<PAGE>
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 (S)240.14a-11(c) or (S)240.14a-12
MICROFLUIDICS INTERNATIONAL CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
--------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------
5) Total fee paid:
--------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing:
1) Amount previously paid:
----------------------------------------
2) Form, Schedule or Registration Statement No:
----------------------------------------
3) Filing Party:
----------------------------------------
4) Date Filed:
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<PAGE>
MICROFLUIDICS INTERNATIONAL CORPORATION
30 OSSIPEE ROAD
NEWTON, MASSACHUSETTS 02164
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
----------------
To Our Shareholders:
The Annual Meeting of Shareholders of Microfluidics International
Corporation, a Delaware corporation (the "Company"), will be held on Tuesday,
May 27, 1997, at 10:00 a.m., local time, at the offices of the Company located
at 30 Ossipee Road, Newton, Massachusetts 02164, for the following purposes:
1. To elect a Board of Directors to serve for the ensuing year and until
their respective successors have been duly elected and qualified.
The nominees the Board of Directors proposes to present for election
are: Irwin J. Gruverman, Robert L. Bogomolny, James N. Little, Michael
A. Lento and Vincent B. Cortina.
2. To amend the Company's 1988 Stock Plan, as described in the Proxy
Statement dated April 29, 1997 accompanying this Notice of Annual
Meeting.
3. To ratify the selection of the firm of Coopers & Lybrand L.L.P. as
auditors for the Company for the fiscal year ending December 31, 1997.
4. To transact such other business as may properly come before the meeting
and any adjournments thereof.
Only shareholders of record on the transfer books of the Company at the
close of business on April 7, 1997 are entitled to notice of, and to vote at,
the meeting.
Please sign, date and return the enclosed proxy in the enclosed envelope at
your earliest convenience. If you return your proxy, you may nevertheless
attend the meeting and vote your shares in person.
All shareholders are cordially invited to attend the meeting.
By Order of the Board of Directors
Irwin J. Gruverman
Chairman of the Board of Directors,
Chief Executive Officer and
Secretary
Newton, Massachusetts
April 29, 1997
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. WHETHER OR
NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN, DATE AND MAIL THE ENCLOSED
PROXY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IN THE UNITED
STATES.
<PAGE>
PROXY STATEMENT
MEETING OF SHAREHOLDERS
OF MICROFLUIDICS INTERNATIONAL CORPORATION
MAY 27, 1997
Proxies in the form enclosed with this proxy statement are solicited by the
Board of Directors of Microfluidics International Corporation, a Delaware
corporation (the "Company"), for use at the Annual Meeting of Shareholders to
be held on Tuesday, May 27, 1997, at 10:00 a.m., local time, at the offices of
the Company located at 30 Ossipee Road, Newton, Massachusetts, and at any
adjournment thereof (the "Meeting").
Only shareholders of record as of the close of business on April 7, 1997
will be entitled to notice of and to vote at the Meeting. As of that date,
5,095,328 shares of common stock, par value $.01 per share (the "Common
Stock"), of the Company were issued and outstanding and entitled to vote at
the Meeting. The shares of Common Stock are the only outstanding voting
securities of the Company. Shareholders are entitled to cast one vote for each
share held of record.
The persons named as attorneys in the proxies are directors and/or officers
of the Company. All properly executed proxies returned in time to be counted
at the 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 writing that nominee's name in
the space provided on the proxy.
Execution of a proxy will not in any way affect a shareholder's right to
attend the meeting and vote in person. A proxy may be revoked at any time
before it is voted at the Meeting by notifying the Secretary of the Company in
writing at the address set forth above, by submitting a properly executed
proxy bearing a later date, or by revoking the proxy at the Meeting.
Attendance at the Meeting will not by itself constitute the revocation of a
proxy.
In addition to the election of directors, the shareholders will consider and
vote upon proposals to (i) amend the Company's 1988 Stock Plan (the "1988
Plan") to increase the aggregate number of shares authorized for issuance
thereunder by 600,000 shares to an aggregate of 2,350,000 shares and to limit
the number of shares of Common Stock that may be granted pursuant to stock
options to any officer or other employee in any one fiscal year to 500,000
shares per individual, and (ii) to ratify the selection of auditors as further
described in this proxy statement. Where a choice has been specified on the
proxy with respect to these matters, the shares represented by the proxy will
be voted in accordance with the specification and will be voted FOR all of
these matters if no specification is indicated.
The Board of Directors of the Company knows of no other matters to be
presented at the Meeting. If any other matter should be presented at the
Meeting upon which a vote properly may be taken, 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, 1996, is being mailed together with this proxy
statement to all shareholders entitled to vote. This proxy statement and the
form of proxy enclosed with this proxy statement were first mailed to
shareholders on or about April 29, 1997.
1
<PAGE>
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth as of April 7, 1997, the name of each person
who, to the knowledge of the Company, owned beneficially more than 5% of the
shares of Common Stock of the Company outstanding at such date, the number of
shares owned by each of such persons and the percentage of the class
represented thereby.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) OF CLASS
------------------------------------ ----------------- --------
<S> <C> <C>
Irwin J. Gruverman(2)........................... 806,805 15.4%
30 Ossipee Road
Newton, Massachusetts 02164
G.D. Searle & Co................................ 600,000 11.8%
Box 5110
Chicago, Illinois 60680
</TABLE>
- --------
(1) Information with respect to beneficial ownership is based upon information
furnished by such shareholder.
(2) Includes 424,505 shares held jointly by Mr. Gruverman and his wife. Also
includes 160,000 shares subject to options granted to Mr. Gruverman
exercisable at April 7, 1997, or within 60 days thereafter.
ELECTION OF DIRECTORS
The directors of the Company are elected annually and hold office for the
ensuing year and until their successors have been elected and qualified. The
Company's By-laws state that the number of directors constituting the entire
Board of Directors shall be determined by resolution of the Board of
Directors. The number of directors currently fixed by the Board of Directors
is five. This number may be changed by resolution of the Board of Directors.
Shares represented by all proxies received by the Board of Directors and not
marked as withholding authority to vote for any individual director or for all
directors will be voted FOR the election of all the nominees, unless one or
more nominees is unable or unwilling to serve. The Board of Directors knows of
no reason why any such nominee would be unable or unwilling to serve as a
director, but if such should be the case, proxies may be voted for the
election of some other person as the Board of Directors may recommend in his
place, or for fixing the number of directors at a lesser number. The
affirmative vote of a majority of the shares present, in person or by proxy,
and entitled to vote on the election of directors is required to elect each
member of the Board of Directors. See "Voting Procedures."
THE BOARD OF DIRECTORS RECOMMENDS THE ELECTION OF MR. GRUVERMAN,
MR. BOGOMOLNY, MR. LITTLE, MR. LENTO AND MR. CORTINA AS DIRECTORS, AND PROXIES
SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR THEREOF UNLESS A STOCKHOLDER HAS
INDICATED OTHERWISE ON THE PROXY.
2
<PAGE>
OCCUPATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth as to the present directors, the nominees for
election at the Meeting and each executive officer: (i) name; (ii) age; and
(iii) present position(s) with the Company:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Irwin J. Gruverman........ 63 Chief Executive Officer, Chairman of the Board
and Secretary
Michael A. Lento.......... 46 President, Treasurer and Nominee for Director
Robert L. Bogomolny....... 58 Director
Michael K. Hooker......... 51 Director
James N. Little........... 56 Director
Vincent B. Cortina........ 59 Nominee for Director
</TABLE>
IRWIN J. GRUVERMAN has been the Chief Executive Officer, Chairman of the
Board of Directors and Secretary of the Company since its inception in 1983.
Mr. Gruverman was also President of the Company from 1983 to February 1993.
Mr. Gruverman has been the President of G&G Diagnostics Corp. and a general
partner of G&G Diagnostics Limited Partnerships I, II & III since 1990. See
"Related Transactions." Mr. Gruverman currently serves on the Board of
Directors of the following public companies: North American Scientific, Inc.;
InVitro International, Inc.; FiberChem International, Inc. and Endogen, Inc.
MICHAEL A. LENTO has been the President and Treasurer of the Company since
September 1995, and is a new nominee for director of the Company. From August
1994 until August 1995, Mr. Lento served as the Vice President of Marketing of
the Company. From November 1993 until August 1994, Mr. Lento, on a consulting
basis, acted as the manager of the Company's cooperative venture with
Catalytica, Inc. From 1992 until October 1993, Mr. Lento was the Chief
Executive Officer of Medical & Scientific Enterprises, Inc., a developer and
manufacturer of medical scanning and imaging equipment.
ROBERT L. BOGOMOLNY has been a director of the Company since its inception
in 1983. Mr. Bogomolny has been the Senior Vice President, General Counsel and
Corporate Secretary of G.D. Searle & Co., a subsidiary of Monsanto, since
1987.
JAMES N. LITTLE became a director of the Company on December 14, 1995. Since
1981, Mr. Little has been a Senior Vice President of Sales, Marketing and
Business Development for Zymark Corporation, a manufacturer of scientific
robotics equipment.
MICHAEL K. HOOKER has been a director of the Company since 1988. Since 1995,
Mr. Hooker has been the Chancellor of the University of North Carolina at
Chapel Hill. From 1992 to 1995, Mr. Hooker was the President of the University
of Massachusetts. Prior to 1992, he was the President of the University of
Maryland, at Baltimore County. Due to professional commitments and time
constraints, Mr. Hooker is not standing for re-election to the Board of
Directors.
VINCENT B. CORTINA is a new nominee for election to the Board of Directors.
Since 1990, Mr. Cortina has served as President and as a director of Advanced
Monitors, Inc., a company which develops and manufactures a variety of medical
equipment and instruments.
3
<PAGE>
COMPENSATION OF DIRECTORS
Directors, with the exception of Mr. Gruverman and, if elected, Mr. Lento,
will be reimbursed for reasonable expenses incurred in attending meetings of
the Board of Directors. Mr. Bogomolny holds options to purchase 57,500 shares
of the Company's Common Stock at an average per share exercise price of $3.52.
Mr. Little holds options to purchase 40,000 shares at a per share exercise
price of $1.74 per share. Mr. Hooker, who is not standing for re-election to
the Board of Directors due to professional commitments and time constraints,
holds options to purchase 60,000 shares of the Company's Common Stock at an
average per share exercise price of $3.53. Messrs. Bogomolny, Little and
Hooker were granted the foregoing options pursuant to the 1989 Non-Employee
Directors Stock Option Plan (the "1989 Plan"), which automatically grants to
each non-employee director of the Company who holds office at the beginning of
each fiscal year an option to purchase 7,500 shares of the Company's Common
Stock. Upon any non-employee director's first appointment to the Board of
Directors, that director receives an automatic grant of an option to purchase
25,000 shares of the Company's Common Stock. If elected, Mr. Cortina will
receive such automatic grants under the 1989 Plan. Mr. Lento, the Company's
President and Treasurer, will not be eligible to receive grants under the 1989
Plan. Options granted to Messrs. Lento and Gruverman under the Company's 1988
Plan during the fiscal year ended December 31, 1996 are reported under
"Executive Compensation--Option Grants in Last Fiscal Year."
Additionally, pursuant to a Consulting Agreement dated as of January 1, 1997
(the "Consulting Agreement"), Mr. Little was compensated in the amount of
$2,500 for technical sales and marketing consulting services provided to the
Company in 1996. The Consulting Agreement provides that Mr. Little will be
compensated in the amount of $7,500 for consulting services to be rendered in
fiscal year 1997.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
The Board of Directors of the Company held three (3) meetings and acted by
unanimous written consent on four (4) occasions during the fiscal year ended
December 31, 1996. The Board of Directors of the Company has no standing
nominating committee. Currently, the Compensation Committee, of which Messrs.
Bogomolny and Little are members, determines who should receive stock options
under the Company's stock plans (except for the 1989 Plan, under which all
grants are automatically made) and also reviews and approves employee
remuneration. The Audit Committee, which currently consists of Messrs.
Gruverman, Little and Bogomolny, oversees the accounting and tax functions of
the Company, including matters relating to the appointment and activities of
the Company's independent auditors. The Compensation Committee held one (1)
meeting during fiscal 1996. The Audit Committee did not meet during fiscal
1996. Ratification of the full Board of Directors is required with respect to
decisions taken by either committee. During fiscal 1996, each of the directors
attended more than 75% of the aggregate of (i) the total number of meetings of
the Board of Directors, and (ii) the total number of meetings held by all
committees on which each director served.
4
<PAGE>
BENEFICIAL OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth current directors, nominees for director to
be elected at the Meeting and each executive officer named in the Summary
Compensation Table set forth on page 5, the positions currently held by each
such person with the Company and the number and percentage of outstanding
shares of Common Stock beneficially owned by each such person and by all
directors and executive officers as a group as of April 7, 1997.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
POSITIONS AND OFFICES OF BENEFICIAL PERCENT
WITH THE COMPANY OWNERSHIP(1)(2) OF CLASS
--------------------------------- ----------------- --------
<S> <C> <C> <C>
Irwin J. Gruverman...... Chief Executive Officer, Chairman 806,805(3)(4) 15.4%
of the Board of Directors and
Secretary
Michael A. Lento........ President, Treasurer and Nominee 69,750(5) 1.4%
for Director
Robert L. Bogomolny..... Director 79,321(6) 1.5%
Michael K. Hooker....... Director 45,000(7) *
James N. Little......... Director 14,375(8) *
Vincent B. Cortina...... Nominee for Director 0 *
All current directors
and executive officers
as a group (5
persons)............... 1,015,251(9) 18.7%
</TABLE>
- --------
* Less than 1%.
(1) Unless otherwise indicated, each person possesses sole voting and
investment power with respect to the shares.
(2) The inclusion herein of any shares of Common Stock deemed beneficially
owned does not constitute an admission of beneficial ownership of those
shares.
(3) Includes 424,505 shares owned jointly by Mr. Gruverman and his wife.
(4) Includes options to purchase 160,000 shares, which were exercisable at
April 7, 1997, or within 60 days thereafter.
(5) Includes options to purchase 68,250 shares, which were exercisable at
April 7, 1997, or within 60 days thereafter.
(6) Includes options to purchase 42,500 shares, which were exercisable at
April 7, 1997, or within 60 days thereafter.
(7) Includes options to purchase 45,000 shares, which were exercisable at
April 7, 1997, or within 60 days thereafter.
(8) Consists of options to purchase 14,375 shares, which were exercisable at
April 7, 1997, or within 60 days thereafter.
(9) Includes options to purchase 330,125 shares, which options are held by
directors or executive officers and were exercisable at April 7, 1997, or
within 60 days thereafter.
5
<PAGE>
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION SUMMARY TABLE
The Summary Compensation table shows compensation information for (i) the
Chief Executive Officer, and (ii) each other executive officer of the
Corporation who earned more than $100,000 in salary and bonus in 1996
(together with the Chief Executive Officer, the "Named Executive Officers")
for services rendered in all capacities during the three fiscal years most
recently ended.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION(1)
---------------------- ----------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS STOCK OPTIONS(#)
--------------------------- ---- -------- ------ ----------------
<S> <C> <C> <C> <C>
Irwin J. Gruverman..................... 1996 $ 75,040(2)$ 0 25,000
Chief Executive Officer, Chairman of 1995 76,000 0 75,000
the Board of Directors and Secretary 1994 100,000 0 25,000
Michael A. Lento (3)................... 1996 98,000 5,000 25,000
President and Treasurer 1995 91,227 0 180,000
</TABLE>
- --------
(1) The Corporation did not grant any restricted stock awards or stock
appreciation rights or make any long-term incentive plan payouts during
fiscal years 1994, 1995 or 1996.
(2) Mr. Gruverman received approximately one-third of his 1996 salary in the
form of an award under the Company's 1988 Plan of 16,000 registered shares
of Common Stock, valued at the fair market value of $1.69 per share, as
reported in the Nasdaq National Market System on February 2, 1996, the
date of the award.
(3) Mr. Lento became an executive officer of the Company in September 1995.
OPTIONS
The following table shows information regarding grants of stock options
during the fiscal year ended December 31, 1996 to the Named Executive
Officers. The Company did not grant any stock appreciation rights in fiscal
1996.
OPTION GRANTS IN THE LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------
PERCENT OF
TOTAL OPTIONS
GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION
NAME GRANTED(1) FISCAL YEAR PRICE DATE
---- ---------- ------------- -------- ----------
<S> <C> <C> <C> <C>
Irwin J. Gruverman.............. 25,000 8.2% $1.62 12/03/06
Michael A. Lento................ 25,000 8.2% $1.47 12/03/06
</TABLE>
- --------
(1) Mr. Lento's stock options were granted at an exercise price equal to the
fair market value of the Company's Common Stock on the date of grant, as
determined by the closing sale price of the Company's Common Stock on the
Nasdaq National Maket on the date of the grant. Mr. Gruverman's options
were granted at an exercise price slightly above the fair market value of
the Company's Common Stock on the date of grant. These stock options were
granted pursuant to the Company's 1988 Plan. The stock options vest
ratably over four years from date of grant.
6
<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table summarizes for each of the Named Executive Officers the
number of stock options, if any, exercised during the fiscal year ended
December 31, 1996, the aggregate dollar value realized upon exercise, the
total number of unexercised options held at December 31, 1996 and the
aggregate dollar value of in-the-money, unexercised options held at December
31, 1996. None of the Named Executive Officers exercised or held any stock
appreciation rights. The value of unexercised in-the-money options at the
fiscal year end is the difference between the exercise price and the fair
market value of the underlying stock on December 31, 1996, the last business
day of the fiscal year. The closing price of the Company's Common Stock on the
Nasdaq National Market on such date was $1.87.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND DECEMBER 31, 1996 OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED FISCAL YEAR END FISCAL YEAR END(1)
UPON OPTION VALUE ---------------- --------------------
NAME EXERCISE REALIZED VESTED UNVESTED VESTED UNVESTED
- ---- ----------- -------- ------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Irwin J. Gruverman.... 0 $0 160,000 100,000 $201,169 $48,656
Michael A. Lento...... 0 0 68,250 157,750 73,667 30,838
</TABLE>
- --------
(1) These values have not been and may never be realized. Actual gains, if
any, on exercise will depend on the value of the Common Stock on the date
of sale of any shares acquired upon exercise of the option.
EMPLOYMENT AGREEMENTS
The Company entered into a letter agreement dated December 31, 1996 (the
"Letter Agreement") with Irwin J. Gruverman, the Company's Chief Executive
Officer, Chairman of the Board and Secretary, pursuant to which Mr.
Gruverman's compensation for the 1997 fiscal year was established at $95,000,
of which $30,000 will be paid by means of an award of the Company's Common
Stock under the 1988 Plan.
RELATED TRANSACTIONS
The Company and G&G Diagnostics Corporation ("G&G"), a corporation of which
Mr. Gruverman is the President, sole employee and sole stockholder, have
entered into an agreement whereby G&G leases space from, and makes payments
to, the Company for rent and direct expenses based on quarterly invoices
provided by the Company. The total amount paid to the Company by G&G for
reimbursement of expenses in 1996 was approximately $72,610. Pursuant to the
Letter Agreement, in 1997 G&G will lease space from, and make payments to, the
Company for rent and direct expenses, and will reimburse the Company for
services to be provided to G&G by an employee of the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of the Company's Common Stock ("Reporting Persons"),
7
<PAGE>
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission (the "SEC"). Reporting Persons are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based solely on a review of the copies of such
forms received by the Company and on written representations from certain
Reporting Persons, the Company believes that during the year ended December
31, 1996, all Section 16(a) filing requirements applicable to its directors,
executive officers and greater than ten percent beneficial owners were met.
AMENDMENT OF 1988 PLAN
The Microfluidics International Corporation 1988 Stock Plan (the "1988
Plan") was approved by the Company's Board of Directors in December 1988 and
by its stockholders in June 1989. The 1988 Plan provides for grants of
nonqualified or incentive stock options to employee directors, officers, other
employees and consultants of the Company. As of April 7, 1997, approximately
37 employees were eligible to receive options or awards under the 1988 Plan.
In addition three officers, one of whom is a director, were also eligible to
receive options under the 1988 Plan. The purpose of the 1988 Plan includes
providing an incentive to obtain and retain services of qualified persons to
serve as employee directors, officers, employees or consultants of the
Company.
PROPOSED AMENDMENTS OF THE 1988 PLAN
The 1988 Plan limits the number of shares of Common Stock that may be issued
pursuant to options granted under the 1988 Plan to 1,750,000 shares. As of
April 7, 1997, 338,750 shares of Common Stock remain eligible for grant under
the 1988 Plan; as of such date, options to purchase 902,650 shares of Common
Stock were outstanding under the 1988 Plan and 508,600 shares of Common Stock
had been purchased pursuant to the exercise of options granted under the 1988
Plan. On April 4, 1997, the Board of Directors of the Company adopted an
amendment to the 1988 Plan, subject to the approval of such amendments by the
Company's shareholders at this Meeting, to increase the authorized amount of
shares of Common Stock issuable under the 1988 Plan by 600,000 shares to
2,350,000 shares. The Board of Directors believes that the increase in the
number of shares reserved for issuance under the 1988 Plan is advisable to
give the Company the flexibility needed to attract, retain and motivate
employee directors, officers, other employees and consultants.
Also on April 4, 1997, the Board of Directors approved an amendment to the
1988 Plan to limit the number of shares of Common Stock with respect to which
options may be granted to any one participant to 500,000 shares per fiscal
year. The Board adopted the amendment to enable the Company to avoid
limitations otherwise imposed by Section 162(m) of the Internal Revenue Code,
as amended (the "Code"). Section 162(m) generally disallows a tax deduction by
a public company for annual compensation over $1 million paid to its chief
executive officer and to any of its four other most highly compensated
executives. Certain performance-based compensation of the type provided in the
1988 Plan can be exempt from the Section 162(m) deduction limit if the 1988
Plan satisfies the requirements of Internal Revenue Service ("IRS")
regulations interpreting Section 162(m). It is the policy of the Compensation
Committee and the Board of Directors to seek to preserve tax deductibility of
compensation paid to employees unless regulatory requirements to do so are
contrary to the best interests of the Company and its shareholders. In order
for compensation corresponding to that which is recognized upon the exercise
of non-qualified stock options under the 1988 Plan to be tax deductible, IRS
regulations require that the shareholders approve at this Annual Meeting an
amendment to the 1988 Plan to limit
8
<PAGE>
the maximum number of shares with respect to which options may be granted to
any one participant under the 1988 Plan. To retain maximum flexibility, the
Board of Directors has adopted the amendment to the 1988 Plan to provide for a
500,000 share limit in any fiscal year and is requesting that the shareholders
approve the amendment in this proposal. If the shareholders approve the
amendment, future compensation to the Company's employees as a result of
option exercise under the 1988 Plan will not count against the Section 162(m)
limit. If the stockholders do not approve the amendment, the Company intends
to restrict the exercisability of any non-qualified option granted under the
1988 Plan having an exercise price not less than the fair market value of the
Common Stock on the date of grant. The restriction will provide that such
options will not be exercisable during those times for which the Compensation
Committee determines that it is likely that Section 162(m) will limit tax
deductibility of compensation corresponding to the exercise of such options.
If approved, the amendment would be made by adding the following as the
third sentence of Section 4 of the 1988 Plan:
"In no event shall any officer or employee be granted in any fiscal year
more than 500,000 shares of the Company's Common Stock pursuant to this
Plan."
DESCRIPTION OF MATERIAL FEATURES OF THE 1988 PLAN
The purpose of the 1988 Plan is to attract, retain and motivate employee
directors, officers, other employees and consultants through the issuance of
stock options and other stock rights and to encourage ownership of shares of
Common Stock by employee directors, officers, other employees and consultants
of the Company. The 1988 Plan is administered by the Compensation Committee of
the Board of Directors. Subject to the provisions of the 1988 Plan, the
Compensation Committee determines the persons to whom options and other stock
awards will be granted, the number of shares covered by each option or award
and the terms and conditions upon which an option or award may be granted. The
interpretation or construction by Compensation Committee of the 1988 Plan or
with respect to any option or other award granted thereunder shall, unless
otherwise determined by the Board, be final.
Options granted under the 1988 Plan may be either (i) options intended to
qualify as "incentive stock options" under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), or (ii) options that are not incentive
stock options ("non-qualified stock options"). Incentive stock options may be
granted under the 1988 Plan to employee directors, officers and other
employees of the Company and its affiliates. Non-qualified stock options and
other stock awards may be granted to employee directors, officers, other
employees or consultants of the Company and its affiliates. Anything in the
1988 Plan to the contrary notwithstanding, options or other stock awards shall
not be granted thereunder to any nonemployee director of the Company.
The aggregate fair market value (determined on the date of grant) of shares
of Common Stock issuable pursuant to incentive stock options which become
exercisable during any calendar year (under all stock option plans of the
Company) may not exceed $100,000. The exercise price per share of incentive
stock options granted under the 1988 Plan cannot be less than the fair market
value of the Common Stock on the date of grant, or, in the case of the
incentive stock options granted to employees holding more than ten percent
(10%) of the total combined voting power of all classes of stock of the
Company or any affiliate, one hundred ten percent (110%) of the fair market
value of the Common Stock on the date of grant. Subject to earlier termination
as provided in the 1988 Plan, incentive stock options expire not more than (i)
ten years from the date of grant in the case of incentive stock options
generally, and (ii) five years from the date of grant in the case of incentive
stock options granted to an employee owning stock possessing more than ten
percent (10%) of the total combined voting power
9
<PAGE>
of all classes of stock of the Company or any affiliate. An option granted
under the 1988 Plan is exercisable, during the optionholder's lifetime, only
by the optionholder and is not transferable by him or her except by will or by
the laws of descent and distribution.
If a holder of an incentive stock option ceases to be employed by the
Company or any affiliate other than by reason of death or disability, any
incentive stock options granted to such optionholder within the six-month
period immediately preceding such termination shall be cancelled forthwith.
With respect to any incentive stock options granted to such optionholder more
than six months prior to such termination, no further installments of such
incentive stock options shall become exercisable and his incentive stock
options shall terminate after the passage of 60 days from the date of
termination of his employment, but in no event later than on their specified
expiration dates, except to the extent that such incentive stock options (or
unexercised installments thereof) have been converted into nonqualified
options. If an optionholder ceases to be employed by the Company or any
affiliate by reason of his death or disability, both incentive stock options
and non-qualified options may be exercised, to the extent of the number of
shares with respect to which the optionholder could have exercised it on the
date of his or her death or disability, by the optionholder or the
optionholder's estate, personal representative or beneficiary who has acquired
the options by will or by the laws of descent and distribution, any time prior
to the earlier of the options' specified expiration date or one year from the
date of the optionholder's death or disability.
In the event shares of Common Stock of the Company shall be subdivided or
combined into a greater or smaller number of shares or if, upon a merger,
consolidation, reorganization, splitup, liquidation, combination,
recapitalization or the like of the Company, the shares of the Company's
Common Stock shall be exchanged for other securities of the Company or of
another corporation, each holder of options shall be entitled to purchase such
number of shares of Common Stock or amount of other securities of the Company
or such other corporation as were exchangeable for the number of shares of
Common Stock of the Company which such optionholder would have been entitled
to purchase except for such action, and appropriate adjustments shall be made
in the purchase price per share to reflect such subdivision, combination, or
exchange. If any person holding restricted Common Stock obtained by the
exercise of an option (or by any other award or purchase under the 1988 Plan)
receives new, additional or different securities in connection with any
corporate transaction described in this paragraph, such new securities shall
be subject to all of the conditions and restrictions applicable to the Common
Stock with respect to which the new securities were issued. In the event the
Company shall issue any of its shares as a stock dividend upon or with respect
to the shares of stock of class which shall at the time be subject to options,
each optionholder upon exercising such an option shall be entitled to receive
(for the purchase price paid upon such exercise) the shares as to which he is
exercising his or her option and in addition thereto (at no additional cost),
such number of shares of the class or classes in which such stock dividend or
dividends were declared or paid, and such amount of cash in lieu of fractional
shares, as the optionholder would have received if he or she had been the
holder of the shares as to which he or she is exercising the option at all
times between the date of grant of such option and the date of its exercise.
Upon the happening of any of the foregoing events, the class and aggregate
number of shares reserved for issuance upon the exercise of options under the
1988 Plan shall also be appropriately adjusted to reflect the events described
above.
The Board of Directors may terminate or amend the 1988 Plan in any respect
or at any time, except that no amendment requiring shareholder approval under
the provisions of the Code and related regulations relating to incentive stock
options or under Rule 16b-3 (or any successor or amended rule) will be
effective without approval of shareholders as required and within the times
set by such rules.
10
<PAGE>
OPTIONS GRANTED
As of April 7, 1997, an aggregate of 1,411,250 shares of Common Stock had
been issued upon the exercise of options or are issuable upon the exercise of
options outstanding under the 1988 Plan. On April 7, 1997, the closing sale
price per share of the Company's Common Stock was $1.69, as reported in the
Nasdaq National Market System.
The following table sets forth, as of April 7, 1997, all options granted
pursuant to the 1988 Plan to (i) the Named Executive Officers, (ii) all
current executive officers of the Company as a group, all current directors of
the Company who are not executive officers as a group, and (iv) all employees,
including all current officers who are not executive officers, as a group:
<TABLE>
<CAPTION>
PERSON OPTIONS (#)
------ -----------
<S> <C>
Irwin J. Gruverman(1).......................................... 260,000
Michael A. Lento............................................... 246,000
All current executive officers as a group (2 persons).......... 506,000
All current directors who are not executive officers (3
persons)...................................................... 0
All employees who are not executive officers as a group(2)..... 397,200
</TABLE>
- --------
(1) Does not include options to purchase 200,000 shares of Common Stock which
have been previously exercised by Mr. Gruverman.
(2) Does not include options to purchase 308,600 shares of Common Stock which
have been previously exercised by all such employees.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a description of certain United States federal income tax
consequences of the issuance and exercise of options under the 1988 Plan.
Incentive Stock Options. An incentive stock option does not result in
taxable income to the optionee or deduction to the Company at the time it is
granted or exercised, provided that no disposition is made by the optionee of
the shares acquired pursuant to the option within two years after the date of
grant of the option nor within one year after the date of issuance of shares
to him or her (the "ISO holding period"). However, the difference between the
fair market value of the shares on the date of exercise and the option price
will be an item of tax preference includible in "alternative minimum taxable
income." Upon disposition of the shares after the expiration of the ISO
holding period, the optionee will generally recognize long term capital gain
or loss based on the difference between the disposition proceeds and the
option price paid for the shares. If the shares are disposed of prior to the
expiration of the ISO holding period, the optionee generally will recognize
taxable compensation, and the Company will have a corresponding deduction, in
the year of the disposition, equal to the excess of the fair market value of
the shares on the date of exercise of the option over the option price. Any
additional gain realized on the disposition will normally constitute capital
gain. If the amount realized upon such a disqualifying disposition is less
than fair market value of the shares on the date of exercise, the amount of
compensation income will be limited to the excess of the amount realized over
the optionee's adjusted basis in the shares.
Non-Qualified Stock Options. The grant of a non-qualified option will not
result in taxable income to the optionee or deduction to the Company at the
time of grant. The optionee will recognize taxable compensation, and the
Company will have a corresponding deduction, at the time of exercise in the
amount of the excess of the
11
<PAGE>
then fair market value of the shares acquired over the option price. Upon
disposition of the shares, the optionee will generally realize capital gain or
loss, and his basis for determining gain or loss will be the sum of the option
price paid for the shares plus the amount of compensation income recognized on
exercise of the option.
The affirmative vote of a majority of the shares, in person or represented
by proxy, and entitled to vote at the Meeting is required to approve the
adoption of the amendments to the 1988 Plan to increase by 600,000 shares the
aggregate number of shares for which stock options and other awards may be
granted under the 1988 Plan and to limit the number of shares of Common Stock
that may be granted pursuant to stock options to any officer or other employee
in any one fiscal year to a number not to exceed 500,000 shares.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENTS TO THE 1988
PLAN, AND PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED IN FAVOR
OF SUCH AMENDMENTS UNLESS A STOCKHOLDER HAS OTHERWISE INDICATED ON THE PROXY
CARD.
RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors has selected the firm of Coopers & Lybrand L.L.P.,
independent certified public accountants, to serve as auditors for the fiscal
year ending December 31, 1997. The Board proposes that the shareholders
approve this appointment, although such ratification is not required under
Delaware law or the Company's Certificate of Incorporation or By-Laws. Coopers
& Lybrand L.L.P. has served as the Company's auditors since 1983. The
affirmative vote of a majority of the shares, in person or represented by
proxy, and entitled to vote at the Meeting is required to ratify such
appointment. It is expected that a member of the firm of Coopers & Lybrand
L.L.P. will be present at the Meeting. The representative will be given the
opportunity to make a statement if he or she desires to do so and will be
available to respond to appropriate questions.
In the event that ratification of the appointment of Coopers & Lybrand
L.L.P. is not obtained at the Meeting, the Board of Directors will reconsider
its appointment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF COOPERS AND LYBRAND L.L.P AS THE COMPANY'S AUDITORS, AND
PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED IN FAVOR OF SUCH
RATIFICATION UNLESS A STOCKHOLDER HAS OTHERWISE INDICATED ON THE PROXY CARD.
VOTING PROCEDURES
The presence, in person or by proxy, of at least a majority of the
outstanding shares of Common Stock entitled to vote at the Meeting is
necessary to establish a quorum for the transaction of business. Shares
represented by proxies pursuant to which votes have been withheld from any
nominee for director, or which contain one or more abstentions or broker "non-
votes," are counted as present for purposes of determining the presence or
absence of a quorum for the Meeting. 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 the broker does not have
discretionary voting power and has not received instructions from the
beneficial owner.
12
<PAGE>
For all matters being submitted to stockholders at this Meeting, the
affirmative vote of a majority of shares present, in person or represented by
proxy, and entitled on that matter is required for approval. Shares voted to
abstain, since they are not affirmative votes for the matter, will have the
same effect as votes against the matter, while broker "non-votes", since they
are not entitled to vote for the matter, have no effect on the vote.
OTHER BUSINESS
The Board of Directors knows of no business which will be presented for
consideration at the Meeting other than that stated above. If any other
business should come before the Meeting, votes may be cast pursuant to proxies
in respect to any such business in the best judgment of the person or persons
acting under the proxies.
SHAREHOLDER PROPOSALS
If a shareholder desires to present a proposal for inclusion in the proxy
statement to be furnished to all shareholders entitled to vote at the next
annual meeting of the Company, such shareholder must submit such proposal in
writing to the Company at the Company's principal executive offices not later
than December 30, 1997. In order to curtail controversy as to the date on
which a proposal was received by the Company, it is suggested that proponents
submit their proposals by Certified Mail-Return Receipt Requested.
EXPENSES AND SOLICITATION
The cost of solicitation of proxies will be borne by the Company. Proxies
will be solicited principally through the mails. Further solicitation of
proxies from some shareholders may be made by directors, officers and regular
employees of the Company personally, by telephone, telegraph or special
letter. No additional compensation, except for reimbursement of reasonable
out-of-pocket expenses, will be paid for any such further solicitation. In
addition, the Company may request banks, brokers, and other custodians,
nominees and fiduciaries to solicit customers of theirs who have shares of the
Company registered in the name of the nominee. The Company will reimburse any
such persons for their reasonable out-of-pocket expenses.
13
<PAGE>
MICROFLUIDICS INTERNATIONAL CORPORATION
THIS PROXY IS BEING SOLICITED BY
MICROFLUIDICS BOARD OF DIRECTORS
The undersigned, revoking any previous proxies relating to these shares,
hereby acknowledges receipt of the Notice and Proxy Statement dated April 29,
1997, in connection with the Annual Meeting to be held at 10:00 a.m. on
Tuesday, May 27, 1997, at the offices of the Corporation located at 30 Ossipee
Road, Newton, MA, and hereby appoints Dennis Riordan and Jack M. Swig, and each
of them (with full power to act alone), the attorneys and proxies of the
undersigned, with power of substitution to each, to vote all shares of the
Common Stock of Microfluidics International Corporation registered in the name
provided herein which the undersigned is entitled to vote at the 1997 Annual
Meeting of Stockholders, and at any adjournments thereof, with all the powers
the undersigned would have if personally present. Without limiting the general
authorization hereby given, said proxies are, and each of them is, instructed
to vote or act as follows on the proposals set forth in said Proxy.
This Proxy when executed will be voted in the manner directed herein. If no
direction is made this Proxy will be voted FOR the election of Directors and
FOR Proposals 2 and 3.
In their discretion the proxies are authorized to vote upon such other
matters as may properly come before the meeting or any adjournment thereof.
Election of Directors (of if any nominee is not available for election, such
substitute as the Board of Directors may designate)
Nominees: Irwin J. Gruverman, Michael A. Lento, Robert L. Bogomolny, James N.
Little, Vincent B. Cortina.
SEE REVERSE SIDE
SEE REVERSE SIDE FOR ALL THREE PROPOSALS. IF YOU WISH TO VOTE IN ACCORDANCE
WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS, JUST SIGN ON THE REVERSE SIDE.
YOU NEED NOT MARK ANY BOXES.
<PAGE>
LOGO
PLEASE MARK VOTES AS IN THIS EXAMPLE.
X
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3.
1. Election of Directors (See reverse). FOR [_] WITHHELD [_]
--------------------------------------------------------
[_] For all nominees except as noted above
2. Proposal to increase by 600,000 shares the aggregate number of shares for
which stock options may be granted and to limit the number of shares issuable
to any one officer or employee in any one fiscal year under the Corporation's
1988 Stock Plan to a number not to exceed 500,000 shares.
[_] FOR [_] AGAINST [_] ABSTAIN
3. Proposal to Ratify the Appointment of Coopers & Lybrand L.L.P. as the
Corporation's independent public accountants for the fiscal year ending
December 31, 1997.
[_] FOR [_] AGAINST [_] ABSTAIN
Please sign exactly as name(s) appears
hereon. Joint owners should each sign.
When signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such.
Signature ___________ Date _____________
Signature ___________ Date _____________
<PAGE>
Exhibit 99
APPENDIX B - 1988 Stock Plan
(As Amended November 25, 1994)
MICROFLUIDICS INTERNATIONAL CORPORATION
1988 STOCK PLAN
1. Purpose. This 1988 Stock Plan (the "Plan") is intended to provide
incentives (a) to the officers and other employees of Microfluidics
International Corporation (the "Company"), its parent (if any) and any present
or future subsidiaries of the Company (collectively, "Related Corporations") by
providing them with opportunities to purchase stock in the Company pursuant to
options granted hereunder which qualify as "incentive stock options" ("ISO" or
"ISOs") under Section 422 (b) of the Internal Revenue Code of 1986, as amended
(the "Code"); (b) to directors, officers, employees and consultants of the
Company and Related Corporations, or any other person or entity, as determined
by the applicable administrator (as described in paragraph 2) to be in the best
interests of the Company, by providing them with opportunities to purchase stock
in the Company pursuant to options granted hereunder which do not qualify as
ISOs ("Non-Qualified Option" or "Non-Qualified Options"); (c) to directors,
officers, employees and consultants of the Company and Related Corporations, or
any other person or entity, as determined by the applicable administrator (as
described in paragraph 2) to be in the best interests of the Company, by
providing them with awards of stock in the Company ("Awards"); (d) to directors,
officers, employees and consultants of the Company and Related Corporations, or
any other person or entity, as determined by the applicable administrator (as
described in paragraph 2) to be in the best interests of the Company, by
providing them with Stock Appreciation Rights ("SAR" or "SARs") in tandem with,
or independently of, options granted hereunder; (e) to officers and other
employees and consultants of the Company and Related Corporations, or any other
person or entity, as determined by the applicable administrator (as described in
paragraph 2) to be in the best interests of the Company, by providing them with
Stock Depreciation Rights ("SDR" or "SDRs") to cover shares of stock purchasable
under any Non-Qualified Option granted hereunder by any recipient of a SDR
granted hereunder; (f) to directors, officers, employees and consultants of the
Company and Related Corporations, or any other person or entity, as determined
by the applicable administrator (as described in paragraph 2) to be in the best
interests of the Company by providing them performance awards in the form of
units ("Units") representing phantom shares of stock ("phantom share" or
"phantom shares"), each Unit representing one phantom share; and (g) to
directors, officers, employees and consultants of the Company and Related
Corporations, or any other person or entity, as determined by the applicable
administrator (as described in paragraph 2) to be in the best interests of the
Company, by providing them with opportunities to make direct purchases of stock
in the Company ("Purchases"). Anything in this Plan to the contrary
notwithstanding, Stock Rights (as described below in this paragraph 1) shall not
be granted hereunder to any non-employee director of the Company.
Both ISOs and Non-Qualified Options are referred to hereafter individually
as an "Option" and collectively as "Options". Options, Awards, SARs, SDRs,
Units and authorizations
<PAGE>
for Purchases are referred to hereafter collectively as "Stock Rights".
Recipients of such Stock Rights are hereafter referred to individually as an
"Optionee" and collectively as "Optionees". 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. The Plan shall be administered (i) to the
extent required with respect to specific grants of Stock Rights by Rule 16b-3 of
the Securities and Exchange Commission ("Rule 16b-3") under the Securities and
Exchange Act of 1934, as amended (the "1934 Act"), by two or more a disinterred
directors in compliance with Rule 16b3, and (ii) in all other cases, by such
administrator or administrators as the Board of Directors may designate
(collectively, the "Administrators").
Subject to ratification of the grant or authorization of each Stock Right
by the Board of Directors (the "Board") (if so required by applicable state
law), and subject to the terms of the Plan, the applicable Administrator shall
have the authority to (i) determine the employees of the Company and Related
Corporations (from among the class of employees eligible under paragraph 1 to
receive ISOs) to whom ISOs may be granted, and to determine (from among the
class of individuals and entities eligible under paragraph 1 to receive Non-
Qualified Options, Awards, SARs, SDRs, and Units and authorizations to make
Purchases) to whom Non-Qualified Options, Awards, SARs, SDRs, Units and
authorizations to make Purchases may be granted; (ii) determine the time or
times at which Options, Awards, SARs, SDRs or Units may be granted or Purchases
made; (iii) determine the option price of shares subject to each Option, subject
to the requirements of paragraph 5 with respect to ISOs, and the purchase price
of shares subject to each Purchase; (iv) determine whether each Option granted
shall be an ISO or a Non-Qualified Option; (v) determine (subject to paragraph 5
with respect to ISOs) the time or times when each Option shall become
exercisable and the duration of the exercise period; (vi) determine whether
restrictions such as repurchase rights are to be imposed on shares subject to
Stock Rights and the nature of such restrictions, if any; and (vii) interpret
the Plan and prescribe and rescind rules and regulations relating to it. If the
applicable Administrator 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 an Administrator of any
provisions of the Plan or of any Stock Right granted under it shall be final
unless otherwise determined by the Board. Administrators or the Board may from
time to time adopt such rules and regulations for carrying out the Plan as they
may deem necessary. No member of the Board nor any Administrator shall be
liable for any action or determination made in good faith with respect to the
Plan or any Stock Right granted under it.
3. Stock. The stock subject to Options, Awards, SARs, SDRs, Units and
authorizations to make Purchases shall be authorized but unissued shares of
Common Stock of the Company, par value $.01 per share (the "Common Stock"), or
shares of Common Stock reacquired by the Company in any manner. The aggregate
number of shares of Common Stock which may be issued pursuant to the Plan is one
million seven hundred fifty thousand (1,750,000). The number of shares
authorized for the grant of Stock Rights under the Plan shall be subject to
adjustment as provided in paragraph 10. If any Option or any other Stock Right
2
<PAGE>
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 if the Company shall reacquire any unvested shares issued
pursuant to Awards or authorization for Purchase, the unpurchased shares subject
to such Options or Stock Rights and any unvested shares so reacquired by the
Company shall again be available for grants of Stock Rights under the Plan.
4. Granting of Stock Rights. Stock Rights may be granted under the Plan
at any time after January 6, 1989. The date of grant of a Stock Right under the
Plan will be the date specified by the applicable Administrator at the time it
completes all actions necessary to grant such Stock Right; provided, however,
-------- -------
that such date shall not be prior to the date on which the applicable
Administrator acts to approve the grant. The applicable Administrator shall
have the right, with the consent of the Optionee, to convert an ISO granted
under the Plan to a Non-Qualified Option pursuant to paragraph 13.
5. ISO Provisions. Any of the following provisions shall have no force or
effect if their inclusion in the Plan is not necessary for Options issued as
ISOs to qualify as ISOs pursuant to the Code and the regulations issued
thereunder.
A. Minimum Option Price for ISOs.
(i) The 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 any employee owning stock as of the date of such
grant representing more than ten percent 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 110 percent of the fair market value per share of Common Stock
on the date of grant.
(ii) In no event shall the aggregate fair market value
(determined at the time an ISO is granted) of Common Stock for which ISOs
granted to any employee are excercisable for the first time by such
employee during any calendar year (under all stock option plans of the
Company and any Related Corporation) exceed $100,000.
(iii) If, at the time an ISO is granted under the Plan, the
Company's Common Stock is publicly traded, "fair market value" shall be
determined as of the last business day for which the prices or quotes
discussed in this sentence are available prior to the date such Option is
granted and shall mean (i) the average (on that date) of the high and low
prices of 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 day) by
an established quotation service for over-the-counter securities, if the
Common Stock is not reported on the Nasdaq National Market. However, if the
Common Stock is not
3
<PAGE>
publicly traded at the time an ISO is granted under the Plan, "fair market
value" shall be deemed to be the fair value of the Common Stock as
determined by the applicable Administrator 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.
B. Duration of ISOs. Subject to earlier termination as provided in
subparagraphs E and F hereunder, each ISO shall expire on the date specified by
the applicable Administrator, but not more than (i) ten years from the date of
grant in the case of ISOs 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 of the total combined voting power of all classes of stock of the
Company or any Related Corporation. Subject to the foregoing provisions and
such earlier termination as provided in said subparagraphs E and F, 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 13.
C. Eligible Employees. ISOs may be granted to any employee of the
Company or any Related Corporation. Those officers and directors of the Company
who are not employees may not be granted ISOs under the Plan.
D. Acceleration of Exercise of ISOs. The Administrator shall not,
without the consent of the Optionee, accelerate the exercise date of any
installment of any ISO granted to any employee (and not previously converted
into a Non-Qualified Option pursuant to paragraph 13) if such acceleration would
violate the annual vesting limitation contained in Section 422 (d) of the Code,
as described in subparagraph A(ii) herein above.
E. Effect of Termination of Employment on ISOs. If an ISO Optionee
ceases to be employed by the Company or any Related Corporations other than by
reason of death or disability (as such term is defined in subparagraph F
hereunder), any ISO granted to such Optionee within the six-month period
immediately preceding such termination shall be canceled forthwith. With
respect to any ISOs granted to such Optionee more than six months prior to such
termination, no further installments of such ISOs shall become exercisable and
his ISOs shall terminate after the passage of 60 days from the date of
termination of his employment, but in no event later than on 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 13. Leave of absence with the written approval of the applicable
Administrator shall not be considered an interruption of employment under the
Plan, provided that such written approval contractually obligates the Company or
any Related Corporation to continue the employment of the employee after the
approved period of absence. Employment shall also be considered as continuing
uninterrupted during any other 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.
ISOs granted under the Plan shall not be affected by any change of employment or
within or among the Company and Related
4
<PAGE>
Corporations, so long as the Optionee continues to be an employee of the Company
or any Related Corporation.
F. Effect of Death or Disability. If an Optionee ceases to be
employed by the Company or any Related Corporation by reason of his death, any
ISO owned by such Optionee may be exercised, to the extent of the number of
shares with respect to which he could have exercised it on the date of his
death, by his estate, personal representative or beneficiary who has acquired
the ISO by will or by the laws of descent and distribution, at any time prior to
the earlier of the date specified in the ISO agreement, the ISO's specified
expiration date or one year of the death of the Optionee.
If an Optionee ceases to be employed by the Company and all Related
Corporations by reason of his disability, he shall have the right to exercise
any ISO held by him on the date of termination of employment, to the extent of
the number of shares with respect to which he could have exercised it on that
date, at any time prior to the earlier of the date specified in the ISO
agreement, the ISO's specified expiration date or one year from the date of the
termination of the Optionee's employment. For the purposes of the Plan, the
term "disability" shall mean "permanent and total disability" as defined in
Section 22(e)(3) of the Code or successor statute.
G. Adjustments. Any adjustments made pursuant to sub-paragraphs A or
B of this paragraph 5 with respect to ISOs shall be made only after the
applicable Administrator, 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 applicable
Administrator determines that such adjustments made with respect to ISOs would
constitute a modification of such ISOs, it may refrain from making such
adjustments.
H. Notice to Company of Disqualifying Dispositions. By accepting an
ISO granted under the Plan, each ISO Optionee agrees to notify the Company in
writing immediately after such Optionee makes a "disqualifying disposition" of
any Common Stock acquired pursuant to the exercise of an ISO. A disqualifying
disposition generally is (as defined in Sections 421, 422 and 424 of the Code)
any disposition (including any sale) of such Common Stock before the later of
(a) two years after the date the employee was granted the ISO or (b) the date
one year after the date the employee acquired Common Stock by exercising the
ISO.
I. Other Requirements. ISOs shall be issued subject to such
additional requirements as may be imposed from time to time by the Code or the
regulations issued thereunder.
6. Stock Appreciation Rights. At the discretion of the applicable
Administrator, Options granted under this Plan may be granted in tandem with
SARs ("tandem SARs"), or SARs may be granted independently of and not in tandem
with any Option ("naked SARs"). SARs will become exercisable at such time or
times, as on such conditions, as the applicable Administrator may specify; the
applicable Administrator may impose conditions upon the grant or exercise of any
SAR, which conditions may include a condition that the SAR may only be
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exercised in accordance with rules and regulations adopted by the Board or such
applicable Administrator from time to time. Such rules and regulations may
govern the right to exercise the SAR granted prior to the adoption or amendment
of such rules and regulations as well as SAR rights granted thereunder.
A. Tandem SARs.
(i) Any tandem SAR granted with an ISO may be granted only at the
date of grant of such ISO. Any tandem SAR granted with a Non-Qualified
Option may be granted either at or after the time such Option is granted.
A tandem SAR is the right of an Optionee, without payment to the Company
(except for applicable withholding taxes), to receive the excess of the
fair market value (as defined in subparagraph 5(A)(iii)) per share on the
date on which such SAR is exercised over the option price per share as
provided in the related underlying Option. A tandem SAR granted with an
ISO may be exercised only when the fair market value (as defined in
subparagraph 5(A)(iii)) per share of the Common Stock subject to the ISO
exceeds the per share exercise price of the ISO. A tandem SAR granted with
an ISO shall subject to the same restrictions on transferability as the
underlying ISO. A tandem SAR granted with an Option shall pertain, to, and
be granted only in conjunction with, the related underlying Option granted
under this Plan and shall be exercisable and exercised only to the extent
and that the underlying Option is exercisable. The number of shares of
Common Stock subject to such tandem SAR shall be all or part of the shares
subject to such Option as determined by the applicable Administrator. The
tandem SAR shall either become fully or partially non-exercisable and shall
then be fully and partially forfeited if the exercisable portion, or any
part thereof, or the underlying Option is exercised and vice versa.
(ii) Subject to any additional restrictions or conditions imposed
by the applicable Administrator, a tandem SAR may be exercised by the
Optionee as to a number of shares of Common Stock under its related Option
only upon the surrender of the then-exercisable portion of the related
Option covering a like number of shares of Common Stock. Upon the exercise
of a tandem SAR and the surrender of the exercisable portion of the related
Option, the Optionee shall be awarded cash, shares of Common Stock or a
combination of shares and cash at the discretion of the applicable
Administrator. The award shall have a total value equal to the product
obtained by multiplying (1) the excess of the fair market value per share
on the date of which such tandem SAR is exercised over the Option price per
share by (2) the number of shares subject to the exercisable portion of the
related Option so surrendered.
B. Naked SARs.
(i) A naked SAR may be granted irrespective of whether the
recipient holds, is being granted, or has been granted any options under
any stock plan of the Company. A naked SAR may be granted irrespective of
whether the recipient holds, is being granted, or has been granted any
tandem SARs. A naked SAR may be made exercisable without regard to the
exercisability of any Option.
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(ii) With respect to the exercise of any naked SAR, the term
"Spread" as used in this paragraph 6 shall mean an amount equal to the
product computed by multiplying (1) the excess of (A) the fair market value
per share of Common Stock of the Company on the date such naked SAR is
exercised over (B) the price designated by the applicable Administrator
(the "Award Price") by (2) the number of shares with respect to which such
naked SAR is being exercised.
C. General Provisions.
(i) The applicable Administrator may specify that a SAR shall be
exercisable for cash, for shares, for a combination of cash or shares, or
in cash or shares at the holder's option. On the exercise of a SAR, the
holder thereof, except as provided in subparagraphs (ii) and (iii) of this
paragraph 6(C), shall be entitled to receive either:
(a) if the exercise is for shares, a number of shares equal
to the quotient computed by dividing the Spread by the fair market
value per share of Common Stock (as determined in accordance with
paragraph 5(A)(iii)) on the date of exercise of the SAR, provided,
--------
however, that in lieu of fractional shares the Company shall pay cash
-------
equal to the same fraction of the fair market value per share on the
date of exercise of the SAR; or
(b) if the exercise is for cash, an amount in cash equal to
the Spread; or
(c) if the exercise is partly for cash and partly for
shares, a combination of cash in the amount specified in such SAR
holder's notice of exercise, and a number of shares calculated as
provided in clause (a) of this subparagraph (i), after reducing the
Spread by such cash amount, plus cash in lieu of any fractional share
as provided above.
(ii) Notwithstanding the provisions of subparagraph (i) of this
paragraph 6(C) the applicable Administrator shall have sole discretion to
consent to or disapprove, in whole or in part, any permitted election or
the right without election of a holder of a SAR to receive cash upon the
exercise of a SAR ("Cash Election"). Such consent or disapproval may be
given at any time after the Cash Election to which it relates. If the
applicable Administrator shall disapprove a Cash Election, in lieu of
paying the cash (or any portion thereof) specified in such Cash Election,
the Administrator shall determine the amount of cash, if any, to be paid
pursuant to such Cash Election and shall issue a number of shares
calculated as provided in paragraph 6(C)(i)(a) after reducing the Spread by
such cash to be paid plus cash in lieu of any fractional share.
(iii) SARs granted to officers or directors of the Company shall
be subject to the following additional provisions; (a) a Cash Election may
be made only
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during the period beginning on the third business day following the date of
release for publication of the quarterly and annual summary statements of
sales and earnings of the Company and ending on the twelfth business day
following such date; and (b) no Cash Election may be made (and no related
Option exercised) during the six months after grant, except in the event of
the death or disability of the holder as provided. The Company intends that
this paragraph (iii) shall comply with the requirements of Rule 16b-3
promulgated under the 1934 Act. Should any provision of this subparagraph
(iii) be unnecessary to comply with the requirements of the said Rule 16b-
3, the Board may amend this Plan to add to or modify the provisions of this
Plan accordingly.
(iv) No SAR shall be transferable except by will or by the laws
of descent and distribution. During the life of a holder of a SAR, the SAR
shall be exercisable only by him or his guardian or legal representative.
(v) A person exercising a SAR for shares shall not be treated
as having become the registered owner of any shares issued on such exercise
until such shares are delivered to him.
(vi) Each SAR shall be on such terms and conditions (including
additional terms and conditions) not inconsistent with this Plan as the
applicable Administrator may determine.
(vii) To exercise a SAR, the holder shall (i) give written
notice thereof to the Company addressed to Michael T. Rumley by delivery to
Microfluidics International Corporation at 30 Ossippee Road, Newton,
Massachusetts 02164, and by specifying therein the amount he elects (if
such election is permitted under the terms of the SAR) to receive in cash,
if any, and the amount he elects (if such election is permitted under the
terms of the SAR) to receive in shares and (ii) deliver to the Company such
written representations, warranties and covenants as may be required by the
Company or Company counsel. The date of exercise of a SAR shall be the
date on which the Company shall have received the notice referred to in the
first sentence of this subparagraph (vii).
(viii) The number of shares awardable to an Optionee with
respect to the noncash portion of a SAR shall be determined by dividing
such noncash portion by the fair market value per share (as determined in
accordance with subparagraph 5(A)(iii)) on the exercise date. No
fractional shares shall be issued. Any fractional share which, but for
this subparagraph (viii), would have been issued to an Optionee pursuant to
a SAR, shall be deemed to have been issued and immediately sold to the
Company for their fair market value, and the Optionee shall receive from
the Company cash in lieu of such fractional shares.
7. Stock Depreciation Rights. The Board or applicable Administrator may
grant SDRs to cover shares of stock purchased under any Non-Qualified Option. A
SDR may be granted either at or after the time the related Option is granted.
SDRs, unless otherwise specified
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by the applicable Administrator, entitle the Optionee to receive with respect to
each share of Common Stock covered by the SDR (a "Covered Share") a cash amount
equal to the positive difference, if any, produced by subtracting the greater of
the Six-Month Spread or the Sale Spread from the Exercise Spread, with such
terms being defined as follows:
(i) the Exercise Spread is the fair market value (as determined
in accordance with paragraph 5(A)(iii)) per Covered Share on the date of
exercise of the Option, minus the exercise price per share, but not less
than zero;
(ii) the Six-Month Spread is the fair market value (as determined
in accordance with paragraph 5(A)(iii)) per Covered Share on the date which
is six months after exercise of the Option, minus the exercise price per
share, but not less than zero;
(iii) the Sale Spread is the fair market value (as determined in
accordance with paragraph 5(A)(iii)) per Covered Share on the date such
share is sold, minus the exercise price per share of the Option pursuant to
which the share was purchased, but not less than zero.
Except as otherwise provided in the Plan or the instrument evidencing the
grant of the SDR, the payment, if any, due under an SDR with respect to a
covered share will be made within 30 days following the later of (i) the date on
which the share is disposed of by the Optionee and (ii) such later date as may
be provided in the instrument evidencing the grant of the SDR.
The applicable Administrator may, at the time of grant, impose on the SDR
such terms and conditions as it may deem appropriate, including, without
limitation, the requirement that the Optionee remain as an employee until the
SDR is paid or that other conditions be fulfilled before the SDR is paid.
SDRs with respect to unexercised Options (or portions thereof) will
terminate when such Options expire or are otherwise terminated.
8. Units. At the discretion of the applicable Administrator, performance
awards in the form of Units may be granted either independently of or in tandem
with a Stock Right granted hereunder, to such extent as determined by the
applicable Administrator, provided, however, that such Units shall not be
-------- -------
granted in tandem with ISOs granted under the Plan. Units granted hereunder may
be based on such factors as changes in the market price for shares of Common
Stock of the Company, personal performance of the recipient of such Units or of
his division or department, the performance of the Related Corporation by which
he is employed, or any other factors or criteria set by the applicable
Administrator. Units shall have such other terms and conditions as the
applicable Administrator shall determine and shall be payable in such form as
such Administrator may determine including, for example, payment in shares of
the Company's Common Stock.
9. Terms and Conditions of Stock Rights. Stock Rights shall be evidenced
by instruments (which need not be identical) in such forms as the applicable
Administrator may
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from time to time approve. Such instruments shall conform to such terms,
conditions and provisions as are applicable under this Plan and may contain such
other terms and conditions and provisions as the applicable Administrator deems
advisable which are not inconsistent with the Plan, including restrictions
applicable to shares of Common Stock issuable upon exercise of Stock Rights. A
Stock Right may provide for acceleration of exercise in the event of a change in
control of the Company, in the discretion of and as defined by the applicable
Administrator. The applicable Administrator 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.
10. Adjustments. Upon the happening of any of the following described
events, an Optionee's rights with respect to Options granted to him hereunder,
and the recipient's rights with respect to Common Stock to be acquired (or used
for measurement purposes) pursuant to an authorization to the exercise of SDRs,
SARs, Units, or to be acquired pursuant to an authorization to Purchase or an
Award hereunder, shall be adjusted as hereinafter provided, unless otherwise
specifically provided, in addition or to the contrary, in the written agreement
between the recipient and the Company relating to such Stock Right.
A. In the event shares of Common Stock shall be subdivided or combined
into a greater or smaller number of shares or if, upon a merger, consolidation,
reorganization, split-up, liquidation, combination, recapitalization or the like
of the Company, the shares of Common Stock shall be exchanged for other
securities of the Company or of another corporation, each grantee of a Stock
Right shall be entitled, subject to the conditions herein stated, to purchase
(or have used for measurement purposes) such number of shares of Common Stock or
amount of other securities of the Company or such other corporation as were
exchangeable for the number of shares of Common Stock which such grantee would
have been entitled to purchase (or have used for measurement purposes) except
for such action, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or exchange.
B. In the event the Company shall issue any of its shares as a stock
dividend upon or with respect to the shares of stock of the class which at the
time shall be subject to a Stock Right hereunder, each grantee upon exercising a
Stock Right shall be entitled to receive (for the purchase price paid upon such
exercise) (or have used for measurement purposes) the shares or other
consideration as to which he is exercising his Stock Right and, in addition
thereto (at no additional cost), such number of shares of the class or classes
in which such stock dividend or dividends were declared or paid, and such amount
of cash in lieu of fractional shares, or other consideration as he would have
received if he had been the holder of the shares as to which he is exercising
(or which are used for measurement in connection with) his Stock Right at all
times between the date of grant of such Stock Right and the date of its
exercise.
C. If any person or entity owning restricted Common Stock obtained by
exercise of a Stock Right made hereunder receives new or additional or different
shares or securities ("New Securities") in connection with a corporate
transaction described in subparagraph A above or a stock dividend described in
subparagraph B above as a result of owning such restricted Common
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<PAGE>
Stock, such New Securities shall be subject to all of the conditions and
restrictions applicable to the restricted Common Stock with respect to which
such New Securities were issued.
D. No adjustments shall be made for dividends paid in cash or in property
other than securities of the Company, unless specified to the contrary by the
applicable Administrator in the instrument evidencing such Stock Right.
E. No fractional shares shall actually be issued under the Plan. Any
fractional shares which, but for this subparagraph E, would have been issued to
a grantee pursuant to a Stock Right shall be deemed to have been issued and
immediately sold to the Company for their fair market value, and the grantee
shall receive from the Company cash in lieu of such fractional shares.
F. Upon the happening of any of the foregoing events described in
subparagraphs A or B above, the class and aggregate number of shares set forth
in paragraph 3 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 Board shall
determine the specific adjustments to be made under this paragraph 10 and,
subject to paragraph 5(G), its determination shall be conclusive.
11. Means of Exercising Stock Rights. A Stock Right (or any part of
installment thereof) shall be exercised as specified in the written instrument
granting such Stock Right, which instrument may specify any legal method of
exercise. The holder of a Stock Right exercisable for shares shall not have the
rights of a shareholder with respect to the shares covered by his Stock Right
until the date of issuance of a stock certificate to him for such shares.
Except as expressly provided above in paragraph 10 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.
12. Term and Amendment of Plan. This Plan was adopted by the Board on
December 20, 1988, effective January 6, 1989, and was approved by the
shareholders on June 2, 1989. The Plan was amended by the Board of Directors on
February 17, 1993 to increase the number of shares authorized to be issued under
the Plan from 1,000,000 shares to 1,750,000 shares. This increase was approved
by the shareholders on June 8, 1993. The Board may terminate or amend the Plan
in any respect at any time, except that no amendment requiring shareholder
approval under provisions of the Code and related regulations relating to ISOs
or under Rule 16b-3 (or any successor or amended rule) will be effective without
approval of shareholders as required and within the times set by such rules.
13. Conversion of ISOs into Non-Qualified Options; Termination of ISOs.
The applicable Administrator, 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 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
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<PAGE>
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
applicable Administrator (with the consent of the Optionee) may impose such
conditions on the exercise of the resulting Non-Qualified Options as the
applicable Administrator 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 except as otherwise provided by the Code, no
such conversion shall occur until and unless the Administrator takes appropriate
action. The applicable Administrator, with the consent of the Optionee, may also
terminate any portion of any ISO that has not been exercised at the time of such
termination.
14. 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.
15. 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.
16. Withholding of Additional Income Taxes and Employment 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 it's fair market value, the making of a
Disqualifying Disposition (as defined in paragraph 5(H), the vesting of
restricted Common Stock acquired on the exercise of Stock Right hereunder, or
any other event in connection with a Stock Rights the Company may in accordance
with Section 3402(c) of the Code, may require the Optionee, award recipient,
purchaser or holder or exerciser of a Stock Right to pay additional withholding
taxes in respect of the amount that is considered compensation receivable in
such program's gross income.
17. Governing Law; Construction. The validity and construction of the
Plan and the instruments evidencing Stock rights shall be governed by the laws
of the State of Delaware. In construing this Plan, the singular shall include
the plural and the masculine gender shall income the feminine and neuter, unless
the context otherwise requires.
12
