SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
DIANON Systems, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
DIANON Systems, Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee Computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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:
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11 (a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
DIANON SYSTEMS, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OCTOBER 21, 1999
The Annual Meeting of the shareholders of DIANON Systems, Inc. (the
"Company") will be held at the Company's corporate headquarters at 200 Watson
Boulevard, Stratford, Connecticut, on Thursday, October 21, 1999, at 10:00 A.M.,
for the following purposes:
(1) To elect directors for the ensuing year;
(2) To approve the adoption of the Employee Stock Purchase Plan;
(3) To approve the adoption of the 1999 Stock Incentive Plan;
(4) To ratify the appointment of Arthur Andersen, LLP as the
independent public accountants of the Company for the calendar
year ended December 31, 1999; and
(5) To transact such other business as may properly come before
the meeting or any adjournment or adjournments thereof.
Only shareholders of record at the close of business on September 8, 1999
will be entitled to vote at the Annual Meeting. A list of shareholders eligible
to vote at the Annual Meeting will be available for inspection at the Annual
Meeting and during business hours from October 11, 1999 to the date of the
Annual Meeting at the Company's corporate headquarters.
Whether you expect to attend the Annual Meeting or not, your proxy vote is
important. To assure your representation at the meeting, please sign and date
the enclosed proxy card and return it promptly in the enclosed envelope, which
requires no additional postage if mailed in the United States or Canada.
By Order of the Board of Directors
/s/ David R. Schreiber
----------------------
David R. Schreiber
Corporate Secretary
200 Watson Boulevard
Stratford, Connecticut 06615
September 20, 1999
IT IS IMPORTANT THAT THE ENCLOSED PROXY CARD BE COMPLETED
AND RETURNED PROMPTLY
<PAGE>
DIANON SYSTEMS, INC.
PROXY STATEMENT
September 20, 1999
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of DIANON Systems, Inc. ("DIANON" or the
"Company") for use at the Annual Meeting of its shareholders to be held at the
Company's corporate headquarters at 200 Watson Boulevard, Stratford, Connecticut
on Thursday, October 21, 1999, at 10:00 A.M.
Shares cannot be voted at the Annual Meeting unless the owner thereof is
present in person or by proxy. All properly executed and unrevoked proxies in
the accompanying form that are received in time for the Annual Meeting will be
voted at the Annual Meeting or any adjournment thereof in accordance with any
specification thereon, or if no specification is made, will be voted "FOR" the
election of the named director nominees and approval of the other proposal set
forth in the Notice of Annual Meeting of Shareholders of the Company. The Board
of Directors of the Company knows of no other matters which may be brought
before the Annual Meeting. However, if any other matters are properly presented
for action, it is the intention of the named proxies to vote on them according
to their best judgment. Any person giving a proxy may revoke it by written
notice to the Company at any time prior to exercise of the proxy. In addition,
although mere attendance at the Annual Meeting will not revoke the proxy, a
person present at the Annual Meeting may withdraw his or her proxy and vote in
person. Rights of appraisal or similar rights of dissenters are not available to
shareholders of the Company with respect to any matter to be acted upon at the
Annual Meeting.
The Annual Report on form 10-K of the Company (which does not form a part
of these proxy solicitation materials), as filed with the Securities Exchange
Commission and including the financial statements of the Company, is enclosed
herewith.
The mailing address of the principal executive office of the Company is
200 Watson Boulevard, Stratford, Connecticut 06615. This Proxy Statement and the
accompanying form of proxy are expected to be mailed to the shareholders of the
Company on or about September 20, 1999.
VOTING SECURITIES
The Company has only one class of voting securities outstanding, its
Common Stock, par value $0.01 per share (the "Common Stock"). On September 8,
1999, 6,814,967 shares of Common Stock were outstanding. At the Annual Meeting,
each shareholder of record at the close of business on September 8, 1999, will
be entitled to one vote for each share of Common Stock owned on that date as to
each matter presented at the Annual Meeting.
ELECTION OF DIRECTORS
Unless otherwise directed, the persons named in the accompanying form of
proxy intend to vote at the Annual Meeting "FOR" the election of the nominees
named below as directors of the Company to serve until the next Annual Meeting
and until their successors are duly elected and qualified. THE BOARD OF
DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE ELECTION OF SUCH NOMINEES.
If any nominee is unable to stand for election when the election takes
place, the shares represented by valid proxies will be voted in favor of the
remaining nominees and for such person, if any, as shall be designated by the
present Board of Directors to replace such nominee. The Board of Directors does
not presently anticipate that any nominee will be unable to stand for election.
INFORMATION CONCERNING DIRECTORS AND NOMINEES
The following information with respect to the principal occupation or
employment, other affiliations and business experience of each nominee during
the last five years has been furnished to the Company by such nominee. Except as
indicated, each of the nominees has had the same principal occupation for the
last five years.
Kevin C. Johnson, age 44, a Director since May 1996, is President and
Chief Executive Officer of the Company. Mr. Johnson joined Dianon as President
in May 1996, and was appointed to the additional position of Chief Executive
Officer in February 1997. Formerly, Mr. Johnson was with Corning Inc., a
manufacturer of specialty materials and a provider of laboratory services, for
eighteen years, serving most recently as Vice President and General Manager of
Corning Clinical Laboratories' Eastern region in Teterboro, New Jersey.
John P. Davis, age 57, a Director since 1984, has served as a consultant
to the Company since October 1998. Mr. Davis was President and Chief Executive
Officer of Infant Advantage, Inc., a child development company, from December
1997 through June 1998. From May 1995 through December 1997, Mr. Davis was
President and Chief Executive Officer of Calypte Biomedical Corp., a diagnostic
products company. From 1984 to January 1995, Mr. Davis was an officer of the
Company. Mr. Davis joined the Company in January 1984 as President and Chief
Operating Officer, and subsequently became co-Chief Executive Officer in 1992
and Chief Executive Officer in 1994. In January 1995, Mr. Davis resigned as
Chief Executive Officer of the Company and became Vice Chairman of the Board. In
February 1997, Mr. Davis was elected non-executive Chairman of the Board. Mr.
Davis also serves as Chairman of the Board of CytoLogix, Inc.
Bruce K. Crowther, age 47, a Director since December 1997, is President
and Chief Executive Officer of Northwest Community Healthcare, Northwest
Community Hospital, in Arlington Heights, Illinois and certain of its
affiliates. Mr. Crowther is a Fellow of the American College of Healthcare
Executives, Chairman of the Board of the Illinois Hospital and HealthSystems
Association and serves on the Board of both Chicago Hospital Risk Pooling
Program and Barrington Bank and Trust. Mr. Crowther received an MBA from
Virginia Commonwealth University Medical College in Richmond, VA.
E. Timothy Geary, age 47, a Director since June 1997, had been Chairman,
President and Chief Executive Officer of National Surgery Centers, Inc. of
Chicago, Illinois, the leading independent owner and operator of ambulatory
surgery centers in the country, until its acquisition by HealthSouth Corporation
on July 22, 1998. Mr. Geary is currently a consultant to HealthSouth
Corporation. Prior to founding National Surgery Centers in 1987, Mr. Geary
served as a Vice President with Medical Care International. Mr. Geary holds an
MBA and AB from the University of Chicago.
G. S. Beckwith Gilbert, age 57, a Director since October 1995, is
President, Chief Executive Officer and a Director of Field Point Capital
Management Company in Greenwich, Connecticut, a merchant banking firm. Mr.
Gilbert is also a partner of Wolsey & Co., a merchant banking firm. In addition,
Mr. Gilbert is Chairman, President and Chief Executive Officer of Megadata
Corporation as well as a Director of Davidson Hubeny Brands, Inc. Mr. Gilbert is
a graduate of Princeton University and holds an MBA from New York University. In
February 1997, the Board elected Mr. Gilbert Chairman of the Executive
Committee.
Jeffrey L. Sklar, age 51, a Director since 1994, is Professor of
Pathology, Harvard Medical School, and Director, Divisions of Diagnostic
Molecular Biology and of Molecular Oncology, Department of Pathology, Brigham
and Women's Hospital. Dr. Sklar has served on numerous editorial boards and has
consulted widely to the biotechnology industry. In addition, Dr. Sklar serves on
the Scientific Advisory Committee for Clinical Science, The Fred Hutchinson
Cancer Center, Seattle, Washington; the Scientific Advisory Committee, New
England Primate Research Center, Harvard University; the External Review
Committee, Dana-Farber Cancer Institute, Boston, and the Pathology B Study
Section, National Institutes of Health. Dr. Sklar also serves as a Director of
Transgenomic, Inc. and holds an MD and Ph.D. from Yale University and an MA
(honorary) from Harvard University.
David R. Schreiber, age 39, has served as Senior Vice President, Finance,
Chief Financial Officer and Corporate Secretary since November 1996 when he
joined the Company. Formerly, Mr. Schreiber was with Corning Clinical
Laboratories, a provider of laboratory services, for 10 years, serving most
recently as Vice President and General Manager of the laboratory's Midwest
region. Mr. Schreiber holds an MBA from Northern Illinois University.
COMMITTEES OF THE BOARD
The Company's Board of Directors presently has standing Audit,
Compensation, and Executive Committees, the current membership and principal
responsibilities of which are described below. The Board of Directors does not
have a Nominating Committee.
Audit Committee
Members: Mr. Gilbert and Mr. Crowther
The Audit Committee's functions include reviewing with the independent
public accountants the plan for and results of their audit, the adequacy of the
Company's systems of internal accounting controls and any material breakdown in
such controls. In addition, the Audit Committee reviews the independence of the
independent public accountants and their fees for services rendered to the
Company.
Compensation Committee
Members: Mr. Crowther, Mr. Gilbert and Dr. Sklar
The Compensation Committee's functions include setting compensation of the
directors and the executive officers. In addition, the Compensation Committee
has the authority to grant certain awards under the 1991, 1996 and 1999 (if
approved) Stock Incentive Plans.
Executive Committee
Members: Mr. Gilbert, Mr. Davis and Mr. Johnson
The Executive Committee's primary function is to assist management in
formulating the Company's long-term strategy. Mr. Gilbert serves as Chairman of
the Executive Committee.
ATTENDANCE AT BOARD AND COMMITTEE MEETINGS
During the 1998 fiscal year the Board of Directors held seven regular
meetings. In addition, the Audit Committee, the Compensation Committee and the
Executive Committee each met two times. During such fiscal year each director
attended at least 75% of the aggregate of (i) the regular meetings of the Board
and (ii) the meetings of the committees of the Board on which such director
served.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company are paid $1,500 for each
meeting of the Board of Directors attended in person and $500 for each meeting
attended by telephone. In addition, committee members are paid $500 for each
committee meeting attended which does not occur on the same day as a Board
meeting. Directors are also reimbursed for expenses to attend meetings of the
Board and its committees. In addition, the Company has made payments to Brigham
& Women's Hospital, Inc., for which Dr. Sklar is director, Division of
Diagnostic Molecular Biology, Department of Pathology. See "Compensation
Committee Interlocks and Insider Participation."
Commencing January 1, 1998, Mr. Davis and Mr. Gilbert, in connection with
their capacities as non-Executive Chairman of the Board and Chairman of the
Executive Committee, respectively, also receive $50,000 annually (payable
monthly at $4,166) and an annual grant of 3,000 stock options, at a price equal
to the market value on the date of grant, pursuant to the Company's 1996 Stock
Incentive Plan. They each also received a one-time grant of 13,000 stock options
in December 1997 pursuant to this same plan, in connection with their services
in the aforementioned positions during 1997.
In addition to his aforementioned duties, commencing October 1, 1998 Mr.
Davis began serving as a consultant to the Company, providing approximately two
days per week of consulting services and maintaining an office at the Company.
He works closely with the sales and marketing functions of the Company, and is
involved in the planning and development of sales training programs, recruiting,
compensation planning, market segmentation, pricing, and national and managed
care marketing programs. As compensation for these services, Mr. Davis receives
$50,000 annually (payable monthly at $4,166), in addition to his director
compensation and in addition to the $50,000 he receives in his capacity as
non-Executive Chairman of the Board. In connection with his consulting
arrangement, Mr. Davis was also paid a relocation reimbursement of $123,667 in
February 1999, and will receive in 2000 a reimbursement for the tax effect of
the relocation payment.
Pursuant to the Company's 1996 Stock Incentive Plan, Directors who are not
employees of the Company receive (i) automatic initial and quarterly grants of
stock options with tandem limited stock appreciation rights beginning July 1995,
(ii) automatic quarterly grants of shares of Common Stock beginning January 1997
and (iii) additional stock options or other awards to the extent granted by the
Board of Directors in its discretion.
Each initial and quarterly stock option which is automatically granted
under such plan is exercisable for that number of shares obtained by dividing
$5,000 by the closing price of the Common Stock on the date of grant and is
exercisable at that price. Each such option has a 10-year term and vests with
respect to 10% of the underlying shares on the date which is three months after
the date of grant, and an additional 10% at the end of each three-month period
thereafter. Each such option can be exercised for five years following a
director's termination of service to the extent it had vested prior to
termination. Each automatic quarterly stock grant is for the number of shares
obtained by dividing $2,000 by the closing price of the Common Stock on the date
of grant, and is fully vested at grant.
In November 1996, pursuant to authorization by the Board of Directors, the
Company granted to Dr. Sklar an option to purchase 10,000 shares of Common Stock
at an exercise price of $6.375 to compensate him for his services as a Director.
Such option vests 40% on grant, and an additional 20% on each of August 4, 1997,
August 4, 1998 and August 4, 1999. Such grant is a replacement of an option to
purchase 10,000 shares of Common Stock authorized by the Board in 1994, but not
accepted by Dr. Sklar at that time due to the conditions of his employment by
Brigham & Women's Hospital, Inc.
Mr. Johnson, who is an employee of the Company, receives no additional
compensation for his services as Director of the Company. Mr. Schreiber will
receive no additional compensation if elected as Director of the Company.
VOTING FOR DIRECTORS
Abstentions are included in the determination of the existence of a
quorum. Directors are elected by a plurality of the votes of the shares present
in person or represented by proxy at the meeting and entitled to vote on the
election of directors. An automated system administered by the Company's
transfer agent tabulates the votes. Abstentions are not counted for purposes of
election of directors.
<PAGE>
EXECUTIVE OFFICERS
For information with respect to Mr. Johnson, who is also a Director, and
Mr. Schreiber, who is a nominee for Director, see "Election of Directors -
Information Concerning Directors and Nominees."
James B. Amberson, age 48, is Senior Vice President and Chief Medical
Officer of the Company. Dr. Amberson joined Dianon in 1989 as Director,
Cytometry Business Unit, and has served as Vice President of Pathology Services,
Vice President of Medical Affairs and Senior Vice President and General Manager
of the Anatomic Pathology Unit before his present position. Prior to joining the
Company, Dr. Amberson was Assistant Professor of Pathology, Cornell University
Medical College for six years. Dr. Amberson holds an MD from Johns Hopkins
University and an MBA from Columbia University School of Business.
Steven T. Clayton, age 33, has served as Vice President, Information
Services since he joined the Company in December 1996. Prior to joining the
Company, Mr. Clayton was with Corning Clinical Laboratories for nine years
serving most recently as the Midwest Regional Director of Information Systems.
Mr. Clayton holds an ASM from Thomas Edison State College.
Martin J. Stefanelli, age 38, has served as Senior Vice President,
Operations since October 1998. He previously served as Vice President,
Laboratory Operations. Mr. Stefanelli joined the Company in January 1990 as a
Sales Representative and subsequently served as Logistics Manager, Marketing
Manager and Director of Operations, Anatomic Pathology. Before joining the
Company, Mr. Stefanelli was a captain in the U.S. Army. Mr. Stefanelli holds a
BS from the United States Military Academy.
Valerie B. Palmieri, age 38, has served as Vice President, Service
Operations since November 1998. Ms. Palmieri joined the Company in December 1987
as a Medical Technologist and subsequently served as Laboratory Supervisor,
Operations Laboratory Manager, Director of Operations - Clinical Pathology, and
Director of Service Operations. Prior to joining the Company, Ms. Palmieri was
with Park City and Bridgeport Hospital as a Medical Technologist. Ms. Palmieri
holds a BS from Western Connecticut State University.
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors of DIANON Systems,
Inc. (the "Committee") sets forth its report on executive compensation below.
This Committee report documents the components of the Company's executive
officer compensation programs and describes the basis on which 1998 compensation
determinations were made by the Committee with respect to the executive officers
of the Company, including the executive officers that are named in the
compensation tables below.
COMPENSATION PROGRAM COMPONENTS
The Committee is responsible for setting and monitoring the effectiveness
of the compensation provided to the Company's Directors and executive officers.
In its decision-making, the Committee is guided by a compensation philosophy
designed to reward employees for the achievement of business goals and the
maximization of shareholder returns. Specific levels of pay and incentive
opportunity are determined by the competitive market for executive talent and,
where appropriate, the need to invest in the future growth of the business. The
compensation program, which provides incentives for executive officers to
achieve the short-term and long-term goals of the Company, comprises three
components: base salary, incentive compensation and stock option awards.
BASE SALARY - Base pay levels are largely determined through comparisons
with service companies of similar size. Since the Company's current
strategy places greater reliance on outstanding professional and
management skills than on proprietary technology, the Company believes
that base salaries at the high end of the competitor range may be required
in certain circumstances to maintain the Company's strategic position.
Actual salaries are based on individual performance contributions within a
tiered salary range for each position that is established through job
evaluation and competitive comparisons.
MANAGEMENT INCENTIVE PLAN - The Company's Management Incentive Plan
provides cash bonus incentives ("Incentive Payments") for all management
employees. The bonus payment under this plan is based on a fixed
percentage of an employee's annual salary, which increases with the grade
of an employee's position from 10% to a maximum of 40%. This percentage of
salary is then adjusted to reflect the degree to which Company and
individual performance goals are achieved (respectively, the "Company
Achievement Percentage" and the "Individual Achievement Percentage") by
multiplying the employee's fixed bonus percentage by the Company
Achievement Percentage and by the Individual Achievement Percentage. The
Company Achievement Percentage is based on, among other things, sales and
earnings per share growth. The Individual Achievement Percentages for
executive officers is based upon the degree to which each officer met the
individual goals set for him/her, as evaluated by the CEO and Compensation
Committee. The maximum bonus attainable is limited to the prescribed
salary percentage, unless certain special Company sales and income goals
are met. Achieving these special "stretch" goals entitles participants to
additional compensation equal to 50% of the amount otherwise payable under
the Management Incentive Plan ("Extra Incentive Payout"). Actual awards
are subject to decrease or increase at the discretion of the Committee. In
1998, Company performance goals were not achieved. Therefore, management
incentive bonuses were not awarded.
STOCK OPTION PROGRAM - The Committee strongly believes that by providing
executives an opportunity to own shares of Company stock, the best
interests of shareholders and executives will be closely aligned.
Therefore, all executives are eligible to receive stock options from time
to time giving them the right to purchase shares of Common Stock of the
Company at a specific price in the future. The number of stock options
granted to executive officers is determined at the discretion of the
Committee based on the accomplishments of such executives, their length of
service with the Company, the number of prior awards received by such
officer, the relative value as well as the exercise price of such awards,
and competitive practices.
DISCUSSION OF 1998 COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
The Committee meets with the Chief Executive Officer to evaluate his
performance. For 1998, Mr. Johnson's incentive compensation was based on the
Company Achievement Percentage and the Committee's evaluation regarding his
overall performance based on both quantitative and qualitative objectives, as
set by the Board at the start of the year. While no incentive compensation was
awarded to Mr. Johnson in 1998, during the year Mr. Johnson received a stock
grant of 15,000 shares in accordance with the terms of his employment agreement.
This report has been provided by the Compensation Committee of the Board
of Directors:
Bruce K. Crowther
G. S. Beckwith Gilbert
Jeffrey L. Sklar, MD, Ph.D.
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth information with respect to the following
named executive officers: (i) the person who served as Chief Executive Officer
("CEO") during 1998 and (ii) the four most highly compensated executive officers
other than the CEO serving at December 31, 1998 whose total salary and bonus for
1998 exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
------------------- ------------
Other Securities
Name and Annual Underlying All Other
Principal Position Year Salary Bonus Compensation Options Compensation
------------------ ---- ------ ----- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Kevin C. Johnson 1998 $295,773 $ -- $ -- 40,000 $184,599 (1)
President, Chief Executive 1997 281,939 82,378 -- -- 158,360
Officer and Director 1996 174,520 94,000 -- 200,000 1,507
James B. Amberson, M.D. 1998 239,200 -- -- 12,000 10,568 (2)
Senior Vice President, 1997 238,790 35,451 -- 20,000 2,630
Chief Medical Officer 1996 200,013 47,869 -- 15,000 2,530
and Director
David R. Schreiber 1998 195,582 -- -- 20,000 6,124 (3)
Senior Vice President Finance, 1997 191,170 65,702 -- 20,000 149,167
Chief Financial Officer and 1996 29,231 80,000 -- 50,000 1,742
Corporate Secretary
Steven T. Clayton 1998 127,211 -- -- 5,000 43,613 (4)
Vice President, Information 1997 120,000 35,568 -- 15,000 73,073
Services 1996 6,923 14,000 -- 15,000 --
John S. Fanuko (5) 1998 120,046 20,000 (6) -- 30,000 77 (7)
Vice President, Finance 1997 -- -- -- -- --
and Corporate Controller 1996 -- -- -- -- --
</TABLE>
(1) The $184,599 indicated for Mr. Johnson represents: (i) a stock grant of
15,000 shares of Common Stock on January 2, 1998 at a market value
totaling $146,250; (ii) a loan forgiveness aggregating $30,000 pursuant to
Mr. Johnson's employment agreement; (iii) an auto allowance of $5,214;
(iv) contributions of $1,600 paid by the Company pursuant to the Company's
401(K) Retirement Plan; and (v) term life insurance premiums of $1,535
paid by the Company.
(2) The $10,568 indicated for Dr. Amberson represents an auto allowance of
$8,028, contributions of $1,600 paid by the Company pursuant to the
Company's 401(K) Retirement Plan, and term life insurance premiums of $940
paid by the Company.
(3) The $6,124 indicated for Mr. Schreiber represents an auto allowance of
$4,440, contributions of $1,600 paid by the Company pursuant to the
Company's 401(K) Retirement Plan and term life insurance premiums of $84
paid by the Company.
(4) The $43,613 indicated for Mr. Clayton represents relocation costs of
$12,267, a tax reimbursement of $31,262 related to relocation costs and
term life insurance premiums of $84 paid by the Company.
(5) Mr. Fanuko joined the Company in January 1998 as Vice President-Finance
and Corporate Controller and resigned from the Company in March 1999.
(6) The $20,000 indicated for Mr. Fanuko represents a sign-on bonus.
(7) The $77 indicated for Mr. Fanuko represents term life insurance premiums
paid by the Company.
<PAGE>
PERFORMANCE GRAPH
The Securities and Exchange Commission requires that the Company include
in this Proxy Statement a line-graph presentation comparing cumulative
shareholder return on an indexed basis with a broad equity market index and
either a published industry index or an index of peer companies selected by the
Company. The graph below compares the cumulative total return during such period
on $100 invested as of December 31, 1993 in the Common Stock of the Company, the
H&Q Health Care Sub-Sector excluding the Biotechnology Sector of the Hambrecht &
Quist Technology and Growth Indices and the NASDAQ National Market Index,
assuming the reinvestment of all dividends:
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
HAMBRECHT & QUIST INDEX PRODUCTS AND SERVICES:
1999 PROXY PERFORMANCE GRAPH DATA
SCALED PRICES: Stock and index prices scaled to 100 at 12/31/93
Nasdaq Stock H&Q Healthcare Excl.
DATES DIANON Systems Market -U.S. Biotech
----- -------------- ------------ -------
Dec-93 100.00 100.00 100.00
Dec-94 66.67 106.25 97.75
Dec-95 70.83 176.91 138.26
Dec-96 143.75 196.41 170.11
Dec-97 156.25 234.07 208.44
Dec-98 150.00 284.41 293.72
ACTUAL PRICES
Nasdaq Stock H&Q Healthcare Excl.
DATES DIANON Systems Market -U.S. Biotech
----- -------------- ------------ -------
Dec-93 6.00 250.008 352.259
Dec-94 4.00 244.582 374.288
Dec-95 4.25 345.901 623.196
Dec-96 8.625 425.440 691.892
Dec-97 9.375 521.129 824.541
Dec-98 9.00 734.325 1001.88
<PAGE>
EMPLOYMENT AND SEVERANCE AGREEMENTS
The Company entered into an employment agreement with Mr. Johnson on May
2, 1996. The agreement provides for Mr. Johnson to serve as President of the
Company at an initial base salary of $275,000 per annum, the grant of options to
purchase 200,000 shares of Common Stock with a 10-year term and an exercise
price of $5.69, stock grants of 15,000 shares of Common Stock on January 2, 1997
and 15,000 additional shares on January 2, 1998 provided Mr. Johnson continues
to be employed with the Company on such date, a signing bonus of $50,000 and a
loan of $150,000. The loan carries an interest rate of 5.9%, payable annually,
and is repayable upon termination of Mr. Johnson's employment with the Company.
If Mr. Johnson continues to be employed with the Company, the loan principal
will be forgiven at the rate of $2,500 per completed month of employment from
January 31, 1998 through December 31, 2002. This agreement provides that in the
event of a termination of Mr. Johnson's employment other than for "Cause," as
defined in the agreement, he is entitled to receive one year's salary and other
benefits. Subject to the foregoing, this agreement is subject to termination at
will by either party.
The Company entered into an employment agreement with David R. Schreiber
on September 30, 1996 as the Chief Financial Officer and Senior Vice President,
Finance. The agreement provides for an initial base salary of $190,000 per
annum, the grant of options to purchase 50,000 shares of Common Stock with a
10-year term and an exercise price of $6.625, a signing bonus of $80,000 and a
stock grant of 7,500 shares of Common Stock on April 1, 1997. This agreement
provides that in the event of a termination of Mr. Schreiber's employment other
than for "Cause," as defined in the agreement, he is entitled to receive one
year's salary (and certain other benefits) if such termination occurs within the
first year of employment or six months after the Company is acquired by another
business entity, or six month's salary (and certain other benefits) if such
termination occurs after such period. Subject to the foregoing, this agreement
is subject to termination at will by either party.
The Company entered into an agreement with Dr. James B. Amberson on
September 1, 1996, which provides that following a "Change in Control" of the
Company, as defined in the agreement, if Dr. Amberson's employment is terminated
other than for "Cause," as defined in the agreement, he is entitled to receive
one year's salary and bonus and all his stock options will vest completely. Dr.
Amberson's agreement expires in September 2001 and is subject to successive
automatic one-year renewals thereafter (unless certain notice is given).
The Company also entered into an employment agreement with Dr. James B.
Amberson on September 1, 1996. Pursuant to such agreement, Dr. Amberson is
entitled to a salary as determined by the Company and other employee benefits
made available by the Company to its employees. This agreement provides that in
the event of a termination of Dr. Amberson's employment for other than "Stated
Cause" (as defined in the agreement), he is entitled to receive six month's
salary and other benefits. Subject to the foregoing, this agreement is subject
to termination at will by either party.
The Company entered into an employment agreement with Steven T. Clayton
on November 18, 1996 as Vice President, Information Services of the Company. The
agreement provides for an initial base salary of $120,000 per annum, a signing
bonus of $14,000 and the grant of options to purchase 15,000 shares of Common
Stock with a 10-year term and an exercise price of $7.875.
<PAGE>
CHANGE OF CONTROL PROVISIONS
As a general matter, under the Company's 1996 Stock Incentive Plan, upon
the occurrence of a Change of Control (as defined below), (1) all outstanding
stock options, SARs, and limited SARs, including those held by Outside Directors
(as defined in such plan), will become fully exercisable and vested, (2) all
other awards under the Plan will become fully vested, and (3) to the extent the
cash payment of any award is based on the fair market value of stock, such fair
market value will be the Change of Control Price (as defined below).
A "Change of Control" is deemed to occur on the date (1) any person or
group acquires beneficial ownership of securities representing 25% or more of
the Company's total voting power (with certain exceptions), (2) individuals who
constitute the "Current Directors" (as defined in the Plan) fail to constitute
at least two-thirds of the Board of Directors, (3) the shareholders approve a
merger or consolidation unless following such transaction (a) the beneficial
owners of the Company's Common Stock before the transaction own securities
representing more than 50% of the total voting power of the company resulting
from the transaction, and (b) at least a majority of members of the board of
directors of the company resulting from the transaction were members of the
Company's Board of Directors at the time such Board approved the transaction, or
(4) the shareholders of the Company approve a sale of substantially all of its
assets.
The "Change of Control Price" is the highest price per share of Common
Stock paid in any open market transaction, or paid or offered to be paid in any
transaction related to a Change of Control, during the 90-day period ending with
the Change of Control, except that for an SAR granted in tandem with an ISO,
such price is the highest price paid on the date the SAR is exercised.
The 1991 Stock Incentive Plan and the proposed 1999 Stock Incentive Plan
contain change of control provisions generally comparable to the change of
control provisions contained in the Company's 1996 Stock Incentive Plan, as
described above.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file with
the Securities and Exchange Commission initial reports of ownership and reports
of changes in ownership of Common Stock and other equity securities of the
Company. Officers, directors and greater than ten percent shareholders are
required to furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and representations that no other reports were
required during the fiscal year ended December 31, 1998, all Section 16(a)
reporting requirements applicable to its officers, directors and greater than
ten percent beneficial shareholders were complied with except for the following:
Mr. Stefanelli was late in filing his initial Form 3 when becoming subject to
the Section 16 reporting requirements, and Messrs. Verfurth and Sandberg each
filed a late report with respect to one transaction.
<PAGE>
STOCK OPTIONS
The following table shows, as to the named executive officers of the
Company, information about option grants in the last fiscal year. The Company,
as of September 8, 1999, has not granted any Stock Appreciation Rights to
officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM
OPTIONS EMPLOYEES BASE PRICE EXPIRATION ---------------------
NAME GRANTED(#) IN 1998 ($/SHARE) DATE 5%($) 10%($)
---- ---------- ------- --------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
James B. Amberson, M.D. 12,000 (2) 5% $6.875 10/28/2008 $51,884 $131,484
Steven T. Clayton 5,000 (2) 2% 6.875 10/28/2008 21,618 54,785
John S. Fanuko 15,000 (1) 6% 8.750 01/09/2008 82,542 209,179
John S. Fanuko 15,000 (2) 6% 6.875 10/28/2008 64,855 164,355
Kevin C. Johnson 40,000 (2) 16% 6.875 10/28/2008 172,946 438,279
David R. Schreiber 20,000 (2) 8% 6.875 10/28/2008 86,473 219,140
</TABLE>
(1) In January 1998, the Company granted Mr. John S. Fanuko options to
purchase 15,000 shares of Common Stock at $8.75 per share when he joined
the Company. These options vest 40% in January 2000 and 20% during each
year thereafter. Upon termination, all unvested options are cancelled and
all vested options expire 90 days after termination of employment.
(2) In October 1998, the Company granted certain employees and officers
options to purchase 217,000 shares of Common Stock at $6.875 per share.
These options vest 40% in October 2000 and 20% during each year
thereafter. Upon termination, all unvested options are cancelled and all
vested options expire 90 days after termination of employment.
<PAGE>
The following table shows aggregate option exercises in the last fiscal
year and fiscal year-end option values for the named executive officers. The
Company, as of September 8, 1999, has not granted any Stock Appreciation Rights
to officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE
REALIZED
(MARKET VALUE OF UNEXERCISED
PRICE AT NUMBER OF SECURITIES IN-THE-MONEY OPTIONS AT FY-END
EXERCISE UNDERLYING UNEXERCISED OPTIONS (BASED ON FY-END PRICE OF
SHARES LESS AT FY-END(#) $9.00/SHARE) ($) (1)
ACQUIRED ON EXERCISE ------------ --------------------
NAME EXERCISE(#) PRICE)($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James B. Amberson, M.D. -- $ -- 46,300 57,200 $189,777 $113,708
Steven T. Clayton -- -- 6,000 29,000 6,750 24,500
John S. Fanuko -- -- 0 30,000 0 35,625
Kevin C. Johnson -- -- 80,000 160,000 265,000 482,500
David R. Schreiber -- -- 20,000 70,000 47,500 118,750
</TABLE>
(1) Computed based upon difference between aggregate fair market value and
aggregate exercise price.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Dr. Sklar served as a member of the Compensation Committee of the
Company's Board of Directors during the last completed fiscal year and is
continuing to serve as such in the 1999 fiscal year. In 1995 the Company entered
into a three-year research and development agreement with Brigham & Women's
Hospital, Inc., for which Dr. Sklar is director, Division of Diagnostic
Molecular Biology, Department of Pathology. The agreement required the Company
to make quarterly payments of $30,000 in exchange for an option to obtain rights
in certain existing inventions as well as inventions developed during the course
of the research in the areas of cancer detection and diagnosis. The research was
to be conducted by Dr. Sklar. The Company paid $8,000, $60,000, $120,000 and
$60,000 under this agreement in 1998, 1997, 1996 and 1995, respectively. The
Company terminated this agreement effective as of June 30, 1997 and has made all
required payments. In addition, the Company made payments to Brigham & Women's
Hospital, Inc. of $30,000 in 1996 for consulting services.
<PAGE>
OWNERSHIP OF VOTING STOCK BY MANAGEMENT
The following table gives information concerning the beneficial ownership
of the Company's Common Stock as of September 8, 1999 by each director and each
of the executive officers named in the summary compensation table and all
current directors and executive officers (as of September 8, 1999) as a group.
<TABLE>
<CAPTION>
Total Shares
Beneficially Direct Right to Percent of
Beneficial Owners Owned(1)(2) Ownership Acquire(3) Class(4)
- ----------------- ----------- --------- ---------- --------
<S> <C> <C> <C> <C>
James B. Amberson, M.D. 113,336 31,402 59,000 1.7%
Steven T. Clayton 6,000 -- 6,000 -- (5)
Bruce K. Crowther 3,629 1,610 2,019 -- (5)
John P. Davis 244,245 118,739 125,506 3.5%
John S. Fanuko -- -- -- -- (5)
E. Timothy Geary 5,101 2,056 3,045 -- (5)
G. S. Beckwith Gilbert 1,811,022 1,802,519 8,503 26.5% (6)
Kevin C. Johnson 173,677 30,743 120,000 2.5%
David R. Schreiber 61,117 8,183 30,000 -- (5)
Jeffrey L. Sklar, M.D., Ph.D. 21,941 2,519 19,422 -- (5)
All current directors and executive officers
as a group (11 persons) 2,410,699 1,997,822 389,943 33.5%
</TABLE>
(1) The information as to beneficial ownership is based on statements furnished
to the Company by its executive officers and directors. Each executive
officer and director has sole voting and sole investment power with respect
to his respective shares listed above, except that the shares reported for
Mr. Gilbert include 121,951 shares which are held by a trust of which Mr.
Gilbert is a trustee, as to which Mr. Gilbert shares voting and investment
powers. Amounts shown for each of Messrs. Johnson and Schreiber and Dr.
Amberson include 22,934 shares held in the Company's 401(K) Retirement
Plan, as to which such officers share voting power as trustees of such plan
and each individual plan participant has investment power, subject to the
terms of such plan, of the shares in his account; such amount includes 743
shares in Mr. Johnson's account and 683 shares in Mr. Schreiber's account.
(2) Includes shares listed under the captions "Direct Ownership" and "Right to
Acquire," as well as shares held in the Company's 401(K) Retirement Plan
which are beneficially owned by the named individuals as trustees of such
plan but as to which such trustees have no economic interest.
(3) Individuals have the right to acquire these shares within 60 days of
September 8, 1999 by the exercise of stock options or through purchases
under the Company's Employee Stock Purchase Plan.
(4) For the purposes of this table, "Percent of Class" held by each individual
has been calculated based on a total class equal to the sum of (i)
6,814,967 shares of Common Stock issued and outstanding on September 8,
1999 plus (ii) for such individual the number of shares of Common Stock
subject to stock options presently exercisable, or exercisable within 60
days after September 8, 1999, held by that individual, and which percent is
rounded to the nearest tenth.
(5) Owns less than 1% of the outstanding Common Stock.
(6) As of September 8, 1999, Mr. Gilbert cannot vote, without restriction, any
Common Stock or other voting securities of the Company beneficially owned
by him representing greater than 20% of the total voting power of the
Company's voting securities outstanding from time to time, or 1,362,993
votes as of September 8, 1999. Excess votes above this amount are required
to be voted in proportion to the votes cast by all other shareholders of
the Company.
<PAGE>
OWNERSHIP OF VOTING STOCK BY CERTAIN BENEFICIAL OWNERS
The following table sets forth information with respect to the only
persons who, to the best knowledge of the Company as derived from Schedules 13F,
13D and 13G filed by such persons, beneficially owned more than five percent of
the Common Stock of the Company as of September 8, 1999. Unless otherwise
indicated below, each person included in the table has sole voting and
investment power with respect to all shares included therein.
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of of Beneficial Percent
Title of Class Beneficial Owner Ownership of Class(1)
-------------- ---------------- --------- -----------
<S> <C> <C> <C>
Common Stock G. S. Beckwith Gilbert et al 1,811,022 (2) (3) 26.5% (3)
104 Field Point Road
Greenwich, CT 06830
Common Stock Oracle Management Partners, Inc. 728,300 10.7%
and Affiliates
712 E 5th Avenue - 45th Floor
New York, NY 10019
Common Stock John M. Bryan et al 356,412 5.2%
Bryan and Edwards
600 Montgomery Street - 35th Floor
San Francisco, CA 94111
</TABLE>
(1) For the purposes of this table, "Percent of Class" held by each person has
been calculated based on a total class equal to the sum of (i) 6,814,967
shares of Common Stock issued and outstanding on September 8, 1999 plus
(ii) for such person the number of shares of Common Stock subject to stock
options or warrants presently exercisable, or exercisable within 60 days
after September 8, 1999, held by that person, and which percent is rounded
to the nearest tenth.
(2) Mr. Gilbert has shared voting and investment power with respect to 121,951
shares included in the table above.
(3) As of September 8, 1999, Mr. Gilbert cannot vote, without restriction, any
Common Stock or other voting securities of the Company beneficially owned
by him representing greater than 20% of the total voting power of the
Company's voting securities outstanding from time to time, or 1,362,993
votes as of September 8, 1999. Excess votes above this amount are required
to be voted in proportion to the votes cast by all other shareholders of
the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Compensation Committee Interlocks and Insider Participation" section.
Pursuant to his employment agreement, the President of the Company
received a loan in 1996 totaling $150,000 which bears interest at 5.9%, payable
annually, and is repayable upon termination of his employment with the Company.
In addition, the loan principal will be forgiven at a rate of $2,500 per month
over the period January 1998 through December 2002 if the President continues to
be employed by the Company.
ADOPTION OF THE EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors has adopted, subject to approval at the Annual
Meeting, the Dianon Systems, Inc. Employee Stock Purchase Plan (the "Plan"). The
purpose of the Plan is to encourage employees to acquire an ownership interest
in the Company in order to further link the interests of the Company's employees
with those of its shareholders.
PRINCIPAL PROVISIONS OF THE PLAN
The following summary of the Plan, as adopted by the Board of Directors
subject to shareholder approval, is qualified by reference to the full text of
the Plan, which is attached as Exhibit A to this Proxy Statement.
GENERAL PROVISIONS OF THE PLAN
The Company has reserved a maximum of 300,000 shares of Common Stock to be
sold to employees under the Employee Stock Purchase Plan. No more than 100,000
shares of Common Stock will be available for purchase under the Plan in any
calendar year and no participating employee may purchase more than 500 shares of
Common Stock in any calendar quarter, which is referred to in the Plan as an
"Offering Period." Subject to the approval of the Plan by the Company's
shareholders, the first Offering Period will commence on January 1, 2000. The
shares to be offered for sale to participating employees under the Plan may be
authorized but previously unissued shares, shares held in or acquired for the
Company's treasury or shares reacquired by the Company in open market purchases.
The Plan will be administered by a committee of the Board of Directors,
consisting of at least two outside directors serving on the Board. The Committee
will have the general authority to interpret the provisions of the Plan and to
adopt such rules as it deems necessary or desirable for the administration of
the Plan. It is anticipated that the Committee will appoint a senior executive
officer of the Company to handle the day-to-day administration of the Plan and
to serve as the "Plan Administrator."
ELIGIBILITY AND PARTICIPATION IN THE PLAN
All employees of the Company (other than 5% shareholders) are eligible to
participate in the Plan if they customarily work a minimum of 20 hours per week,
at least five months each year. Outside directors of the Company are not
eligible to participate in the Plan. In addition, any employee holding an option
under the Plan (and any other employee stock purchase plan of the Company or its
affiliates) which provides for him to purchase more than $25,000 worth of Common
Stock in any calendar year will not be eligible to participate in the Plan.
An eligible employee may elect to participate in the Plan by filing a
payroll deduction authorization election, together with all other appropriate
enrollment forms, with the Plan Administrator prior to the first day an Offering
Period commences. An employee may authorize the Company to make payroll
deductions in whole percentages of his annual compensation on an after-tax basis
(excluding bonuses and incentive pay) not to exceed the lesser of 10% of his
base pay or $5,000 annually. The Company will establish a separate memorandum
account for each employee for purposes of recording the payroll deductions made
by the employee during an Offering Period. These accounts will not bear
interest. Payroll deductions made by an employee in excess of $5,000 will be
refunded to the participant, without interest, at the end of the Offering
Period.
On the last day of each Offering Period, referred to in the Plan as the
"Exercise Date," the payroll deductions that have accumulated in a participating
employee's memorandum account will automatically be used to purchase shares of
Common Stock up to the 500 share maximum established under the Plan. The
purchase price for these shares will be 85% of the fair market value of a share
of Common Stock on the Exercise Date. Any surplus funds remaining in the
participant's memorandum account after the shares are purchased will be returned
to the participant, without interest. The Company will arrange for the delivery
of shares purchased by an employee under the Plan.
An employee may withdraw from participation in the Plan prior to the
Exercise Date. If an employee withdraws from the Plan, his accumulated payroll
deductions will be returned to him, without interest. If the employee wishes to
resume participation in the Plan, he will be required to complete and file the
appropriate payroll deduction and enrollment forms with the Plan Administrator
prior to the first day of the next Offering Period.
In the event a participating employee dies prior to the Exercise Date for
an Offering Period, all funds credited to the deceased employee's memorandum
account will be returned, without interest, to the deceased employee's
designated beneficiary or his estate, as applicable.
AMENDMENT, TERMINATION AND SUSPENSION OF THE PLAN
The Board may amend, suspend or discontinue the Plan at any time; however,
the Board may not take any action which would cause the Plan not to comply with
Section 423 of the Code, or any successor rules, or that would change the number
of shares reserved for purchase under the Plan (other than due to stock splits,
stock dividends or other such events). The Plan will automatically terminate
upon the adoption by the Board of a resolution terminating the Plan or upon the
sale of the maximum number of shares of Common Stock available for purchase
under the Plan.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain federal income tax consequences
triggered upon the purchase of Common Stock under the Plan, based upon the laws
in effect on the date hereof. All references to the "Code" are references to
provisions of the Internal Revenue Code of 1986, now in effect.
The Employee Stock Purchase Plan is intended to qualify as an "employee
stock purchase plan" within the meaning of Section 423 of the Code. As a result,
an employee will not realize income for federal income tax purposes on the
applicable Exercise Date when shares of Common Stock are purchased under the
Plan. Instead, assuming the 2-year holding period requirement (described below)
is satisfied, the gain recognized by the employee on the sale or other
disposition of the Common Stock will be taxed as long-term capital gain. Any
loss on the sale or other disposition of the Common Stock will be treated as
long-term capital loss. To meet the holding period requirement under the Code,
an employee must not sell or otherwise dispose of the shares of the Common Stock
acquired under the Plan until at least two years after the date of purchase.
If an employee sells or otherwise disposes of the Common Stock within two
years after the date of purchase, the employee will recognize as compensation
income the full amount of the excess of the fair market value of the Common
Stock on the date of purchase over the amount paid by the employee for the
Common Stock. Any additional gain realized on the sale or other disposition of
the Common Stock will be taxed as capital gain, which will be long-term if the
employee has held the Common Stock for more than one year, and any loss will be
a capital loss.
The Company will be entitled to a deduction for the amount of compensation
income recognized by an employee who sells or otherwise disposes of the Common
Stock within two years after the date of purchase. The Company will not be
entitled to a deduction for any capital gain recognized by an employee who holds
the Common Stock for at least two years after the date of purchase.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
APPROVAL OF THE EMPLOYEE STOCK PURCHASE PLAN. Approval of the Plan requires that
the votes cast in favor of approval of the Plan exceed the votes cast against
such approval. Pursuant to the Company's Bylaws, abstentions and broker
"non-votes" (shares not voted because a nominee holding shares for a beneficial
owner neither receives voting instructions from the beneficial owner nor has
discretionary voting power with respect thereto) will have no effect on the
vote.
ADOPTION OF THE 1999 STOCK INCENTIVE PLAN
The Board of Directors has adopted, subject to approval at the Annual
Meeting, the Dianon Systems, Inc. 1999 Stock Incentive Plan (the "Plan"). The
purposes of the Plan are to enable the Company to attract, retain and reward key
employees and outside directors by providing such individuals with equity and
equity-based long-term incentive compensation awards.
PRINCIPAL PROVISIONS OF THE PLAN
The following summary of the Plan, as adopted by the Board of Directors
subject to shareholder approval, is qualified by reference to the full text of
the Plan, which is attached as Exhibit B to this Proxy Statement.
GENERAL PROVISIONS
The Plan authorizes the granting of awards in the form of any combination
(independent or in tandem) of (1) options to purchase shares of Common Stock,
(2) stock appreciation rights ("SARs"), (3) shares of restricted Common Stock
("restricted stock"), (4) shares of deferred Common Stock ("deferred stock"),
(5) bonus stock, (6) loans, and (7) tax-offset payments with respect to any of
such awards. Awards may be granted (i) to key employees (including officers) of
the Company and certain related companies by the Plan Committee (as defined
below), and (ii) to directors who are not employees or officers of the Company
or certain related companies ("Outside Directors") by the Board of Directors.
The Plan also provides for the automatic grant to Outside Directors of (1)
options to purchase shares of Common Stock and related limited SARs and (2)
stock grants.
Administration. The Plan is administered by the Board of Directors with
respect to awards to Outside Directors, and by a committee of the Company's
Board of Directors, which consists of at least two Outside Directors (the "Plan
Committee"), with respect to awards to employees. (The Board of Directors and
the Plan Committee, in their respective roles, are referred to as the "Granting
Authority.") With respect to awards within its jurisdiction, the Granting
Authority designates the persons to be granted awards from among those eligible
and the type and amount of awards to be granted and has authority to interpret
the Plan, adopt, alter and repeal administrative regulations, and determine and
amend the terms of awards. The Plan Committee may delegate to officers of the
Company any of its authority under the Plan (other than with respect to awards
to persons subject to Section 16 of the Securities Exchange Act of 1934, as
amended, and Performance Awards (as defined below)).
Eligibility. The Plan Committee may make awards under the Plan to key
employees (including officers) of the Company or of any entity in which the
Company owns at least a 20% interest. The Plan Committee, in its sole
discretion, will select the key employees eligible to participate in the Plan.
Outside Directors are automatically granted stock options and related limited
SARs and stock grants having the terms specified in the Plan, and may be granted
discretionary awards by the Board of Directors. All key employees (currently
numbering approximately 30) and Outside Directors (currently numbering 5) are
eligible to receive awards under the Plan.
Limitations on Awards. The aggregate number of shares of Common Stock
which may be issued under the Plan is 300,000, of which 270,000 may be issued to
key employees and 30,000 may be issued to Outside Directors. Such shares may
consist of authorized but unissued shares or treasury shares. The exercise of a
SAR for cash or the settlement of any other award in cash will not count against
this share limit. Shares subject to lapsed, forfeited or canceled awards,
including options canceled upon the exercise of tandem SARs for cash, will not
count against this limit and can be regranted under the Plan. If the exercise
price of an option is paid in Common Stock or if shares are withheld from
payment of an award to satisfy tax obligations with respect to the award, such
shares also will not count against the above limit.
No key employee may be granted stock options, SARs, restricted stock,
deferred stock, or bonus stock under the Plan with respect to more than 40,000
shares of Common Stock in any fiscal year. The Plan does not limit awards which
may be made under other plans of the Company.
DISCRETIONARY AWARDS
The Plan authorizes the Granting Authority to grant, within its
jurisdiction, the following types of awards in its discretion:
1. Stock Options. The Granting Authority is authorized to grant incentive
stock options ("ISOs") and non-qualified stock options to purchase such number
of shares of Common Stock as the Granting Authority determines. An option will
be exercisable at such times, over such term and subject to such terms and
conditions as the Granting Authority determines, and at an exercise price
determined by the Granting Authority, which may be less than the fair market
value of the Common Stock at the date of grant of the option. ISOs may be
granted only to key employees and are subject to additional restrictions as to
exercise period and exercise price as required by the Internal Revenue Code of
1986, as amended (the "Code"). Payment of the exercise price of an option may be
made in such manner as the Granting Authority may provide, including cash,
delivery of shares of Common Stock already owned for six months or subject to an
award under the Plan, "cashless exercise" (an arrangement with a brokerage firm
whereby shares issuable upon exercise of an option would be sold by the broker
and the proceeds used to pay the exercise price), or in any other manner
specified by the Granting Authority. Under this provision, the Granting
Authority could permit payment to be made by way of successive, automatic
applications of shares received upon exercise of a portion of the option to
satisfy the exercise price for additional portions of the option, a payment
method known as "pyramiding".
The Granting Authority is authorized to specify the period, if any, over
which options become exercisable, and to accelerate the exercisability of
options on a case by case basis at any time. The Granting Authority is also
authorized to specify the period during which options may be exercised following
an option holder's termination of service with the Company, and to extend such
period on a case by case basis. The Granting Authority may permit an option to
be exercised for an additional period after the option holder's death, even if
such period extends beyond the original option term. Unless otherwise provided
by the Granting Authority, options will not be transferable except by will or by
the laws of descent and distribution.
2. Stock Appreciation Rights. Upon exercise of a SAR the award holder is
entitled to receive, for each share with respect to which the SAR is exercised,
an amount (the "appreciation") equal to the excess of the fair market value of a
share of Common Stock on the exercise date over an "amount" determined by the
Granting Authority. The appreciation is payable in cash, Common Stock, or a
combination of both, as determined by the Granting Authority.
The Granting Authority may also grant limited SARs that will be
exercisable only during the 60-day period following a "Change of Control" (as
defined below) of the Company. The Granting Authority may provide that in the
event of a Change of Control, SARs or limited SARs may be settled on the basis
of the "Change of Control Price" (as defined below).
3. Restricted Stock. The Granting Authority is authorized to award
restricted stock subject to such terms and conditions as the Granting Authority
may determine in its sole discretion. The Granting Authority has authority to
determine the number of shares of restricted stock to be awarded, the price, if
any, to be paid by the recipient of the restricted stock, and the date or dates
on which the restricted stock will vest. The vesting of restricted stock may be
conditioned upon the completion of a specified period of service with the
Company, upon the attainment of specified performance goals, or upon such other
criteria as the Granting Authority may determine. The Plan gives the Granting
Authority discretion to accelerate the vesting of restricted stock on a case by
case basis at any time. The Granting Authority also has authority to determine
whether the award holder will have the right to vote and/or receive dividends on
shares of restricted stock, and whether the certificates for such shares will be
held by the Company or delivered to the award holder bearing legends to restrict
their transfer.
Stock certificates representing the restricted stock granted under the
Plan will be registered in the award holder's name. However, no share of
restricted stock may be sold, transferred, assigned or pledged by the award
holder until such share has vested in accordance with the terms of the
restricted stock award. In the event of an award holder's termination of service
before all of his restricted stock has vested, or in the event other conditions
to the vesting of restricted stock have not been satisfied prior to any deadline
for the satisfaction of such conditions set forth in the award, the shares of
restricted stock which have not vested will be forfeited and any purchase price
paid by the award holder generally will be returned to the award holder. At the
time restricted stock vests, a certificate for such vested shares will be
delivered to the award holder (or the beneficiary designated by the award
holder, in the event of death), free of all restrictions.
4. Deferred Stock. Deferred stock may be conditioned upon the attainment
of specific performance goals or such other criteria as the Granting Authority
may determine. In making an award of deferred stock the Granting Authority will
determine the periods, if any, during which the award is subject to forfeiture,
and may provide for the issuance of stock pursuant to the award without payment
therefor. Upon vesting, the award will be settled in shares of Common Stock,
cash equal to the fair market value of such stock, or a combination thereof, as
provided by the Granting Authority. During the deferral period set by the
Granting Authority, the award holder may not sell, transfer, pledge or assign
the deferred stock award. In the event of termination of service before the
expiration of the deferral period, the deferred stock award will be forfeited,
except as may be provided by the Granting Authority. Deferred stock will carry
no voting rights until such time as the Common Stock is actually issued.
5. Bonus Stock. The Granting Authority may award bonus stock subject to
such terms and conditions as it may determine. Such awards may be conditioned
upon attainment of specific performance goals or such other criteria as the
Granting Authority may determine, and the Granting Authority may waive such
conditions in its discretion. Bonus stock may be issued without payment
therefore or may be sold at a discount from its fair market value.
6. Loans. The Granting Authority may provide that the Company will make,
or arrange for, a loan with respect to the exercise of any stock option granted
under the Plan, with respect to the payment of the purchase price, if any, of
any restricted stock awarded under the Plan, and / or with respect to any taxes
arising from an award under the Plan, provided that the Company will not loan
more than the sum of (i) the excess of the purchase or exercise price of an
award over the par value of any shares awarded, plus (ii) the amount of any
taxes arising from such award. The Granting Authority will determine the terms
of any such loan.
7. Tax-Offset Payments. The Granting Authority is authorized to provide
for a tax-offset payment by the Company to an award holder not in excess of the
amount necessary to pay the federal, state, local, and other taxes payable with
respect to any award and the receipt of the tax-offset payment, assuming the
award holder is taxed at the maximum tax rate applicable to such income. Due to
variations in the actual tax rates applicable to award holders, the benefit of
the tax-offset payment may not correspond to the actual tax liability of the
award holder. Tax-offset payments are payable in cash.
8. Performance Awards. The Plan Committee can designate any awards to
employees under the Plan as "Performance Awards", and the Plan provides that
awards so designated are to be granted and administered so as to qualify as
"performance-based compensation" under Section 162(m) of the Code. The grant or
vesting of a Performance Award will be subject to the achievement of performance
objectives (the "Performance Objectives") established by the Plan Committee
based on one or more of the following criteria, which the Plan Committee may
apply to the Company on a consolidated basis and/or to a business unit, and
which the Plan Committee may use either as an absolute measure or as a measure
of comparative performance relative to a peer group of companies: sales,
operating profits, operating profits before interest expense and taxes, net
earnings, earnings per share, return on equity, return on assets, return on
invested capital, total shareholder return, cash flow, debt to equity ratio,
market share, stock price, economic value added, and market value added.
The Performance Objectives for a particular Performance Award must be
established by the Plan Committee in writing no later than 90 days after the
beginning of the Company's fiscal year to which it relates. The Plan Committee
has authority to determine whether the Performance Objectives and other terms
and conditions of the award are satisfied, but has discretion to modify or waive
the Performance Objectives or conditions to the grant or vesting of a
Performance Award only to the extent that the exercise of such discretion would
not cause the Performance Award to fail to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code.
9. Deferral of Awards. The Granting Authority may permit an award holder
to defer receipt of any award for a specified period or until a specified event.
AUTOMATIC AWARDS TO OUTSIDE DIRECTORS
The Plan provides for the automatic grant of stock options and stock
grants to Outside Directors on the following terms. Each person who was an
Outside Director on August 31, 1999, the date this Plan was adopted by the
Company's Board of Directors, and each person who becomes an Outside Director
after such date will be granted on the date of his or her initial election (or
the first trading day thereafter), an option to purchase the number of whole
shares of Common Stock obtained by dividing $5,000 by the closing price of the
Common Stock on the date of grant. On the first trading day of each calendar
quarter beginning with October 1, 1999, each Outside Director then serving on
the Board of Directors and who has served for all or a portion of the previous
calendar quarter will be granted an option to purchase the number of whole
shares of Common Stock obtained by dividing $5,000 by the closing price of the
Common Stock on the date of grant.
The option price of all options automatically granted to Outside Directors
will be equal to the closing sales price of a share of Common Stock on the date
of option grant, and may be paid using cash or Common Stock owned for at least
six months, or a combination thereof, in the discretion of the option holder.
Each option has a ten-year term, and vests with respect to 10% of the underlying
shares three months after the date of grant, and an additional 10% at the end of
each three-month period thereafter, assuming continued service on the Board of
Directors. The minimum number of shares with respect to which an option may be
exercised at any time is the lesser of 100 shares or the number of shares
subject to the option. Following an Outside Director's termination of service,
the options which have previously become exercisable will remain exercisable for
five years after such termination, but not beyond their 10-year term.
An option shall only be exercisable by the option holder or his or her
guardian or legal representative. No holder of an option shall have any of the
rights of a shareholder.
Each automatic option to Outside Directors is granted in tandem with a
limited SAR which may be exercised only within the 60-day period following a
Change of Control. Upon exercise of the limited SAR, the appreciation will be
paid in cash based on the Change of Control Price.
On the first trading day of each calendar quarter beginning with the first
calendar quarter after the date of shareholder approval of the Plan, each
Outside Director then serving on the Board of Directors and who has served for
all or a portion of the previous calendar quarter will be automatically granted
the number of whole shares of Common Stock obtained by dividing $2,000 by the
closing price of the Common Stock on the date of grant. No cash is payable by
the Outside Director for such shares. Such shares will be fully vested and
non-forfeitable at the time of grant.
PROVISIONS RELATING TO A CHANGE OF CONTROL
As a general matter, upon the occurrence of a Change of Control (1) all
outstanding stock options, SARs, and limited SARs, including those held by
Outside Directors, will become fully exercisable and vested, (2) all
restrictions and deferral limitations applicable to outstanding restricted stock
and deferred stock awards under the Plan will lapse, and such shares and awards
will be deemed fully vested, and (3) to the extent the cash payment of any award
is based on the fair market value of stock, such fair market value will be the
Change of Control Price.
A "Change of Control" is deemed to occur on the date (1) any person or
group acquires beneficial ownership of securities representing 25% or more of
the Company's total voting power (with certain exceptions), (2) individuals who
constitute the "Current Directors" (as defined in the Plan) fail to constitute
at least two-thirds of the Board of Directors, (3) the shareholders approve a
merger or consolidation unless following such transaction (a) the beneficial
owners of the Company's Common Stock before the transaction own securities
representing more than 50% of the total voting power of the company resulting
from the transaction, and (b) at least a majority of members of the Board of
Directors of the Company resulting from the transaction were members of the
Company's Board of Directors at the time such Board approved the transaction, or
(4) the shareholders of the Company approve a sale of substantially all of its
assets.
The "Change of Control Price" is the highest price per share of Common
Stock paid in any open market transaction, or paid or offered to be paid in any
transaction related to a Change of Control during the 90-day period ending with
the Change of Control, except that for a SAR granted in tandem with an ISO, such
price is the highest price paid on the date the SAR is exercised.
OTHER PROVISIONS
Tax Withholding. The Plan permits employees to satisfy all or a portion of
their federal, state, local or other tax liabilities with respect to awards
under the Plan by delivering previously-owned shares (that have been owned by
the optionee for at least six months) or by having the Company withhold from the
shares otherwise deliverable to such employee shares having a value equal to the
tax liability to be so satisfied.
Adjustments. In the event of specified changes in the Company's capital
structure, the Plan Committee will have the power to adjust the number and kind
of shares authorized by the Plan (including any limitations on individual
awards), the number of stock options to be automatically granted to Outside
Directors, and the number, option price and kinds of shares covered by
outstanding awards (including those held by Outside Directors), and to make such
other adjustments in awards under the Plan as it deems appropriate, provided
that no such adjustment may increase the aggregate value of outstanding awards.
Amendments. The Board of Directors may amend the Plan without shareholder
approval, unless such approval is required by law or other regulatory
requirements. Amendment or discontinuation of the Plan cannot adversely affect
any award previously granted without the award holder's written consent.
The Granting Authority may amend any grant under the Plan within its
jurisdiction (including both discretionary and automatic grants to Outside
Directors) to include any provision which, at the time of such amendment, is
authorized under the terms of the Plan, except that no award can be modified in
a manner unfavorable to the award holder without the written consent of the
award holder. In addition, the Granting Authority may, without shareholder
approval, cancel an option or other award granted under the Plan and grant a new
option or award to the award holder at a lower exercise price or otherwise on
more favorable terms and conditions than the canceled award. The Plan shall
continue in effect for an unlimited period, but may be terminated by the Board
of Directors in its discretion at any time. No ISOs may be granted under the
Plan after August 31, 2009.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain federal income tax aspects of awards
made under the Plan, based upon the laws in effect on the date hereof. All
references to the "Code" are references to provisions of the Internal Revenue
Code of 1986, now in effect.
Non-Qualified Stock Options. With respect to non-qualified stock options:
(a) no income is recognized by the participant at the time the option is
granted; (b) upon exercise of the option, the participant recognizes ordinary
income in an amount equal to the difference between the option price and the
fair market value of the shares on the date of exercise; and (c) at disposition,
any appreciation after the date of exercise is treated either as long-term or
short-term capital gain, depending on whether the shares were held for more than
one year by the participant.
Incentive Stock Options. Generally, no taxable income is recognized by the
participant upon the grant of an ISO or upon the exercise of an ISO during the
period of his or her employment with the Company or one of its subsidiaries or
within three months (12 months, in the event of permanent and total disability,
as defined in the Code) after termination. However, the exercise of an ISO may
result in an alternative minimum tax liability to the participant. If the
participant continues to hold the shares acquired upon exercise of an ISO for at
least two years from the date of grant and one year from the date of exercise,
upon the sale of the shares, any amount realized in excess of the option price
will be taxed as long-term capital gain.
If Common Stock acquired upon the exercise of an ISO is disposed of prior
to the expiration of the one-year and two-year holding periods described above,
the participant will generally recognize ordinary income in an amount equal to
the excess, if any, of the fair market value of the shares on the date of
exercise (or, if less, the amount realized on the disposition of the shares)
over the option price. Any further gain recognized by the participant on such
disposition will be taxed as short-term or long-term capital gain, depending on
whether the shares were held for more than one year.
Stock Appreciation Rights. No income will be recognized by a participant
in connection with the grant of a SAR. When the SAR is exercised, the
participant will generally recognize as ordinary income in the year of exercise
an amount equal to the amount of cash received plus the fair market value on the
date of exercise of any shares received. If the participant receives Common
Stock upon exercise of a SAR, rules similar to those described above under
"Non-Qualified Stock Options" will apply with respect to the post-exercise
appreciation.
Restricted Stock A participant receiving restricted stock generally will
recognize ordinary income in the amount of the fair market value of the
restricted stock at the time the restrictions lapse and the stock vests, less
the consideration paid for the restricted stock. However, a participant may
elect, under Section 83(b) of the Code, to recognize ordinary income on the date
of grant in an amount equal to the excess of the fair market value of the shares
on such date (determined without regard to the restrictions) over their purchase
price. The holding period to determine whether the participant has long-term or
short-term capital gain on a subsequent disposition of the shares generally
begins when the restriction period expires, and the tax basis for such shares
will generally be the fair market value of such shares on such date. However, if
the participant has made an election under Section 83(b), the holding period
will commence on the day after the date of grant, and the tax basis will be
equal to the fair market value of the shares on the date of grant (determined
without regard to the restrictions).
Deferred Stock A participant receiving deferred stock generally will
recognize ordinary income equal to the amount of cash received in settlement of
the award or the fair market value of the deferred stock on the date that such
stock is distributed to the participant, and the capital gain holding period for
such stock will also commence on that date.
Dividends and Dividend Equivalents. Dividends paid on restricted stock
prior to the date on which the forfeiture restrictions lapse generally will be
treated as compensation that is taxable as ordinary income to the participant.
If, however, the participant makes a Section 83(b) election with respect to the
restricted stock, the dividends will be taxable as ordinary dividend income to
the participant. If dividend equivalents are credited with respect to deferred
stock or other awards, the participant generally will recognize ordinary income
when the dividend equivalents are paid.
Bonus Stock and Director Stock Grants. A participant receiving bonus stock
or a stock grant generally will recognize ordinary income on the date of grant
equal to the fair market value of such stock on such date.
Tax-Offset Payments. A participant receiving a tax-offset payment will
recognize ordinary income on the date of payment.
Company Deductions. As a general rule, the Company will be entitled to a
deduction for federal income tax purposes at the same time and in the same
amount that an employee or Outside Director recognizes ordinary income from
awards under the Plan, to the extent such income is considered reasonable
compensation under the Code. The Company will not, however, be entitled to a
deduction to the extent compensation in excess of $1 million is paid to an
executive officer named in a proxy statement of the Company who was employed by
the Company at year-end, unless the compensation qualifies as
"performance-based" under Section 162(m) of the Code or certain other exceptions
apply. In addition, the Company will not be entitled to a deduction with respect
to payments to employees which are contingent upon a change of control if such
payments are deemed to constitute "excess parachute payments" under Section 280G
of the Code and do not qualify as reasonable compensation pursuant to that
Section; such payments will subject the recipients to a 20% excise tax.
BENEFITS UNDER THE PLAN
Since the Company does not have any future commitments to grant awards
under the 1999 Stock Incentive Plan, the future awards under this Plan are not
determinable. Therefore, a "New Plan Benefits Table" has not been provided.
ADDITIONAL INFORMATION
The last sale price of Common Stock on the NASDAQ National Market System
on September 8, 1999 as $10 per share.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
APPROVAL OF THE 1999 STOCK INCENTIVE PLAN. Approval of the Plan requires that
the votes cast in favor of approval of the Plan exceed the votes cast against
such approval. Pursuant to the Company's Bylaws, abstentions and broker
"non-votes" (shares not voted because a nominee holding shares for a beneficial
owner neither receives voting instructions from the beneficial owner nor has
discretionary voting power with respect thereto) will have no effect on the
vote.
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS' APPOINTMENT
Arthur Andersen, LLP has been the independent auditors of the Company's
accounts since 1983. Such firm has no financial interest, either direct or
indirect, in the Company. Selection of Arthur Andersen, LLP as the auditors for
the calendar year ending December 31, 1999 was made by the Board of Directors,
subject to shareholder ratification. A representative of Arthur Andersen, LLP is
expected to attend the meeting and have an opportunity to make a statement
and/or respond to appropriate questions from shareholders.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN, LLP AS THE COMPANY'S
INDEPENDENT PUBLIC ACCOUNTANTS FOR 1999. Approval of the ratification of the
independent public accountants' appointment requires that the number of votes
cast in favor of approval of the ratification of the independent public
accountants' appointment exceed the number of votes cast against such approval.
Abstentions will have no effect on the vote.
SHAREHOLDER PROPOSALS
The eligibility of shareholders to submit proposals, the proper subjects
of shareholder proposals and other issues governing shareholder proposals are
regulated by the rules (the "Shareholder Proposal Rules") adopted under Section
14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Shareholder proposals submitted pursuant to Rule 14a-8 under the Exchange Act
for inclusion in the Company's proxy materials for the 2000 Annual Meeting of
Shareholders must be received by the Company at its principal executive office,
200 Watson Boulevard, Stratford, Connecticut 06615, no later than Thursday, June
1, 2000.
In addition, in accordance with recent amendments to the Shareholder
Proposal Rules, written notice of shareholder proposals to be submitted outside
of Rule 14a-8 described above for consideration at the 2000 Annual Meeting of
Shareholders but not to be included in the Company's proxy materials must be
received by the Company, at the address set forth in the preceding paragraph, on
or before Wednesday, August 16, 2000 in order to be considered timely for
purposes of the Shareholder Proposal Rules. The persons designated as proxies by
the Company in connection with 2000 Annual Meeting of Shareholders will have
discretionary voting authority with respect to any shareholder proposal of which
the Company did not receive timely notice.
COSTS OF SOLICITATION
The costs of soliciting proxies will be borne by the Company. The Company
will also reimburse brokerage firms and other custodians, nominees and
fiduciaries, if any, for reasonable out-of-pocket expenses incurred by them in
connection with forwarding solicitation materials to beneficial owners of Common
Stock held of record by such persons. Solicitation by the Company will be
primarily by mail.
AVAILABILITY OF ANNUAL REPORT ON FORM 10-K
A copy of the Company's Form 10-K for the year ended December 31, 1998,
including all statements and schedules (but without exhibits), as filed with the
Securities and Exchange Commission, is included herewith.
------------------------
The information under the headings "Compensation Committee Report,"
"Compensation Program Components," "Discussion of 1998 Compensation for the
Chief Executive Officer" and "Performance Graph" above shall not be deemed to be
"soliciting material" or to be "filed" with the Securities and Exchange
Commission or subject to Regulation 14A or 14C, other than as provided in Item
402 of Regulation S-K, or to the liabilities of Section 18 of the Securities
Exchange Act of 1934, as amended, and, unless specific reference is made therein
to such headings, shall not be incorporated by reference into any filing under
the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934,
as amended.
<PAGE>
DIANON SYSTEMS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
THE UNDERSIGNED HEREBY APPOINTS D.R. SCHREIBER AND C.J. RAUSCH, AND EACH OF
THEM, AS PROXIES, EACH WITH THE POWER TO APPOINT THEIR SUBSTITUTE, AND HEREBY
AUTHORIZES THEM TO REPRESENT AND TO VOTE AS DESIGNATED BELOW ALL THE SHARES OF
COMMON STOCK OF DIANON SYSTEMS, INC. (THE "COMPANY") HELD OF RECORD BY THE
UNDERSIGNED ON SEPTEMBER 8, 1999 AT THE ANNUAL MEETING OF STOCKHOLDERS TO BE
HELD AT THE COMPANY'S CORPORATE HEADQUARTERS AT 200 WATSON BOULEVARD, STRATFORD,
CONNECTICUT, ON OCTOBER 21, 1999 AT 10:00 A.M., AND ANY ADJOURNMENT THEREOF.
PROPOSAL(S): MARK AN X IN THE APPROPRIATE BOX. PLEASE USE EITHER BLUE OR BLACK
INK.
MANAGEMENT/BOARD OF DIRECTORS OF THE REGISTRANT RECOMMENDS A VOTE FOR ALL THE
NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3 AND 4.
1. ELECTION OF THE FOLLOWING NOMINEES FOR DIRECTOR: KEVIN C. JOHNSON, JOHN P.
DAVIS, BRUCE K. CROWTHER, E. TIMOTHY GEARY, G. S. BECKWITH GILBERT, JEFFREY
L. SKLAR AND DAVID R. SCHREIBER.
[ ] FOR ALL NOMINEES LISTED ABOVE [ ] WITHHOLD AUTHORITY
to vote for all
nominees listed above
TO WITHHOLD YOUR VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE THE NAME(S) ON THE LINE
BELOW.
________________________________________________________________________________
2. PROPOSAL TO APPROVE THE ADOPTION OF THE EMPLOYEE STOCK PURCHASE PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
________________________________________________________________________________
3. PROPOSAL TO APPROVE THE ADOPTION OF THE 1999 STOCK INCENTIVE PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
________________________________________________________________________________
4. PROPOSAL TO RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN, LLP AS AUDITORS FOR
THE YEAR ENDING DECEMBER 31, 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
________________________________________________________________________________
[ ] CHECK IF YOU HAVE [ ] CHECK IF YOU [ ] CHECK IF YOU PLAN
MADE ADDITIONAL PLAN TO ATTEND TO ATTEND THE MEETING
COMMENTS THE MEETING AND VOTE YOUR SHARES
(Continued and to be SIGNED on Reverse Side)
<PAGE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED OR IF NO CONTRARY
DIRECTION IS INDICATED WILL BE VOTED AS MANAGEMENT RECOMMENDS ON THESE AND ANY
OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT(S) OR
POSTPONEMENT(S) THEREOF. PLEASE SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE
ENVELOPE PROVIDED.
Signature of stockholder should correspond exactly
with the name shown on the proxy.
Corporate officers, powers of attorney, trustees,
executors, administrators, guardians, and others
signing in a representative capacity should each sign.
DATE ______________________________________________
______________________________________________
(SIGNATURE OF SHAREHOLDER)
______________________________________________
(SIGNATURE IF HELD JOINTLY)
If time warrants, improperly signed cards will
be returned for correction.
EXHIBIT A
DIANON SYSTEMS, INC.
EMPLOYEE STOCK PURCHASE PLAN
EFFECTIVE AS OF JANUARY 1, 2000
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
INTRODUCTION
Section 1.01 Purpose........................................................
Section 1.02 Rules of Interpretation........................................
ARTICLE II
DEFINITIONS
Section 2.01 "Board"........................................................
Section 2.02 "Compensation".................................................
Section 2.03 "Committee"....................................................
Section 2.04 "Designated Subsidiary"........................................
Section 2.05 "Employee".....................................................
Section 2.06 "Effective Date"...............................................
Section 2.07 "Enrollment Date"..............................................
Section 2.08 "Exercise Date"................................................
Section 2.09 "Fair Market Value"............................................
Section 2.10 "Offering Period"..............................................
Section 2.11 "Offering Period Commencement Date"............................
Section 2.12 "Option Price".................................................
Section 2.13 "Participant"..................................................
Section 2.14 "Plan Administrator"...........................................
Section 2.15 "Subsidiary"...................................................
ARTICLE III
ELIGIBILITY AND PARTICIPATION
Section 3.01 Eligibility....................................................
Section 3.02 Restrictions on Participation..................................
Section 3.03 Commencement of Participation..................................
ARTICLE IV
STOCK SUBJECT TO THE PLAN AND OFFERINGS
Section 4.01 Stock Subject to the Plan......................................
Section 4.02 Offering Periods...............................................
ARTICLE V
PAYROLL DEDUCTIONS
Section 5.01 Amount of Deduction............................................
Section 5.02 Participant's Memorandum Account...............................
Section 5.03 Changes in Payroll Deductions..................................
Section 5.04 Certain Adjustments to Payroll Deduction Authorizations........
ARTICLE VI
GRANTING OF OPTION
Section 6.01 Maximum Number of Option Shares................................
Section 6.02 Option Price...................................................
ARTICLE VII
EXERCISE OF OPTION
Section 7.01 Automatic Exercise.............................................
Section 7.02 Fractional Shares..............................................
Section 7.03 Exercise of Options............................................
Section 7.04 Delivery of Stock..............................................
Section 7.05 Stock Transfer Restrictions....................................
Section 7.06 Taxes..........................................................
ARTICLE VIII
WITHDRAWAL
Section 8.01 In General.....................................................
Section 8.02 Effect on Subsequent Participation.............................
Section 8.03 Termination of Employment......................................
ARTICLE IX
INTEREST
Section 9.01 Payment of Interest............................................
ARTICLE X
STOCK
Section 10.01 Participant's Interest in Option Stock.........................
Section 10.02 Registration of Stock..........................................
Section 10.03 Restrictions on Exercise.......................................
ARTICLE XI
ADMINISTRATION
Section 11.01 Appointment of Committee.......................................
Section 11.02 Authority of Committee.........................................
Section 11.03 Rules Governing the Administration of the Committee............
ARTICLE XII
MISCELLANEOUS
Section 12.01 Designation of Beneficiary.....................................
Section 12.02 Transferability................................................
Section 12.03 Use of Funds...................................................
Section 12.04 Adjustment Upon Changes in Capitalization......................
Section 12.05 Amendment and Termination......................................
Section 12.06 Effective Date.................................................
Section 12.07 No Employment Rights...........................................
Section 12.08 Effect of Plan.................................................
Section 12.09 Governing Law..................................................
<PAGE>
DIANON SYSTEMS, INC.
EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I
INTRODUCTION
Section 1.01 PURPOSE. The purpose of the Dianon Systems, Inc.
Employee Stock Purchase Plan (the "PLAN") is to provide employees of Dianon
Systems, Inc. (the "COMPANY") with an opportunity to purchase shares of common
stock, par value $.01 per share ("COMMON STOCK") of the Company through
accumulated payroll deductions.
Section 1.02 RULES OF INTERPRETATION. It is the intention of the
Company to have the Plan qualify as an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). The
provisions of the Plan shall be construed so as to extend and limit
participation in a manner consistent with the requirements of that Section of
the Code.
ARTICLE II
DEFINITIONS
Section 2.01 "BOARD" shall mean the Board of Directors of the
Company.
Section 2.02 "COMPENSATION" shall mean all base straight time gross
earnings and commissions, exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
Section 2.03 "COMMITTEE" shall mean the individuals described in
Article XI.
Section 2.04 "DESIGNATED SUBSIDIARY" shall mean any Subsidiary which
has been designated by the Board to be eligible to participate in the Plan.
Section 2.05 "EMPLOYEE" shall mean any individual who is customarily
employed by the Company or a Designated Subsidiary on a full-time or part-time
basis provided the Employee is regularly scheduled to work more than 20 hours
per week and more than five months in any calendar year. For purposes of this
Plan, the employment relationship shall be treated as continuing intact while
the individual is on sick leave or another leave of absence approved by the
Company or the Designated Subsidiary. Where the period of leave exceeds 90 days
and the individual's right to employment is not guaranteed either by statute or
by contract, the employment relationship shall be deemed to have terminated on
the 91st day of such leave.
Section 2.06 "EFFECTIVE DATE" shall mean January 1, 2000, subject to
the provisions of 12.06 hereof.
Section 2.07 "ENROLLMENT DATE" shall mean the first Offering Period
Commencement Date on which the Employee shall have satisfied the eligibility
requirements of Article III of this Plan.
Section 2.08 "EXERCISE DATE" shall mean the last day of each
Offering Period.
Section 2.09 "FAIR MARKET VALUE" shall mean, as of any date, the
value of a share of Common Stock determined as follows:
(a) If the Common Stock is listed on any established stock exchange
or national market system, including, without limitation, the Nasdaq National
Market, its Fair Market Value shall be the closing sales price for such stock
(or the closing bid, if no sale was reported) as quoted on such exchange or
system for the last market trading day on the date of determination, as reported
in The Wall Street Journal or in such other source as the Board deems reliable;
(b) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable; or
(c) In the absence of an established market for the Common Stock,
its Fair Market Value shall be determined in good faith by the Board.
Section 2.10 "OFFERING PERIOD" shall mean each calendar quarter
described in Section 4.02 during which an option granted under Section 6.01 of
this Plan may be exercised.
Section 2.11 "OFFERING PERIOD COMMENCEMENT DATE" shall mean the
first day of the applicable Offering Period.
Section 2.12 "OPTION PRICE" shall mean the amount described in
Section 6.02 of the Plan.
Section 2.13 "PARTICIPANT" shall mean an Employee who has satisfied
the eligibility requirements of Article III of this Plan and has elected to
participate in this Plan pursuant to Section 3.03.
Section 2.14 "PLAN ADMINISTRATOR" shall mean the person designated
by the Committee pursuant to Section 11.02 hereof to take certain administrative
actions under the Plan.
Section 2.15 "SUBSIDIARY" shall mean a corporation, domestic or
foreign, of which not less than 50% of the voting shares are held by the Company
or a Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
Section 3.01 ELIGIBILITY.
(a) Subject to the provisions of Section 3.02, an Employee will be
eligible to participate in this Plan commencing on the first Enrollment Date
occurring on or after the date on which such Employee has completed six months
of employment with the Company or a Designated Subsidiary.
(b) Each Employee who becomes eligible to participate in this Plan
shall be furnished with a summary of the Plan and written enrollment materials
which shall include an individual brokerage account agreement pursuant to which
the Participant can establish an individual brokerage account for purposes of
receiving the shares of Common Stock to be delivered by the Company to the
Participant following an Exercise Date. All shares of Common Stock purchased
under this Plan that are held in an individual brokerage account shall be
subject to, and governed by, the terms and conditions of the applicable
individual brokerage account agreement.
Section 3.02 RESTRICTIONS ON PARTICIPATION. Notwithstanding any
provision of the Plan to the contrary, no Employee shall be eligible to
participate in the Plan and receive an option to purchase shares of Common Stock
hereunder:
(a) to the extent that, immediately after the grant, such Employee
would own stock and/or hold outstanding options to purchase stock possessing 5%
or more of the total combined voting power or value of all classes of stock of
the Company or of any Subsidiary (for purposes of this paragraph, the rules of
Section 424(d) of the Code shall apply in determining stock ownership of any
Employee); or
(b) to the extent that, immediately after the grant, the Employee
would have an option which permits his rights to purchase Common Stock under
this Plan (and all other "employee stock purchase plans" within the meaning of
Section 423 of the Code maintained by the Company and its Subsidiaries) to
accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) of the
Fair Market Value of the Company's Common Stock (determined at the time such
option is granted) for each calendar year in which such option is outstanding at
any time.
Section 3.03 COMMENCEMENT OF PARTICIPATION.
(a) An Employee may become a Participant by completing a written
authorization for payroll deductions on the form provided by the Committee and
filing the completed form with the Plan Administrator prior to the applicable
Enrollment Date and in such time and manner as the Committee shall prescribe.
(b) Payroll deductions for a Participant shall commence on the first
payroll period following the Participant's Enrollment Date and shall end on the
last payroll period ending within the Offering Period to which the authorization
is applicable, unless sooner terminated by the Participant as provided in
Section 8.01 hereof.
ARTICLE IV
STOCK SUBJECT TO THE PLAN AND OFFERINGS
Section 4.01 STOCK SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 12.04 of the Plan, an
aggregate of Three Hundred Thousand (300,000) shares of Common Stock shall be
available for sale to Participants under the Plan. These shares may be
authorized but unissued shares of Common Stock, issued shares held in or
acquired for the Company's treasury or shares reacquired by the Company upon
purchase in the open market. A maximum of One Hundred Thousand (100,000) shares
of Common Stock shall be available for sale to Participants under the Plan
during each calendar year and a maximum of Twenty-Five Thousand (25,000) shares
shall be available for purchase by Participants during each Offering Period. Any
shares which have been authorized under this Plan but remain unissued or
undelivered shall again be available for issuance or delivery under this Plan.
(b) If, on any Exercise Date, the number of shares of Common Stock
with respect to which options are to be exercised exceeds the number of shares
available for purchase during the Offering Period, the Company shall make a pro
rata allocation of the shares remaining available for purchase in as uniform a
manner as shall be practicable and as the Committee shall determine to be
equitable and in accordance with the requirements of Section 423 of the Code.
Section 4.02 OFFERING PERIODS. Shares of Common Stock will be
available for purchase during each of the four Offering Periods to be held
during each calendar year that the Plan is in effect. The first Offering Period
will begin on January 1st and end on March 31st; the second Offering Period will
begin on April 1st and end on June 30th ; the third Offering Period will begin
on July 1st and end on September 30th; and the fourth Offering Period will begin
on October 1st and end on December 31st.
ARTICLE IV
PAYROLL DEDUCTIONS
Section 5.01 AMOUNT OF DEDUCTION.
(a) The form described in Section 3.03 will permit a Participant to
elect to have payroll deductions made in whole percentages of up to 10% of the
Participant's Compensation for each payroll period in an Offering Period.
(b) Notwithstanding any contrary provision in this Plan, a
Participant shall not be permitted to make payroll deductions in any calendar
year in excess of Five Thousand Dollars ($5,000). Any amount deferred in excess
of such amount in any Offering Period shall be promptly refunded to the
Participant, without interest.
Section 5.02 PARTICIPANT'S MEMORANDUM ACCOUNT. All payroll
deductions made for a Participant shall be credited to a memorandum account
established for such Participant for purposes of recording, as a bookkeeping
entry, the payroll deductions made by the Participant under this Plan. A
Participant may not make any separate cash payment with respect to such
memorandum account.
Section 5.03 CHANGES IN PAYROLL DEDUCTIONS.
A Participant may discontinue his participation in this Plan during
an Offering Period as provided in Section 8.01 hereof or may increase or
decrease the rate of his payroll deductions during an Offering Period by
completing and filing with the Plan Administrator a new payroll deduction
authorization form specifying the new payroll deduction rate. The Committee may,
in its discretion, limit the number of payroll deduction authorization changes
that may be made by a Participant during any Offering Period. The new payroll
deduction authorization election shall become effective as of the first full
payroll period immediately following five (5) business days after the Plan
Administrator's receipt of the new payroll deduction authorization form.
Section 5.04 CERTAIN ADJUSTMENTS TO PAYROLL DEDUCTION
AUTHORIZATIONS.
(a) To the extent necessary to comply with the annual limitations
contained in Sections 3.02(b) and 5.01(b) of the Plan and Section 423(b)(8) of
the Code, a Participant's payroll deductions may be reduced to zero percent
(0%), without the Participant's consent, at any time during an Offering Period.
(b) In the event that a Participant's payroll deductions are reduced
pursuant to Section 5.04(a) above in order to comply with the Plan's annual
limitations, payroll deductions shall recommence for such Participant at the
rate specified in the Participant's payroll deduction authorization form then on
file with the Plan Administrator effective as of the beginning of the first
Offering Period which is scheduled to end in the immediately succeeding calendar
year, unless the payroll deduction authorization election is terminated by the
Participant, as provided in Section 8.01 hereof.
ARTICLE VI
GRANTING OF OPTION
Section 6.01 MAXIMUM NUMBER OF OPTION SHARES. On each Offering
Period Commencement Date, each Participant in the Plan shall be granted an
option to purchase on the Exercise Date for such Offering Period at the
applicable Option Price up to the number of shares of Common Stock determined by
dividing such Participant's payroll deductions accumulated prior to such
Exercise Date and credited to the Participant's memorandum account as of such
Exercise Date by the applicable Option Price; provided, however, that in no
event shall a Participant be permitted to purchase more than a maximum of Five
Hundred (500) shares of Common Stock (subject to adjustment pursuant to Section
12.04 hereof) in any Offering Period; and, provided, further, that such option
shall also be subject to the limitations contained in Sections 3.02 and 9.01 of
the Plan.
Section 6.02 OPTION PRICE.
(a) Subject to the limitation contained in Section 6.02(b) of the
Plan, the Option Price for shares of Common Stock to be purchased with
accumulated payroll deductions during any Offering Period shall be 85% of the
Fair Market Value of the Common Stock on the applicable Exercise Date.
(b) Notwithstanding any contrary provision contained herein, in
accordance with Section 423(b)(6) of the Code, the Option Price determined
pursuant to Section 6.02(a) of the Plan to be applied with respect to any
Offering Period shall not be less than the lesser of: (i) 85% of the Fair Market
Value of the Common Stock on the applicable Offering Period Commencement Date or
(ii) 85% of the Fair Market Value of the Common Stock on the applicable Exercise
Date.
ARTICLE VII
EXERCISE OF OPTION
Section 7.01 AUTOMATIC EXERCISE. Unless the Participant withdraws
from the Plan as provided in Section 8.01 hereof, the option granted to the
Participant pursuant to Section 6.01 of the Plan during the applicable Offering
Period shall be exercised automatically on the applicable Exercise Date for the
purchase of the number of full shares of Common Stock which the accumulated
payroll deductions credited to the Participant's memorandum account at such time
will purchase at the applicable Option Price; provided, however, that in no
event shall the accumulated payroll deductions credited to the Participant's
memorandum account as of the Exercise Date be used to purchase shares of Common
Stock that exceed the maximum available for purchase during such Offering
Period, as set forth in Section 6.01 hereof. Any amounts remaining to the credit
of such Participant in the memorandum account following an applicable Exercise
Date shall be promptly refunded to the Participant, without interest.
Section 7.02 FRACTIONAL SHARES. Fractional shares of Common Stock
will not be issued under the Plan. Any accumulated payroll deductions which
would have been used to purchase fractional shares, unless refunded pursuant to
Section 8.01, will be held for the purchase of Common Stock in the next
immediately succeeding Offering Period, without interest.
Section 7.03 EXERCISE OF OPTIONS. An option granted to a Participant
under this Plan may be exercised during the Participant's lifetime only by such
Participant.
Section 7.04 DELIVERY OF STOCK. As promptly as practicable after
each Exercise Date on which a purchase of shares of Common Stock occurs, the
Company shall arrange for the delivery to each Participant, as appropriate, of
the shares of Common Stock purchased in the Offering Period upon the exercise of
such Participant's option hereunder. This delivery may occur through a transfer
agent or brokerage account established for this purpose.
Section 7.05 STOCK TRANSFER RESTRICTIONS. The Plan is intended to
satisfy the requirements of Section 423 of the Code. A Participant will not
obtain the benefits of this provision if such Participant disposes of shares of
Common Stock acquired pursuant to the Plan within two (2) years after the
Offering Period Commencement Date or within one (1) year after the date such
Common Stock is purchased by the Participant on the applicable Exercise Date,
whichever is later.
Section 7.06 TAXES. At the time an option granted under this Plan is
exercised, in whole or in part, or at the time some or all of the shares of
Common Stock issued under the Plan are disposed of, the Participant shall be
required to make adequate provision for the satisfaction of all federal, state,
or other tax withholding obligations which arise upon the exercise of the option
or the disposition of the Common Stock, as applicable.
ARTICLE VIII
WITHDRAWAL
Section 8.01 IN GENERAL. A Participant may withdraw all, but not
less than all, of the payroll deductions credited to his memorandum account that
have not yet been used to exercise his option under the Plan at any time by
giving written notice to the Plan Administrator. All of the payroll deductions
credited to the Participant's memorandum account shall be paid to such
Participant promptly after the Plan Administrator's receipt of such notice of
withdrawal, without interest, and the Participant's option for the Offering
Period shall be automatically terminated and no further payroll deductions for
the purchase of shares shall be made on behalf of such Participant for such
Offering Period. If a Participant withdraws from the Plan during an Offering
Period, payroll deductions shall not resume at the beginning of the next
immediately succeeding Offering Period unless the Participant files a new
payroll deduction authorization form with the Plan Administrator prior to the
applicable Offering Period Commencement Date and in such time and manner as the
Committee shall prescribe.
Section 8.02 EFFECT ON SUBSEQUENT PARTICIPATION. An Employee's
withdrawal from participation in the Plan pursuant to Section 8.01 hereof will
not have any effect upon the Employee's eligibility to participate in the Plan
during any succeeding Offering Period or in any similar plan which may hereafter
be adopted by the Company and for which such Employee is otherwise eligible;
provided, however, in order to resume participation in this Plan, the Employee
must satisfy the requirements of Article III.
Section 8.03 TERMINATION OF EMPLOYMENT. Upon the termination of a
Participant's employment for any reason, including retirement or death, the
Participant shall be deemed to have withdrawn from the Plan and the payroll
deductions that have accumulated for such Participant prior to such termination,
if any, shall be promptly returned, without interest, to the Participant or, in
the case of the Participant's death, to the person or persons entitled thereto
under Section 12.01 hereof, and such Participant's option shall be automatically
terminated, and no further payroll deductions for the purchase of shares shall
be made for the Participant with respect to such Offering Period.
ARTICLE IX
INTEREST
Section 9.01 PAYMENT OF INTEREST. No interest will be paid or
allowed on any money paid into the Plan, credited to the memorandum account, or
distributed to, any Participant.
ARTICLE X
STOCK
Section 10.01 PARTICIPANT'S INTEREST IN OPTION STOCK. No Participant
will have any interest in shares of Common Stock covered by any option held by
the Participant until the option has been exercised as provided in Section 7.01
above.
Section 10.02 REGISTRATION OF STOCK. Shares of Common Stock
purchased by a Participant under the Plan will be registered in the name of the
Participant, or, if the Participant so directs by written notice to the Plan
Administrator prior to the applicable Exercise Date, in the names of the
Participant and one such other person as may be designated by the Participant,
as joint tenants with rights of survivorship or as tenants by the entireties, to
the extent permitted by applicable law.
Section 10.03 RESTRICTIONS ON EXERCISE. The Board of Directors may,
in its discretion, require as conditions to the exercise of any option that the
shares of Common Stock reserved for issuance upon the exercise of such option
shall have been duly listed, upon official notice of issuance, upon a stock
exchange or market, and that either:
(a) a registration statement under the Securities Act of 1933, as
amended, with respect to said shares shall be effective, or
(b) the Participant shall have represented at the time of exercise,
in form and substance satisfactory to the Company, that it is his or her
intention to purchase the shares for investment and not for resale or
distribution.
ARTICLE XI
ADMINISTRATION
Section 11.01 APPOINTMENT OF COMMITTEE. The Board of Directors shall
appoint a committee (the "Committee") to administer the Plan, which shall
consist solely of no fewer than three "non-employee directors" (as defined in
Rule 16b-3(a)(3) promulgated under the Securities Act of 1933, as amended).
Section 11.02 AUTHORITY OF COMMITTEE.
(a) The Committee may, from time to time, designate a senior officer
of the Company to serve as the Plan Administrator. The Plan Administrator shall
be authorized to receive certain notices and to take certain other
administrative actions relating to the Plan.
(b) Subject to the express provisions of the Plan, the Committee
shall have plenary authority in its discretion to interpret and construe any and
all provisions of the Plan, to adopt rules and regulations for administering the
Plan, and to make all other determinations deemed necessary or advisable for
administering the Plan, including, but not limited to, making arrangements with
a transfer agent or broker to deliver shares of Common Stock purchased by
Participants hereunder. The Committee's determination of the foregoing matters
shall be conclusive.
Section 11.03 RULES GOVERNING THE ADMINISTRATION OF THE COMMITTEE.
The Board of Directors may from time to time appoint members of the Committee in
substitution for or in addition to members previously appointed and may fill
vacancies, however caused, in the Committee. The Committee may select one of its
members as its chairman and shall hold its meetings at such times and places as
it shall deem advisable, or may hold telephonic meetings. All determinations of
the Committee shall be made by a majority of its members. A decision or
determination reduced to writing and signed by a majority of the members of the
Committee shall be as fully effective as if it had been made by a majority vote
at a meeting duly called and held. The Committee may appoint a secretary and
shall make such rules and regulations for the conduct of its business as it
shall deem advisable.
ARTICLE XII
MISCELLANEOUS
Section 12.01 DESIGNATION OF BENEFICIARY. A Participant may file a
written designation of a beneficiary who is to receive the shares and cash, if
any, credited to the Participant's memorandum account under the Plan in the
event of the Participant's death subsequent to an Exercise Date on which the
option is exercised but prior to the delivery to such Participant of such shares
and cash. In addition, a Participant may file a written designation of a
beneficiary who is to receive any cash that has been credited to the
Participant's memorandum account under the Plan in the event of the
Participant's death prior to the exercise of the option; provided, however, in
no event shall such beneficiary be entitled to authorize the exercise of such
option. In the event of the death of a Participant and in the absence of a
beneficiary validly designated under the Plan who is living at the time of such
Participant's death, the Company shall deliver any shares or cash credited to
the Participant's memorandum account to the executor or administrator of the
estate of the Participant.
Section 12.02 TRANSFERABILITY. Neither payroll deductions credited
to any Participant's memorandum account nor any option or rights with regard to
the exercise of an option or the right to receive Common Stock under the Plan
may be assigned, transferred, pledged, or otherwise disposed of in any way by
the Participant, other than by will or the laws of descent and distribution. Any
such attempted assignment, transfer, pledge or other disposition shall be
without effect, except that the Company, or Designated Subsidiary, may, in its
discretion, treat such act as an election to withdraw from participation in the
Plan in accordance with Section 8.01.
Section 12.03 USE OF FUNDS. All payroll deductions received or held
by the Company or Designated Subsidiary, under the Plan may be used by the
Company or the Designated Subsidiary for any corporate purpose. The Company or
Designated Subsidiary shall not be obligated to segregate such payroll
deductions. At all times prior to an Exercise Date, Participants' rights
hereunder shall be equivalent to those of a general unsecured creditor.
Section 12.04 ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
(a) If, while any options are outstanding under the Plan, the
outstanding shares of Common Stock of the Company have increased, decreased,
changed into, or been exchanged for a different number or kind of shares or
securities of the Company through any reorganization, merger, recapitalization,
reclassification, stock split, reverse stock split or similar transaction,
appropriate and proportionate adjustments may be made by the Committee in the
number and/or kind of shares which are subject to purchase under outstanding
options and in the Option Price or Prices applicable to such outstanding
options. In addition, in any such event, the number and/or kind of shares which
may be offered in the Offering Periods described in Article IV hereof shall also
be proportionately adjusted. No such adjustments shall be made for or in respect
of stock dividends. For purposes of this paragraph, any distribution of shares
of Common Stock to shareholders in an amount aggregating 20% or more of the
outstanding shares of Common Stock shall be deemed a stock split, and any
distribution of shares aggregating less than 20% of the outstanding shares of
Common Stock shall be deemed a stock dividend.
(b) Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon a sale of substantially all of the property or capital stock of the
Company to another corporation, the holder of each option then outstanding under
the Plan will thereafter be entitled to receive at the next Exercise Date, upon
the exercise of such option, for each share as to which such option shall be
exercised, as nearly as reasonably may be determined, the cash, securities
and/or property which a holder of one share of the Common Stock was entitled to
receive upon and at the time of such transaction. The Board of Directors shall
take such steps in connection with such transactions as the Board shall deem
necessary to assure that the provisions of this Section 12.04(b) shall
thereafter be applicable, as nearly as reasonably may be determined, in relation
to the said cash, securities and/or property as to which each such holder of any
such option might hereafter be entitled to receive.
Section 12.05 AMENDMENT AND TERMINATION. The Board of Directors
shall have complete power and authority to terminate or amend the Plan;
provided, however, that the Board of Directors shall not, without the approval
of the shareholders of the Company, alter (i) the aggregate number of shares of
Common Stock which may be issued under the Plan (except pursuant to Section
12.04 above), or (ii) the class of employees eligible to receive options under
the Plan; and, provided, further, however, that no termination, modification, or
amendment of the Plan may, without the consent of a Participant then holding an
option under the Plan to purchase shares of Common Stock, adversely affect the
rights of such Participant under such option.
Section 12.06 EFFECTIVE DATE. The Plan shall become effective as of
January 1, 2000, subject to approval by the holders of a majority of the shares
of Common Stock present and represented at any special or annual meeting of the
shareholders of the Company duly held within 12 months after adoption of the
Plan. If the Plan is not so approved, the Plan shall not become effective.
Section 12.07 NO EMPLOYMENT RIGHTS. The Plan does not, directly or
indirectly, create in any person any right with respect to continuation of
employment by the Company or a Designated Subsidiary, and it shall not be deemed
to interfere in any way with the right of the Company or the Designated
Subsidiary to terminate, or otherwise modify, any employee's employment at any
time.
Section 12.08 EFFECT OF PLAN. The provisions of the Plan shall, in
accordance with its terms, be binding upon, and inure to the benefit of, all
successors of each Participant in the Plan, including, without limitation, such
Participant's estate and the executors, administrators or trustees thereof,
heirs and legatees, and any receiver, trustee in bankruptcy or representative of
creditors of such Participant.
Section 12.09 GOVERNING LAW. The laws of the State of Connecticut
will govern all matters relating to this Plan except to the extent superseded by
the federal laws of the United States.
EXHIBIT B
DIANON SYSTEMS, INC.
1999 STOCK INCENTIVE PLAN
<PAGE>
DIANON SYSTEMS, INC.
1999 STOCK INCENTIVE PLAN
SECTION 1. PURPOSES
The purposes of the Dianon Systems, Inc. 1999 Stock Incentive Plan
(the "Plan") are (i) to enable Dianon Systems, Inc. (the "Company") and its
Related Companies (as defined below) to attract, retain and reward employees and
strengthen the existing mutuality of interests between such employees and the
Company's stockholders by offering such employees an equity interest in the
Company, and (ii) to enable the Company to pay part of the compensation of its
Outside Directors (as defined in Section 5.2) in the form of equity of the
Company, thereby increasing such directors' proprietary interests in the
Company. For purposes of the Plan, a "Related Company" means any corporation,
partnership, joint venture or other entity in which the Company owns, directly
or indirectly, at least a 20% beneficial ownership interest. In addition, for
purposes of this Plan, the term "Stock" shall refer to the common stock of the
Company, par value $.01 per share.
SECTION 2. TYPES OF AWARDS
2.1 Awards under the Plan may be in the form of (i) Stock Options;
(ii) Stock Appreciation Rights; (iii) Restricted Stock; (iv) Deferred Stock; (v)
Bonus Stock; (vi) Loans; and/or (vii) Tax Offset Payments. One or more types of
awards may be granted, which may be independent or granted in tandem. If two
awards are granted in tandem, the award holder may exercise (or otherwise
receive the benefit of) one award only to the extent he or she relinquishes the
tandem award.
2.2 Outside Directors shall receive Stock Options, Limited Stock
Appreciation Rights and Stock Grants as provided in Section 15. In addition,
Outside Directors may be granted discretionary awards in one or more of the
forms set forth in Section 2.1.
SECTION 3. ADMINISTRATION
3.1 The Plan shall be administered (i) by the Compensation Committee
of the Company's Board of Directors (the "Board") or such other committee of
directors as the Board shall designate (the "Committee"), with respect to awards
to persons other than Outside Directors, and (ii) by the Board with respect to
awards to Outside Directors (except as provided in Section 4.5). The Committee
shall consist of not less than two directors each of whom is an Outside
Director. The members of the Committee shall serve at the pleasure of the Board.
3.2 For purposes of this Plan the term "Granting Authority" shall
mean (i) the Board of Directors with respect to awards to Outside Directors
(except as provided in Section 4.5), and (ii) the Committee with respect to all
other awards. The Granting Authority shall have the following authority with
respect to awards under the Plan within its jurisdiction: to grant such awards
to persons eligible to receive them under the Plan; to adopt, alter and repeal
such administrative rules, guidelines and practices governing the Plan as it
shall deem advisable; to interpret the terms and provisions of the Plan and any
award granted by it under the Plan; and to otherwise supervise the
administration of the Plan. In particular, and without limiting its authority
and powers, the Granting Authority shall have the authority with respect to the
awards within its jurisdiction:
(a) to determine whether and to what extent any award or
combination of awards will be granted hereunder, including whether any
awards will be granted in tandem with each other;
(b) to select the eligible persons to whom awards will be
granted;
(c) to determine the number of shares of the Stock of the
Company to be covered by each award granted hereunder subject to the
limitations contained herein;
(d) to determine the terms and conditions of any award granted
hereunder, including, but not limited to, any vesting or other
restrictions based on such performance objectives (the "Performance
Objectives") and such other factors as the Granting Authority may
establish, and to determine whether the Performance Objectives and other
terms and conditions of the award are satisfied;
(e) to determine the treatment of awards upon an award
holder's retirement, disability, death, termination for cause or other
termination of employment or service with the Company or Related Company;
(f) to determine pursuant to a formula or otherwise the fair
market value of the Stock on a given date; provided, however, that if the
Granting Authority fails to make such a determination, fair market value
of the Stock on a given date shall be the closing sale price on a given
date, or if no such sale of Stock occurs on such date, the weighted
average of the closing sale prices on the nearest trading dates before and
after such date;
(g) to determine that amounts equal to the amount of any
dividends declared with respect to the number of shares covered by an
award (i) will be paid to the award holder currently or (ii) will be
deferred and deemed to be reinvested or (iii) will otherwise be credited
to the award holder, or that the award holder has no rights with respect
to such dividends;
(h) to determine whether, to what extent, and under what
circumstances Stock and other amounts payable with respect to an award
will be deferred either automatically or at the election of an award
holder, including providing for and determining the amount (if any) of
deemed earnings on any deferred amount during any deferral period;
(i) to provide that the shares of Stock received as a result
of an award shall be subject to a right of first refusal, pursuant to
which the award holder shall be required to offer to the Company any
shares that the award holder wishes to sell, subject to such terms and
conditions as the Granting Authority may specify;
(j) to amend the terms of any award (including those granted
under Section 15), prospectively or retroactively; provided, however, that
no amendment shall impair the rights of the award holder without his or
her written consent; and
(k) to substitute new Stock Options for previously granted
Stock Options, or for options granted under other plans or agreements, in
each case including previously granted options having higher option
prices.
3.3 The Committee shall have the right to designate awards as
"Performance Awards." Awards so designated shall be granted and administered in
a manner designed to preserve the deductibility of the compensation resulting
from such awards in accordance with Section 162(m) of the Internal Revenue Code
(the "Code"). The grant or vesting of a Performance Award shall be subject to
the achievement of Performance Objectives established by the Committee based on
one or more of the following criteria, in each case applied to the Company on a
consolidated basis and/or to a business unit and which the Committee may use as
an absolute measure, as a measure of improvement relative to prior performance,
or as a measure of comparable performance relative to a peer group of companies:
sales, operating profits, operating profits before interest expense and taxes,
net earnings, earnings per share, return on equity, return on assets, return on
invested capital, total shareholder return, cash flow, debt to equity ratio,
market share, stock price, economic value added, and market value added.
The Performance Objectives for a particular Performance Award
relative to a particular fiscal year shall be established by the Committee in
writing no later than 90 days after the beginning of such year. The Committee's
determination as to the achievement of Performance Objectives relating to a
Performance Award shall be made in writing. The Committee shall have discretion
to modify the Performance Objectives or vesting conditions of a Performance
Award only to the extent that the exercise of such discretion would not cause
the Performance Award to fail to qualify as "performance-based compensation"
within the meaning of Section 162(m) of the Code.
3.4 All determinations made by the Granting Authority pursuant to
the provisions of the Plan shall be final and binding on all persons, including
the Company and Plan participants.
3.5 The Committee may from time to time delegate to one or more
officers of the Company any or all of its authorities granted hereunder except
with respect to awards granted to persons subject to Section 16 of the
Securities Exchange Act of 1934 or Performance Awards. The Committee shall
specify the maximum number of shares that the officer or officers to whom such
authority is delegated may award.
3.6 All awards granted under this Plan shall be evidenced by a grant
certificate and the terms and conditions of the award shall be set forth in a
written agreement between the Company and the award recipient.
SECTION 4. STOCK SUBJECT TO PLAN
4.1 The total number of shares of Stock which may be awarded or
issued pursuant to the exercise of an award granted under this Plan shall be
300,000, of which 270,000 shall be used for awards to employees and 30,000 shall
be used for awards to Outside Directors (all subject to adjustment as provided
below). Such shares may consist of authorized but unissued shares or treasury
shares. The exercise of a Stock Appreciation Right for cash or the payment of
any other award in cash shall not count against this share limit.
4.2 To the extent a Stock Option terminates without having been
exercised, or an award terminates without the award holder having received
payment of the award, or shares awarded are forfeited, the shares subject to
such award shall again be available for distribution in connection with future
awards under the Plan. Shares of Stock equal in number to the shares surrendered
in payment of the option price, and shares of Stock which are withheld in order
to satisfy federal, state or local tax liabilities, shall not count against the
above limit, and shall again be available for grants under the Plan.
4.3 (a) No employee shall be granted Stock Options, Stock
Appreciation Rights, Restricted Stock, Deferred Stock, and/or Bonus Stock, or
any combination of the foregoing with respect to more than 40,000 shares of
Stock in any fiscal year (subject to adjustment as provided in Section 4.5). No
employee shall be granted a Tax Offset Payment in any fiscal year with respect
to more than the number of shares of Stock covered by awards granted to such
employee in such fiscal year.
(b) For purposes of Section 162(m) of the Code, no key employee
shall be granted Stock Options or Stock Appreciation Rights with respect to more
than 40,000 shares of Stock in any fiscal year (subject to adjustment as
provided in Section 4.5).
4.4 The maximum number of shares of Stock that may be issued under
this Plan pursuant to the exercise of Options intended to be Incentive Stock
Options shall be 270,000 shares.
4.5 In the event of any merger, reorganization, consolidation, sale
of substantially all assets, recapitalization, stock dividend, stock split,
spin-oft split-up, split-off distribution of assets or other change in corporate
structure affecting the Stock, a substitution or adjustment, as may be
determined to be appropriate by the Committee in its sole discretion, shall be
made in the aggregate number of shares reserved for issuance under the Plan, the
number of shares as to which awards may be granted to any individual in any
calendar year, the number and type of shares subject to outstanding awards and
the amounts to be paid by award holders or the Company, as the case may be, with
respect to outstanding awards; provided, however, that no such adjustment shall
increase the aggregate value of any outstanding award. In the event any change
described in this Section 4.5 occurs, the Committee shall make appropriate
adjustment in the awards previously granted and to be granted to Outside
Directors under the Plan; provided that no such adjustment shall increase the
aggregate value of any outstanding award.
SECTION 5. ELIGIBILITY
5.1 Key employees of the Company or a Related Company, including key
employees who are officers and/or directors of the Company, are eligible to be
granted awards under the Plan, other than under Section 15. Employees shall be
selected for participation in the Plan from time to time by the Committee, in
its sole discretion, from among those key employees eligible to participate in
this Plan.
5.2 Awards under Section 15 of the Plan shall be made solely to
Outside Directors, which term shall mean any director of the Company other than
one who is an employee of the Company or a Related Company. The Board, in its
discretion, may also grant other awards under the Plan in one or more of the
forms set forth in Section 2.1 to one or more Outside Directors.
SECTION 6. STOCK OPTIONS
The Stock Options awarded under the Plan may be of two types: (i)
Incentive Stock Options within the meaning of Section 422 of the Code or any
successor provision thereto (which may be granted only to employees); and (ii)
Non-Qualified Stock Options. To the extent that any Stock Option does not
qualify as an Incentive Stock Option, it shall constitute a Non-Qualified Stock
Option.
Subject to the following provisions, Stock Options awarded under the
Plan shall be in such form and shall have such terms and conditions as the
Granting Authority may determine:
(a) OPTION PRICE. The option price per share of Stock
purchasable under a Stock Option shall be determined by the Granting
Authority, and may be less than the fair market value of the Stock on the
date of the award of the Stock Option.
(b) OPTION TERM. The term of each Stock Option shall be fixed
by the Granting Authority.
(c) EXERCISABILITY. Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be
determined by the Granting Authority. The Granting Authority may waive
such exercise provisions or accelerate the exercisability of the Stock
Option at any time in whole or in part.
(d) METHOD OF EXERCISE. Stock Options may be exercised in
whole or in part at any time during the option period by giving written
notice of exercise to the Company specifying the number of shares to be
purchased, accompanied by payment of the purchase price. Payment of the
purchase price shall be made in such manner as the Granting Authority may
provide in the award, which may include cash (including cash equivalents),
delivery of shares of Stock already owned by the optionee for at least six
months, "cashless exercise" (which may be either (i) a broker-assisted
cash exercise effected in accordance with rules adopted by the Granting
Authority or (ii) a direction to the Company to withhold shares of Stock,
otherwise deliverable to the option holder with respect to the Option,
having a fair market value on the date of exercise equal to the option
price), or in any other manner permitted by law determined by the Granting
Authority, or any combination of the foregoing. If the Granting Authority
determines that a Stock Option may be exercised using shares of Restricted
Stock, then unless the Granting Authority provides otherwise, the shares
received upon the exercise of a Stock Option which are paid for using
Restricted Stock shall be restricted in accordance with the original terms
of the Restricted Stock award.
(e) NO STOCKHOLDER RIGHTS. An optionee shall have neither
rights to dividends or other rights of a stockholder with respect to
shares subject to a Stock Option until the optionee has given written
notice of exercise and has paid for such shares.
(f) SURRENDER RIGHTS. The Granting Authority may provide that
options may be surrendered for cash upon any terms and conditions set by
the Granting Authority.
(g) NON-TRANSFERABILITY. Unless otherwise provided by the
Granting Authority, (i) Stock Options shall not be transferable by the
optionee other than by will or by the laws of descent and distribution,
and (ii) during the optionee's lifetime, all Stock Options shall be
exercisable only by the optionee or, in the event of the optionee's
disability, by his or her guardian or legal representative.
(h) TERMINATION OF SERVICE. Following the termination of an
optionee's service with the Company or a Related Company, the Stock Option
shall be exercisable to the extent determined by the Granting Authority.
The Granting Authority may provide different post-termination exercise
provisions with respect to termination of service for different reasons.
The Granting Authority may provide that, notwithstanding the option term
fixed pursuant to Section 6.2(b), a Stock Option which is outstanding on
the date of an optionee's death shall remain outstanding for an additional
period after the date of such death.
6.3 Notwithstanding the provisions of Section 6.2, no Incentive
Stock Option shall (i) have an option price which is less than 100% of the fair
market value of the Stock on the date of the award of the Incentive Stock
Option, (ii) be exercisable more than ten years after the date such Incentive
Stock Option is awarded, or (iii) be awarded more than ten years after the
effective date of the Plan specified in Section 19. No Incentive Stock Option
granted to an employee who owns more than 10% of the total combined voting power
of all classes of stock of the Company or any of its parent or subsidiary
corporations, as defined in Section 424 of the Code, shall (A) have an option
price which is less than 110% of the fair market value of the Stock on the date
of award of the Incentive Stock Option or (B) be exercisable more than five
years after the date such Incentive Stock Option is awarded.
6.4 A Stock Option granted to a key employee under this Plan will
not be considered an Incentive Stock Option to the extent that such Stock
Option, together with any earlier Stock Option granted to such employee under
this or any other plan of the Company that is intended to be an Incentive Stock
Option, permits the exercise for the first time in any calendar year of shares
of Stock having a fair market value in excess of $100,000 (determined at the
time of grant).
SECTION 7. STOCK APPRECIATION RIGHTS
7.1 A Stock Appreciation Right shall entitle the holder thereof to
receive payment of an amount, in cash, shares of Stock or a combination thereof,
as determined by the Granting Authority, equal in value to the excess of the
fair market value of the number of shares of Stock as to which the award is
granted on the date of exercise over an amount specified by the Granting
Authority. Any such award shall be in such form and shall have such terms and
conditions as the Granting Authority may determine. The grant shall specify the
number of shares of Stock as to which the Stock Appreciation Right is granted.
7.2 The Granting Authority may provide that a Stock Appreciation
Right may be exercised only within the 60-day period following occurrence of a
Change of Control (as defined in Section 17.2) (such Stock Appreciation Right
being referred to herein as a Limited Stock Appreciation Right). The Granting
Authority may also provide that in the event of a Change of Control the amount
to be paid upon exercise of a Stock Appreciation Right shall be based on the
Change of Control Price (as defined in Section 17.3).
SECTION 8. RESTRICTED STOCK
Subject to the following provisions, all awards of Restricted Stock
shall be in such form and shall have such terms and conditions as the Granting
Authority may determine:
(a) The Restricted Stock award shall specify the number of
shares of Restricted Stock to be awarded, the price, if any, to be paid by
the recipient of the Restricted Stock and the date or dates on which, or
the conditions upon the satisfaction of which, the restrictions shall
lapse and the Restricted Stock will vest. The grant and/or the vesting of
Restricted Stock may be conditioned upon the completion of a specified
period of service with the Company or a Related Company, upon the
attainment of specified Performance Objectives or upon such other criteria
as the Granting Authority may determine.
(b) Stock certificates representing the Restricted Stock
awarded under the Plan shall be registered in the award holder's name, but
the Granting Authority may direct that such certificates be held by the
Company on behalf of the award holder. Except as may be permitted by the
Granting Authority, no share of Restricted Stock may be sold, transferred,
assigned, pledged or otherwise encumbered by the award holder until such
share has vested in accordance with the terms of the Restricted Stock
award. At the time Restricted Stock vests, a certificate for such vested
shares shall be delivered to the award holder (or his or her designated
beneficiary in the event of death), free of all restrictions.
(c) The Granting Authority may provide that the award holder
shall have the right to vote or receive dividends on Restricted Stock.
Unless the Granting Authority provides otherwise, Stock received as a
dividend on, or in connection with a stock split of, Restricted Stock
shall be subject to the same restrictions as the Restricted Stock.
(d) Except as may be provided by the Granting Authority, in
the event of an award holder's termination of service before all of his or
her Restricted Stock has vested, or in the event any conditions to the
vesting of Restricted Stock have not been satisfied prior to any deadline
for the satisfaction of such conditions set forth in the award, the shares
of Restricted Stock which have not vested shall be forfeited, and the
Granting Authority may provide that (i) any purchase price paid by the
award holder shall be returned to the award holder or (ii) a cash payment
equal to the Restricted Stock's fair market value on the date of
forfeiture, if lower, shall be paid to the award holder.
(f) The Granting Authority may waive, in whole or in part, any
or all of the conditions to receipt of, or restrictions with respect to,
any or all of the award holder's Restricted Stock, other than Performance
Awards whose vesting was made subject to satisfaction of one or more
Performance Objectives (except that the Committee may waive conditions or
restrictions with respect to Performance Awards if such waiver would not
cause the Performance Award to fail to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code).
SECTION 9. DEFERRED STOCK AWARDS
Subject to the following provisions, all awards of Deferred Stock
shall be in such form and shall have such terms and conditions as the Granting
Authority may determine:
(a) The Deferred Stock award shall specify the number of
shares of Deferred Stock to be awarded and the duration of the period (the
"Deferral Period") during which, and the conditions under which, receipt
of the Stock will be deferred. The Granting Authority may condition the
grant or vesting of Deferred Stock, or receipt of Stock or cash at the end
of the Deferral Period, upon the attainment of specified Performance
Objectives or such other criteria as the Granting Authority may determine.
(b) Except as may be provided by the Granting Authority,
Deferred Stock awards may not be sold, assigned, transferred, pledged or
otherwise encumbered during the Deferral Period.
(c) At the expiration of the Deferral Period, the award holder
(or his or her designated beneficiary in the event of death) shall receive
(i) certificates for the number of shares of Stock equal to the number of
shares covered by the Deferred Stock award, (ii) cash equal to the fair
market value of such Stock, or (iii) a combination of shares and cash, as
the Granting Authority may determine.
(d) Except as may be provided by the Granting Authority, in
the event of an award holder's termination of service before the Deferred
Stock has vested, his or her Deferred Stock award shall be forfeited.
(e) The Granting Authority may waive, in whole or in part, any
or all of the conditions to receipt of, or restrictions with respect to,
Stock or cash under a Deferred Stock award, other than with respect to
Performance Awards (except that the Committee may waive conditions or
restrictions with respect to Performance Awards if such waiver would not
cause the Performance Award to fail to qualify as "performance based
compensation" within the meaning of Section 162(m) of the Code).
SECTION 10. BONUS STOCK
The Granting Authority may award Bonus Stock subject to such terms
and conditions as the Granting Authority shall determine. The grant of Bonus
Stock may be conditioned upon the attainment of specified Performance Objectives
or upon such other criteria as the Granting Authority may determine. The
Granting Authority may waive such conditions in whole or in part other than with
respect to Performance Awards (except that the Committee may waive conditions or
restrictions with respect to Performance Awards if such waiver would not cause
the Performance Award to fail to qualify as "performance-based compensation"
within the meaning of Section 162(m) of the Code). In making a determination
with respect to the terms and conditions of a Bonus Stock award, the Granting
Authority shall also have the right to eliminate or reduce the amount of Bonus
Stock otherwise payable under an award. Unless otherwise specified by the
Granting Authority, no money shall be paid by the recipient for the Bonus Stock.
Alternatively, the Granting Authority may offer the award holder the opportunity
to purchase Bonus Stock at a discount from its fair market value. The Bonus
Stock award shall be satisfied by the delivery of the designated number of
shares of Stock which are not subject to restriction.
SECTION 11. LOANS
The Granting Authority may provide that the Company shall make, or
arrange for, a loan or loans with respect to the exercise of any Stock Option
awarded under the Plan, with respect to the payment of the purchase price, if
any, of any Restricted Stock awarded hereunder or with respect to any taxes
arising from an award hereunder; provided, however, that the Company shall not
loan more than the sum of (i) the excess of the purchase or exercise price of an
award over the par value of any shares of Stock awarded plus (ii) the amount of
any taxes arising from such award. The Granting Authority shall have full
authority to decide whether a loan will be made hereunder and to determine the
amount, term and provisions of any such loan, including the interest rate to be
charged, whether the loan will be with or without recourse against the borrower,
any security for the loan, the terms on which the loan is to be repaid and the
conditions, if any, under which the loan may be forgiven.
SECTION 12. TAX OFFSET PAYMENTS
The Granting Authority may provide for a Tax Offset Payment by the
Company with respect to one or more awards granted under the Plan. The Tax
Offset Payment shall be in an amount specified by the Granting Authority, which
shall not exceed the amount necessary to pay the federal, state, local and other
taxes payable with respect to the applicable award and the receipt of the Tax
Offset Payment, assuming that the award holder is taxed at the maximum tax rate
applicable to such income. The Tax Offset Payment shall be paid solely in cash.
SECTION 13. ELECTION TO DEFER AWARDS
The Granting Authority may permit an employee or Outside Director to
elect to defer receipt of an award (other than an award pursuant to Section 15)
for a specified period or until a specified event, upon such terms as are
determined by the Granting Authority.
SECTION 14. TAX WITHHOLDING
14.1 Each employee shall, no later than the date as of which the
value of an award first becomes includible in such person's gross income for
applicable tax purposes, pay to the Company, or make arrangements satisfactory
to the Committee regarding payment of, any federal, state, local or other taxes
of any kind required by law to be withheld with respect to the award. The
obligations of the Company under the Plan shall be conditional on such payment
or arrangements, and the Company (and, where applicable, any Related Company),
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the employee.
14.2 To the extent permitted by the Committee, and subject to such
terms and conditions as the Committee may provide, an employee may elect to have
the withholding tax obligation, or any additional tax obligation with respect to
any awards hereunder, satisfied by (i) having the Company withhold shares of
Stock otherwise deliverable to such person with respect to the award or (ii)
delivering to the Company shares of unrestricted Stock previously owned by the
person for at least six months.
SECTION 15. AUTOMATIC STOCK OPTIONS, LIMITED STOCK APPRECIATION RIGHTS AND
STOCK GRANTS FOR OUTSIDE DIRECTORS
15.1 Outside Directors shall be granted Stock Options as follows:
(a) INITIAL GRANT. Each person who is an Outside Director on
the date of adoption of the Plan by the Board shall be granted on such
date a Stock Option to purchase the number of whole shares of Stock
obtained by dividing $5,000 by the closing sales price of the Stock on the
date of grant. Each person who becomes an Outside Director after such date
shall be granted, on the first trading day coincident with or immediately
following the effective date of his or her election as an Outside
Director, a Stock Option to purchase the number of whole shares of Stock
obtained by dividing $5,000 by the closing sales price of the Stock on the
date of grant.
(b) QUARTERLY GRANTS. On the first trading day of each
calendar quarter beginning with October 1, 1999, each Outside Director
then serving on the Board and who has served for all or a portion of the
previous calendar quarter shall be granted a Stock Option to purchase the
number of whole shares of Stock obtained by dividing $5,000 by the closing
sales price of the Stock on the date of grant.
(c) For purposes of this Section 15.1, the term trading day
shall mean a day on which the Stock is traded on a national securities
exchange, on the Nasdaq National Market, or in the over-the-counter
market.
(d) Notwithstanding the foregoing, if on any date on which
Stock Options are to be granted under this Section 15.1 the remaining
shares available for issuance to Outside Directors under the Plan are
insufficient to enable each Outside Director to receive a Stock Option to
purchase the applicable number of shares of Stock set forth above, each
Outside Director who is entitled to be granted a Stock Option pursuant to
this Section 15.1 on such date shall be granted a Stock Option to purchase
his or her pro-rata portion of such remaining shares.
Stock Options granted under this Section 15 shall be Non-Qualified
Stock Options, and shall have the following terms and conditions:
(a) OPTION PRICE. The option price per share of Stock
purchasable under the Stock Option shall be equal to the closing sales
price of the Stock on the date the Stock Option is granted.
(b) TERM OF OPTION. The term of the Stock Option shall be ten
years from the date of grant, subject to earlier termination in the event
of termination of service as a director, as set forth in paragraphs (e)
and (f) below.
(c) EXERCISABILITY. Subject to paragraph (f) below, each Stock
Option shall become exercisable with respect to 10% of the underlying
shares on the date which is three months after the date of grant, and an
additional 10% at the end of each three-month period thereafter, less any
shares that have been exercised prior to each such date, provided that the
optionee is a director of the Company on such date. The minimum number of
shares with respect to which a Stock Option may be exercised is the lesser
of 100 shares or the number of shares then subject to the Stock Option.
(d) METHOD OF EXERCISE. The Stock Options may be exercised in
whole or in part at any time during the option period by giving written
notice of exercise to the Company specifying the number of shares to be
purchased, accompanied by payment of the purchase price. Payment of the
purchase price shall be made in cash (including cash equivalents) or by
delivery of shares of Stock already owned by the optionee for at least six
months, or by any combination of the foregoing. Shares delivered upon
payment of the exercise price shall be valued at the average of the high
and low sale prices of the Stock on the date of exercise (or, if the Stock
is not traded on such date, at the weighted average of the high and low
prices on the nearest trading dates before and after such date).
(e) TERMINATION OF SERVICE AS DIRECTOR. If an optionee's
service as a director is terminated for any reason, such director's Stock
Options may be exercised for five years following such termination of
service (but not beyond the Option term), but only to the extent such
Options were vested on the date of termination of service.
(f) Change of Control. Notwithstanding any other provision of
the Plan, upon the occurrence of a Change of Control (as defined in
Section 17.2), all Stock Options outstanding at the time of such Change of
Control shall become immediately vested and exercisable and shall remain
exercisable for five years after the director's termination of service
(but not beyond the option term).
(g) Non-transferability. No Stock Option shall be transferable
by the optionee other than by will or by the laws of descent and
distribution. During an optionee's lifetime, all Stock Options shall be
exercisable only by the optionee or, in the event of the optionee's
disability, by his or her guardian or legal representative.
(h) Shareholder Rights. The holder of a Stock Option shall, as
such, have none of the rights of a shareholder.
15.3 Limited Stock Appreciation Rights in Tandem with Options. Each
Stock Option granted to an Outside Director under this Section 15 shall be
granted in tandem with a Limited Stock Appreciation Right which may be exercised
only within the 60-day period following a Change of Control. Upon exercise of
the Limited Stock Appreciation Right, the holder shall receive, for each share
with respect to which the Limited Stock Appreciation Right is exercised, an
amount equal in value to the excess of the Change of Control Price (as defined
in Section 17.3) over the exercise price of the related Stock Option. The
Limited Stock Appreciation Right shall be payable solely in cash, and shall be
paid within 30 days of the exercise of the Limited Stock Appreciation Right.
Upon the exercise of the Limited Stock Appreciation Right, the Stock Option
granted in tandem with such Right shall expire.
15.4 Quarterly Stock Grants. On the first trading day of each
calendar quarter beginning with the first calendar quarter after the date of
shareholder approval of the Plan, each Outside Director then serving on the
Board and who has served for all or a portion of the previous calendar quarter
shall be granted the number of whole shares of Stock obtained by dividing $2,000
by the closing sales price of the Stock on the date of grant. Notwithstanding
the foregoing, if on any date on which shares are to be granted pursuant to this
Section 15.4 the remaining shares reserved for issuance to Outside Directors
under the Plan are insufficient to enable each Outside Director to receive the
applicable number of shares of Stock set forth above, each Outside Director who
is entitled to be granted shares pursuant to this Section 15.4 shall be granted
his or her pro rata portion of such remaining shares. All shares granted under
this Section 15.4 shall be fully vested and non-forfeitable at the time of
grant.
SECTION 16. AMENDMENTS AND TERMINATION
The Board may discontinue the Plan at any time and may amend it from
time to time. No amendment or discontinuation of the Plan shall adversely affect
any award previously granted without the award holder's written consent.
Amendments may be made without stockholder approval except as required to
satisfy Section 422 of the Code, Section 162(m) of the Code, or other NASDAQ,
stock exchange, or regulatory requirements.
SECTION 17. CHANGE OF CONTROL
17.1 In the event of a Change of Control, unless otherwise
determined by the Granting Authority at the time of grant or by amendment (with
the award holder's consent) of such grant:
(a) all outstanding Stock Options and all outstanding Stock
Appreciation Rights (including Limited Stock Appreciation Rights) awarded
under the Plan shall become fully exercisable and vested;
(b) the restrictions and deferral limitations applicable to
any outstanding Restricted Stock and Deferred Stock awards under the Plan
shall lapse and such shares and awards shall be deemed fully vested; and
(c) to the extent the cash payment of any award is based on
the fair market value of Stock, such fair market value shall be the Change
of Control Price.
17.2 A "Change of Control" shall be deemed to occur on:
(a) the date that any person or group deemed a person under
Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934
(other than the Company and its subsidiaries as determined immediately
prior to that date) has become the beneficial owner, directly or
indirectly (with beneficial ownership determined as provided in rule
13d-3, or any successor rule, under the Securities Exchange Act of 1934)
of securities of the Company representing 25% or more of the total
combined voting power of all classes of stock of the Company having the
right under ordinary circumstances to vote at an election of the Board,
unless such person has acquired 80% or more of such securities directly
from the Company;
(b) the date on which one-third or more of the members of the
Board shall consist of persons other than Current Directors (for these
purposes a "Current Director" shall mean any member of the Board on August
31, 1999 and any member of the Board whose nomination or election has been
approved by a majority of the Current Directors then on the Board);
(c) the date of approval by the stockholders of the Company of
an agreement providing for the merger or consolidation of the Company with
another corporation where (i) the stockholders of the Company, immediately
prior to the merger or consolidation, would not beneficially own,
immediately after the merger or consolidation, shares entitling such
stockholders to 50% or more of all votes (without consideration of the
rights of any class of stock to elect directors by a separate class vote)
to which all stockholders of the corporation issuing cash or securities in
the merger or consolidation would be entitled in the election of
directors, or (ii) where the members of the Board, immediately prior to
the merger or consolidation, would not, immediately after the merger or
consolidation, constitute a majority of the board of directors of the
corporation issuing cash or securities in the merger; or
(d) the date of approval by the stockholders of the Company of
an agreement providing for the sale or other disposition of all or
substantially all of the assets of the Company.
17.3 "Change of Control Price" means the highest price per share
paid in any transaction reported in the Nasdaq National Market or on any
national securities exchange where the Stock is traded, or paid or offered in
any transaction related to a Change of Control at any time during the 90-day
period ending with the Change of Control. Notwithstanding the foregoing
sentence, in the case of Stock Appreciation Rights granted in tandem with
Incentive Stock Options, the Change of Control Price shall be the highest price
paid on the date on which the Stock Appreciation Right is exercised.
SECTION 18. GENERAL PROVISIONS
18.1 Each award under the Plan shall be subject to the requirement
that, if at any time the Granting Authority shall determine that (i) the
listing, registration or qualification of the Stock subject or related thereto
upon any securities exchange or under any state or federal law, or (ii) the
consent or approval of any government regulatory body or (iii) an agreement by
the recipient of an award with respect to the disposition of Stock is necessary
or desirable (in connection with any requirement or interpretation of any
federal or state securities law, rule or regulation) as a condition of, or in
connection with, the granting of such award or the issuance, purchase or
delivery of Stock thereunder, such award shall not be granted or exercised, in
whole or in part, unless such listing, registration, qualification, consent,
approval or agreement shall have been effected or obtained free of any
conditions not acceptable to the Granting Authority.
18.2 Nothing set forth in this Plan shall prevent the Board from
adopting other or additional compensation arrangements. Neither the adoption of
the Plan nor any award hereunder shall confer upon any employee of the Company,
or of a Related Company, any right to continued employment, and no award shall
confer upon any Outside Director any right to continued service as a director.
18.3 Determinations by the Granting Authority under the Plan
relating to the form, amount, and terms and conditions of awards need not be
uniform, and may be made selectively among persons who receive or are eligible
to receive awards under the Plan, whether or not such persons are similarly
situated.
18.4 No member of the Board or the Committee, nor any officer or
employee of the Company acting on behalf of the Board or the Committee, shall be
personally liable for any action, determination or interpretation taken or made
with respect to the Plan, and all members of the Board or the Committee and all
officers or employees of the Company acting on their behalf shall, to the extent
permitted by law, be fully indemnified and protected by the Company in respect
of any such action, determination or interpretation.
SECTION 19. EFFECTIVE DATE OF PLAN
The Plan was adopted by the Company's Board of Directors on August
31, 1999, and shall be effective as of such date, subject to the approval of the
Plan by the Company's stockholders at the 1999 Annual Meeting of Stockholders.
