompanied by full payment of the purchase price therefor either (a) in United
States dollars in cash or by check, (b) at the discretion of the Committee,
through delivery of shares of Common Stock having a fair market value equal as
of the date of the exercise to the cash exercise price of the Option, (c) at the
discretion of the Committee, by delivery of the grantee's personal recourse note
bearing interest payable not less than annually at no less than 100% of the
lowest applicable Federal rate, as defined in Section 1274(d) of the Code, (d)
at the discretion of the Committee and consistent with applicable law, through
the delivery of an assignment to the Company of a sufficient amount of the
proceeds from the sale of the Common Stock acquired upon exercise of the Option
and an authorization to the broker or selling agent to pay that amount to the
Company, which sale shall be at the participant's direction at the time of
exercise, or (e) at the discretion of the Committee, by any combination of (a),
(b), (c) and (d) above. If the Committee exercises its discretion to permit
payment of the exercise price of an ISO by means of the methods set forth in
clauses (b), (c), (d) or (e) of the preceding sentence, such discretion shall be
exercised in writing at the time of the grant of the ISO in question. The holder
of an Option shall not have the rights of a shareholder with respect to the
shares covered by such Option until the date of issuance of a stock certificate
to such holder for such shares. Except as expressly provided above in paragraph
13 with respect to changes in capitalization and stock dividends, no adjustment
shall be made for dividends or similar rights for which the record date is
before the date such stock certificate is issued.
15. TERM AND AMENDMENT OF PLAN. This Plan was adopted by the Board on
March 21, 1996 subject, with respect to the validation of ISOs granted under the
Plan, to approval of the Plan by the shareholders of the Company at the next
Shareholders Meeting or, in lieu thereof, by written consent. If the approval of
shareholders is not obtained prior to March 21,1997, any grants of ISOs under
the Plan made prior to that date will be rescinded. The Plan shall expire at the
end of the day on March 20, 2006 (except as to Options outstanding on that
date). Subject to the provisions of paragraph 5 above, Options may be granted
under the Plan prior to the date of shareholder approval of the Plan. The Board
may terminate or amend the Plan in any respect at any time, except that, without
the approval of the shareholders obtained within 12 months before or after the
Board adopts a resolution authorizing any of the following actions: (a) the
total number of shares that may be issued under the Plan may not be increased
(except by adjustment pursuant to paragraph 13); (b) the benefits accruing to
participants under the Plan may not be materially increased; (c) the
requirements as to eligibility for participation in the Plan may not be
materially modified; (d) the provisions of paragraph 3 regarding eligibility for
grants of ISOs may not be modified; (e) the provisions of paragraph 6(B)
regarding the exercise price at which shares may be offered pursuant to ISOs may
not be modified (except by adjustment pursuant to paragraph 13); (f) the
expiration date of the Plan may not be extended; and (g) the Board may not take
any action which would cause the Plan to fail to comply with Rule 16b-3. Except
as otherwise provided in this paragraph 15, in no event may action of the Board
or shareholders alter or impair the rights of a grantee, without such grantee's
consent, under any Option previously granted to such grantee.
16. CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS. The Committee, at
the written request or with the written consent of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's ISOs
(or any installments or portions of
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installments thereof) that have not been exercised on the date of conversion
into Non-Qualified Options at any time prior to the expiration of such ISOs,
regardless of whether the optionee is an employee of the Company or a Related
Corporation at the time of such conversion. Such actions may include, but shall
not be limited to, extending the exercise period or reducing the exercise price
of the appropriate installments of such ISOs. At the time of such conversion,
the Committee (with the consent of the optionee) may impose such conditions on
the exercise of the resulting Non-Qualified Options as the Committee in its
discretion may determine, provided that such conditions shall not be
inconsistent with this Plan. Nothing in the Plan shall be deemed to give any
optionee the right to have such optionee's ISOs converted into Non-Qualified
Options, and no such conversion shall occur until and unless the Committee takes
appropriate action.
17. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of shares pursuant to Options granted and Purchases authorized under the
Plan shall be used for general corporate purposes.
18. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. By accepting an ISO
granted under the Plan, each optionee agrees to notify the Company in writing
immediately after such optionee makes a Disqualifying Disposition (as described
in Sections 421, 422 and 424 of the Code and regulations thereunder) of any
stock acquired pursuant to the exercise of ISOs granted under the Plan. A
Disqualifying Disposition is generally any disposition occurring on or before
the later of (a) the date two years following the date the ISO was granted or
(b) the date one year following the date the ISO was exercised.
19. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a
Non-Qualified Option, the grant of an Award, the making of a Purchase of Common
Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 18), the vesting or transfer of restricted
stock or securities acquired on the exercise of an Option hereunder, or the
making of a distribution or other payment with respect to such stock or
securities, the Company may withhold taxes in respect of amounts that constitute
compensation includable in gross income. The Committee in its discretion may
condition (i) the exercise of an Option, (ii) the grant of an Award, (iii) the
making of a Purchase of Common Stock for less than its fair market value, or
(iv) the vesting or transferability of restricted stock or securities acquired
by exercising an Option, on the grantee's making satisfactory arrangement for
such withholding. Such arrangement may include payment by the grantee in cash or
by check of the amount of the withholding taxes or, at the discretion of the
Committee, by the grantee's delivery of previously held shares of Common Stock
or the withholding from the shares of Common Stock otherwise deliverable upon
exercise of a Option shares having an aggregate fair market value equal to the
amount of such withholding taxes.
20. GOVERNMENTAL REGULATION. The Company's obligation to sell and
deliver shares of the Common Stock under this Plan is subject to the approval of
any governmental authority required in connection with the authorization,
issuance or sale of such shares.
Government regulations may impose reporting or other obligations on the
Company with respect to the Plan. For example, the Company may be required to
send tax information
-10-
statements to employees and former employees that exercise ISOs under the Plan,
and the Company may be required to file tax information returns reporting the
income received by grantees of Options in connection with the Plan.
21. GOVERNING LAW. The validity and construction of the Plan and the
instruments evidencing Options shall be governed by the laws of the State of New
York, or the laws of any jurisdiction in which the Company or its successors in
interest may be organized.
Date Approved by the Board of Directors of the Company: March 21, 1996
Date Approved by Shareholders of the Company: May 30, 1996
[X] Please mark votes
as in the example
1. To elect a Board of Directors for the ensuing year:
A. To elect the nominees of the Common
Shareholders to the Board of Directors
for the ensuing year.
Nominees: Harvey Cohen, D. Michael Diegnan,
John R. Hoover, Kennard H. Morganstern
For Withheld
[ ] [ ]
[ ] ____________________________
For all nominees except as noted above
B. To elect the nominees of the Preferred
Shareholders to the Board of Directors
for the ensuing year.
Preferred Nominees: Kenneth W. Rind,
William R. Lonergan,
Forrest Whittaker
For Withheld
[ ] [ ]
[ ] _________________________________________
For all nominees except as noted above
For Against Withheld
2. To approve the adoption of the
Corporation's 1996 Stock Plan [ ] [ ] [ ]
For Against Withheld
3. To approve an amendment to the
Corporation's Restated Certificate [ ] [ ] [ ]
of Incorporation to permit the
Corporation to issue certain additional
securities without triggering anti-
dilution provisions with respect to
the Corporation's Preferred Stock.
4. To ratify the selection of the firm For Against Withheld
of Coopers & Lybrand L.L.P.
as auditors for the fiscal year [ ] [ ] [ ]
ending December 31, 1996.
THIS PROXY SHOULD BE DATED AND SIGNED
BY THE SHAREHOLDER(S) EXACTLY AS HIS OR
HER NAME APPEARS HEREON AND RETURNED
PROMPTLY IN THE ENCLOSED ENVELOPE.
PERSONS SIGNING IN A FIDUCIARY CAPACITY
SHALL SO INDICATE. IF SHARES ARE HELD BY
JOINT TENANTS OR AS COMMUNITY PROPERTY,
BOTH SHOULD SIGN.
Signature: Date
Signature: Date
DETACH CARD DETACH CARD
MEDICAL STERILIZATION, INC.
Dear Shareholder:
Please mark the boxes on the proxy card to indicate how your shares will be
voted. Holders of Common Stock should vote on Matter 1 only in item 1A. Holders
of Preferred Stock should vote on Matter 1 only in item 1B. Then sign the card,
detach it and return your proxy vote in the enclosed postage paid envelope.
Your vote must be received prior to the Special Meeting in Lieu of Annual
Meeting of Shareholders, to be held on May 30, 1996.
Sincerely,
MEDICAL STERILIZATION, INC.
MEDICAL STERILIZATION, INC.
PROXY SOLICITED BY BOARD OF DIRECTORS
Special Meeting in Lieu of Annual Meeting of Shareholders - May 30, 1996
The undersigned hereby acknowledge(s) receipt of the Notice and
accompanying Proxy Statement, revoke(s) any prior proxies, and appoint(s) D.
Michael Deignan and Paul V. Rossi, or either or them, with power of substitution
in each, attorneys for the undersigned to act for and vote, as specified below,
all shares of stock which the undersigned may be entitled to vote at the Special
Meeting in Lieu of Annual Meeting of the Shareholders of Medical Sterilization,
Inc. to be held on May 30, 1996, and at any adjourned sessions thereof.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER
INSTRUCTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO INSTRUCTION IS GIVEN,
THIS PROXY CARD WILL BE VOTED "FOR" THE ELECTION OF DIRECTORS AND "FOR" THE
PROPOSALS IN ITEMS 2, 3 AND 4. THE PROXY WILL BE VOTED IN ACCORDANCE WITH THE
HOLDER'S BEST JUDGMENT AS TO ANY OTHER MATTER, INCLUDING ANY PROPOSAL TO ADJOURN
THE MEETING FOR PURPOSES OF SOLICITING ADDITIONAL PROXIES.
- --------------------------------------------------------------------------------
PLEASE VOTE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN ENCLOSED ENVELOPE
- --------------------------------------------------------------------------------
Please sign this Proxy exactly as your name appears on the books of the
Corporation. Joint owners should each sign personally. Trustees and other
fiduciaries should indicate the capacity in which they sign, and where more than
one name appears, a majority must sign. If a corporation, this signature should
be that of an authorized officer who should state his or her title.
- --------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
________________________ ________________________
________________________ ________________________
________________________ ________________________
