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[COMPANY NAME AND LOGO]
9727 Pacific Heights Boulevard
San Diego, California 92121
February 14, 1997
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Biomagnetic Technologies, Inc., which will be held at the offices of the Company
at 9727 Pacific Heights Blvd., San Diego, California on Tuesday, March 18, 1997
at 9:00 a.m.
Details of the business to be conducted at the Annual Meeting are given in
the attached Notice of Annual Meeting of Shareholders and Proxy Statement.
In order for us to have an efficient meeting, please sign, date and return
the enclosed proxy promptly in the accompanying reply envelope. If you are able
to attend the Annual Meeting and wish to change your proxy vote, you may do so
simply by voting in person at the Annual Meeting.
We look forward to seeing you at the Annual Meeting.
Sincerely,
James V. Schumacher
Chairman and Chief Executive Officer
YOUR VOTE IS IMPORTANT
In order to assure your representation at the meeting, you are
requested to complete, sign and date the enclosed proxy as promptly as
possible and return it in the enclosed envelope. No postage need be
affixed if mailed in the United States.
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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/x/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Biomagnetic Technologies, Inc.
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(Name of Registrant as Specified In Its Charter)
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(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:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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BIOMAGNETIC TECHNOLOGIES, INC.
9727 Pacific Heights Boulevard
San Diego, California 92121
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
February 14, 1997
The Annual Meeting of Shareholders of Biomagnetic Technologies, Inc. (the
"Company" or "BTi") will be held at the offices of the Company at 9727 Pacific
Heights Boulevard, San Diego, California on Tuesday, March 18, 1997 at 9:00
a.m., Pacific Standard Time, for the following purposes:
1. To elect a Board of Directors for the following year. Management has
nominated the following persons for election at the meeting: R. Scott
Asen, Jerry C. Benjamin, D. Scott Buchanan, Martin P. Egli, Enrique
Maso and James V. Schumacher.
2. To approve an amendment to the Company's Fourth Restated Articles of
Incorporation, as amended, to increase the authorized number of shares
of Common Stock the Company may issue.
3. To approve the Company's 1997 Stock Incentive Plan (the "Option
Plan").
4. To approve an amendment to the Company's 1992 Employee Stock Purchase
Plan (the "Purchase Plan") which will increase the number of shares of
Common Stock authorized for issuance over the term of the Purchase
Plan by an additional 450,000 shares.
5. To ratify the selection of Price Waterhouse LLP as independent
accountants for the fiscal year ending September 30, 1997.
6. To transact any other business which may properly come before the
meeting or any adjournment(s) thereof.
Shareholders of record at the close of business on January 24, 1997 will be
entitled to vote at the Annual Meeting. A list of shareholders entitled to vote
at the Meeting will be available for inspection at the offices of the Company
after February 14, 1997. Whether or not you plan to attend the meeting in
person, please sign, date and return the enclosed proxy in the reply envelope
provided. If you attend the Meeting and vote by ballot, your proxy will be
revoked automatically and only your vote at the meeting will be counted. The
prompt return of your proxy will assist us in preparing for the Meeting.
By Order of the Board of Directors
Dated: February 14, 1997 Herman Bergman, Secretary
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BIOMAGNETIC TECHNOLOGIES, INC.
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 18, 1997
These proxy materials and the enclosed proxy card are being mailed in
connection with the solicitation of proxies by the Board of Directors of
Biomagnetic Technologies, Inc., a California corporation (the "Company"), for
the Annual Meeting of Shareholders to be held at 9:00 a.m. on March 18, 1997 and
at any adjournment or postponement of the Annual Meeting. These proxy materials
were first mailed to shareholders of record beginning on approximately February
14, 1997.
The mailing address of the principal executive office of the Company is
9727 Pacific Heights Boulevard, San Diego, California 92121.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice of Annual Meeting of
Shareholders. Each proposal is described in more detail in this Proxy
Statement.
VOTING RIGHTS AND SOLICITATION
Any shareholder executing a proxy has the power to revoke it at any time
before it is voted by delivering written notice of such revocation to the
Secretary of the Company before the Meeting or by properly executing and
delivering a proxy bearing a later date. Proxies may also be revoked by any
shareholder present at the Meeting who elects to vote his shares in person. The
cost of soliciting proxies will be paid by the Company and may include
reimbursement paid to brokerage firms and others for their expense in forwarding
solicitation material. Solicitation will be made primarily through the use of
the mail but regular employees of the Company may, without additional
remuneration, solicit proxies personally by telephone or telegram. The Company
has contracted with American Stock Transfer and Trust Co. ("AST") to solicit
proxies on the Board of Director's behalf.
The anticipated cost of the proxy solicitation by AST is $2,000 plus
distribution expenses charged by the various brokerage firms which are expected
to be $2,500. AST will mail a search notice to banks, brokers, nominees and
street-name accounts to develop a listing of shareholders, distribute proxy
material to brokers and banks for subsequent distribution to beneficial holders
of stock and solicit proxy responses from holders of the Company's Common Stock.
The record date for determining those shareholders who are entitled to
notice of, and to vote at, the Meeting has been fixed as January 24, 1997. At
the close of business on the record date, the Company had approximately
47,691,824 outstanding shares of Common Stock (the "Common Stock"). Each share
of Common Stock is entitled to one vote on matters brought before the Meeting.
In voting for directors, each shareholder has the right to cumulate his votes
and give one nominee a number of votes equal to the number of directors to be
elected multiplied by the number of shares he holds, or to distribute his votes
on the same principle among the nominees to be elected in such manner as he may
see fit. A shareholder may cumulate his votes if his candidate or candidates
have been placed in nomination prior to the voting and if any shareholder gives
notice at the Meeting prior to the voting of that shareholder's intention to
cumulate his votes. The persons named in the enclosed proxy card may or may not
elect to give such notice and vote the shares they represent in such a manner.
The shares represented by the proxy will be voted at the Annual Meeting and will
be voted by the proxyholder as specified by the person solicited. California
statute and case law does not give specific instructions regarding the treatment
of abstentions and broker nonvotes for companies such as BTi; however,
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the Company believes that California law provides that if shares are represented
and vote on any issue at a shareholder meeting their failure to vote yes on any
other issue (through either abstention or a broker nonvote) has the same effect
as a negative vote on that other issue.
PROPOSAL 1
ELECTION OF DIRECTORS
A board of six directors is to be elected at the Meeting to hold office
until the next annual meeting or until their successors are elected. Each
returned proxy cannot be voted for a greater number of persons than the number
of nominees named (six). Unless individual shareholders specify otherwise, each
returned proxy will be voted for the election of the six nominees who are listed
herein, or for as many nominees of the Board of Directors as possible, not to
exceed six, such votes to be distributed among such nominees in the manner as
the persons named in the enclosed proxy card see fit. Dr. Black and Mr. Knudson
are not standing for re-election.
If, however, any of those named are unable to serve, or for good cause
decline to serve at the time of the Meeting, the persons named in the enclosed
proxy will exercise discretionary authority to vote for substitutes. The Board
of Directors is not aware of any circumstances that would render any nominee
unavailable for election. Discretionary authority to cumulate votes is being
solicited by the Board of Directors, and it is intended that the proxies
received by the proxy holders pursuant to the solicitation will be voted in a
manner designed to cause the election of the maximum number of the Board of
Directors' nominees. The following schedule sets forth certain information
concerning the nominees for election as directors.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES LISTED
HEREIN.
First Year
Elected
Name Director Principal Occupation Age
- -------------------------- ---------- ---------------------------------- ---
R. Scott Asen (1)(2)(3) 1984 President, Asen and Company 52
Jerry C. Benjamin (1)(3) 1988 Director, Advent Limited 56
D. Scott Buchanan ---- President and Chief Operating
Officer, Biomagnetic Technologies,
Inc. 38
Martin P. Egli (2) 1995 Partner, Experta Administration
Ltd. 44
Enrique Maso 1995 Private Investor 71
James V. Schumacher (3)(4) 1993 Chairman and Chief Executive
Officer, Biomagnetic Technologies,
Inc. 51
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(1) Member of Compensation Committee.
(2) Member of Audit Committee.
(3) Member of Administrative Committee of the Purchase Plan.
(4) Mr. Schumacher also serves as a non-voting advisor to the Compensation
Committee.
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BUSINESS EXPERIENCE OF DIRECTORS
MR. ASEN has served as general partner of Pioneer III and Pioneer IV,
venture capital investment funds, since 1983 and 1984, respectively. Since
1984, Mr. Asen has served as President of Asen and Company, an investment
management firm. Presently, Mr. Asen is a director of Davox Corporation and a
number of privately held companies.
MR. BENJAMIN has served as a general partner of Advent First Limited
Partnership and a director of Advent Limited since December 1987, with
responsibility for life science venture capital investments. Mr. Benjamin is
currently a director of a number of privately-held companies and two publicly-
held companies, Gensia Pharmaceuticals, Inc. and Orthofix International N.V.
MR. EGLI has served since 1993 as a partner and principal of Experta
Administration Ltd., a company which provides investment management, corporate
finance and trust services, and which owns 100% of the capital stock of Dassesta
International S.A. ("Dassesta"). From 1988 to 1992 Mr. Egli served as Chief
Executive Officer of BiL Holding Ltd., a banking and investment management
company owned by the Bank in Liechtenstein Group. Mr. Egli is a director of
several privately held companies.
DR. MASO, a private investor, is a former large industrialist in Europe and
the former Mayor of Barcelona. He is currently the Chairman of the Board of
Electronic Data Systems in Spain, a position he has held since 1983. He
received a Masters of Industrial Management Engineering from New York University
and a doctorate in Engineering from the Politechnic College of Barcelona.
MR. SCHUMACHER joined the Company in June 1993 as a Director and Chairman
of the Board and subsequently became President and Chief Executive Officer
effective July 14, 1993. Upon the election of D. Scott Buchanon as President
and Chief Operating Officer of the Company, which took place on December 18,
1996, Mr. Schumacher continued on as Chairman and Chief Executive Officer of the
Company. Prior to joining the Company, Mr. Schumacher was employed by GE for 25
years, his most recent position being General Manager of Range Products at GE
Appliances from 1991 to 1993. From 1970 to 1991, Mr. Schumacher held several
sales and marketing positions with GE Medical Systems in the U.S. and Europe.
These positions included: Vice President - Marketing for Medical Systems
European Business (1986 to 1989), Manager - MR Marketing (1983 to 1986) and
National Sales Manager - CT Products (1981 to 1983).
DR. BUCHANAN joined the Company in 1986, served as Vice President, Product
Operations from February 1992 through December 1996 and has served as President
since December 1996. Dr. Buchanan has been involved with product and
applications development since joining the Company as a staff physicist. Dr.
Buchanan received a B.S. in Physics from Lehigh University in Pennsylvania and
an M.S. and Ph.D. in Physics from the University of Illinois.
BOARD MEETINGS AND COMMITTEES
The Company's Board of Directors held 6 meetings during the fiscal year
ended September 30, 1996, 2 of which were telephonic. Each Director nominated
for reelection attended at least 75% of the aggregate of (i) the total meetings
of the Board and (ii) the total number of meetings held by all committees of the
board on which he served.
The Company has a standing Compensation Committee composed of Directors R.
Scott Asen and Jerry C. Benjamin as of September 30, 1996. Director James V.
Schumacher serves as a non-voting advisor to the Committee. The Compensation
Committee reviews and acts on matters relating to compensation levels and
benefit plans for executive officers and key employees of the Company. The
Compensation Committee had two telephonic meetings during the fiscal year ended
September 30, 1996.
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The Company has a standing Audit Committee composed of Directors R. Scott
Asen and Martin P. Egli as of September 30, 1996. The Audit Committee assists
in selecting the independent auditors, in designating services they are to
perform and in maintaining effective communication with those auditors. The
Audit Committee met one time during the fiscal year ended September 30, 1996.
The Company has a standing Administrative Committee of the Purchase Plan
(the "Administrative Committee") composed of Directors R. Scott Asen, Jerry C.
Benjamin and James V. Schumacher. The Administrative Committee has full
authority to administer the Purchase Plan. The Administrative Committee met
once during the fiscal year ended September 30, 1996.
The Company does not have a standing Nominating Committee or any other
Committee performing similar functions, and such matters are considered at
meetings of the full Board of Directors.
PROPOSAL 2
AMENDMENT OF ARTICLES OF INCORPORATION
On January 24, 1997, the Company's Board of Directors approved an
amendment, subject to shareholder approval, to the Company's Fourth Restated
Articles of Incorporation, as amended, in order to increase the number of shares
of Common Stock the Company is authorized to issue from 60,000,000 shares to
100,000,000 shares.
Approval of the proposed increase in the number of shares of authorized
Common Stock will insure that shares will be available, if needed, for issuance
in connection with stock splits, stock dividends, financings, acquisitions and
other corporate purposes. The Board of Directors believes that the availability
of the additional shares for such purposes without delay or the necessity for a
special shareholders' meeting would be beneficial to the Company.
No further action or authorization by the Company's shareholders would be
necessary prior to the issuance of the additional shares of Common Stock unless
required by applicable law or regulatory agency or by the rules of any stock
exchange on which the Company's securities may then be listed. The National
Association of Securities Dealers, Inc. requires shareholder approval as a
prerequisite to continued inclusion of the shares on the Nasdaq National Market
in certain situations.
The holders of any of the additional shares of Common Stock issued in the
future would have the same rights and privileges as the holders of the shares of
Common Stock currently authorized and outstanding. The proposed amendment to
the Company's Fourth Restated Articles of Incorporation, as amended, will not
otherwise alter or modify the rights, preferences, privileges or restrictions of
the Common Stock.
The affirmative vote of a majority of the outstanding shares of Common
Stock is required for approval of this matter.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT
OF THE COMPANY'S FOURTH RESTATED ARTICLES OF INCORPORATION, AS AMENDED, TO
INCREASE THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK TO 100,000,000.
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PROPOSAL 3
APPROVAL OF THE 1997 STOCK INCENTIVE PLAN
The Company's stockholders are being asked to approve the Company's 1997
Stock Incentive Plan (the "Option Plan") as the successor incentive program to
the Company's 1987 Stock Option Plan which terminated December 31, 1996.
The Option Plan is designed to assure that a sufficient reserve of Common
Stock is available to attract and retain the services of key individuals
essential to the Company's long-term growth and success.
The following is a summary of the principal features of the Option Plan.
However, the summary does not purport to be a complete description of all the
provisions of the Option Plan. Any stockholder of the Company who wishes to
obtain a copy of the actual plan document may do so upon written request to the
Corporate Secretary at the Company's principal executive offices in San Diego,
California.
The Option Plan became effective on January 1, 1997, following adoption by
the Board of Directors in December 1996.
As of January 24, 1997, no options were outstanding under the Option Plan,
3,000,000 shares remained available for future option grant assuming shareholder
approval of this Proposal, and no shares have been issued under the Option Plan.
EQUITY INCENTIVE PROGRAMS
The Option Plan contains three separate equity incentive programs: (i) a
Discretionary Option Grant Program, (ii) an Automatic Option Grant Program and
(iii) a Stock Issuance Program. The principal features of these programs are
described below. The Option Plan (other than the Automatic Option Grant
Program) is administered by the Compensation Committee of the Board. The
Compensation Committee acting in such administrative capacity (the "Plan
Administrator") has complete discretion (subject to the provisions of the Option
Plan) to authorize option grants and direct stock issuances under the Option
Plan. All grants under the Automatic Option Grant Program are to be made in
strict compliance with the provisions of that program, and no administrative
discretion will be exercised by the Plan Administrator with respect to the
grants made under such program.
SHARE RESERVE
A total of 3,000,000 shares of Common Stock has been reserved for issuance
over the 10 year term of the Option Plan. In no event may any one participant
in the Option Plan be granted stock options and direct stock issuances for more
than 500,000 shares in the aggregate under the Option Plan.
In the event any change is made to the outstanding shares of Common Stock
by reason of any recapitalization, stock dividend, stock split, combination of
shares, exchange of shares or other change in corporate structure effected
without the Company's receipt of consideration, appropriate adjustments will be
made to (i) the maximum number and class of securities issuable under the Option
Plan, (ii) the maximum number and class of securities for which any one
participant may be granted stock options and direct stock issuances under the
Option Plan, (iii) the number and class of securities for which option grants
will subsequently be made under the Automatic Option Grant Program to each
newly-elected or continuing non-employee Board member and (iv) the number and
class of securities and the exercise price per share in effect under each
outstanding option.
Should an option expire or terminate for any reason prior to exercise in
full, the shares subject to the portion of the option not so exercised will be
available for subsequent issuance under the Option Plan. Unvested
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shares issued under the Option Plan and subsequently repurchased by the Company
at the original option or issue price paid per share will be added back to the
share reserve and will accordingly be available for subsequent issuance under
the Option Plan. Shares subject to any option surrendered in accordance with the
stock appreciation right provisions of the Option Plan will not be available for
subsequent issuance.
ELIGIBILITY
Officers and other employees of the Company and its subsidiaries (whether
now existing or subsequently established), non-employee members of the Board or
the board of directors of any parent or subsidiary corporation and independent
consultants and advisors in the service of the Company or its subsidiaries will
be eligible to participate in the Discretionary Option Grant and Stock Issuance
Programs. Non-employee members of the Board will also be eligible to
participate in the Automatic Option Grant Program.
As of December 31, 1996, five executive officers, five non-employee Board
members and approximately 79 other employees were eligible to participate in the
Discretionary Option Grant and Stock Issuance Programs, and the five non-
employee Board members were also eligible to participate in the Automatic Option
Grant Program.
VALUATION
The fair market value per share of Common Stock on any relevant date under
the Option Plan will be the closing selling price per share on that date on The
Nasdaq National Market. On December 31, 1996, the closing selling price per
share was $0.50.
DISCRETIONARY OPTION GRANT PROGRAM
Options may be granted under the Discretionary Option Grant Program at an
exercise price per share not less than 85% of the fair market value per share of
Common Stock on the option grant date. No granted option will have a term in
excess of 10 years. The options will generally become exercisable in a series
of installments over the optionee's period of service with the Company.
Upon cessation of service, the optionee will have a limited period of time
in which to exercise his or her outstanding options for any shares in which the
optionee is vested at that time. The Plan Administrator will have complete
discretion to extend the period following the optionee's cessation of service
during which his or her outstanding options may be exercised and/or to
accelerate the exercisability or vesting of such options in whole or in part.
Such discretion may be exercised at any time while the options remain
outstanding, whether before or after the optionee's actual cessation of service.
The Plan Administrator is authorized to issue two types of stock
appreciation rights in connection with option grants made under the
Discretionary Option Grant Program:
TANDEM STOCK APPRECIATION RIGHTS provide the holders with
the right to surrender their options for an appreciation distribution
from the Company equal in amount to the excess of (a) the fair market
value of the vested shares of Common Stock subject to the surrendered
option over (b) the aggregate exercise price payable for such shares.
Such appreciation distribution may, at the discretion of the Plan
Administrator, be made in cash or in shares of Common Stock.
LIMITED STOCK APPRECIATION RIGHTS may be provided to one or
more officers of the Company as part of their option grants. Any
option with such a limited stock appreciation right may be surrendered
to the Company upon the successful completion of a hostile tender
offer for more than fifty percent (50%) of the Company's outstanding
voting stock. In return for the surrendered option, the officer will
be entitled to a cash distribution from the Company in an amount per
surrendered option share equal to the excess of (a) the highest price
paid per share
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of Common Stock in connection with the tender offer over (b) the exercise
price payable for such share.
The shares of Common Stock acquired upon the exercise of one or more
options may be unvested and subject to repurchase by the Company, at the
original exercise price paid per share, if the optionee ceases service with the
Company prior to vesting in those shares. The Plan Administrator will have
complete discretion to establish the vesting schedule to be in effect for any
such unvested shares and may at any time cancel the Company's outstanding
repurchase rights with respect to those shares and thereby accelerate the
vesting of those shares.
The Plan Administrator will also have the authority to effect the
cancellation of outstanding options under the Discretionary Option Grant Program
which have exercise prices in excess of the then current market price of the
Common Stock and to issue replacement options with an exercise price based on
the lower market price of Common Stock at the time of the new grant.
AUTOMATIC OPTION GRANT PROGRAM
Under the Automatic Option Grant Program, each individual who first becomes
a non-employee Board member on or after January 1, 1997, whether through
election by the shareholders or appointment by the Board, will automatically be
granted, at the time of such initial election or appointment (the "Initial Grant
Date"), a non-statutory option to purchase 10,000 shares of Common Stock,
provided such individual has not previously been in the Company's employ. Each
non-employee Board member who receives such an initial 10,000-share option grant
will automatically be granted, on each successive anniversary of the Initial
Grant Date on which he or she continues to serve as a Board member, a non-
statutory option to purchase an additional 3,500 shares of Common Stock. An
individual who becomes a non-employee Board member after previously serving in
the Company's employ will receive his or her initial 3,500-share annual grant at
the first Annual Shareholders Meeting at which such individual is elected as a
non-employee Board member and will receive an additional 3,500-share automatic
option grant at each subsequent Annual Shareholders Meeting at which he or she
is re-elected to the Board as a non-employee director. There will be no limit
on the number of such 3,500-share option grants which any one non-employee Board
member may receive over his or her period of Board service.
Each 10,000-share or 3,500-share option granted under the Automatic Option
Grant Program will have an exercise price per share equal to 100% of the fair
market value per share of Common Stock on the option grant date and a maximum
term of 10 years measured from the grant date, subject to earlier termination at
the end of the 12-month period measured from the date of the optionee's
cessation of Board service. Each automatic option grant will become exercisable
for the option shares in 16 successive equal quarterly installments upon the
optionee's continued Board service measured from the Initial Grant Date. Should
the optionee cease Board service, then the optionee may, at any time during the
next 12 months, exercise the option for any or all of the option shares for
which the option is exercisable at the time of such cessation of Board service.
Each automatic option grant will accelerate and become immediately
exercisable for all of the option shares upon (i) the optionee's death or
permanent disability while a Board member, (ii) an acquisition of the Company by
merger or asset sale or (iii) the successful completion of a hostile tender
offer for more than 50% of the Company's outstanding voting stock or a change in
the majority of the Board effected through one or more proxy contests for Board
membership. In addition, upon the successful completion of a hostile tender
offer for more than 50% of the Company's outstanding voting stock, each
automatic option grant may be surrendered to the Company for a cash distribution
per surrendered option share in an amount equal to the excess of (a) the highest
price per share of Common Stock paid in connection with such tender offer over
(b) the exercise price payable for such share. The exercise of such surrender
right will be pre-approved by the Board at the time the automatic option grant
is made.
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STOCK ISSUANCE PROGRAM
Shares may be sold under the Stock Issuance Program at a price per share
not less than 85% of fair market value, payable in cash or through a promissory
note payable to the Company. Shares may also be issued solely as a bonus for
past services.
The issued shares may either be immediately vested upon issuance or subject
to a vesting schedule tied to the performance of service or the attainment of
performance goals. The Plan Administrator will, however, have the discretionary
authority at any time to accelerate the vesting of any and all unvested shares
outstanding under the Option Plan.
GENERAL PROVISIONS
ACCELERATION. In the event that the Company is acquired by merger or asset
sale, each outstanding option under the Discretionary Option Grant Program which
is not to be assumed by the successor corporation will automatically accelerate
in full, and all unvested shares under the Discretionary Option Grant and Stock
Issuance Programs will immediately vest, except to the extent the Company's
repurchase rights with respect to those shares are to be assigned to the
successor corporation. Any options assumed in connection with such acquisition
may, in the Plan Administrator's discretion, be subject to immediate
acceleration, and any unvested shares which do not vest at the time of such
acquisition may be subject to full and immediate vesting, in the event the
individual's service with the successor entity is subsequently terminated within
a specified period following the acquisition. In connection with a hostile
change in control of the Company (whether by successful tender offer for more
than 50% of the outstanding voting stock or by proxy contest for the election of
Board members), the Plan Administrator will have the discretionary authority to
provide for automatic acceleration of outstanding options under the
Discretionary Option Grant Program and the automatic vesting of all unvested
shares outstanding under the Discretionary Option Grant and Stock Issuance
Programs, with such acceleration or vesting to occur either at the time of such
change in control or upon the subsequent termination of the individual's
service.
The acceleration of vesting upon a change in the ownership or control of
the Company may be seen as an anti-takeover provision and may have the effect of
discouraging a merger proposal, a takeover attempt or other efforts to gain
control of the Company.
FINANCIAL ASSISTANCE. The Plan Administrator may institute a loan program
to assist one or more participants in financing the exercise of outstanding
options or the purchase of shares under the Discretionary Option Grant and Stock
Issuance Programs. The Plan Administrator will have complete discretion to
determine the terms of any such financial assistance. However, the maximum
amount of financing provided any individual may not exceed the cash
consideration payable for the issued shares plus all applicable taxes. Any such
financing may be subject to forgiveness in whole or in part, at the discretion
of the Plan Administrator, over the participant's period of service with the
Company.
SPECIAL TAX ELECTION. The Plan Administrator may provide one or more
holders of options or unvested shares with the right to have the Company
withhold a portion of the shares otherwise issuable to such individuals in
satisfaction of the tax liability incurred by such individuals in connection
with the exercise of those options or the vesting of those shares.
Alternatively, the Plan Administrator may allow such individuals to deliver
previously acquired shares of Common Stock in payment of such tax liability.
AMENDMENT AND TERMINATION. The Board may amend or modify the Option Plan
in any or all respects whatsoever, subject to any stockholder approval required
under applicable law or regulation. The Board may terminate the Option Plan at
any time, and the Option Plan will in all events terminate on December 31, 2006.
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FEDERAL INCOME TAX CONSEQUENCES
OPTION GRANTS. Options granted under the Option Plan may be either
incentive stock options which satisfy the requirements of Section 422 of the
Internal Revenue Code or non-statutory options which are not intended to meet
such requirements. The Federal income tax treatment for the two types of
options differs as follows:
INCENTIVE OPTIONS. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made the
subject of a taxable disposition. For Federal tax purposes, dispositions are
divided into two categories: (i) qualifying and (ii) disqualifying. A
qualifying disposition occurs if the sale or other disposition is made after the
optionee has held the shares for more than two (2) years after the option grant
date and more than one (1) year after the exercise date. If either of these two
(2) holding periods is not satisfied, then a disqualifying disposition will
result.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the option exercise date over (ii) the exercise
price paid for the shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
NON-STATUTORY OPTIONS. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when the Company's repurchase right lapses, an amount
equal to the excess of (i) the fair market value of the shares on the date the
repurchase right lapses over (ii) the exercise price paid for the shares. The
optionee may, however, elect under Section 83(b) of the Internal Revenue Code to
include as ordinary income in the year of exercise of the option an amount equal
to the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the Section
83(b) election is made, the optionee will not recognize any additional income as
and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised non-
statutory option. The deduction will in general be allowed for the taxable year
of the Company in which such ordinary income is recognized by the optionee.
STOCK APPRECIATION RIGHTS. An optionee who is granted a stock appreciation
right will recognize ordinary income in the year of exercise equal to the amount
of the appreciation distribution. The Company will be entitled to an income tax
deduction equal to such distribution for the taxable year in which the ordinary
income is recognized by the optionee.
DIRECT STOCK ISSUANCE. The tax principles applicable to direct stock
issuances under the Option Plan will be substantially the same as those
summarized above for the exercise of non-statutory option grants.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION. The Company anticipates that any
compensation deemed paid by it in connection with disqualifying dispositions of
incentive stock option shares or exercises of non-statutory options granted with
exercise prices equal to the fair market value of the option shares on the grant
date will
-9-
<PAGE>
qualify as performance-based compensation for purposes of Internal Revenue Code
Section 162(m) and will not have to be taken into account for purposes of the $1
million limitation per covered individual on the deductibility of the
compensation paid to certain executive officers of the Company. Accordingly,
all compensation deemed paid with respect to those options will remain
deductible by the Company without limitation under Internal Revenue Code Section
162(m).
ACCOUNTING TREATMENT
Option grants or stock issuances with exercise or issue prices less than
the fair market value of the shares on the grant or issue date will result in a
compensation expense to the Company's earnings equal to the difference between
the exercise or issue price and the fair market value of the shares on the grant
or issue date. Such expense will be accruable by the Company over the period
that the option shares or issued shares are to vest. Option grants or stock
issuances with exercise or issue prices equal to the fair market value of the
shares at the time of issuance or grant will not result in any charge to the
Company's earnings, but the Company must disclose, in pro-forma statements to
the Company's financial statements, the impact those option grants would have
upon the Company's reported earnings were the value of those options treated as
compensation expense. Whether or not granted at a discount, the number of
outstanding options may be a factor in determining the Company's earnings per
share on a fully-diluted basis.
Should one or more optionees be granted stock appreciation rights which
have no conditions upon exercisability other than a service or employment
requirement, then such rights will result in a compensation expense to the
Company's earnings.
NEW PLAN BENEFITS
As of January 24, 1997, no options have been granted under the Option Plan.
SHAREHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the Annual Meeting is
required for approval of the Option Plan. Should such shareholder approval not
be obtained by December 31, 1997, all options granted under the Option Plan will
terminate without becoming exercisable for any of the shares of Common Stock
subject to those options, no further options will be granted and no shares will
be issued under the Option Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE TO APPROVE THE
OPTION PLAN.
-10-
<PAGE>
PROPOSAL 4
APPROVAL OF AMENDMENT TO THE 1992 EMPLOYEE STOCK PURCHASE PLAN
The shareholders are being asked to approve an amendment to the Company's
1992 Employee Stock Purchase Plan (the "Purchase Plan") which will increase the
maximum number of shares of Common Stock authorized for issuance over the term
of the Purchase Plan from 300,000 to 750,000 shares.
The amendment is designed to assure that a sufficient reserve of Common
Stock is available under the Purchase Plan to provide eligible employees of the
Company and its participating affiliates with the opportunity to acquire a
proprietary interest in the Company through participation in a payroll-deduction
based employee stock purchase plan under Section 423 of the Internal Revenue
Code. Participating affiliates may include any parent or subsidiary
corporations of the Company, whether now existing or hereafter established,
which elect to extend the benefits of the Purchase Plan to their eligible
employees.
The terms and provisions of the Purchase Plan are summarized below. This
summary, however, does not purport to be a complete description of the Purchase
Plan. Copies of the actual plan document may be obtained by any shareholder
upon written request to the Corporate Secretary at the Company's principal
offices in San Diego, California.
The Purchase Plan was adopted by the Board of Directors in December 1991
and was approved by the shareholders in January 1992. The share increase to the
Purchase Plan which is the subject of this Proposal 4 was adopted by the Board
of Directors on December 23, 1996, subject to the approval of the shareholders
at the 1997 Annual Meeting.
ADMINISTRATION
The Purchase Plan is administered by a committee (the "Committee") of two
or more Board members appointed by the Board. The Committee as Plan
Administrator has full authority to adopt administrative rules and procedures
and to interpret the provisions of the Purchase Plan. All costs and expenses
incurred in plan administration are paid by the Company without charge to
participants.
SECURITIES SUBJECT TO THE PURCHASE PLAN
The Common Stock purchasable under the Purchase Plan may be either shares
newly-issued by the Company or shares reacquired by the Company, including
shares purchased on the open market.
The maximum number of shares which may be sold to participants over the
term of the Purchase Plan may not exceed 750,000 shares.
To prevent dilution or enlargement of participant rights under the Purchase
Plan, appropriate adjustments will be made to (i) the class and maximum number
of shares purchasable under the Purchase Plan, (ii) the class and maximum number
of shares purchasable per participant during any one purchase period and (iii)
the class and number of shares purchasable and the price per share payable under
each outstanding purchase right, in the event any change is made to the
Company's outstanding Common Stock (whether by reason of stock dividend, stock
split, combination of shares, recapitalization or other change in corporate
structure effected without receipt of consideration).
PURCHASE PERIODS AND PURCHASE RIGHTS
Shares of Common Stock are offered under the Purchase Plan through a series
of successive purchase periods, each to be of such duration (not to exceed 27
months per purchase period) as the Plan Administrator will determine prior to
the commencement of the purchase period. A new purchase period began on April
1, 1996 and will end on March 31, 1998.
-11-
<PAGE>
ELIGIBILITY AND PARTICIPATION
Any individual who (i) is customarily employed by the Company or a
participating subsidiary for more than five hours per week and more than three
months per calendar year and (ii) has completed at least 90 days of continuous
service with the Company or such participating subsidiary is eligible to
participate in the Purchase Plan. As of December 31, 1996, approximately 79
employees are eligible to participate in the Purchase Plan.
An eligible employee who has completed the 90-day service requirement prior
to the start of the purchase period is eligible to begin participation in that
purchase period on the starting date. If the employee first completes the
minimum service requirement during the course of the purchase period, then that
individual is eligible to begin participation in that purchase period on the
first day of the first calendar quarter following the completion of such service
requirement. No employee may, however, participate in a particular purchase
period unless such individual enrolls in that purchase period on or before the
date on which he or she is first eligible to begin participation.
The participant is granted a separate purchase right for each purchase
period in which he or she participates. The purchase right is granted at the
time the individual begins participation in the purchase period and is
automatically exercised on the last business day of the purchase period.
PURCHASE PRICE
The purchase price of the Common Stock acquired at the end of each purchase
period is equal to the LESSER of (i) 85% of the fair market value per share of
Common Stock on the date on which the purchase right is granted or (ii) 85% of
the fair market value per share of Common Stock on the date the purchase right
is exercised.
The fair market value of the Common Stock on any relevant date is the
closing selling price per share on such date as reported on the Nasdaq National
Market. On January 24, 1997, the fair market value per share of the Company's
Common Stock was $3/8.
PAYROLL DEDUCTIONS AND STOCK PURCHASES
The payroll deductions authorized by a participant for purposes of
acquiring Common Stock under the Purchase Plan may be in any multiple of 1%, up
to a maximum of 15%, of his or her base pay each purchase period. These payroll
deductions are credited to a special interest-bearing account maintained for
each participant.
On the last business day of each purchase period, the payroll deduction
account of each participant is automatically applied to the purchase of whole
shares of Common Stock at the purchase price in effect for that purchase period.
However, no participant may purchase more than 10,000 shares of Common Stock
during any one purchase period. Any amount remaining in the account after such
application is promptly refunded to the participant.
SPECIAL LIMITATIONS
The Purchase Plan imposes certain limitations upon a participant's right to
acquire Common Stock, including the following limitations:
(i) No purchase right may be granted to any individual who owns
stock (including stock purchasable under any outstanding purchase
rights) possessing 5% or more of the total combined voting power or
value of all classes of stock of the Company or any of its
subsidiaries.
-12-
<PAGE>
(ii) No purchase right granted to a participant may permit such
individual to purchase more than $25,000 of Common Stock (valued at
the time the purchase right is granted) for each full or partial
calendar year the purchase right remains outstanding.
TERMINATION OF PURCHASE RIGHTS
The purchase right terminates upon the participant's termination of
employment or the participant's election to withdraw participation in the
purchase period. Any payroll deductions which the participant may have made
with respect to the terminated purchase right are refunded with interest.
However, should the participant's employment terminate by reason of death or
permanent disability, then the participant (or the person or persons to whom the
deceased participant's purchase right is transferred by will or by the laws of
inheritance) may elect to have the participant's payroll deduction account
applied to the purchase of Common Stock at the end of the purchase period.
SHAREHOLDER RIGHTS
No participant will have any shareholder rights with respect to the shares
covered by his or her outstanding purchase right until the shares are actually
purchased on the participant's behalf. No adjustment will be made for
dividends, distributions or other rights for which the record date is prior to
the date of such purchase.
ASSIGNABILITY
No purchase right will be assignable or transferable by the participant
other than by will or by the laws of inheritance, and during the participant's
lifetime the purchase right is exercisable only by the participant.
CHANGE IN OWNERSHIP OF COMPANY
In the event the Company or its shareholders enter into an agreement to
dispose of all or substantially all of the assets or outstanding capital stock
of the Company by means of:
(i) a sale, merger or reorganization in which the Company
will not be the surviving corporation, or
(ii) a reverse merger in which the Company is the surviving
corporation but in which more than 50% of the Company's outstanding
voting stock is transferred to holders different from those who held
the stock immediately prior to the reverse merger,
all outstanding purchase rights will automatically be exercised,
immediately prior to the effective date of such sale, merger, reorganization or
reverse merger. Accordingly, all amounts credited to the outstanding payroll
deduction accounts will be applied to the purchase of whole shares of Common
Stock immediately prior to the change in ownership.
AMENDMENT AND TERMINATION
The Purchase Plan will terminate upon the EARLIER of (i) December 31, 2001
or (ii) the first date on which there are no longer any shares available for
issuance under the Purchase Plan. The Board may, however, alter or amend the
provisions of the Purchase Plan at any time. The Board may also discontinue the
Purchase Plan following the close of any current purchase period in effect under
the Plan.
The Board may not, without shareholder approval, (i) materially increase
the number of shares issuable under the Purchase Plan or the maximum number of
shares which any participant may purchase during a single purchase period,
except in connection with certain changes in the Company's capital structure,
(ii) alter the
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<PAGE>
purchase price formula so as to reduce the purchase price, (iii) materially
increase the benefits accruing to participants or (iv) materially modify the
requirements for eligibility to participate in the Purchase Plan.
FEDERAL TAX CONSEQUENCES
The Purchase Plan is intended to be an "employee stock purchase plan"
within the meaning of Section 423 of the Internal Revenue Code. Under a plan
which so qualifies, no taxable income will be recognized by a participant, and
no deductions will be allowable to the Company, upon either the grant or the
exercise of the purchase rights. Taxable income will not be recognized until
there is a sale or other disposition of the shares acquired under the Purchase
Plan or in the event the participant should die while still owning the purchase
shares.
If the participant sells or otherwise disposes of the purchased shares
within two years after his or her entry date into the offering period in which
such shares were acquired or within one year after the semi-annual purchase date
on which those shares were actually acquired, then the participant will
recognize ordinary income in the year of sale or disposition equal to the amount
by which the fair market value of the shares on the purchase date exceeded the
purchase price paid for those shares, and the Company will be entitled to an
income tax deduction, for the taxable year in which such disposition occurs,
equal in amount to such excess.
If the participant sells or disposes of the purchased shares more than two
years after his or her entry date into the offering period in which the shares
were acquired and more than one year after the semi-annual purchase date of
those shares, then the participant will recognize ordinary income in the year of
sale or disposition equal to the lesser of (i) the amount by which the fair
market value of the shares on the sale or disposition date exceeded the purchase
price paid for those shares or (ii) 15% of the fair market value of the shares
on the participant's entry date into that offering period; and any additional
gain upon the disposition will be taxed as a long-term capital gain. The
Company will not be entitled to an income tax deduction with respect to such
disposition.
If the participant still owns the purchased shares at the time of death,
the lesser of (i) the amount by which the fair market value of the shares on the
date of death exceeds the purchase price or (ii) 15% of the fair market value of
the shares on his or her entry date into the offering period in which those
shares were acquired will constitute ordinary income in the year of death.
ACCOUNTING TREATMENT
Under current accounting rules, the issuance of Common Stock under the
Purchase Plan will not result in a compensation expense chargeable against the
Company's reported earnings. However, the Company must disclose, in pro-forma
statements to the Company's financial statements, the impact the purchase rights
granted under the Purchase Plan would have upon the Company's reported earnings
were the value of those purchase rights treated as compensation expense.
STOCK ISSUANCES
The table below shows, as to each of the Company's Named Executive Officers
named in the Summary Compensation Table and the various indicated groups, the
number of shares of Common Stock purchased under the Purchase Plan between the
December 1991 effective date of the Purchase Plan and December 31, 1996,
together with the weighted average purchase price paid per share.
-14-
<PAGE>
<TABLE>
<CAPTION>
PURCHASE PLAN TRANSACTIONS
- ----------------------------------------------------------------------------------------------
Number of Weighted Average
Name Purchased Shares Purchase Price
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
James V. Schumacher
Chief Executive Officer and Director -0- $ -0-
- ----------------------------------------------------------------------------------------------
D. Scott Buchanan
President -0- $ -0-
- ----------------------------------------------------------------------------------------------
Bruce S. Aboudara
Vice President, Marketing and Sales -0- $ -0-
- ----------------------------------------------------------------------------------------------
Herman Bergman
Acting Chief Financial Officer and Secretary -0- $ -0-
- ----------------------------------------------------------------------------------------------
William C. Black, Jr.
Senior Vice President, Business Development
and Director -0- $ -0-
- ----------------------------------------------------------------------------------------------
All executive officers as a group -0- $ -0-
- ----------------------------------------------------------------------------------------------
All employees, including current officers who are
not executive officers, as a group 114,051 $2.09
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
</TABLE>
NEW PLAN BENEFITS
As of January 15, 1996, no purchase rights had been granted under the
Purchase Plan on the basis of the 450,000-share increase which is the subject
of this Proposal.
SHAREHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the Annual Meeting is
required for approval of the amendment to increase the share reserve under the
Purchase Plan by an additional 450,000 shares. If such shareholder approval is
not obtained, then no purchase rights will be granted under the Purchase Plan on
the basis of the proposed share increase, and the Purchase Plan will continue in
effect until the available reserve of Common Stock under the Purchase Plan as
last approved by the shareholders is issued.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO
AMEND THE PURCHASE PLAN.
-15
<PAGE>
PROPOSAL 5
APPROVAL OF
SELECTION OF INDEPENDENT ACCOUNTANTS
On the recommendation of the Company's management, the Board of Directors
has selected Price Waterhouse LLP to continue in the capacity of independent
accountants for the current fiscal year. Ratification and approval by the
shareholders will be sought by the Board of Directors for the selection of Price
Waterhouse LLP as independent accountants to audit the accounts and records of
the Company for the fiscal year ending September 30, 1997, and to perform other
appropriate services. In the event that a majority of the shares voted at the
Annual Meeting do not vote for ratification of the selection of Price Waterhouse
LLP, the Board of Directors will reconsider such selection.
A representative of Price Waterhouse LLP is expected to be present at the
meeting to respond to your questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION AND APPROVAL
OF THE SELECTION OF PRICE WATERHOUSE LLP AS THE COMPANY'S INDEPENDENT
ACCOUNTANTS FOR FISCAL 1997.
PRINCIPAL SHAREHOLDERS
The following are the only persons known by the Company to own
beneficially, as of December 31, 1996, five percent (5%) or more of the
outstanding shares of its Common Stock.
Shares Beneficially Owned
Name and Address -------------------------------------
of Beneficial Owner (1) Number (1) Percent (2)
- ---------------------------------------- ----------------- ------------------
Advent Limited (3). . . . . . . . . . 2,563,481 5.4
25 Buchingham Gate
London SW1E GLO England
Dassesta International S.A. . . . . . 32,717,602 68.6
AM Schanzengraben 23
CH-8002 Zurich, Switzerland
- ----------------------------
(1) Except as indicated in the footnotes to this table, the persons named
in the table have sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by them, subject to
community property laws, where applicable.
(2) Percentage of ownership is calculated pursuant to SEC Rule 13d-
3(d)(1).
(3) Includes an aggregate of 2,354,481 shares and 209,000 options to
purchase Common Stock owned by venture capital limited partnerships of
which Advent Limited is a managing partner.
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<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock of
the Company as of December 31, 1996 by each director and nominee to the Board of
Directors and by each of the Named Officers and by all directors and executive
officers of the Company as a group. All shares are subject to the named
person's sole voting and investment power except where otherwise indicated.
Shares Beneficially Owned
Name and Address -------------------------------------
of Beneficial Owner (1) Number (1) Percent (2)
- ---------------------------------------- ----------------- ------------------
Bruce S. Aboudara. . . . . . . . . . . 61,250 *
R. Scott Asen (3). . . . . . . . . . . 1,401,937 [4.0]%
Jerry C. Benjamin (4). . . . . . . . . 50,260 *
Herman Bergman . . . . . . . . . . . . 12,167 *
William C. Black, Jr. (5). . . . . . . 160,199 *
D. Scott Buchanan (6). . . . . . . . . 128,898 *
Martin P. Egli (7) . . . . . . . . . . 32,746,769 68.6%
Gerald C. Knudson. . . . . . . . . . . 28,125 *
Enrique Maso . . . . . . . . . . . . . [-0-] *
James V. Schumacher (8). . . . . . . . 659,250 1.4%
All directors and executive officers
as a group (10 persons) (9) . . . . 37,812,336 77.1%
- ----------------------------------
* Less than 1%.
(1) Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock shown as beneficially owned by them, subject to community
property laws, where applicable. Share ownership in each case includes
shares issuable on exercise of certain outstanding options as described in
the footnotes below.
(2) Percentage of ownership is calculated pursuant to SEC Rule 13d-3d(1).
(3) Shares beneficially owned include options to purchase 83,260 shares of
Common Stock held by Mr. Asen which are now exercisable or exercisable
within 60 days of December 31, 1996. Includes an aggregate of 584,174
shares and options to purchase 42,552 shares of Common Stock owned by
Pioneer III and Pioneer IV, venture capital limited partnerships of
which Mr. Asen is a general partner. Mr. Asen disclaims beneficial
ownership of such shares which are in excess of his pecuniary interest
in Pioneer III and Pioneer IV. Also includes 30,977 shares and options
to purchase 6,600 shares held in accounts managed by Mr. Asen. Mr. Asen
disclaims beneficial ownership of such shares.
(4) Does not include 2,354,481 shares and options to purchase 209,000
shares of Common Stock owned by venture capital limited partnerships of
which Advent Limited is managing partner. Mr. Benjamin is a director of
Advent Limited and may be deemed a beneficial owner of such shares. Mr.
Benjamin disclaims beneficial ownership of such shares.
(5) Shares beneficially owned include options to purchas 80,909 shares of
Common Stock held by Dr. Black which are now exercisable or exercisable
within 60 days of December 31, 1996.
(6) Shares beneficially owned include options to purchase 128,606 shares of
Common Stock held by Dr. Buchanan which are now exercisable or exercisable
within 60 days of December 31, 1996.
-17
<PAGE>
(7) Consists of 32,717,602 shares owned by Dassesta. Mr. Egli is a Partner
and principal of Experta Administration Ltd., which owns 100% of the
capital stock of Dassesta.
(8) Shares beneficially owned includes options to purchase 656,250 shares of
Common Stock held by Mr. Schumacher which are now exercisable or
exercisable within 60 days of December 31, 1996.
(9) Shares beneficially owned include all shares held by entities affiliated
with certain directors as described in the footnotes above and include
options to purchase 1,337,886 shares of Common Stock held by all directors
and executive officers as a group which are now exercisable or exercisable
within 60 days of December 31, 1996.
MANAGEMENT
Name Age Position
-------------------------------- --- -----------------------------------
James V. Schumacher. . . . . . . 51 Chief Executive Officer and
Chairman of the Board of Directors
D. Scott Buchanan. . . . . . . . 38 President
Bruce S. Aboudara. . . . . . . . 46 Vice President, Marketing and Sales
Herman Bergman . . . . . . . . . 70 Vice President, Finance, Chief
Financial Officer and Secretary
William C. Black, Jr.. . . . . . 58 Senior Vice President, Business
Development, and Director
BUSINESS EXPERIENCE OF EXECUTIVE OFFICERS
MR. SCHUMACHER is being considered for election to the Board of Directors
of the Company. See "Proposal No. 1--Election of Directors" for a description
of his business background.
DR. BUCHANAN is being considered for election to the Board of Directors of
the Company. See "Proposal No. 1-Election of Directors" for a description of
his business background.
MR. ABOUDARA joined the Company in 1995 as Vice President, Marketing and
Sales. From 1990 to 1994 Mr. Aboudara was employed by Cimlinc Inc., a private
software company where he served as Vice President of World Wide
Marketing/International Business Operations from 1993 to 1994 and as Vice
President of International Business Operations from 1992 to 1993. Previously,
Mr. Aboudara held several senior sales and marketing positions in the medical
systems group of GE from 1977 through 1990.
MR. BERGMAN served the Company as a financial consultant in 1994 and was
appointed acting Chief Financial Officer in May 1995 and acting Secretary in
December 1995. Previously, Mr. Bergman served as a financial consultant during
1994 and from 1992 to 1993 was Vice President of Finance of Atari Corporation, a
public company. From 1991 to 1992 he served as Vice President of Finance and
Operations of Proxim Inc., a public company and served as Treasurer and Finance
Manager of the Military Business Division of Siliconix Inc., a public company,
from 1988 to 1991.
DR. BLACK joined the Company in 1970 and has been Senior Vice President,
Business Development, since August 1984. Dr. Black was President and Chief
Executive Officer of the Company from 1972 to 1984.
-18-
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning the
compensation earned by the Named Executive Officers (determined as of the end of
the last fiscal year) for services rendered in all capacities to the Company for
the fiscal years ended September 30, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
------------------------------------------------------------------
Awards
--------------
All Other
Other Annual Compen-
Name and Compen- Options/SARs sation
Principal Position Year Salary ($) Bonus ($) sation ($) (#) ($)
- ---------------------------- ---- ---------- --------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
James V. Schumacher (1) 1996 $264,899 $50,000 $24,000(2) 900,000 $ -0-
CEO and Chairman 1995 $250,000 $50,000 $24,000(2) 600,000(3) $ -0-
1994 $250,962 $12,500 $66,286(4) -0- $ -0-
D. Scott Buchanan (5) 1996 $127,368 $ -0- $ -0- 200,000 $ -0-
President and Chief 1995 $116,882 $ -0- $ -0- 98,709(3) $ -0-
Operating Officer 1994 $117,777 $ -0- $ -0- -0- $ -0-
Bruce S. Aboudara 1996 $114,942 $ -0- $25,995(6) 200,000 $ -0-
Vice President, Marketing 1995 $ 84,040 $ -0- $30,684(6) 100,000 $ -0-
and Sales
Herman Bergman 1996 $125,481 $ -0- $ -0- 75,000 $ -0-
Vice President of 1995 $ 42,788 $ -0- $ -0- 14,000 $ -0-
Finance, Chief Financial
Officer and Secretary
William C. Black, Jr. 1996 $127,680 $15,000 $ -0- 150,000 $ -0-
Senior Vice President, 1995 $127,191 $39,522(7) $ -0- 53,006(3) $ -0-
Business Development 1994 $127,680 $ -0- $ -0- -0- $ -0-
</TABLE>
- ---------------------------
(1) Mr. Schumacher was elected Chairman and Director of the Company on June 20,
1993 and subsequently became President and Chief Executive Officer
effective July 14, 1993. Mr. Schumacher resigned as President of the
Company in December 1996.
(2) "Other Annual Compensation" for Mr. Schumacher in fiscal 1995 and fiscal
1996 consists of a cost of living adjustment consistent with the terms of
his employment agreement.
(3) A portion of these options were granted on December 1, 1994 pursuant to an
option cancellation/regrant program for all full-time employees of the
Company. Under the program, each named officer exchanged outstanding
options with exercise prices in excess of $1.35 for an equal number of new
options with an exercise price of $1.00, the approximate fair market value
of the Common Stock on the date of the new grant. The shares granted on
December 1, 1994 vest over four years based on
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<PAGE>
a formula using the number of previously vested options that were cancelled
and the optionee's completion of service over the four year vesting period
measured from the date of the new grant. Options granted under the
cancellation/regrant program were as follows: Mr. Schumacher - 600,000
options, Dr. Black - 31,250 options and Dr. Buchanan - 71,667 options.
(4) "Other Annual Compensation" for Mr. Schumacher in fiscal 1993 and 1994
consists of relocation expense payments made by the Company on his behalf.
(5) Dr. Buchanan was appointed President of the Company in December 1996.
(6) "Other Annual Compensation" for Mr. Aboudara in fiscal 1995 and fiscal
1996 consists of relocation expense payments made by the Company on his
behalf.
(7) "Bonus" for Dr. Black in fiscal 1995 represents a payment earned under
an incentive bonus program.
STOCK OPTIONS
The following table contains information concerning the grant of stock
options under the Company's 1987 Stock Option Plan to the Named Executive
Officers in fiscal 1996:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term(1)
- --------------------------------------------------------------------------------------------- ---------------------------
% of Total
Options/
SARs
Options/ Granted to
SARs Employees Exercise or
Granted in Fiscal Base Price Expiration
Name (#) (2) Year ($/Sh) (3) Date (4) 5% ($) 10% ($)
- ------------------- -------- ----------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
James V. Schumacher 900,000 41.5% $1.50 12-11-05 $849,008 $984,368
D. Scott Buchanan 200,000 9.2% $1.50 12-11-05 $188,668 $478,123
Bruce S. Aboudara 200,000 9.2% $1.50 12-11-05 $188,668 $478,123
Herman Bergman 75,000 3.5% $1.125 05-13-06 $ 53,063 $134,472
William C. Black, Jr. 150,000 6.9% $1.50 12-11-05 $141,501 $358,592
</TABLE>
- ------------------------------
(1) There is no assurance provided to any executive officer or any other holder
of the Company's securities that the actual stock price appreciation over
the 10-year option term will be at the assumed five percent and 10 percent
levels or at any other defined level. Unless the market price of the
Common Stock does in fact appreciate over the option term, no value will be
realized from the option grants made to the Named Executive Officers.
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<PAGE>
(2) Options granted in fiscal 1996 vest ratably on an annual basis over a two
to four-year period commencing on the date of grant. The grant dates for
the options listed in the above table are as follows:
Options/SARs
Name Granted (#) Grant Date
------------------- ----------- ----------
James V. Schumacher 900,000 12/11/95
D. Scott Buchanan 200,000 12/11/95
Bruce S. Aboudara 200,000 12/11/95
Herman Bergman 75,000 05/13/96
William C. Black, Jr. 150,000 12/11/95
(3) The exercise price per share on the date of grant represents 100% of the
fair market value of the underlying shares at that date.
(4) The options have a term of 10 years, subject to earlier termination based
on certain events related to termination of employment.
OPTION EXERCISES AND HOLDINGS
The following table provides information, with respect to the Named
Executive Officers, concerning the exercise of options during the last fiscal
year and unexercised options held as of the end of the fiscal year. No shares
were acquired on exercise of options by the Named Executive Officers during the
fiscal year ended September 30, 1996.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
Shares Value of Unexercised in-the-
Acquired on Value Realized Number of Unexercised Money Options/SARs at
Name Exercise (#) ($) Options/SARs at FY-End(#) FY-End ($)(1)
- ----------------------------------------------------------------------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
James V. Schumacher -0- $ -0- 346,875 1, 153,125 $ -0- $ -0-
D. Scott Buchanan -0- $ -0- 63,810 236,190 $ -0- $ -0-
Bruce S. Aboudara -0- $ -0- 21,875 278,125 $ -0- $ -0-
Herman Bergman -0- $ -0- 11,750 77,250 $ -0- $ -0-
William C. Black, Jr. -0- $ -0- 33,559 191,441 $ -0- $ -0-
</TABLE>
- --------------------------
(1) Calculated on the basis of the fair market value of the underlying
securities at September 30, 1996 ($.75) minus the exercise price.
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<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In fiscal 1996, R. Scott Asen and Jerry C. Benjamin served as non-employee
members of the Company's Compensation Committee.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
The Company entered into an employment agreement with James V. Schumacher,
effective June 1993, pursuant to which the Company agreed to employ Mr.
Schumacher as President and Chief Executive Officer. The employment term is
automatically renewed annually unless terminated by either party or by Mr.
Schumacher's death or disability. During the employment term, Mr. Schumacher is
entitled to receive a minimum annual base salary of $250,000, subject to
adjustment at the Compensation Committee's discretion. In addition, Mr.
Schumacher will receive an annual bonus of $50,000 based on performance targets
mutually agreed upon by Mr. Schumacher and the Compensation Committee. During
the employment term, Mr. Schumacher is entitled to an annual physical, a term
life insurance policy with a benefit of $500,000 and long-term disability
benefit coverage. Mr. Schumacher has also received payments for certain moving
and relocation expenses in connection with his employment by the Company.
Finally, the Company will pay an amount up to $600,000 to Mr. Schumacher no
later than June 18, 1997, the final amount to be determined by subtracting from
$600,000 the appreciation in value of the Company's common stock underlying
certain options granted to Mr. Schumacher in June and August 1993 and
subsequently regranted in December 1994. In the event of termination of Mr.
Schumacher's employment by the Company other than for cause or permanent
disability, the Company also will be obligated to pay two years' base salary and
benefits. Finally, under the terms of Mr. Schumacher's employment agreement, if
the Company adversely changes Mr. Schumacher's duties and responsibilities,
requires Mr. Schumacher to be based outside San Diego, California, reduces Mr.
Schumacher's base salary, bonus or other benefits or declares bankruptcy, Mr.
Schumacher is entitled to terminate the agreement and the Company will be
obligated to pay two years' base salary and benefits. A trust has been
established to ensure the payment of the amount up to $600,000 as well as
payments of two years' base salary and benefits to Mr. Schumacher; in the event
that no payments or reduced payments are required to be made under the terms of
the trust, any remaining funds will be returned to the Company.
In April 1990, the Company established a special incentive bonus program
for the benefit of William C. Black, Jr. pursuant to which Dr. Black received a
bonus of one-half of one percent of the net order value of all Magnes-Registered
Trademark- systems accepted and booked by the Company between April 1, 1990 and
March 31, 1991 and subsequently extended through March 1993. Payments under
the bonus program are based upon cash received from customers on such Magnes
orders. Dr. Black received no payments in fiscal 1994, $39,522 in fiscal 1995
and $15,000 in fiscal 1996.
THE FOLLOWING COMPENSATION COMMITTEE REPORT AND PERFORMANCE GRAPH SHOULD
NOT BE CONSIDERED TO BE PART OF THIS PROXY STATEMENT AND ANY CURRENT OR FUTURE
CROSS-REFERENCES TO THIS PROXY STATEMENT AND FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION UNDER EITHER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, SHALL NOT INCLUDE THE BOARD
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION OR THE PERFORMANCE GRAPH
REPRODUCED BELOW.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
OVERVIEW AND PHILOSOPHY. The Compensation Committee of the Board of
Directors (the "Committee") is responsible for developing and making
recommendations to the Board with respect to the Company's executive
compensation policies. In addition, the Committee, pursuant to authority
delegated by the Board, determines on an annual basis the compensation to be
paid to the Company's Chief Executive Officer and each of the other executive
officers of the Company.
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<PAGE>
The Committee has adopted the following objectives as guidelines for its
compensation decisions:
- Provide a competitive total compensation package that enables the
Company to attract and retain key executives.
- Integrate all compensation programs with the Company's short-term and
long-term business objectives and strategic goals.
- Ensure that compensation is meaningfully related to the value created
for shareholders.
EXECUTIVE OFFICER COMPENSATION PROGRAM COMPONENTS. The Committee reviews
the Company's compensation program to ensure that salary levels and incentive
opportunities are competitive and reflect the performance of the Company. The
Company's compensation program for executive officers consists of base salary,
annual cash incentive compensation and long-term compensation in the form of
stock options. In addition, certain executive officers may also be provided
supplemental long-term disability insurance.
BASE SALARY. Base salary levels for the Company's executive officers are
determined, in part, through comparisons with companies in the medical device
industry and other companies with which the Company competes for personnel. In
addition, the Committee also evaluates individual experience and performance and
specific issues particular to the Company, such as success in raising capital,
creation of shareholder value and achievement of specific Company milestones.
The Committee reviews each executive's salary once a year and may increase each
executive's salary at that time based on: (i) the individual's increased
contribution to the Company over the prior 12 months; (ii) the individual's
increased responsibilities over the prior 12 months; and (iii) any increase in
median competitive pay levels. Individual contributions are measured with
respect to specific individual accomplishments established for each executive.
ANNUAL INCENTIVE COMPENSATION. The Company's officers are eligible to
receive annual cash incentive compensation at the time their base salaries are
reviewed based on achieving defined specific goals and objectives during the 12
months prior to review. This compensation is intended to provide a direct
financial incentive in the form of an annual cash bonus to executives who
achieve the Company's defined specific goals. Individual contributions are also
considered in determining cash bonuses. Equal weight is given to achievement of
individual accomplishments and strategic corporate goals. Bonus awards are set
at a level competitive within the local medical device manufacturing and high
technology industry as well as among a broader group of medical device
manufacturing and high technology companies of comparable size and complexity.
Such companies are not necessarily included in the indices used to compare
shareholder returns in the Stock Performance Graph. Other than a bonus awarded
to Mr. Schumacher pursuant to his employment contract and a bonus paid to Dr.
Black under an incentive bonus program, no other cash bonuses were offered to
the Company's executive officers in the fiscal year ended September 30, 1996.
STOCK OPTION PROGRAM. The stock option program is the Company's long-term
incentive plan for executive officers and, to a lesser degree, all other
employees. The Committee strongly believes that by providing those persons who
have substantial responsibility for the management and growth of the Company
with an opportunity to increase their ownership of Company stock, the best
interests of shareholders and executives will be more closely aligned.
Generally, stock options are granted once every two years with exercise
prices equal to the prevailing market value of the Company's Common Stock on the
date of grant, have 10-year terms and have vesting periods of four years.
Awards are made at a level calculated to be competitive within both the local
biotechnology industry, and a broader group of biotechnology and medical device
manufacturing companies of comparable size and complexity.
CEO COMPENSATION. In June 1993, the Committee established the annual
salary, discretionary bonus and stock option award for Mr. Schumacher upon his
appointment as the Company's Chairman of the Board, President and Chief
Executive Officer and caused the Company to enter into an employment agreement
with
-23-
<PAGE>
Mr. Schumacher. In setting the compensation for Mr. Schumacher for fiscal year
1996, the Committee sought to retain a key executive officer while continuing to
tie a significant percentage of such compensation to Company performance and
stock price appreciation. In fiscal 1996, the Committee maintained the salary,
bonus and option package for Mr. Schumacher which was established in fiscal 1993
and approved a $24,000 cost of living adjustment for fiscal 1996. The Committee
believes the options granted to Mr. Schumacher in fiscal 1993 and subsequently
cancelled and regranted in fiscal 1996 in accordance with a cancellation/regrant
program provide for significant incentive compensation through the potential
appreciation in value of the Company's Common Stock. With respect to
Mr. Schumacher's base salary, it remains the Committee's intent to provide him
with a level of stability and certainty each year and not have this particular
component of compensation affected to any significant degree by Company
performance factors.
It is the Committee's objective to have an increasing percentage of
Mr. Schumacher's total compensation each year tied to the attainment of
performance targets and stock price appreciation of his option shares.
SUMMARY
After its review of all existing programs, the Committee continues to
believe that the Company's compensation program for its executive officers is
competitive with the compensation programs provided by other companies with
which the Company competes. The Committee intends that any amounts to be paid
under the annual incentive plan will be appropriately related to corporate and
individual performance, yielding awards that are directly linked to the
achievement of Company goals and annual financial and operational results.
We conclude our report with the acknowledgement that no member of the
Compensation Committee is a former or current officer or employee of the Company
or any of its subsidiaries.
COMPENSATION COMMITTEE
R. Scott Asen
Jerry C. Benjamin
-24-
<PAGE>
PERFORMANCE GRAPH
The following graph compares total shareholder returns over the last five
fiscal years to the weighted average return of stocks of companies included in
the Nasdaq Composite Index and a peer group index consisting of the Medical
Instrument and Supplier Manufacturers Index. The total return for each of the
Company's Common Stock, the Nasdaq Composite Index and the Medical Instrument
and Supplier Manufacturers Index assumes the reinvestment of dividends, although
dividends have not been declared on the Company's Common Stock. The Nasdaq
Composite Index tracks the aggregate price performance of equity securities of
companies traded on the Nasdaq. The Company's Common Stock is traded on the
Nasdaq National Market. The Medical Instrument and Supplier Manufacturers Index
consists of companies with a Standard Industrial Classification Code identifying
them as a manufacturer of medical instruments or supplies. The shareholder
return shown on the graph below is not necessarily indicative of future
performance and the Company will not make or endorse any predictions as to
future shareholder returns.
[INSERT PERFORMANCE GRAPH]
- -------------------------------FISCAL YEAR ENDING-------------------------------
COMPANY 1991 1992 1993 1994 1995 1996
BIOMAGNETIC TECHNOLOGY 100 118.46 38.46 18.46 23.08 9.23
INDUSTRY INDEX 100 99.99 80.13 90.56 143.95 166.87
BROAD MARKET 100 98.34 127.89 135.34 164.32 191.84
DIRECTOR COMPENSATION
Directors are reimbursed for their out-of-pocket expenses incurred in
attending meetings of the Board of Directors and its committees. The Company
does not presently pay fees to its Directors for their participation as a member
of the Board of Directors.
Each non-employee Board Member is eligible to receive grants of a non-
qualified stock option to purchase shares of Common Stock of the Company.
Certain options have previously been granted to directors which are now
exercisable or exercisable within 60 days of December 31, 1996. See "Security
Ownership of Management."
In the event Proposal 3 is adopted by the shareholders, each non-employee
Board member will also receive, over his period of Board service, a series of
option grants under the Automatic Option Grant Program and will be eligible to
receive discretionary option grants under the Discretionary Option Grant
Program. See "Proposal 3 - Approval of 1997 Stock Incentive Plan."
-25-
<PAGE>
CERTAIN TRANSACTIONS
During August 1996, the Company entered into an agreement with a principal
shareholder, Dassesta International S.A. ("Dassesta"), for an unsecured working
capital loan of $3,000,000. The note evidencing the loan was issued under
Regulation S, promulgated under the Securities Act of 1933, as amended. This
loan matures February 14, 1997 and bears interest at 9% per annum. The
principal amount of the loan, and any accrued interest thereon, was convertible
at the option of the Company into common stock at any time during the six months
at $.40 per share, and was convertible at the option of the noteholder at the
end of the six months or upon default under the note at $.40 per share. The
Company elected to convert the $3,000,000 loan and the accrued interest thereon
of $87,040 into 7,717,602 shares of common stock of the Company on December 31,
1996.
In March 1995, the Company completed the sale of 25,000,000 shares of
Common Stock of the Company to Dassesta a foreign investment group, for
$15,000,000. Dassesta had previously provided a short-term loan of $1.5 million
which was repaid at the closing of the transaction. In connection with the
Dassesta financing the Company repaid $500,000 of other short-term debt and
executed agreements with the holders of $2.21 million of short-term notes
providing for the extinguishment of the note principle plus accrued interest in
exchange for the issuance of 4.9 million shares of Common Stock plus options to
purchase an additional 486,220 shares of Common Stock. See discussion below and
"Principal Shareholders."
In May and June 1994, the Company consummated a private placement of units
(the "Bridge Unit Financing") in the aggregate principal amount of $2,710,000.
Each unit (the "Bridge Unit") consisted of $100,000 principal amount 10% Senior
Secured Promissory Note (the "Bridge Notes") and a purchase option to purchase
20,000 units (the "Bridge Unit Purchase Options"), each consisting of the equity
security offered by the Company in its next round of financing (the "Alternative
Financing"). Certain directors and certain shareholders of the Company
affiliated with such directors participated in the Bridge Unit Financing. The
aggregate principal amount of Bridge Notes issued to each of them are as
follows: Michael Faherty, $50,000; and Advent First Limited Partnership,
$500,000 (Jerry C. Benjamin, a director of the Company, is a director of Advent
Limited, the managing partner of Advent First Limited Partnership). In addition,
$530,000 of Bridge Financing Notes issued in May, 1994, including the Bridge
Financing Notes held by a certain director and shareholders of the Company
affiliated with such director (R. Scott Asen, $100,000; Pioneer II, $100,000;
and Pioneer IV, $100,00) were converted into Bridge Units on a dollar for dollar
basis. The Bridge Notes accrued interest at 10% per annum and matured on May
31, 1995. As part of the Bridge Unit Financing, the Company granted a security
interest in substantially all the assets of the Company to the Bridge Note
holders pursuant to a series of Security Agreements dated May 31, 1994 and
June 15, 1994 (collectively, the "Security Agreement"), which were terminated in
April 1995.
The Bridge Unit Purchase Options are exercisable beginning on the closing
of the Alternative Financing and for a period of five years thereafter. The
exercise price and the number of units issuable upon exercise of the Bridge Unit
Purchase Options are subject to proportional adjustment in the event of stock
splits, stock dividends and similar events. The securities underlying the units
issuable upon exercise of the Bridge Unit Purchase Options are also subject to
proportional adjustment according to the terms of those securities.
In October 1994, the Company and more than a majority of the Bridge Note
holders entered into an amendment to the Security Agreement (the "Amendment").
The Amendment provides for the subordination of the Bridge Note holders'
security interests to certain third-party lenders for the purpose of securing a
loan to allow the Company to complete the manufacture of Magnes-Registered
Trademark- systems on order by customers. Certain directors and certain
shareholders of the Company affiliated with such directors, including R. Scot
Asen, Pioneer III, Pioneer IV, Michael Faherty and Advent First Limited
Partnership provided their consent to the amendment of the Security Agreement.
-26-
<PAGE>
In March and April 1995, the Company entered into definitive agreements
with certain of the Bridge Note holders providing for the conversion of the
principal plus accrued interest of the Bridge Notes to Common Stock of the
Company in connection with the completion of the sale of Common Stock to
Dassesta. These agreements replaced non-binding term sheets negotiated with
certain Bridge Note holders in November 1994 regarding the proposed conversion
of Bridge Notes. The agreements provided for (i) a 10% increase in the
principal balance of the Bridge Notes for purposes of conversion to Common
Stock, (ii) issuance of Common Stock at a price per share utilized in the
Dassesta financing less 10% and (ii) a 10% increase in the number of shares of
Common Stock subject to purchase under the Bridge Unit Purchase Options. In
April 1995, the Company issued 4,882,477 shares of Common Stock in connection
with the conversion agreements and repaid $500,000 of principal plus accrued
interest to certain Bridge Note holders electing not to convert their Bridge
Notes to Common Stock.
Certain Directors and shareholders of the Company affiliated with such
directors participated in the conversion of Bridge Notes to Common Stock of the
Company, received revised Bridge Unit Purchase Options as part of the conversion
agreement and purchased certain Bridge Notes and Bridge Unit Purchase Options
from other participants in the Bridge Unit Financing. The aggregate number of
shares of Common Stock issued in connection with the conversion agreement and
the shares issuable upon exercise of the Bridge Unit Purchase Options,
respectively, are as follows: R. Scott Asen 287,460 shares issued, 28,600
purchase options, Pioneer III 221,463 shares issued, 22,000 purchase options,
Pioneer IV 221,463 shares issued, 22,000 purchase options, Michael Faherty
109,615 shares issued, 11,000 purchase options, Advent First Limited
Partnerships 2,084,211 shares issued, 209,000 purchase options.
The Company will not extend or guarantee loans to officers, directors or
affiliates of the Company unless such loans are approved by a majority of the
disinterested, outside directors of the Company and may reasonably be expected
to benefit the Company. As of September 30, 1996, there were no outstanding
loans or loan guarantees to Company officers, directors or affiliates. In
addition, all future transactions between the Company and its officers,
directors or principal shareholders will be on terms no less favorable to the
Company than could be obtained from unaffiliated parties, as determined by a
majority of the Company's disinterested directors.
See "Executive Compensation and Other Information--Employment Contracts and
Change of Control Arrangements" for discussion of employment arrangements with
certain current officers and directors of the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities, to file reports of ownership and changes in
ownership with the SEC and the Nasdaq. Officers, directors and greater than 10%
shareholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
Based solely on review of the copies of such forms furnished to the
Company, or written representations that no Forms 5 were required, the Company
believes that, during the period from October 1, 1995 through September 30,
1996, all Section 16(a) filing requirements applicable to its officers,
directors and greater than 10% beneficial owners were complied with except:
(i) Mr. Bergman filed a Form 4 in November 1996 which should
have been filed June 1996, with respect to the grant of options under
the Company's 1987 Stock Option Plan in May 1996;
(ii) Mr. Egli filed a Form 4 in November 1996 which should have
been filed January 1996, with respect to securities acquired in May 1995
and the grant of options under the Company's 1987 Stock Option Plan in
December 1995; and
(iii) Mr. Knudson filed a Form 4 in November 1996 which should
have been filed in January 1996, with respect to the grant of options
under the Company's 1987 Stock Option Plan in December 1995.
SHAREHOLDER PROPOSALS FOR 1997 PROXY STATEMENT
Under the present rules of the Securities and Exchange Commission (the
"Commission"), the deadline for shareholders to submit proposals to be
considered for inclusion in the Company's Proxy Statement for next
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<PAGE>
year's Annual Meeting of Shareholders is expected to be October 17, 1997. Such
proposals may be included in next year's Proxy Statement if they comply with
certain rules and regulations promulgated by the Commission.
FORM 10-K
THE COMPANY WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF THE
ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS, SCHEDULES AND
LIST OF EXHIBITS. REQUESTS SHOULD BE SENT TO BIOMAGNETIC TECHNOLOGIES, INC.,
9727 PACIFIC HEIGHTS BOULEVARD, SAN DIEGO, CALIFORNIA 92121.
OTHER MATTERS
The Board of Directors is not aware of any matter to be presented for
action at the meeting other than the matters set forth in this Proxy Statement.
Should any other matter requiring a vote of the shareholders arise, the persons
named as proxies on the enclosed proxy card will vote the shares represented
thereby in accordance with their best judgment in the interest of the Company.
Discretionary authority with respect to such other matters is granted by the
execution of the enclosed proxy card.
By Order of the Board of Directors
Dated: February 14, 1997 Herman Bergman, Secretary
<PAGE>
BIOMAGNETIC TECHNOLOGIES, INC. PROXY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints James V. Schumacher and Herman Bergman,
jointly and severally, as proxies, with full power of substitution, to vote all
shares of stock which the undersigned is entitled to vote at the Annual Meeting
of Shareholders of Biomagnetic Technologies, Inc. to be held on Tuesday, March
18, 1997, or at any postponements or adjournments thereof, as specified below,
and to vote in his discretion on such other business as may properly come before
the Meeting and any adjournments thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
1. Election of Directors:
Nominees: R. Scott Asen, Jerry C. Benjamin, D. Scott Buchanan, Martin P.
Egli, Enrique Maso and James V. Schumacher
/ / Vote FOR all nominees above (except as withheld in the space below)
/ / Vote WITHHELD from all nominees
Instruction: To withhold authority to vote for any individual nominee, check
the box "Vote FOR" and write the nominee's name on the line below.
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
2. Approve an amendment to the Company's Fourth Restated Articles of
Incorporation, as amended.
/ / Vote FOR / / Vote AGAINST / / ABSTAIN
3. Approve the Company's 1997 Stock Incentive Plan.
/ / Vote FOR / / Vote AGAINST / / ABSTAIN
4. Approve an amendment to the Company's 1992 Employee Stock Purchase Plan.
/ / Vote FOR / / Vote AGAINST / / ABSTAIN
5. Ratification and approval of the selection of Price Waterhouse LLP as
independent accountants for the fiscal year ending September 30, 1997.
/ / Vote FOR / / Vote AGAINST / / ABSTAIN
(Please sign and date on reverse side)
<PAGE>
UNLESS OTHERWISE SPECIFIED BY THE UNDERSIGNED, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1, 2, 3, 4 AND 5 AND WILL BE VOTED BY THE PROXYHOLDER AT HIS
DISCRETION AS TO ANY OTHER MATTERS PROPERLY TRANSACTED AT THE MEETING OR ANY
ADJOURNMENTS THEREOF. TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS'
RECOMMENDATIONS JUST SIGN BELOW, NO BOXES NEED BE CHECKED.
Dated:_________________________
_______________________________________, 19___________________
_______________________________
Signature of Shareholder
_______________________________
Printed Name of Shareholder
_______________________________
Title (if appropriate)
Please sign exactly as name
appears hereon. If signing as
attorney, executor,
administrator, trustee or
guardian, please give full
title as such, and, if signing
for a corporation, give your
title. When shares are in the
names of more than one person,
each should sign.
CHECK HERE IF YOU PLAN TO ATTEND THE ANNUAL MEETING. / /
