<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, For Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 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)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
- -------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
1) Amount previously paid:
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2) Form, Schedule or Registration Statement no.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
[COMPANY LOGO]
BIOMAGNETIC TECHNOLOGIES, INC.
9727 Pacific Heights Boulevard
San Diego, California 92121
February 16, 1999
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 Friday, March
19, 1999 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,
D. Scott Buchanan
PRESIDENT AND CHIEF EXECUTIVE OFFICER
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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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<PAGE>
BIOMAGNETIC TECHNOLOGIES, INC.
9727 PACIFIC HEIGHTS BOULEVARD
SAN DIEGO, CALIFORNIA 92121
-------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
FEBRUARY 16, 1999
-------------------------
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 Friday, March 19, 1999 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:
D. Scott Buchanan, Martin P. Egli, Enrique Maso, Galleon Graetz,
and Rodolfo Llinas.
2. To ratify the selection of Arthur Andersen LLP as independent
accountants for the fiscal year ending September 30, 1999.
3. To approve an amendment to the Company's Articles of
Incorporation to increase the number of authorized shares of
Common Stock from 100,000,000 to 200,000,000 shares.
4. To increase the number of shares of Common Stock in the 1997
Stock Incentive Plan from 3,000,000 to 6,000,000 shares.
5. To transact any other business which may properly come before
the meeting or any adjournments thereof.
Shareholders of record at the close of business on February 9, 1999
will be entitled to vote at the Annual Meeting. The stock transfer books of the
Company will remain open between the record date and the date of the meeting. A
list of shareholders entitled to vote at the Annual Meeting will be available
for inspection at the executive offices of the Company. Whether or not you plan
to attend the meeting Annual Meeting in person, please sign, date and return the
enclosed proxy in the reply envelope provided. If you attend the Annual 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 Annual Meeting.
By Order of the Board of Directors
/s/
-----------------------------
Dated: February 16, 1999 Aron P. Stern, SECRETARY
-----------------
<PAGE>
BIOMAGNETIC TECHNOLOGIES, INC.
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 19, 1999
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 19, 1999
(referred to herein as the "Annual Meeting" or the "Meeting") and at any
adjournment or postponement of the Annual Meeting. These proxy materials were
first mailed to shareholders of record beginning on approximately February 16,
1999.
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 or her 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 $2,000. 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 February 9, 1999. As of
January 26, 1999, the Company had approximately 83,367,112 outstanding shares of
Common Stock (the "Common Stock"). The Company's Bylaws provide that a majority
of the shares entitled to vote, represented in person or by proxy, shall
constitute a quorum for transaction of business. 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 or her 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 or she holds, or to distribute his or her
votes on the same principle among the nominees to be elected in such manner as
he or she may see fit. A shareholder may cumulate his or her votes if his or her
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 or her 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. If no instructions are given on the executed proxy, the
proxy will be voted for all nominees and in favor of all proposals described.
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For the election of directors, the nominees receiving the highest
number of votes up to the number of directors to be elected are elected if a
quorum is present and voting. The affirmative vote of a majority of the
outstanding shares of the Company's voting stock is required for the approval of
Proposals 2, 3 and 4 being submitted to the shareholders for their
consideration. Abstentions and broker nonvotes are each included in the
determination of the number of shares present and voting for purposes of
determining the presence of a quorum. Each is tabulated separately. Abstentions
will be included in tabulations of the votes cast for purposes of determining
whether the proposal has been approved. Broker nonvotes will not be counted for
purposes of determining the number of votes cast for a proposal.
PROPOSAL 1
ELECTION OF DIRECTORS
A board of five 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 (five). The five nominees receiving the highest
number of votes are elected if a quorum is present and voting. Unless
individual shareholders specify otherwise, each returned proxy will be voted
for the election of the five nominees who are listed herein, or for as many
nominees of the Board of Directors as possible, not to exceed five such votes
to be distributed among such nominees in the manner as the persons named in
the enclosed proxy card see fit. Mr. Bergman is 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.
<TABLE>
<CAPTION>
FIRST YEAR
ELECTED
NAME DIRECTOR PRINCIPAL OCCUPATION AGE
- ------------------------------------------ ----------------- ------------------------------------------- ---------
<S> <C> <C> <C>
D. Scott Buchanan(3)(4)................... 1997 President and Chief Executive Officer of 40
Biomagnetic Technologies, Inc.
Martin P. Egli (1)(2)(3).................. 1995 Senior Partner, Swisspartners S.P. 46
Investment Network LTD.
Enrique Maso (1)(2)(3).................... 1995 Chairman of the Board, Private Investor 73
Galleon Graetz............................ 1998 Senior Partner of Net Care AG 44
Rodolfo Llinas............................ 1998 Professor of Neuroscience and Chair of 63
the Department of Physiology and
Neuroscience at New York University
School of Medicine
</TABLE>
- ------------------------------------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
(3) Member of Administrative Committee of the Purchase Plan.
(4) Dr. Buchanan also serves as a non-voting advisor to the Compensation
Committee.
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BUSINESS EXPERIENCE OF DIRECTORS
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. Dr. Buchanan was
elected to the Board of Directors of Biomagnetic Technologies in 1997.
MR. EGLI has served since 1993 as a partner and principal of Swisspartners
S.P. Investment Network LTD. ("Swisspartners"), 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 and was elected to the Board of Directors of Biomagnetic
Technologies in 1995.
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 Engineering Management from New York University and a
doctorate in Engineering from the Politechnic College of Barcelona. Dr. Maso was
elected to the Board of Directors of Biomagnetic Technologies in 1995.
DR. GRAETZ, from 1990 to 1997, served as clinical consultant and co-director of
the internal medicine division of the Swiss Hospital School of Nursing. Dr.
Graetz is currently a senior partner of Care Net AG, a health consulting company
and currently involved as part of the management team at Medizinisches Zentrum
Romerhof, a unique health care provider located in Zurich. Dr. Graetz was
educated in internal medicine and radiology in Switzerland and Israel. Dr.
Graetz was elected to the Board of Directors of Biomagnetic Technologies in
1998.
PROFESSOR LLINAS, M.D., PH.D. is the Thomas and Suzanne Murphy Professor of
Neuroscience and Chair of the Department of Physiology and Neuroscience at
New York University School of Medicine, a position he has held since 1976. He
is a Member of the National Academy of Sciences (USA), the Academy of Arts
and Sciences and the American Philosophical Society. Since 1991, Professor
Llinas has served as Advisor to the NASA Neurolab Project, is a Member of the
Advisory Council of the National Deafness and Other Communication Disorder of
the National Institute of Health and served on the Board of Trustees of the
Marine Biological Laboratory. Professor Llinas has contributed over 500
publications to brain research, has been awarded five honorary degrees and is
the recipient of numerous honors. Dr. Llinas was elected to the Board of
Directors of Biomagnetic Technologies in 1998.
BOARD MEETINGS AND COMMITTEES
The Company's Board of Directors held 3 meetings during the fiscal
year ended September 30, 1998. 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, except for Drs. Llinas and Graetz, who were appointed to the Board
during the fiscal year and attended only one meeting, and for Dr. Maso who
attended only two meetings.
The Compensation Committee currently consists of Mr. Egli and Dr. Maso.
Director D. Scott Buchanan 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 one meeting during the fiscal year ended
September 30, 1998.
The Audit Committee currently consists of Mr. Egli and Dr. Maso. The
Audit Committee assists in selecting the independent auditors, in designating
services they are to perform and in maintaining
3
<PAGE>
effective communication with those auditors. The Audit Committee met one time
during the fiscal year ended September 30, 1998.
The Company has a standing Administrative Committee (the
"Administrative Committee") of the Company's 1992 Employee Stock Purchase Plan,
(the "Purchase Plan"), which currently consists of Directors D. Scott Buchanan,
Mr. Egli and Dr. Maso. The Administrative Committee has full authority to
administer the Purchase Plan. There were no meetings of the Administrative
Committee during the fiscal year ended September 30, 1998.
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.
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 that are now exercisable or
exercisable within 60 days of January 26, 1999. See "Security Ownership of
Management."
PROPOSAL 2
APPROVAL OF
SELECTION OF INDEPENDENT ACCOUNTANTS
Effective September 24, 1997, the Company retained Arthur Andersen LLP
as its independent certifying accountant, replacing Price Waterhouse LLP ("Price
Waterhouse"), its prior independent certifying accountant, as of the same date.
The change in independent certifying accountant was approved by the Board of
Directors and the shareholders.
The reports of Price Waterhouse with respect to the Company for fiscal
year 1995 and 1996 contained no adverse opinion or disclaimer of opinion and
were not qualified or modified as to uncertainty, audit scope or application of
accounting principles, except that Price Waterhouse's report for fiscal 1996
included an explanatory paragraph regarding the Company's ability to continue as
a going concern. During the fiscal years 1995 and 1996 and the subsequent period
thereto prior to the replacement of Price Waterhouse, there were no
disagreements between the Company and Price Waterhouse on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope of procedure, which disagreements if not resolved to the satisfaction of
Price Waterhouse would have caused them to make reference thereto in their
report on the financial statements for such years, nor were there any
"reportable events" as defined by the Securities and Exchange Commission.
During fiscal years 1995 and 1996 and the subsequent period thereto
prior to engaging Arthur Anderson LLP, the Company had no discussions with
Arthur Andersen LLP regarding either the application of an accounting principle,
the type of opinion that would be rendered in the Company's financial statements
or any disagreements or reportable events.
On the recommendation of the Company's management, the Board of
Directors has selected Arthur Andersen LLP to act 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
Arthur Andersen LLP as independent accountants to audit the accounts and records
of the Company for the fiscal year ending September 30, 1999, and to perform
other appropriate services. The affirmative vote of a majority of the
outstanding shares of the Company's voting stock is required to ratify the
selection of Arthur Andersen LLP. In the event that a majority of the shares
voted at the Annual Meeting do not vote for ratification of the selection of
Arthur Andersen LLP, the Board of Directors will reconsider such selection.
A representative of Arthur Andersen LLP is expected to be present at
the meeting to respond to your questions and will have the opportunity to make a
statement if he or she desires to do so.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION AND
APPROVAL OF THE SELECTION OF ARTHUR ANDERSEN LLP AS THE COMPANY'S INDEPENDENT
ACCOUNTANTS FOR FISCAL 1999.
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PROPOSAL 3
AMENDMENT OF ARTICLES OF INCORPORATION
The present capital structure of the Company authorizes 100,000,000
shares of Common Stock, without par value. The Board of Directors believes
this capital structure is inadequate for the present and future needs of the
Company. Therefore, the Board of Directors has unanimously approved the
amendment and restatement of the Company's Fourth Restated Articles of
Incorporation, as amended (the "Articles") to increase the authorized number
of shares of Common Stock from 100,000,000 shares to 200,000,000 shares. The
Board believes this capital structure more appropriately reflects the present
and future needs of the Company and recommend such amendment and restatement
to the Company's shareholders for adoption. On January 26, 1999, 83,367,112
shares of Common Stock were outstanding.
PURPOSE OF AUTHORIZING ADDITIONAL COMMON STOCK
Authorizing an additional 100,000,000 shares of Common Stock would give
the Board of Directors the express authority, without further action of the
shareholders, to issue such Common Stock from time to time as the Board of
Directors deems necessary. The Board of Directors believes it is necessary to
have the ability to issue such additional shares of Common Stock for general
corporate purposes. Potential uses of the additional authorized shares may
include acquisition transactions, equity financings, stock dividends or
distributions, issuance of options pursuant to the Company's 1997 Stock
Incentive Plan and issuances of Common Stock pursuant to the Company's Employee
Stock Purchase Plan without further action by the shareholders, unless such
action were specifically required by applicable law or rules of any stock
exchange on which the Company's securities may then be listed.
The proposed increase in the authorized number of shares of Common
Stock could have a number of effects on the Company's shareholders depending
upon the exact nature and circumstances of any actual issuance of authorized but
unissued shares. The increase could have an anti-takeover effect, in that
additional shares could be issued (within the limits imposed by applicable law)
in one or more transactions that could make a change in control or takeover of
the Company more difficult. For example, additional shares could be issued by
the Company so as to dilute the stock ownership or voting rights of persons
seeking to obtain control of the Company. Similarly, the issuance of additional
shares to certain persons allied with the Company's management could have the
effect of making it more difficult to remove the Company's current management by
diluting the stock ownership or voting rights of persons seeking to cause such
removal. In addition, an issuance of additional shares by the Company could have
an effect on the potential realizable value of a shareholder's investment. In
the absence of a proportionate increase in the Company's earnings and book
value, an increase in the aggregate number of outstanding shares of the Company
caused by the issuance of the additional shares would dilute the earnings per
share and book value per share of all outstanding shares of the Company's Common
Stock. If such factors were reflected in the price per share of Common Stock,
the potential realizable value of the shareholder's investment could be
adversely affected. The Common Stock carries no preemptive rights to purchase
additional shares.
The proposed amendment and restatement of the Company's Articles of
Incorporation was approved by a vote of the directors of the Company on
September 25, 1998.
SHAREHOLDER APPROVAL
The affirmative vote of a majority of the Company's outstanding voting
shares is required for approval of the amendment and restatement of the
Company's Articles of Incorporation authorizing 100,000,000 additional shares of
Common Stock.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT OF THE
COMPANY'S ARTICLES OF INCORPORATION AUTHORIZING 100,000,000 ADDITIONAL SHARES OF
COMMON STOCK.
5
<PAGE>
PROPOSAL 4
APPROVAL OF AMENDMENT TO THE 1997 STOCK INCENTIVE PLAN
The Company's shareholders are being asked to approve an amendment to
the Company's 1997 Stock Incentive Plan (the "1997 Plan") that will increase the
maximum number of shares of Common Stock authorized for issuance over the term
of the 1997 Plan by an additional 3,000,000 shares to 6,000,000 shares.
The 1997 Plan was adopted by the Board of Directors in December 1996
as the successor incentive program to the Company's 1987 Stock Option Plan
which terminated December 31, 1996. The 1997 Plan became effective on January
1, 1997 and was subsequently approved by the shareholders at the March 18,
1997 Annual Meeting.
The 1997 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 1997
Plan. However, the summary does not purport to be a complete description of
all the provisions of the 1997 Plan. Any shareholder 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.
As of January 26, 1999, 3,032,900 options were outstanding under the
1997 Plan, 2,967,100 shares remained available for future option grant
assuming shareholder approval of this Proposal, and no shares have been
issued under the 1997 Plan.
EQUITY INCENTIVE PROGRAMS
The 1997 Plan contains three separate equity 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 1997 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 1997 Plan) to authorize
option grants and direct stock issuances under the 1997 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 6,000,000 shares of Common Stock, 3,000,000 of which are
subject to shareholder approval, has been reserved for issuance over the term
of the 1997 Plan. In no event may any one participant in the 1997 Plan be
granted stock options and direct stock issuances for more than 500,000 shares
in the aggregate per calendar year under the 1997 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/or class of securities issuable under
the 1997 Plan, (ii) the number and/or class of securities for which any one
participant may be granted stock options, separately exercisable stock
appreciation rights and direct stock issuances under the 1997 Plan, (iii) the
number and/or 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/or 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 1997 Plan. Unvested shares issued
under the 1997 Plan and subsequently cancelled or 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 1997 Plan.
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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 January 26, 1999, four executive officers, four non-employee
Board members and approximately 65 other employees were eligible to participate
in the Discretionary Option Grant and Stock Issuance Programs, and the four
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 1997 Plan will be the closing selling price per share on that date on
The Nasdaq Over The Counter Bulletin Board. On January 26, 1999, the closing
selling price per share was $.18.
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 may, at the Plan Administrator's discretion,
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 or directors 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) fair
market value per share on the date the option is surrendered in
connection with the tender offer or the highest price paid per share of
Common Stock in connection with the tender offer (as prescribed by the
1997 Plan) 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.
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CANCELLATION/REGRANT PROGRAM
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 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 is to continue to serve as a
non-employee Board member will automatically be granted a non-statutory
option to purchase an additional 3,500 shares of Common Stock on the date of
each Annual Shareholders Meeting. Mr. Egli and Dr. Maso, who were existing
non-employee Board members prior to January 1, 1997 elected to waive any
grants under the Automatic Option Grant Program. 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 option shall be immediately
exercisable for any or all of the option shares. However, each automatic option
grant will vest 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 has vested 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. No additional Board or Plan
Administrator approval shall be required upon the exercise of such surrender
right.
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 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 1997 Plan.
8
<PAGE>
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.
SPECIAL TAX ELECTION. The Plan Administrator may provide one or more
holders of non-statutory 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 1997 Plan
in any or all respects whatsoever, subject to any shareholder approval required
under applicable laws or regulations. The 1997 Plan shall terminate upon the
EARLIEST of (i) December 31, 2006, (ii) the date on which all shares available
for issuance under the 1997 Plan shall have been issued as fully-vested shares
or (iii) the termination of all outstanding options in connection with a
Corporate Transaction. Upon such plan termination, all outstanding option grants
and unvested stock issuances shall thereafter continue to have force and effect
in accordance with the provisions of the documents evidencing such grants or
issuances.
NEW PLAN BENEFITS
On January 19, 1999, the Board of Directors granted options to a
certain employee to purchase 75,000 shares of the Company's Common Stock at
an exercise price of $0.15625 per share. These options vest in equal monthly
installments over a four year period. Of the total 75,000 options granted,
32,900 are in excess of the maximum number of shares authorized for issuance
under the 1997 Plan and, therefore, are subject to shareholder approval.
These 32,900 options will not become exercisable unless the shareholders
approve the 3,000,000 share increase to the 1997 Plan at the 1999 Annual
Meeting.
FEDERAL INCOME TAX CONSEQUENCES
OPTION GRANTS. Options granted under the 1997 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
9
<PAGE>
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 1997 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 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 to non-employees with exercise or issue
prices equal to the fair market value of the shares at the time of issuance
or grant will result in a compensation expense to the Company's earnings
based on fair value method accounting, accruable to the period that the
option shares or issued shares are to vest. Option grants or stock issuances
to employees 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
disclosure with the Company's financial statements, the impact those option
grants or issued shares 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,
10
<PAGE>
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.
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 the 1997 Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE TO APPROVE
THE AMENDMENT TO THE 1997 STOCK INCENTIVE PLAN TO INCREASE THE NUMBER OF SHARES
AUTHORIZED FOR ISSUANCE TO 6,000,000 SHARES OF COMMON STOCK.
PRINCIPAL SHAREHOLDERS
The following are the only persons known by the Company to own beneficially, as
of January 26, 1999, five percent (5%) or more of the outstanding shares of its
Common Stock.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
NAME AND ADDRESS -------------------------
OF BENEFICIAL OWNER (1) NUMBER (1) PERCENT (2)
- ----------------------- ---------- -----------
<S> <C> <C>
Enrique Maso........................................ 25,000,000 30.0%
Europa Residence
Place des Moulins
98 000 Montecarlo
Monaco
Dassesta International S.A.......................... 18,717,602 22.6%
AM Schanzengraben 23
CH-8002 Zurich, Switzerland
Experta BiL......................................... 5,000,000 6.0%
Beethovenstrasse 48
P.O. Box 970
CH-8039 Zurich, Switzerland
Caja De Ahora Y Pensiones De Barcelona.............. 10,000,000 12.0%
Avenida Diagonal, 621-629
08028 Barcelona, Spain
</TABLE>
- --------------------------
(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).
11
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership of Common
Stock of the Company as of January 26, 1999 by each director and nominee to
the Board of Directors and by each of the Named Executive 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.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
NAME AND ADDRESS OF -------------------------
BENEFICIAL OWNER (1) NUMBER (1) PERCENT (2)
- -------------------- ---------- -----------
<S> <C> <C>
Herman Bergman (3).............................................. 1,034,000 1.2%
D. Scott Buchanan (4)........................................... 739,835 *
Martin P. Egli (5).............................................. 21,717,602 26.1%
Eugene Hirschkoff (6)........................................... 297,177 *
Enrique Maso.................................................... 25,000,000 30.0%
Kenneth Squires (7)............................................. 273,789 *
Aron P. Stern (8)............................................... 8,333 *
Rodolfo Llinas (8).............................................. 18,750 *
Galleon Graetz (8).............................................. 12,499 *
All directors and executive officers as a group (9)............. 49,101,985 57.3%
</TABLE>
- ---------------------------
* 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 964,000 shares of
Common Stock held by Mr. Bergman which are now exercisable or
exercisable within 60 days of January 26, 1999.
(4) Shares beneficially owned include options to purchase 707,043 shares of
Common Stock held by Dr. Buchanan which are now exercisable or
exercisable within 60 days of January 26, 1999.
(5) Consists of 18,717,602 shares owned by Dassesta and 3,000,000 shares
owned by Swisspartners. Mr. Egli is a managing director of
Swisspartners S.P. Investment Network LTD., which owns 100% of the
capital stock of Dassesta.
(6) Shares beneficially owned include options to purchase 259,835 shares of
Common Stock held by Dr. Hirschkoff which are now exercisable or
exercisable within 60 days of January 26, 1999.
(7) Shares beneficially owned include options to purchase 246,235 shares of
Common Stock held by Dr. Squires which are now exercisable or
exercisable within 60 days of January 26, 1999.
(8) Shares beneficially owned consists entirely of options to purchase
shares of Common Stock held by these officers and directors which are
now exercisable or exercisable within sixty days of January 26, 1999.
(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 2,216,695 shares of Common Stock held
by all directors and executive officers as a group which are now
exercisable or exercisable within 60 days of January 26, 1999.
12
<PAGE>
MANAGEMENT
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
D. Scott Buchanan...................... 40 President and Chief Executive Officer
Aron P. Stern.......................... 45 Vice President Finance, Chief Financial Officer
and Secretary
Kenneth Squires........................ 54 Vice President, Marketing
Eugene Hirschkoff...................... 56 Vice President, Engineering
</TABLE>
BUSINESS EXPERIENCE OF EXECUTIVE OFFICERS
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.
MR. STERN joined the Company in January 1999. Since 1989 Mr. Stern has
been employed at biomedical companies: from 1989 to 1992 as Director, Finance
and Administration at Isis Pharmaceuticals, Inc., and from 1992 to 1998 as Vice
President Finance & Administration and Chief Financial Officer at Protein
Polymer Technologies, Inc. Previous to these positions, Mr. Stern held
accounting and financial positions at a variety of high technology companies
including Apple Computer, Inc. Mr. Stern received a masters of business
administration from University of California, Berkeley.
DR. SQUIRES joined the Company in September 1988. Since that time he
has held various positions as Director of Clinical Applications and Director of
Neuroscience Applications--Marketing and was appointed Vice President of
Marketing in December, 1996. Dr. Squires received his B.S. and M.S. degrees in
Aeronautical Engineering at the University of Minnesota and his Ph.D. in
Experimental Psychology from the University of California, San Diego.
DR. HIRSCHKOFF joined the Company in 1971, and has served in many
capacities in engineering, technology development and manufacturing. From 1990
through 1996, he served as Director of Clinical Applications, managing the
Company's research and development programs with its collaboration partners at
the Scripps Clinic and Research Foundation and the University of California at
San Francisco among others. Dr. Hirschkoff is responsible for the Company's FDA
compliance programs. In December, 1997 he was appointed Vice President,
Engineering. Dr. Hirschkoff received his B.A. in Physics and Mathematics at Reed
College in Oregon; M.A. in Physics at Harvard University; Ph.D. in Physics from
the University of California, San Diego; MBA from the State University of
California, San Diego and his J.D. from the University of San Diego.
13
<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, 1998, 1997 and 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------------- ---------------
AWARDS
NAME AND OTHER ANNUAL --------------- ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION OPTIONS/SARS(#) COMPENSATION
- ---------------------------- -------- ------------- ----------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C> <C>
D. Scott Buchanan........... 1998 $ 175,000 $ -0- $ -0- 825,000 $ -0-
President, Chief 1997 $ 163,273 $ -0- $ -0- 150,000 $ -0-
Executive Officer 1996 $ 127,368 $ -0- $ -0- 200,000 $ -0-
Herman Bergman.............. 1998 $ 125,000 $ -0- $ -0- 525,000 $ -0-
Former Vice President 1997 $ 125,481 $ -0- $ -0- 310,000 $ -0-
of Finance, 1996 $ 125,481 $ -0- $ -0- 75,000 $ -0-
Chief Financial
Officer and Secretary
Eugene Hirschkoff (1)....... 1998 $ 123,907 $ 5,000 $ -0- 400,000 $ 1,500
Vice President 1997 $ 115,991 $ 2,500 $ -0- 80,000 $ 1,500
Engineering 1996 $ 113,854 $ -0- $ -0- 25,000 $ -0-
Kenneth Squires (2)......... 1998 $ 120,949 $ 20,086 $ -0- 400,000 $ -0-
Vice President 1997 $ 99,730 $ 7,200 $ -0- 80,000 $ -0-
Marketing 1996 $ 94,984 $ 4,000 $ -0- 25,400 $ -0-
</TABLE>
(1) "Bonus" for Dr. Hirschkoff represents a payment earned under an
incentive bonus program. "All Other Compensation" represents
educational reimbursements.
(2) "Bonus" for Dr. Squires represents a payment earned under an
incentive bonus program.
14
<PAGE>
STOCK OPTIONS
The following table contains information concerning the grant of
stock options under the Company's 1987 Stock Option Plan and the 1997 Plan to
the Named Executive Officers in fiscal 1998:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ---------------------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
% OF TOTAL STOCK
OPTIONS/SARS PRICE APPRECIATION FOR
OPTIONS/SARS GRANTED TO EXERCISE OR OPTION TERM (1)
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION ---------------
NAME (#) (2) FISCAL YEAR ($/SH) (3) DATE (4) 5% ($) 10% ($)
- ---- ------------ -------------- ------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
D. Scott Buchanan... 500,000 20% $ .42 10/02/07 $ 342,068 $ 544,686
325,000 13% .50 03/25/08 264,696 421,483
Herman Bergman...... 250,000 10% $ .42 10/02/07 $ 171,034 $ 272,343
275,000 11% .50 03/25/08 223,973 356,640
Eugene Hirschkoff... 200,000 8% $ .42 10/02/07 $ 136,827 $ 217,874
200,000 8% .50 03/25/08 162,889 259,374
Kenneth Squires..... 200,000 8% $ .42 10/02/07 $ 136,827 $ 217,874
200,000 8% .50 03/25/08 162,889 259,374
</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 5 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.
(2) Options granted in fiscal 1998 were issued with vesting 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:
<TABLE>
<CAPTION>
Options/SARs
Name Granted (#) Grant Date
--------------------------------------------------- ------------------ -----------------
<S> <C> <C>
D. Scott Buchanan............................. 500,000 10/02/97
D. Scott Buchanan............................. 325,000 03/25/98
Herman Bergman................................ 250,000 10/02/97
Herman Bergman................................ 275,000 03/25/98
Eugene Hirschkoff............................. 200,000 10/02/97
Eugene Hirschkoff............................. 200,000 03/25/98
Kenneth Squires............................... 200,000 10/02/97
Kenneth Squires............................... 200,000 03/25/98
</TABLE>
(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
15
<PAGE>
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 options
were acquired on exercise of options by the Named Executive Officers during the
fiscal year ended September 30, 1998.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
VALUE OF
SHARES NUMBER OF UNEXERCISED
ACQUIRED ON VALUE UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS/SARS
NAME EXERCISE (#) REALIZED ($) AT FY-END AT FY-END ($) (1)
- ---------------------------- -------------- -------------- --------------------------------- --------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
D. Scott Buchanan -0- $ -0- 603,917 669,783 $ -0- $ -0-
Herman Bergman -0- $ -0- 490,667 433,333 $ -0- $ -0-
Eugene Hirschkoff -0- $ -0- 210,833 329,167 $ -0- $ -0-
Kenneth Squires -0- $ -0- 196,233 329,167 $ -0- $ -0-
William C. Black, Jr. -0- $ -0- -0- -0- $ -0- $ -0-
</TABLE>
- ---------------------------
(1) Calculated on the basis of the fair market value of the underlying
securities at September 30, 1998 ($.26) minus the exercise price.
EMPLOYEE CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
No formal employment contract exists with any of the current executive officers
of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In fiscal 1998, Martin P. Egli and Enrique Maso served as non-employee members
of the Company's Compensation Committee. Neither of these individuals was an
officer or employee of the Company at any time during the 1998 fiscal year or at
any other time.
No current executive officer of the Company has ever served as a member of the
board of directors or compensation committee of any other entity that has or has
had one or more executive officers serving as a member of the Company's Board of
Directors or Compensation Committee.
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.
16
<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 bonuses awarded
to Doctors. Hirschkoff and Squires under an incentive bonus program, no other
cash bonuses were offered to the Company's executive officers in the fiscal year
ended September 30, 1998.
LONG-TERM INCENTIVE COMPENSATION. The 1997 Plan 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 every year 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.
D. Scott Buchanan became President and Chief Operating Officer of
the Company on December 20, 1996. Effective January 2, 1997 his base salary
was increased from
17
<PAGE>
$125,000 to $175,000 in consideration for the increased responsibilities then
assumed by Dr. Buchanan. In March, 1997, Dr. Buchanan was also appointed Chief
Executive Officer of the Company.
It is the Committee's objective to have any increasing percentage of
Dr. Buchanan'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
/s/ Martin P. Egli
/s/ Enrique Maso
February 12, 1999
18
<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 over the counter bulletin board. 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.
COMPARISON OF CUMULATIVE TOTAL RETURN OF
COMPANY, PEER GROUP AND BROAD MARKET
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
------------------------------------------------------------------
COMPANY/INDEX/MARKET 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
Biomagnetic Technologies 100.00 47.98 59.99 23.99 13.43 7.99
SIC Code Index 100.00 113.02 179.65 208.26 249.01 263.86
NASDAQ Market Index 100.00 105.82 128.48 150.00 203.88 211.88
</TABLE>
19
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Martin Egli, a director of the Company, is a managing director of
Swisspartners. Dassesta is a wholly owned subsidiary of Swisspartners and a
principal shareholder of the Company. See "Security Ownership of Management" and
"Principal Shareholders."
In December 1997, the Company sold 4,000,000 unregistered shares of common stock
to Dassesta and an additional 1,500,000 unregistered shares of common stock to
Bank Leu under Regulations S at $.50 per share. Consideration received by the
Company in relation to the common stock sales consisted of cash totaling
$793,000 and cancellation of its then outstanding loan principal of $1,700,000,
related accrued interest of $38,000 and accounts payable of $219,000, all owed
to Dassesta.
In February 1998, the Company discounted two customer notes for a net amount of
$355,000 received from Dasseta. The face amount of these notes was 2,200,000
French Francs, equal to approximately $366,000 at the then current exchange
rate.
As of July 1998, the Company had borrowed $2,000,000 from Dassesta. The loan was
a 180 day unsecured loan bearing interest at 8%. In August 1998, the Company
paid off the total principal of $2,000,000 owed to Dassesta plus $36,000 of
related accrued interest using proceeds from the August 1998 financing of
$15,000,000.
On August 5, 1998, the Company received $15,000,000 from the sale of 30,000,000
shares of common stock at $.50 per share to offshore investors pursuant to
Regulation S. Of the total 30,000,000 shares, 10,000,000 shares were sold to "La
Caixa", Caja de Ahorros y Pensiones de Barcelona, one of the leading financial
institutions of the Kingdom of Spain, 10,000,000 shares were sold to Dassesta,
5,000,000 shares were sold to Experta BiL, 2,000,000 shares were sold to
Swisspartners and 3,000,000 shares to other European banks.
20
<PAGE>
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 Form 5's were required, the
Company believes that, during the period from October 1, 1997 through
September 30, 1998, all Section 16(a) filing requirements applicable to its
officers, directors and greater than 10% beneficial owners were met, with the
exception of Mr. Egli who did not file on a timely basis with respect to his
interest in Swisspartners' and Dassesta's August 5, 1998 purchase of shares
of the Company's common stock. However, Mr. Egli did file a Form 4 for
Dassesta on a timely basis with respect to the same transaction. Since
Dassesta is the only entity of the purchasing entities with a 10% or greater
interest in the Company, it was the only entity required to file in
connection with such transaction.
SHAREHOLDER PROPOSALS FOR 2000 PROXY STATEMENT
Proposals of shareholders of the Company that are intended to be
presented by such shareholders at the Company's 2000 Annual Meeting must be
received no later than October 15, 1999, in order that they may be included in
the proxy statement and form of proxy relating to that meeting. In addition, the
proxy solicited b the Board of Directors for the 2000 Annual Meeting will confer
discretionary authority to vote on any shareholder proposal presented at that
meeting, unless the Company receives notice of such proposal not later than
December 28, 1999. Shareholders are also advised to review the Company's Bylaws,
which contain additional requirements with respect to advance notice of
shareholder proposals.
21
<PAGE>
ANNUAL REPORT
A copy of the Annual Report of the Company for the 1998 fiscal year has
been mailed concurrently with this Proxy Statement to all shareholders entitled
to notice of and to vote at the Annual Meeting. The Annual Report is not
incorporated into this Proxy Statement and is not considered proxy solicitation
material.
FORM 10-K
THE COMPANY WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF
THE 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. A proxy may confer discretionary authority
to vote on any matter if the Company does not have notice of a shareholder
proposal at least 45 days before the date on which the Company first mails its
proxy materials for the prior year's Annual Meeting of the Shareholders.
By Order of the Board of Directors
/s/ Aron P. Stern
--------------------------------
Dated: February 16, 1999 Aron P. Stern, Secretary
22
<PAGE>
BIOMAGNETIC TECHNOLOGIES, INC.
1997 STOCK INCENTIVE PLAN
AS AMENDED THROUGH MARCH 19, 1999
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1997 Stock Incentive Plan is intended to promote the interests
of Biomagnetic Technologies, Inc., a California corporation, by providing
eligible persons with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in the service of the Corporation. This Plan
shall serve as the successor equity incentive program to the Corporation's
1987 Stock Option Plan.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into three separate equity programs:
(i) the Discretionary Option Grant Program under which
eligible persons may, at the discretion of the Plan Administrator, be
granted options to purchase shares of Common Stock,
(ii) the Stock Issuance Program under which eligible
persons may, at the discretion of the Plan Administrator, be issued
shares of Common Stock directly, either through the immediate purchase
of such shares or as a bonus for services rendered the Corporation (or
any Parent or Subsidiary), and
(iii) the Automatic Option Grant Program under which
eligible non-employee Board members shall automatically receive option
grants at periodic intervals to purchase shares of Common Stock.
B. The provisions of Articles One and Five shall apply to all equity
programs under the Plan and shall govern the interests of all persons under the
Plan.
<PAGE>
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority
to administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders.
B. Administration of the Discretionary Option Grant and Stock
Issuance Programs with respect to all other persons eligible to participate
in those programs may, at the Board's discretion, be vested in the Primary
Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons. The members of
the Secondary Committee may be Board members who are Employees eligible to
receive discretionary option grants or direct stock issuances under the Plan
or any other stock option, stock appreciation, stock bonus or other stock
plan of the Corporation (or any Parent or Subsidiary).
C. Members of the Primary Committee or any Secondary Committee
shall serve for such period of time as the Board may determine and may be
removed by the Board at any time. The Board may also at any time terminate
the functions of any Secondary Committee and reassume all powers and
authority previously delegated to such committee.
D. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority
(subject to the provisions of the Plan) to establish such rules and
regulations as it may deem appropriate for proper administration of the
Discretionary Option Grant and Stock Issuance Programs and to make such
determinations under, and issue such interpretations of, the provisions of
such programs and any outstanding options or stock issuances thereunder as it
may deem necessary or advisable. Decisions of the Plan Administrator within
the scope of its administrative functions under the Plan shall be final and
binding on all parties who have an interest in the Discretionary Option Grant
and Stock Issuance Programs under its jurisdiction or any option or stock
issuance thereunder.
E. Service on the Primary Committee or the Secondary Committee
shall constitute service as a Board member, and members of each such
committee shall accordingly be entitled to full indemnification and
reimbursement as Board members for their service on such committee. No
member of the Primary Committee or the Secondary Committee shall be liable
for any act or omission made in good faith with respect to the Plan or any
option grants or stock issuances under the Plan.
F. Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the terms of that program, and no Plan
Administrator shall exercise any discretionary functions with respect to any
option grants or stock issuances made under such program.
2
<PAGE>
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of
directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who
provide services to the Corporation (or any Parent or Subsidiary).
B. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants under the Discretionary Option Grant
Program, which eligible persons are to receive option grants, the time or
times when such option grants are to be made, the number of shares to be
covered by each such grant, the status of the granted option as either an
Incentive Option or a Non-Statutory Option, the time or times when each
option is to become exercisable, the vesting schedule (if any) applicable to
the option shares and the maximum term for which the option is to remain
outstanding and (ii) with respect to stock issuances under the Stock Issuance
Program, which eligible persons are to receive stock issuances, the time or
times when such issuances are to be made, the number of shares to be issued
to each Participant, the vesting schedule (if any) applicable to the issued
shares and the consideration for such shares.
C. The Plan Administrator shall have the absolute discretion
either to grant options in accordance with the Discretionary Option Grant
Program or to effect stock issuances in accordance with the Stock Issuance
Program.
D. The individuals who shall be eligible to participate in the
Automatic Option Grant Program shall be limited to (i) those individuals who
first become non-employee Board members after the Effective Date, whether
through appointment by the Board or election by the Corporation's
shareholders, and (ii) those individuals who continue to serve as
non-employee Board members at one or more Annual Shareholders Meetings held
after the Effective Date. A non-employee Board member who has previously
been in the employ of the Corporation (or any Parent or Subsidiary) shall not
be eligible to receive an option grant under the Automatic Option Grant
Program at the time he or she first becomes a non-employee Board member, but
shall be eligible to receive periodic option grants under the Automatic
Option Grant Program while he or she continues to serve as a non-employee
Board member.
3
<PAGE>
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares
repurchased by the Corporation on the open market. The maximum number of
shares of Common Stock initially reserved for issuance over the term of the
Plan shall not exceed 6,000,000 shares.
B. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances
for more than 500,000 shares of Common Stock in the aggregate per calendar
year, beginning with the 1997 calendar year.
C. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent those options
expire or terminate for any reason prior to exercise in full. Unvested
shares issued under the Plan and subsequently cancelled or repurchased by the
Corporation, at the original exercise or issue price paid per share pursuant
to the Corporation's repurchase rights under the Plan, shall be added back to
the number of shares of Common Stock reserved for issuance under the Plan and
shall accordingly be available for reissuance through one or more subsequent
option grants or direct stock issuances under the Plan. However, should the
exercise price of an option under the Plan be paid with shares of Common
Stock or should shares of Common Stock otherwise issuable under the Plan be
withheld by the Corporation in satisfaction of the withholding taxes incurred
in connection with the exercise of an option or the vesting of a stock
issuance under the Plan, then the number of shares of Common Stock available
for issuance under the Plan shall be reduced by the gross number of shares
for which the option is exercised or which vest under the stock issuance, and
not by the net number of shares of Common Stock issued to the holder of such
option or stock issuance.
D. If any change is made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as
a class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the number and/or class of
securities for which any one person may be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances under this
Plan per calendar year, (iii) the number and/or class of securities for which
grants are subsequently to be made under the Automatic Option Grant Program
to new and continuing non-employee Board members and (iv) the number and/or
class of securities and the exercise price per share in effect under each
outstanding option under the Plan. Such adjustments to the outstanding
options are to be effected in a manner which shall preclude the enlargement
or dilution of rights and benefits under such options. The adjustments
determined by the Plan Administrator shall be final, binding and conclusive.
4
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; PROVIDED, however, that each such
document shall comply with the terms specified below. Each document
evidencing an Incentive Option shall, in addition, be subject to the
provisions of the Plan applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than eighty-five percent (85%) of the
Fair Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Five and the documents evidencing the option, be payable in one or
more of the forms specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date, or
(iii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant to
which the Optionee shall concurrently provide irrevocable written
instructions to (a) a Corporation-designated brokerage firm to effect
the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate exercise price payable
for the purchased shares plus all applicable Federal, state and local
income and employment taxes required to be withheld by the Corporation
by reason of such exercise and (b) the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm
in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable
at such time or times, during such period and for such number of shares as shall
be determined by the
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<PAGE>
Plan Administrator and set forth in the documents evidencing the option.
However, no option shall have a term in excess of ten (10) years measured
from the option grant date.
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the
Optionee's cessation of Service for any reason shall remain
exercisable for such period of time thereafter as shall be determined
by the Plan Administrator and set forth in the documents evidencing
the option, but no such option shall be exercisable after the
expiration of the option term.
(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be subsequently exercised by the
personal representative of the Optionee's estate or by the person or
persons to whom the option is transferred pursuant to the Optionee's
will or in accordance with the laws of descent and distribution.
(iii) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.
(iv) During the applicable post-Service exercise
period, the option may not be exercised in the aggregate for more than
the number of vested shares for which the option is exercisable on the
date of the Optionee's cessation of Service. Upon the expiration of
the applicable exercise period or (if earlier) upon the expiration of
the option term, the option shall terminate and cease to be
outstanding for any vested shares for which the option has not been
exercised. However, the option shall, immediately upon the Optionee's
cessation of Service, terminate and cease to be outstanding to the
extent the option is not otherwise at that time exercisable for vested
shares.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the option is
to remain exercisable following the Optionee's cessation of Service
from the limited exercise period otherwise in effect for that option
to such greater period of time as the Plan Administrator shall deem
appropriate, but in no event beyond the expiration of the option term,
and/or
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the
number of
6
<PAGE>
vested shares of Common Stock for which such option is exercisable at
the time of the Optionee's cessation of Service but also with respect
to one or more additional installments in which the Optionee would have
vested had the Optionee continued in Service.
D. SHAREHOLDER RIGHTS. The holder of an option shall have no
shareholder rights with respect to the shares subject to the option until
such person shall have exercised the option, paid the exercise price and
become a holder of record of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of
Common Stock. Should the Optionee cease Service while holding such unvested
shares, the Corporation shall have the right to repurchase, at the exercise
price paid per share, any or all of those unvested shares. The terms upon
which such repurchase right shall be exercisable (including the period and
procedure for exercise and the appropriate vesting schedule for the purchased
shares) shall be established by the Plan Administrator and set forth in the
document evidencing such repurchase right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of
the Optionee, Incentive Options shall be exercisable only by the Optionee and
shall not be assignable or transferable other than by will or by the laws of
descent and distribution following the Optionee's death. However, a
Non-Statutory Option may, in connection with the Optionee's estate plan, be
assigned in whole or in part during the Optionee's lifetime to one or more
members of the Optionee's immediate family or to a trust established
exclusively for one or more such family members. The assigned portion may
only be exercised by the person or persons who acquire a proprietary interest
in the option pursuant to the assignment. The terms applicable to the
assigned portion shall be the same as those in effect for the option
immediately prior to such assignment and shall be set forth in such documents
issued to the assignee as the Plan Administrator may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Five shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options
when issued under the Plan shall NOT be subject to the terms of this Section
II.
A. ELIGIBILITY. Incentive Options may only be granted to
Employees.
B. EXERCISE PRICE. The exercise price per share shall not be
less than one hundred percent (100%) of the Fair Market Value per share of
Common Stock on the option grant date.
C. DOLLAR LIMITATION. The aggregate Fair Market Value of the
shares of Common Stock (determined as of the respective date or dates of
grant) for which one or more
7
<PAGE>
options granted to any Employee under the Plan (or any other option plan of
the Corporation or any Parent or Subsidiary) may for the first time become
exercisable as Incentive Options during any one calendar year shall not
exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% SHAREHOLDER. If any Employee to whom an Incentive Option
is granted is a 10% Shareholder, then the exercise price per share shall not
be less than one hundred ten percent (110%) of the Fair Market Value per
share of Common Stock on the option grant date, and the option term shall not
exceed five (5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable with respect to the total number of shares of Common Stock
at the time subject to such option and may be exercised for any or all of
those shares as fully-vested shares of Common Stock. However, an outstanding
option shall not so accelerate if and to the extent: (i) such option is, in
connection with the Corporate Transaction, to be assumed by the successor
corporation (or parent thereof), (ii) such option is to be replaced with a
cash incentive program of the successor corporation which preserves the
spread existing on the unvested option shares at the time of the Corporate
Transaction and provides for subsequent payout in accordance with the same
vesting schedule applicable to those option shares or (iii) the acceleration
of such option is subject to other limitations imposed by the Plan
Administrator at the time of the option grant.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated
rights shall immediately vest in full, in the event of any Corporate
Transaction, except to the extent: (i) those repurchase rights are to be
assigned to the successor corporation (or parent thereof) in connection with
such Corporate Transaction or (ii) such accelerated vesting is precluded by
other limitations imposed by the Plan Administrator at the time the
repurchase right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction
had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments to reflect such Corporate Transaction
shall also be made
8
<PAGE>
to (i) the exercise price payable per share under each outstanding option,
PROVIDED the aggregate exercise price payable for such securities shall
remain the same, (ii) the maximum number and/or class of securities available
for issuance over the remaining term of the Plan and (iii) the maximum number
and/or class of securities for which any one person may be granted stock
options, separately exercisable stock appreciation rights and direct stock
issuances under the Plan per calendar year.
E. The Plan Administrator shall have full power and authority to
grant one or more options under the Discretionary Option Grant Program which
will automatically accelerate in the event the Optionee's Service
subsequently terminates by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the
effective date of (i) any Corporate Transaction in which those options are
assumed or replaced and do not otherwise accelerate or (ii) any Change in
Control. Any options so accelerated shall remain exercisable for
fully-vested shares until the EARLIER of (i) the expiration of the option
term or (ii) the expiration of the one (1)-year period measured from the
effective date of the Involuntary Termination. In addition, the Plan
Administrator may provide that one or more of the Corporation's outstanding
repurchase rights with respect to shares held by the Optionee at the time of
such Involuntary Termination shall immediately terminate, and the shares
subject to those terminated repurchase rights shall accordingly vest in full.
F. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as
an Incentive Option only to the extent the applicable One Hundred Thousand
Dollar ($100,000) limitation is not exceeded. To the extent such dollar
limitation is exceeded, the accelerated portion of such option shall be
exercisable as a Non-Statutory Option under the Federal tax laws.
G. The outstanding options shall in no way affect the right of
the Corporation to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected option holders,
the cancellation of any or all outstanding options under the Discretionary
Option Grant Program and to grant in substitution new options covering the
same or different number of shares of Common Stock but with an exercise price
per share based on the Fair Market Value per share of Common Stock on the new
grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.
9
<PAGE>
B. The following terms shall govern the grant and exercise of
tandem stock appreciation rights:
(i) One or more Optionees may be granted the right,
exercisable upon such terms as the Plan Administrator may establish,
to elect between the exercise of the underlying option for shares of
Common Stock and the surrender of that option in exchange for a
distribution from the Corporation in an amount equal to the excess of
(a) the Fair Market Value (on the option surrender date) of the number
of shares in which the Optionee is at the time vested under the
surrendered option (or surrendered portion thereof) over (b) the
aggregate exercise price payable for such shares.
(ii) No such option surrender shall be effective unless
it is approved by the Plan Administrator, either at the time of the
actual option surrender or at any earlier time. If the surrender is
so approved, then the distribution to which the Optionee shall be
entitled may be made in shares of Common Stock valued at Fair Market
Value on the option surrender date, in cash, or partly in shares and
partly in cash, as the Plan Administrator shall in its sole discretion
deem appropriate.
(iii) If the surrender of an option is not approved by
the Plan Administrator, then the Optionee shall retain whatever rights
the Optionee had under the surrendered option (or surrendered portion
thereof) on the option surrender date and may exercise such rights at
any time prior to the LATER of (a) five (5) business days after the
receipt of the rejection notice or (b) the last day on which the
option is otherwise exercisable in accordance with the terms of the
documents evidencing such option, but in no event may such rights be
exercised more than ten (10) years after the option grant date.
C. The following terms shall govern the grant and exercise of
limited stock appreciation rights:
(i) One or more Section 16 Insiders may be granted
limited stock appreciation rights with respect to their outstanding
options.
(ii) Upon the occurrence of a Hostile Take-Over, each
individual holding one or more options with such a limited stock
appreciation right shall have the unconditional right (exercisable for
a thirty (30)-day period following such Hostile Take-Over) to
surrender each such option to the Corporation, to the extent the
option is at the time exercisable for vested shares of Common Stock.
In return for the surrendered option, the Optionee shall receive a
cash distribution from the Corporation in an amount equal to the
excess of (A) the Take-Over Price of the shares of Common Stock which
are at the time vested under each surrendered option (or surrendered
portion thereof) over (B) the
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aggregate exercise price payable for such shares. Such cash distribution
shall be paid within five (5) days following the option surrender date.
(iii) The Plan Administrator shall pre-approve, at the
time the limited right is granted, the subsequent exercise of that
right in accordance with the terms of the grant and the provisions of
this Section V. No additional approval of the Plan Administrator or
the Board shall be required at the time of the actual option surrender
and cash distribution.
(iv) The balance of the option (if any) shall remain
outstanding and exercisable in accordance with the documents
evidencing such option.
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ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below.
A. PURCHASE PRICE.
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than eighty-five percent (85%) of the
Fair Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article Five,
shares of Common Stock may be issued under the Stock Issuance Program for any of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any
Parent or Subsidiary).
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock Issuance
Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program, namely:
(i) the Service period to be completed by the
Participant or the performance objectives to be
attained,
(ii) the number of installments in which the shares are
to vest,
(iii) the interval or intervals (if any) which are to
lapse between installments, and
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(iv) the effect which death, Permanent Disability or
other event designated by the Plan Administrator
is to have upon the vesting schedule,
shall be determined by the Plan Administrator and incorporated into the Stock
Issuance Agreement.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which
the Participant may have the right to receive with respect to the
Participant's unvested shares of Common Stock by reason of any stock
dividend, stock split, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration shall be issued subject to
(i) the same vesting requirements applicable to the Participant's unvested
shares of Common Stock and (ii) such escrow arrangements as the Plan
Administrator shall deem appropriate.
3. The Participant shall have full shareholder rights with
respect to any shares of Common Stock issued to the Participant under the
Stock Issuance Program, whether or not the Participant's interest in those
shares is vested. Accordingly, the Participant shall have the right to vote
such shares and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those
shares shall be immediately surrendered to the Corporation for cancellation,
and the Participant shall have no further shareholder rights with respect to
those shares. To the extent the surrendered shares were previously issued to
the Participant for consideration paid in cash or cash equivalent (including
the Participant's purchase-money indebtedness), the Corporation shall repay
to the Participant the cash consideration paid for the surrendered shares and
shall cancel the unpaid principal balance of any outstanding purchase-money
note of the Participant attributable to the surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock
which would otherwise occur upon the cessation of the Participant's Service
or the non-attainment of the performance objectives applicable to those
shares. Such waiver shall result in the immediate vesting of the
Participant's interest in the shares as to which the waiver applies. Such
waiver may be effected at any time, whether before or after the Participant's
cessation of Service or the attainment or non-attainment of the applicable
performance objectives.
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II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase/cancellation
rights under the Stock Issuance Program shall terminate automatically, and
all the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction, except
to the extent (i) those repurchase/cancellation rights are to be assigned to
the successor corporation (or parent thereof) in connection with such
Corporate Transaction or (ii) such accelerated vesting is precluded by other
limitations imposed in the Stock Issuance Agreement.
B. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time
while the Corporation's repurchase/cancellation rights with respect to such
shares remain outstanding under the Stock Issuance Program, to provide that
those rights shall automatically terminate in whole or in part, and the
shares of Common Stock subject to those terminated rights shall immediately
vest, in the event the Participant's Service should subsequently terminate by
reason of an Involuntary Termination within a designated period (not to
exceed eighteen (18) months) following the effective date of (i) any
Corporate Transaction in which those repurchase/cancellation rights are
assigned to the successor corporation (or parent thereof) or (ii) any Change
in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.
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ARTICLE FOUR
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Option grants shall be made on the dates
specified below:
1. Each individual who is first elected or appointed as a
non-employee Board member at any time after the Effective Date shall
automatically be granted, on the date of such initial election or
appointment, a Non-Statutory Option to purchase 10,000 shares of Common
Stock, provided that individual has not previously been in the employ of the
Corporation or any Parent or Subsidiary.
2. On the date of each Annual Shareholders Meeting held
after the Effective Date, each individual who is to continue to serve as an
Eligible Director, whether or not that individual is standing for re-election
to the Board at that particular Annual Meeting, shall automatically be
granted a Non-Statutory Option to purchase 3,500 shares of Common Stock,
provided such individual has served as a non-employee Board member for at
least six (6) months. There shall be no limit on the number of such 3,500
share option grants any one Eligible Director may receive over his or her
period of Board service, and non-employee Board members who have previously
been in the employ of the Corporation (or any Parent or Subsidiary) or who
have otherwise received a stock option grant from the Corporation prior to
the Effective Date shall be eligible to receive one or more such annual
option grants over their period of continued Board service.
B. EXERCISE PRICE.
1. The exercise price per share shall be equal to one
hundred percent (100%) of the Fair Market Value per share of Common Stock on
the option grant date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder
is utilized, payment of the exercise price for the purchased shares must be
made on the Exercise Date.
C. OPTION TERM. Each option shall have a term of ten (10) years
measured from the option grant date.
D. EXERCISE AND VESTING OF OPTIONS. Each option shall be
immediately exercisable for any or all of the option shares. However, any
shares purchased under the option shall be subject to repurchase by the
Corporation, at the exercise price paid per share, upon the Optionee's
cessation of Board service prior to vesting in those shares. The shares
subject to each initial or annual option grant shall vest, and the
Corporation's repurchase right with respect to
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those shares shall lapse, in a series of sixteen (16) successive equal
quarterly installments upon the Optionee's period of continued Board service,
with the first such installment to vest upon the Optionee's completion of
three (3) months of Board service measured from the option grant date.
E. TERMINATION OF BOARD SERVICE. The following provisions shall
govern the exercise of any options held by the Optionee at the time the
Optionee ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's
death, the personal representative of the Optionee's estate or the
person or persons to whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of descent and
distribution) shall have a twelve (12)-month period following the date
of such cessation of Board service in which to exercise each such
option.
(ii) During the twelve (12)-month exercise period, the
option may not be exercised in the aggregate for more than the number
of vested shares of Common Stock for which the option is exercisable
at the time of the Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board
member by reason of death or Permanent Disability, then all shares at
the time subject to the option shall immediately vest so that such
option may, during the twelve (12)-month exercise period following
such cessation of Board service, be exercised for all or any portion
of those shares as fully-vested shares of Common Stock.
(iv) In no event shall the option remain exercisable
after the expiration of the option term. Upon the expiration of the
twelve (12)-month exercise period or (if earlier) upon the expiration
of the option term, the option shall terminate and cease to be
outstanding for any vested shares for which the option has not been
exercised. However, the option shall, immediately upon the Optionee's
cessation of Board service for any reason other than death or
Permanent Disability, terminate and cease to be outstanding to the
extent the option is not otherwise at that time exercisable for vested
shares.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of
Common Stock at the time subject to each outstanding option but not otherwise
vested shall automatically vest in full so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable for all of the shares of Common Stock at the time subject
to such option and may be exercised for all or any portion of those shares as
fully-vested shares
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of Common Stock. Immediately following the consummation of the Corporation
Transaction, each automatic option grant shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
B. In connection with any Change in Control, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Change in Control, become fully
exercisable for all of the shares of Common Stock at the time subject to such
option and may be exercised for all or any portion of those shares as
fully-vested shares of Common Stock. Each such option shall remain
exercisable for such fully-vested option shares until the expiration or
sooner termination of the option term or the surrender of the option in
connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
of his or her outstanding automatic option grants, to the extent those grants
are exercisable for vested shares of Common Stock. The Optionee shall in
return be entitled to a cash distribution from the Corporation in an amount
equal to the excess of (i) the Take-Over Price of the shares of Common Stock
in which the Optionee is at the time vested under each surrendered option
over (ii) the aggregate exercise price payable for such vested shares. Such
cash distribution shall be paid within five (5) days following the surrender
of the option to the Corporation. Shareholder approval of the Plan shall
constitute pre-approval of the grant of each such option surrender right
under this Automatic Option Grant Program and the subsequent exercise of such
right in accordance with the terms and provisions of this Section II.C of
Article Four. No additional approval of the Board or any Plan Administrator
shall be required at the time of the actual option surrender and cash
distribution.
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction
had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to the exercise price
payable per share under each outstanding option, PROVIDED the aggregate
exercise price payable for such securities shall remain the same.
E. The grant of options under the Automatic Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.
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ARTICLE FIVE
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to
pay the option exercise price under the Discretionary Option Grant Program or
the purchase price of shares issued under the Stock Issuance Program by
delivering a full-recourse, interest bearing promissory note payable in one
or more installments. The terms of any such promissory note (including the
interest rate and the terms of repayment) shall be established by the Plan
Administrator in its sole discretion. In no event may the maximum credit
available to the Optionee or Participant exceed the sum of (i) the aggregate
option exercise price or purchase price payable for the purchased shares plus
(ii) any Federal, state and local income and employment tax liability
incurred by the Optionee or the Participant in connection with the option
exercise or share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or the issuance or vesting of such shares under
the Plan shall be subject to the satisfaction of all applicable Federal,
state and local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or
all holders of Non-Statutory Options or unvested shares of Common Stock under
the Plan (other than the options granted or the shares issued under the
Automatic Option Grant Program) with the right to use shares of Common Stock
in satisfaction of all or part of the Taxes incurred by such holders in
connection with the exercise of their options or the vesting of their shares.
Such right may be provided to any such holder in either or both of the
following formats:
STOCK WITHHOLDING: The election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon the
exercise of such Non-Statutory Option or the vesting of such shares, a
portion of those shares with an aggregate Fair Market Value equal to the
percentage of the Taxes (not to exceed one hundred percent (100%)) designated
by the holder.
STOCK DELIVERY: The election to deliver to the Corporation,
at the time the Non-Statutory Option is exercised or the shares vest, one or
more shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Taxes)
with an aggregate Fair Market Value equal to the percentage of the Taxes (not
to exceed one hundred percent (100%)) designated by the holder.
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III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective immediately upon the Effective
Date. Options may be granted under the Discretionary Option Grant or
Automatic Option Grant Program at any time on or after the Effective Date.
However, no options granted under the Plan may be exercised, and no shares
shall be issued under the Plan, until the Plan is approved by the
Corporation's shareholders. If such shareholder approval is not obtained
within twelve (12) months after the Effective Date, then all options
previously granted under this Plan shall terminate and cease to be
outstanding, and no further options shall be granted and no shares shall be
issued under the Plan.
B. One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two
relating to Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options incorporated
from the Predecessor Plan which do not otherwise contain such provisions.
C. The Plan shall terminate upon the EARLIEST of (i) December 31,
2006, (ii) the date on which all shares available for issuance under the Plan
shall have been issued as fully-vested shares or (iii) the termination of all
outstanding options in connection with a Corporate Transaction. Upon such
plan termination, all outstanding option grants and unvested stock issuances
shall thereafter continue to have force and effect in accordance with the
provisions of the documents evidencing such grants or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no
such amendment or modification shall adversely affect the rights and
obligations with respect to stock options or unvested stock issuances at the
time outstanding under the Plan unless the Optionee or the Participant
consents to such amendment or modification. In addition, certain amendments
may require shareholder approval pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted
under the Discretionary Option Grant Program and shares of Common Stock may
be issued under the Stock Issuance Program that are in each instance in
excess of the number of shares then available for issuance under the Plan,
provided any excess shares actually issued under those programs shall be held
in escrow until there is obtained shareholder approval of an amendment
sufficiently increasing the number of shares of Common Stock available for
issuance under the Plan. If such shareholder approval is not obtained within
twelve (12) months after the date the first such excess issuances are made,
then (i) any unexercised options granted on the basis of such excess shares
shall terminate and cease to be outstanding and (ii) the Corporation shall
promptly refund to the Optionees and the Participants the exercise or
purchase price paid for any excess shares issued under the Plan and held in
escrow, together with interest (at the applicable Short Term Federal
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Rate) for the period the shares were held in escrow, and such shares shall
thereupon be automatically cancelled and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock
option under the Plan and the issuance of any shares of Common Stock (i) upon
the exercise of any granted option or (ii) under the Stock Issuance Program
shall be subject to the Corporation's procurement of all approvals and
permits required by regulatory authorities having jurisdiction over the Plan,
the stock options granted under it and the shares of Common Stock issued
pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance
with all applicable requirements of Federal and state securities laws,
including the filing and effectiveness of the Form S-8 registration statement
for the shares of Common Stock issuable under the Plan, and all applicable
listing requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific
duration or interfere with or otherwise restrict in any way the rights of the
Corporation (or any Parent or Subsidiary employing or retaining such person)
or of the Optionee or the Participant, which rights are hereby expressly
reserved by each, to terminate such person's Service at any time for any
reason, with or without cause.
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APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option grant
program in effect under the Plan.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by any person
or related group of persons (other than the Corporation or a person
that directly or indirectly controls, is controlled by, or is under
common control with, the Corporation), of beneficial ownership (within
the meaning of Rule 13d-3 of the 1934 Act) of securities possessing
more than fifty percent (50%) of the total combined voting power of
the Corporation's outstanding securities pursuant to a tender or
exchange offer made directly to the Corporation's stockholders, or
(ii) a change in the composition of the Board over a period
of thirty-six (36) consecutive months or less such that a majority of
the Board members ceases, by reason of one or more contested elections
for Board membership, to be comprised of individuals who either (A)
have been Board members continuously since the beginning of such
period or (B) have been elected or nominated for election as Board
members during such period by at least a majority of the Board members
described in clause (A) who were still in office at the time the Board
approved such election or nomination.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. CORPORATE TRANSACTION shall mean either of the following
shareholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
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(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.
G. CORPORATION shall mean Biomagnetic Technologies, Inc., a California
corporation, and its successors.
H. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary option
grant program in effect under the Plan.
I. EFFECTIVE DATE shall mean January 1, 1997, the date on which the Plan
was adopted by the Board.
J. ELIGIBLE DIRECTOR shall mean a non-employee Board member eligible to
participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Article One.
K. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
L. EXERCISE DATE shall mean the date on which the Corporation shall have
received written notice of the option exercise.
M. FAIR MARKET VALUE per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market or on the Nasdaq Over the Counter Bulletin Board, then
the Fair Market Value shall be deemed equal to the closing selling price
per share of Common Stock on the date in question, as such price is
reported on the Nasdaq National Market or on the Nasdaq Over the Counter
Bulletin Board, or any successor system. If there is no closing selling
price for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be deemed equal to the
closing selling price per share of Common Stock on the date in
question on the Stock Exchange determined by the Plan Administrator to
be the primary market for the Common Stock, as such price is
officially quoted in the composite tape of transactions on such
exchange. If there is no closing selling price for the Common Stock
on the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such
quotation exists.
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N. HOSTILE TAKE-OVER shall mean the acquisition, directly or indirectly,
by any person or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or is under
common control with, the Corporation) of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.
O. INCENTIVE OPTION shall mean an option which satisfies the requirements
of Code Section 422.
P. INVOLUNTARY TERMINATION shall mean the termination of the Service of
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially
reduces his or her level of responsibility, (B) a reduction in his or
her level of compensation (including base salary, fringe benefits and
participation in any corporate-performance based bonus or incentive
programs) by more than fifteen percent (15%) or (C) a relocation of
such individual's place of employment by more than fifty (50) miles,
provided and only if such change, reduction or relocation is effected
by the Corporation without the individual's consent.
Q. MISCONDUCT shall mean the commission of any act of fraud, embezzlement
or dishonesty by the Optionee or Participant, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary), or any other intentional misconduct by such
person adversely affecting the business or affairs of the Corporation (or any
Parent or Subsidiary) in a material manner. The foregoing definition shall not
be deemed to be inclusive of all the acts or omissions which the Corporation (or
any Parent or Subsidiary) may consider as grounds for the dismissal or discharge
of any Optionee, Participant or other person in the Service of the Corporation
(or any Parent or Subsidiary).
R. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
S. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
T. OPTIONEE shall mean any person to whom an option is granted under the
Discretionary Option Grant or Automatic Option Grant Program.
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U. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
V. PARTICIPANT shall mean any person who is issued shares of Common Stock
under the Stock Issuance Program.
W. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the inability
of the Optionee or the Participant to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment expected
to result in death or to be of continuous duration of twelve (12) months or
more. However, solely for purposes of the Automatic Option Grant Program,
Permanent Disability or Permanently Disabled shall mean the inability of the
non-employee Board member to perform his or her usual duties as a Board member
by reason of any medically determinable physical or mental impairment expected
to result in death or to be of continuous duration of twelve (12) months or
more.
X. PLAN shall mean the Corporation's 1997 Stock Incentive Plan, as set
forth in this document.
Y. PLAN ADMINISTRATOR shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
Z. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to
Section 16 Insiders.
AA. SECONDARY COMMITTEE shall mean a committee of two (2) or more Board
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.
BB. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
CC. SERVICE shall mean the performance of services for the Corporation
(or any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the
documents evidencing the option grant or stock issuance.
A-4
<PAGE>
DD. STOCK EXCHANGE shall mean either the American Stock Exchange or the
New York Stock Exchange.
EE. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by the
Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
FF. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in effect
under the Plan.
GG. SUBSIDIARY shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
HH. TAKE-OVER PRICE shall mean the GREATER of (i) the Fair Market Value
per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
II. TAXES shall mean the Federal, state and local income and employment
tax liabilities incurred by the holder of Non-Statutory Options or unvested
shares of Common Stock in connection with the exercise of those options or the
vesting of those shares.
JJ. 10% SHAREHOLDER shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
A-5
<PAGE>
PROXY PROXY
BIOMAGNETIC TECHNOLOGIES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints D. Scott Buchanan and Aron P. Stern,
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
Friday, March 19, 1999, 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.
Check here for [ ] NEW ADDRESS: _______________________________
address ____________________________________________
change ____________________________________________
____________________________________________
(Continued and to be signed and dated on
reverse side)
[ x ] PLEASE MARK YOUR VOTES
AS IN THIS EXAMPLE.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL PROPOSALS LISTED BELOW.
FOR WITHHELD Nominees: D. Scott Buchanan,
Martin P. Egli, Enrique
Maso, Galleon Graetz and
Rodolfo Llinas.
1. Election of Directors [ ] [ ]
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, CHECK
THE BOX "FOR" AND WRITE THE NOMINEE'S NAME FOR WHICH YOU ARE WITHHOLDING
AUTHORITY TO VOTE IN FAVOR OF ON THE LINE BELOW.
_______________________________________________________________________________
2. Ratification and approval of the
selection of Arthur Andersen LLP
as independent accountants for the
fiscal year ending September 30, 1999. [ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of an amendment to the
Company's Articles of Incorporation
to increase the number of authorized
shares of Common Stock from 100,000,000
to 200,000,000 shares. [ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE>
4. Approval of an amendment to the
Company's 1997 Stock Incentive Plan
to increase the maximum number of
shares authorized for issuance over
the term of the 1997 Plan by an
additional 3,000,000 to 6,000,000. [ ] FOR [ ] AGAINST [ ] ABSTAIN
CHECK HERE IF YOU PLAN TO ATTEND THE ANNUAL MEETING. [ ]
UNLESS OTHERWISE SPECIFIED BY THE UNDERSIGNED, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1 AND 2 AND WILL BE VOTED BY THE PROXYHOLDER AT HIS OR HER
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.
SIGNATURE(S)______________________________________ DATE______________________
Note: 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.
<PAGE>
BIOMAGNETIC TECHNOLOGIES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints D. Scott Buchanan and Aron Stern, 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
Friday, March 19, 1999, 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.
/ / Check here for address change
NEW ADDRESS:
---------------------
---------------------------------
---------------------------------
---------------------------------
(Continued and to be signed and
dated on reverse side)
<PAGE>
/X/ PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE USING
DARK INK ONLY.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
FOR WITHHELD
1. Election of Directors / / / /
NOMINEES: D. Scott Buchanan, Martin P. Egli,
Enrique Maso, Galleon Graety and Rodolfo Llinas
Instruction: To withhold authority to vote for any individual nominee, check
the box "FOR" and write the nominee's name for which you are withholding
authority to vote in favor of on the line below.
- ----------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Ratification and approval of the selection of
Arthur Andersen LLP as independent / / / / / /
accountants for the fiscal year ending
September 30, 1999.
3. Approval of an amendment to the
Company's Articles of Incorporation
to increase the number of authorized / / / / / /
shares of Common Stock from 100,000,000
million to 200,000,000 million shares.
4. Approval of an amendment to the
Company's 1997 Stock Incentive Plan
to increase the maximum number of / / / / / /
shares authorized for issuance over
the term of the 1997 Plan by an
additional 3,000,000 to 6,000,000
CHECK HERE IF YOU PLAN TO ATTEND THE ANNUAL MEETING. / /
Unless otherwise specified by the undersigned, this proxy will be voted FOR
Proposals 1 and 2 and will be voted by the proxyholder at his or her
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.
SIGNATURE(S)____________________________DATE__________________________________
NOTE: 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.
