<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for use of the Commission only (as permitted by Rule
14a-6(e)(2))
Oncor, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
<PAGE> 2
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 3
ONCOR, INC.
209 Perry Parkway
Gaithersburg, Maryland 20877
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO THE HOLDERS OF COMMON STOCK OF ONCOR, INC.:
The annual meeting of stockholders (the "Annual Meeting") of Oncor, Inc.
will be held on June 25, 1998, at the Gaithersburg Hilton Hotel, 620 Perry
Parkway, Gaithersburg, Maryland, 20877, telephone number (301) 977- 8900, at
10:00 a.m., for the following purposes:
1. To elect seven (7) directors to serve until the next Annual Meeting
or until their respective successors shall have been duly elected and
qualified.
2. To ratify the selection of Arthur Andersen LLP as independent public
accountants of the Company for the fiscal year ending December 31, 1998.
3. To approve an amendment to the Company's 1992 Stock Option Plan,
which includes an increase in the number of shares of common stock
available for issuance thereunder by 500,000 shares to a total of 5,515,604
shares.
4. To transact such other business as may properly come before the
meeting.
Holders of Common Stock of record at the close of business on April 30,
1998 will be entitled to vote at the meeting.
By order of the Board of Directors
/s/ JOHN L. COKER
John L. Coker
Secretary
Gaithersburg, Maryland
April 30, 1998
- --------------------------------------------------------------------------------
IMPORTANT NOTICE
To assure your representation at the meeting, please complete, date, sign,
and mail promptly the enclosed proxy for which a return envelope is provided.
- --------------------------------------------------------------------------------
<PAGE> 4
ONCOR, INC.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
JUNE 25, 1998
GENERAL INFORMATION
The accompanying proxy is solicited by the Board of Directors of the
Company. Stockholders may revoke their proxies at any time prior to the time
they are voted at the meeting by filing with the Secretary of the Company a
written notice of revocation, by duly executing and delivering a subsequent
proxy bearing a later date or by attending the meeting and voting in person.
The record date for stockholders entitled to vote at the Annual Meeting is
April 30, 1998.
The Company has two classes of outstanding shares of capital stock, Common
Stock, par value $0.01 per share, and Series A Convertible Preferred Stock, par
value $0.01 per share. As of April 24, 1998, there were 30,123,890 shares of
Common Stock outstanding. At the Annual Meeting, each share of Common Stock is
entitled to one vote; shares of Series A Convertible Preferred Stock do not have
voting rights.
The shares represented by each valid proxy will be voted at the Annual
Meeting or any adjournment thereof, and, if a choice is specified in the proxy,
the shares will be voted in accordance with such specification. If no vote is
specified, the shares will be voted as set forth in the proxy.
Under Maryland law, there is a statutory presumption that a proposal passes
if it receives a majority of the votes cast at a meeting at which a quorum is
present. The Company's by-laws contain similar provisions. Abstentions and
"broker non-votes" count for quorum purposes, but have no effect on the outcome
of the vote on any of the matters to be considered at the Annual Meeting. A
"broker non-vote" occurs if a broker or other nominee does not have
discretionary authority and has not received instructions with respect to a
particular item. Stockholders may not cumulate their votes.
So far as the Directors of the Company are aware, no matters will be
presented to the meeting for action on the part of the stockholders other than
those stated in the notice. If any other matter is properly brought before the
meeting, it is the intention of the persons named in the accompanying proxy to
vote thereon the shares to which the proxy relates in accordance with their best
judgment.
The Company has engaged Morrow & Co., Inc. to aid in the solicitation,
which will be undertaken by mail, telephone, telegraph and personal contact and
which may include solicitation by officers and employees of the Company. Costs
of the solicitation are expected to be approximately $4,000 plus out of pocket
expenses and will be borne by the Company. This Proxy Statement, the
accompanying proxy, and a copy of the Company's Annual Report on Form 10-K are
first being mailed to stockholders on or about May 15, 1998.
<PAGE> 5
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 31, 1998 by each person
known by the Company to own beneficially more than 5% of the outstanding Common
Stock. In addition, this table includes the outstanding voting securities
beneficially owned by directors, director nominees and the Named Executive
Officers (as defined below) and the number of shares owned by directors and
executive officers as a group.
<TABLE>
<CAPTION>
DIRECTORS, OFFICERS Amount and Nature of Percent
AND 5% STOCKHOLDERS Beneficial Ownership(1) of Class(1)
------------------- ----------------------- -----------
<S> <C> <C>
Mellon Bank Corporation (2) ............................ 4,124,600 13.8%
One Mellon Bank Center
500 Grant Street
Pittsburgh, PA 15258
President and Fellows of Harvard College (3) ........... 1,821,500 6.1
c/o Harvard Management Company, Inc.
600 Atlantic Avenue
Boston, MA 02210
Stephen and Nancy H. Turner (4) ........................ 1,080,411 3.6
Cecil Kost (5) ......................................... 245,000 *
Timothy J. Triche (6) .................................. 141,500 *
William H. Taylor II (7) ............................... 40,254 *
Jose J. Coronas (8) .................................... 62,500 *
Derace L. Schaffer (9) ................................. 163,000 *
John L. Coker (10) ..................................... 134,999 *
Robert J. Hohman (11) .................................. 24,751 *
John P. Kennealy (12) .................................. 19,091 *
All Directors and Executive Officers of the Company as a
group (13 persons) (13) ................................ 2,027,340 6.5%
</TABLE>
- ----------
* Represents beneficial ownership of less than 1% of Common Stock.
(1) Based on 29,983,917 shares of Common Stock outstanding as of March
31, 1998. Gives effect to the shares of Common Stock issuable within
60 days after March 31, 1998 upon the exercise of all options, unit
purchase options, warrants and other rights beneficially held by the
indicated stockholder on that date.
2
<PAGE> 6
(2) Based solely on information contained in a Schedule 13G filed, as of
January 22, 1998, by Mellon Bank Corporation with the Securities and
Exchange Commission (the "Commission"), pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and
information provided by Mellon Bank Corporation.
(3) Based solely on information contained in a Schedule 13G filed, as of
February 13, 1998, by the President and Fellows of Harvard College
with the Commission, pursuant to the Exchange Act.
(4) Consists of (i) 725,465 shares of Common Stock owned jointly by
Stephen and Nancy Turner, (ii) 300,000 shares of Common Stock
issuable upon exercise of two stock options held by Mr. Turner,
individually, and (iii) 54,946 shares of Common Stock issuable upon
the exercise of unit purchase options held jointly by Stephen and
Nancy Turner to purchase 17,333 units, each unit consisting of two
shares of Common Stock and one warrant to purchase 1.17 additional
shares of Common Stock, and upon the exercise of such warrant.
Stephen Turner and Nancy Turner are husband and wife.
(5) Consists of 245,000 shares of Common Stock issuable upon exercise of
two stock options.
(6) Includes 112,500 shares of Common Stock issuable upon exercise of
three stock options.
(7) Includes (i) 37,500 shares of Common Stock issuable upon exercise of
a stock option, (ii) 200 shares held by Dr. Taylor's wife as
custodian of two trusts established pursuant to the California
Uniform Trust for Minors Act, as to which Dr. Taylor disclaims
beneficial ownership and (iii) 200 shares held by a trust for which
Dr. Taylor is a beneficiary.
(8) Consists of 62,500 shares of Common Stock issuable upon exercise of
two stock options.
(9) Includes (i) 100,000 shares of Common Stock issuable upon exercise
of four stock options and (ii) 3,000 shares held by Dr. Schaffer's
wife as custodian of trusts established for the benefit of Dr.
Schaffer's children, as to which Dr. Schaffer disclaims beneficial
ownership.
(10) Consists of 134,999 shares of Common Stock issuable upon exercise of
three stock options.
(11) Includes 23,751 shares of Common Stock issuable upon exercise three
stock options.
(12) Includes 14,091 shares of Common Stock issuable upon exercise of two
stock options.
(13) See Notes (4) through (12) above.
3
<PAGE> 7
ELECTION OF DIRECTORS
The Amended and Restated By-Laws of the Company provide that the Board of
Directors shall consist of no less than three, and no more than eight directors.
The Board of Directors has determined that the Board shall consist of seven (7)
directors. Directors elected at the 1998 Annual Meeting will continue in office
until the next annual meeting of stockholders or until their respective
successors are duly elected and qualified.
The Board of Directors currently has seven (7) members, all of whom are
nominees for election. Jose J. Coronas, Cecil Kost, Derace L. Schaffer, William
H. Taylor II, Timothy J. Triche and Stephen Turner were elected to the Board of
Directors by the stockholders at the 1997 Annual Meeting. Jeffrey S. Ross was
appointed by the Board of Directors to fill a vacancy on the Board in April
1998.
The persons named in the accompanying proxy will vote in favor of electing
the nominees, unless otherwise specified in the proxy. If any nominee shall
become unavailable for election, the proxies will be voted for the election of
such persons, if any, as shall be designated by the Board of Directors.
A plurality of the votes cast at the Annual Meeting is required to elect a
director.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THESE NOMINEES. Certain
information concerning such nominees is set forth below:
<TABLE>
<CAPTION>
First Became
NAME Age a Director Principal Occupation or Employment
- ---- --- ---------- ----------------------------------
<S> <C> <C> <C>
Jose J. Coronas 56 1996 Mr. Coronas has served as a director of the Company since
December 1996 and became Chairman of the Board of
Directors in September 1997. Mr. Coronas has served as the
Company's acting Chief Executive Officer since March 1998.
He also serves as a Management Consultant. From 1994 to
1996, Mr. Coronas was President of Johnson & Johnson
Clinical Diagnostics, Inc. Prior to his two years with Johnson
& Johnson, Mr. Coronas was Vice President and General
Manager of the Clinical Diagnostics Division of Eastman
Kodak Company ("Kodak"). While at Kodak, Mr. Coronas
served in a number of management positions in the U.S. and
Europe from 1966 to 1994. He also served as President and
CEO of Genencor International, Inc., a joint venture of
Eastman and Cultor Ltd. of Finland. Mr. Coronas is a past
Director of the Industrial Biotechnology Association and is
currently on the Board of Directors of the Ibero-American
Action League, Inc.; St. Mary's Hospital; United Way of
Greater Rochester, Inc.; and the Visiting Nurse Service of
Rochester and Monroe County, Inc.
</TABLE>
4
<PAGE> 8
<TABLE>
<CAPTION>
First Became
NAME Age a Director Principal Occupation or Employment
- ---- --- ---------- ----------------------------------
<S> <C> <C> <C>
Cecil Kost 44 1996 Mr. Kost joined the Company as President and Chief Operating
Officer in March 1996 and was elected to the Board of
Directors in August 1996. Prior to joining the Company, Mr.
Kost was a Senior Vice-President with Curtin Matheson
Scientific, Inc. ("CMS"), a health care/diagnostics company.
At CMS, Mr. Kost was responsible for the company's clinical,
industrial/research and international business sectors as well as
the company's diagnostic manufacturing operations. In
addition to his duties at CMS, Mr. Kost served as Chairman of
the Laboratory Products Association ("LPA"), a trade
association of businesses serving industrial and research
laboratories.
Jeffrey S. Ross 52 1998 Dr. Ross has served as a director of the Company since April
1998. Since October 1995, Dr. Ross has served as the
Company's Medical Director and became the Company's Chief
Medical Officer in April 1998. He is also Medical Director for
Managed Care for the Northeast Division of the Laboratory
Corporation of America, an independent laboratory company.
Since 1989, Dr. Ross has been the Cyrus Strong Merrill
Professor and Chairman of the Department of Pathology and
Laboratory Medicine at the Albany Medical College. In addition,
he serves as Commissioner of the American Society of
Pathologists, and Associate Editor for Basic Sciences
of the American Journal of Clinical Pathology. Dr. Ross also
has served as President of the Massachusetts Medical
Legal Society. From 1976 to 1989, Dr. Ross held various
positions, including Associate in Pathology at Massachusetts
General Hospital and Harvard Medical School, Professor of
Pathology at the University of Massachusetts Medical School
and Director of Anatomic Pathology at the Berkshire Medical
Center in Pittsfield, Massachusetts.
Derace L. Schaffer 50 1996 Dr. Schaffer has served as a director of the Company since
December 1996. He is currently Clinical Professor of
Radiology at the University of Rochester School of Medicine.
Dr. Schaffer has been President of the Ide Group, P.C., a large
multi-specialty group medical practice in New York State since
1980, and is also President of the Lan Group, a venture capital
firm specializing in health care investments. Dr. Schaffer is a
director of American Physician Partners, Inc., The Care Group,
Inc., and Patient InfoSystems, Inc. He is also a director of
several private companies including Analytika, Inc., Logisticare,
Medical Records Corporation, Inc. and NeuralTech, Inc. Dr.
Schaffer is a board certified radiologist. He was Chief Resident
at the Massachusetts General Hospital during residency training
and was a Clinical Fellow at Harvard Medical School. Dr.
Schaffer is a member of Alpha Omega Alpha, the national medical
honor society.
</TABLE>
5
<PAGE> 9
<TABLE>
<CAPTION>
First Became
NAME Age a Director Principal Occupation or Employment
- ---- --- ---------- ----------------------------------
<S> <C> <C> <C>
William H. Taylor II 58 1990 Dr. Taylor has served as a director of the Company since
November 1990. He is currently the Managing General Partner
of Taylor & Company, an investment company. He has been a
principal in several venture capital firms since 1968. Since
1982, Dr. Taylor has been a general partner of several
affiliated venture capital partnerships located in San Francisco,
including Taylor and Turner, L.P. and Rotan Mosle
Technology Partners Ltd. He serves as a director of
Stonebridge Growth Fund and Stonebridge Aggressive Growth
Funds and is also Chairman of the Business Advisors Board of
AMT Ventures, a materials science venture capital fund.
Timothy J. Triche 52 1988 Dr. Triche has served as a director of the Company since
December 1988. In 1994, he became Chairman of the Board
and Chief Executive Officer of OncorMed, Inc., a clinical
services company. He is currently Pathologist- in-Chief for the
Children's Hospital of Los Angeles in Los Angeles, California
and Professor of Pathology and Pediatrics at, and Vice
Chairman of, the University of Southern California School of
Medicine, Los Angeles, California. Prior to June 1988, he was
Chief of the Ultrastructural Laboratory of the Division of
Pathology at the National Cancer Institute of the National
Institutes of Health in Bethesda, Maryland.
Stephen Turner 52 1983 Mr. Turner has served as a director of the Company since the
Company's inception in 1983 and served as the Company's
Chairman of the Board of Directors and Chief Executive
Officer from the Company's inception until March 1998. Mr.
Turner became the Chief Executive Officer of Codon
Pharmaceuticals, Inc. ("Codon"), formerly known as
OncorPharm, Inc., in March 1998, and has served as Codon's
Chairman of the Board of Directors since 1994. Mr. Turner has
also served as a director of OncorMed, Inc. since July 1993.
Prior to founding the Company, from 1976 to 1983, Mr. Turner
was the founder and Chairman of the Board of Bethesda Research
Laboratories, Inc. ("BRL"), now a division of Life
Technologies, Inc. BRL is a biotechnology company engaged in
the business of molecular biology. Prior to BRL, Mr. Turner was
employed by Becton Dickinson and Company, a health care
company.
</TABLE>
6
<PAGE> 10
BOARD MEETINGS AND ATTENDANCE OF DIRECTORS
During 1997, the Board of Directors held 16 meetings in person or by
conference call and took action by written consent on four occasions. Each
incumbent Director attended at least 75% of the Board meetings and at least 75%
of the meetings of the committees on which he served during such period, with
the exception of Dr. Schein, who attended three of seven meetings held during
his tenure on the Board of Directors in 1997, which ended in June 1997 when Dr.
Schein decided not to stand for re-election to the Board of Directors. Dr.
Bartlett served as a Director of the Company throughout 1997 and until his death
in March 1998.
COMMITTEES OF THE BOARD OF DIRECTORS
The Compensation and Stock Option Committee currently consists of Drs.
Schaffer and Taylor, and administers the Company's compensation and stock option
plans. During 1997, the Compensation and Stock Option Committee met one time and
acted by unanimous written consent three times. The Compensation and Stock
Option Committee consisted of Drs. Bartlett, Schein and Taylor until April 1997,
when the Board appointed Dr. Schaffer and Mr. Coronas to replace Drs. Schein and
Taylor, respectively. In March 1998, the Board appointed Dr. Taylor to replace
Mr. Coronas. Dr. Bartlett served as a member of the Compensation and Stock
Option Committee throughout 1997 and until his death in March 1998.
The Audit Committee, which currently consists of Drs. Schaffer and Taylor
and Mr. Coronas, recommends the Company's independent public accountants
annually to the Board of Directors and consults with such accountants on the
planning of the annual audit and periodic reviews, and on any issues arising
from audits and periodic reviews. The Audit Committee met four times in 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There were no compensation committee interlocks during 1997. See
"Committees of the Board of Directors" for information concerning the
Compensation and Stock Option Committee.
DIRECTOR COMPENSATION
Directors of the Company do not receive cash compensation for service as
directors despite the provision in the Company's By-Laws that the Board of
Directors by resolution may allow directors a fixed sum and expenses for
attendance at Board or Committee meetings. During 1997, Mr. Coronas, Dr.
Bartlett and Dr. Taylor received cash compensation for consulting of $13,364,
$22,500 and $6,732, respectively. Directors are reimbursed for their expenses
associated with their participation on the Board.
Under the automatic option grant program of the Company's 1992 Stock Option
Plan, each individual who first becomes a non-employee Board member will
automatically receive at that time an option grant for 50,000 shares of Common
Stock. Accordingly, Dr. Ross received an option grant for 50,000 shares at an
exercise price equal to the fair market value on the date of his appointment to
the Board in April 1998. In addition, on the date of each Annual Stockholders
Meeting, each non-employee Board member who is re-elected at such meeting and
who has completed three (3) consecutive years of service as a non-employee Board
member will automatically be granted an option to purchase 50,000 shares of
Common Stock. Accordingly, Drs. Taylor and Triche will each receive an option
grant for 50,000 shares on the date of the Annual Meeting (if each is re-elected
at the Annual Meeting) at an exercise price equal to the fair market value on
the date of the Annual Meeting. For further information regarding the options
granted under the Automatic Option Grant Program, please refer to "Approval of
Amendments to 1992 Stock Option Plan."
In June 1997, Mr. Coronas and Dr. Schaffer each received an option grant
for 60,000 shares and Drs. Bartlett, Taylor and Triche each received an option
grant for 40,000 shares at an exercise price equal to $3.66. These options
become exercisable with respect to one-third of the option shares upon
completion of one year of service measured from the grant date and will become
exercisable for the remaining shares in equal annual installments over the
following two years of service thereafter.
7
<PAGE> 11
EXECUTIVE COMPENSATION
The executive officers of the Company on March 31, 1998 were the following:
<TABLE>
<CAPTION>
NAME Age Position
- ---- --- --------
<S> <C> <C>
Jose J. Coronas.............................. 53 Chairman of the Board of Directors and Acting Chief
Executive Officer
Cecil Kost................................... 44 President and Chief Operating Officer
John L. Coker................................ 51 Vice President-- Finance and Administration, Chief
Financial Officer, Secretary and Treasurer
Barbara H. Keech............................. 49 Vice President-- Regulatory Affairs and Quality
Assurance
Robert J. Hohman............................. 44 Vice President-- Research and Development
John P. Kennealy............................. 57 Vice President-- Corporate Development
Ronald W. Deen............................... 53 Vice President-- Operations and Manufacturing
Bernard R. Tyrrell........................... 43 Vice President-- Marketing and Sales
Massimo A. Marchiori......................... 46 Corporate Controller
</TABLE>
8
<PAGE> 12
SUMMARY COMPENSATION TABLE
The following table sets forth the annual and long-term compensation for
the Company's Chief Executive Officer who served in such capacity in 1997 and
the four highest paid executive officers in 1997 (the "Named Executive
Officers"), as well as the compensation paid to each individual, for the
Company's three previous fiscal years. No executive officer who would have
otherwise been included in such table on the basis of salary and bonus earned
for 1997 resigned or terminated employment during the fiscal year.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
------------------------- ----------
SECURITIES
UNDERLYING
SALARY BONUS OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($) (#) COMPENSATION
- --------------------------- ------ --------- --------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Stephen Turner(1)..................... 1997 240,000 -- -- 23,460(2)
Former Chief Executive Officer 1996 240,000 -- -- --
1995 240,000 -- -- 10,000(3)
Cecil Kost............................ 1997 250,000 39,500 -- 9,436(5)
President and Chief 1996 189,210(4) 52,083 350,000 66,184(5)
Operating Officer
John L. Coker......................... 1997 174,417 -- -- --
Vice President-- 1996 150,000 -- 65,000 --
Finance and Administration, 1995 147,500 -- 20,000 --
Secretary, Treasurer and
Chief Financial Officer
John P. Kennealy...................... 1997 155,000 -- 100,000(7) 20,000(5)
Vice President-- 1996 155,000 -- -- --
Corporate Development 1995 63,863(6) -- 100,000(7) --
Robert J. Hohman...................... 1997 147,400 -- 60,000(8) --
Vice President-- 1996 134,000 -- -- --
Research and Development 1995 122,040 -- 55,000(9) --
</TABLE>
- ----------
(1) Stephen Turner served as Chief Executive Officer of the Company from its
inception in 1983 until March 1998.
(2) Reflects life insurance premium.
(3) Miscellaneous cash reimbursements.
(4) Represents the portion of Mr. Kost's annual compensation subsequent to his
joining the Company on March 18, 1996.
(5) Relocation reimbursements.
(6) Represents the portion of Dr. Kennealy's annual compensation subsequent to
his joining the Company on August 1, 1995.
(7) Consists of an option granted in May 1997 at a new exercise price in
cancellation of 100,000 shares underlying a pre-existing option originally
granted in 1995, but with a higher exercise price.
(8) Consists of options granted in May 1997 at a new exercise price in
cancellation of an aggregate of 60,000 shares underlying pre-existing
options originally granted in 1993 and 1995, respectively, but with a
higher exercise price.
(9) Includes an option granted in May 1997 at a new exercise price in
cancellation of 20,000 shares underlying a pre-existing option originally
granted in 1995, but with a higher exercise price.
9
<PAGE> 13
STOCK OPTION GRANTS
The following table contains information concerning the grant of stock
options under the Company's 1992 Stock Option Plan to the Named Executive
Officers for the 1997 fiscal year. No stock appreciation rights were granted
during such fiscal year to the Named Executive Officers.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
-----------------------------------------------------------------------
NUMBER OF
SECURITIES % OF TOTAL POTENTIAL REALIZABLE VALUE AT
UNDERLYING OPTIONS MARKET ASSUMED ANNUAL RATES OF
OPTIONS GRANTED TO EXERCISE OF PRICE ON STOCK PRICE APPRECIATION FOR
GRANTED EMPLOYEES IN PRICE DATE OF EXPIRATION OPTION TERM(3)
NAME (#)(1) FISCAL YEAR ($/SHARE)(2) GRANT DATE 5% 10%
- ---- -------- ------------- ------------ ------- ------ -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Stephen Turner....... -- -- -- -- -- -- --
Cecil Kost........... -- -- -- -- -- -- --
John L. Coker........ -- -- -- -- -- -- --
John P. Kennealy..... 100,000(4) 7.4% $3.625 $3.625 5/23/07 $227,974 $547,720
Robert J. Hohman..... 60,000(4) 4.4 3.625 3.625 5/23/07 136,785 346,639
</TABLE>
- ----------
(1) Each option has a maximum term of 10 years, subject to earlier termination
in the event of the optionee's cessation of service with the Company. Each
option will become exercisable with respect to 25% of the option shares
upon completion of one year of service measured from the grant date and
will become exercisable for the remaining shares in equal annual
installments over the following three years of service thereafter. The
exercise schedule is subject to acceleration in the event of an acquisition
of the Company in which the options are not assumed by the successor.
(2) The exercise price may be paid in (i) cash, (ii) shares of Common Stock
held for the requisite period necessary to avoid a charge to the Company's
earnings for financial reporting purposes and valued at fair market value
on the exercise date, (iii) a combination of (i) and (ii), or (iv) through
a broker-dealer sale.
(3) Potential realizable value is based on assumption that the stock price of
the Common Stock appreciates at the annual rate shown (compounded annually)
from the date of grant until the end of the ten-year option term. These
numbers are calculated based on the requirements promulgated by the
Securities and Exchange Commission and do not reflect the Company's
estimate of future stock price growth. There is no assurance provided to
any executive officer or any other holder of the Company's securities that
the actual stock price appreciation, if any, over the 10-year option term
will be at the assumed 5% and 10% levels or at any other defined level.
With respect to options granted at fair market value, unless the market
price of the Common Stock does in fact appreciate over the option term, no
value will be realized from the option grants made to the named executive
officers.
(4) On May 23, 1997, the Board of Directors authorized an option
cancellation/regrant program which allowed active current option holders to
forego earned vesting and elect to exchange all or some of their
outstanding options with exercise prices in excess of $3.625 per share for
new options under the 1992 Stock Option Plan to purchase shares of the
common stock at a new price of $3.625, the closing price on May 23, 1997,
the regrant date under the option cancellation/regrant program. The options
granted to Messrs. Kennealy and Hohman were granted on May 23, 1997 in
exchange for the cancellation of options for the same number of shares
previously granted with an exercise price in excess of $3.625 per share.
10
<PAGE> 14
STOCK OPTION EXERCISES AND FISCAL YEAR END VALUES
No options or SARs were exercised during 1997 and no SARs were outstanding
as of December 31, 1997. The following table sets forth information regarding
the number and value of any unexercised stock options held by the Named
Executive Officers as of December 31, 1997.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
TOTAL NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR END FISCAL YEAR END(1)
----------------------------------- -------------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
(#) (#) ($) ($)
NAME --------------- ---------------- ----------------- ----------------
- ----
<S> <C> <C> <C> <C>
Stephen Turner......................... 300,000 -- $62,600 --
Cecil Kost............................. 140,000 210,000 -- --
John L. Coker.......................... 134,999 50,001 -- --
John P. Kennealy....................... -- 100,000 -- $100,000
Robert J. Hohman....................... 17,498 77,502 10,936 70,939
</TABLE>
- ----------
(1) At December 31, 1997, the closing bid stock price was $4.625 per share.
EMPLOYMENT AND SEVERANCE AGREEMENTS
The Company and Stephen Turner, who served as the Company's Chief
Executive Officer until March 1998 when he became Chief Executive Officer of
Codon, are parties to an Employment and Management Continuity Agreement (the
"Turner Agreement"), effective September 29, 1997. Pursuant to the Turner
Agreement, which provides for a two-year term, Mr. Turner is entitled to
receive minimum annual compensation of $240,000 base salary and a discretionary
bonus, if any, as may be authorized by the Board. In addition, pursuant to the
terms of the Turner Agreement, the Company reduced the outstanding indebtedness
of Mr. Turner to the Company by $75,000 in March 1998 in consideration of Mr.
Turner's continued employment throughout that period. The Turner Agreement
obligates Mr. Turner to certain confidentiality, non-competition and
non-solicitation provisions during his employment and for specified periods
thereafter.
In addition, under the Turner Agreement, in the event of a change in
control (as defined therein) of the Company, the Company is required to provide
Mr. Turner with a severance payment equal to 24 months of his base compensation
in effect at such time. In the event Mr. Turner's employment is terminated
under circumstances constituting an involuntary termination (as defined
therein) prior to a change of control, Mr. Turner shall receive severance
payments equal to his base compensation in effect at such time for a period of
24 months. In the event Mr. Turner is terminated for cause, he is not entitled
to receive any of the foregoing severance payments.
The Company and each of Messrs. Kost and Coker are parties to a
Management Continuity Agreement (the "Management Agreement"), effective
September 29, 1997. Pursuant to the terms of the Management Agreement, in the
event of a change in control (as defined therein) of the Company or an
involuntary termination (as defined therein), whichever occurs earlier, the
Company is required to provide each of Messrs. Kost and Coker with severance
payments equal to his respective base compensation in effect at the time of such
event for a period of 20 months and 18 months following such event,
respectively. In addition, upon consummation of a sale (as defined therein),
each of Messrs. Kost and Coker shall receive a payment of at least $125,000,
depending on the aggregate amount of consideration underlying such sale. Such
payment shall be increased as follows: (i) by .125% of the consideration
between $100 million and $130 million, (ii) by .175% of the consideration
between $130 million and $165 million and (iii) by .25% of the consideration in
excess of $165 million.
Pursuant to the Management Agreement, if either Messrs. Kost or Coker
is terminated for cause (as defined therein), such executive shall not be
entitled to the foregoing severance payments, except as provided in such
executive's employment letter agreements, dated March 15, 1996 and January
22, 1994, respectively. The Management Agreement terminates on June 3, 1998,
unless extended by mutual agreement in writing.
The Company and John P. Kennealy are parties to an employment
agreement, dated August 14, 1995, pursuant to which Dr. Kennealy receives an
annual base salary of $155,000.
CERTAIN TRANSACTIONS
In April 1997, the Company agreed to guarantee certain loans made to Mr.
Turner in an aggregate principal amount equal to $1,045,000. In February 1998,
Mr. Turner repaid the loan in part and the Company obtained a release of
$850,000, which was used to collateralize the Company's guarantee of the loan.
In April 1998, Mr. Turner repaid the remaining balance and the Company was
released from its guarantee. Furthermore, the Company has made advances to or
paid expenses on behalf of Mr. Turner in an amount outstanding at December 31,
1997 of $296,874. Pursuant to the terms of the Turner Agreement, the Company
reduced the outstanding indebtedness of Mr. Turner to the Company by $75,000 in
March 1998 in consideration of Mr. Turner's continued employment throughout
that period. See "Employment and Severance Agreements" above.
OPTION REPRICING
As discussed in the Compensation and Stock Option Committee Report below,
on May 23, 1997 the Company implemented a special option cancellation/regrant
program (the "1997 Regrant Program") for all of its employees (including
executive officers, except for Messrs. Kost, Coker and Turner) holding stock
options issued under the 1992 Stock Option Plan with an exercise price per share
in excess of the fair market value of the Company's Common Stock on the regrant
date. The cancellations/regrants were effected on May 23, 1997, and
approximately 462,000 outstanding options with an exercise price in excess of
$3.625 per share were surrendered for cancellation and new options for the same
aggregate number of shares were granted with an exercise price of $3.625 per
share.
11
<PAGE> 15
TEN-YEAR OPTION REPRICINGS
The following table sets forth, as of March 31, 1998, information with
respect to the Named Executive Officers (except for Messrs. Kost, Coker and
Turner who were not eligible to participate in the 1997 Regrant Program) and
each of the Company's executive officers concerning his or her participation in
the 1997 Regrant Program effected on May 23, 1997.
<TABLE>
<CAPTION>
EXERCISE
NUMBER OF PRICE AT LENGTH OF ORIGINAL
SECURITIES MARKET PRICE OF TIME OF OPTION TERM
UNDERLYING STOCK AT TIME REPRICING OR NEW REMAINING AT DATE
OPTION OF REPRICING OR AMENDMENT EXERCISE OF REPRICING
NAME DATE REPRICED (#) AMENDMENT ($) ($) PRICE ($) OR AMENDMENT
- ----------------------- ------- ------------- ---------------- ------------ ----------- ------------------
<S> <C> <C> <C> <C> <C> <C>
John P. Kennealy....... 5/23/97 100,000 $3.625 $6.875 $3.625 8 years
Vice President--
Corporate
Development
Robert H. Hohman....... 5/23/97 40,000 3.625 7.50 3.625 6 years
Vice President-- 5/23/97 20,000 3.625 6.875 3.625 8 years
Research and
Development
Jose J. Coronas........ -- -- -- -- -- --
Acting Chief
Executive Officer
Barbara H. Keech....... -- -- -- -- -- --
Vice President--
Regulatory Affairs
and Quality
Assurance
Ronald W. Deen......... 5/23/97 100,000 3.625 6.25 3.625 9 years
Vice President--
Operations and
Manufacturing
Bernard R. Tyrrell..... -- -- -- -- -- --
Vice President--
Marketing and
Sales
Massimo A. Marchiori... 5/23/97 20,000 3.625 4.75 3.625 9.5 years
Corporate
Controller
</TABLE>
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Under the securities laws of the United States, the Company's executive
officers, directors and any persons holding more than ten percent of the
Company's Common Stock are required to report initial ownership of the Company's
Common Stock and any subsequent changes in ownership to the Securities and
Exchange Commission ("SEC"). Specific due dates have been established by the SEC
and the Company is required to disclose in this Proxy Statement any failure to
file by the appropriate dates. Officers, directors and greater than 10%
stockholders are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms they file.
To the Company's knowledge, based solely upon the copies of Section 16(a)
reports which the Company received from such persons for their 1997 fiscal year
transactions, the Company believes that all Section 16(a) filing requirements
applicable to such officers, directors and greater than 10% stockholders were
complied with.
12
<PAGE> 16
COMPENSATION AND STOCK OPTION COMMITTEE REPORT
It is the responsibility of the Company's Compensation and Stock Option
Committee (the "Committee") to exercise the authority of the Board of Directors
with respect to (i) evaluation of performance of management, (ii) compensation
of executive officers and (iii) administration of the Company's stock option
plan.
EXECUTIVE COMPENSATION POLICY
The Company's overall compensation philosophy is as follows:
- Attract and retain quality talent, which is critical to both the
short-term and long-term success of the Company.
- Reinforce financial and strategic performance objectives through
incentive stock option compensation that shares the rewards and risks
of strategic decision making.
To reflect this philosophy in determining executive compensation levels,
the Committee conducts annual reviews of all executives to evaluate the
performance of each individual employee, including each person's decision-making
responsibilities and work-related accomplishments, and the performance of the
Company over the previous year.
In determining the level of executive compensation, including the executive
compensation level for 1997, the Committee weighed the performance of the
Company during the prior year and the contribution of the executive officers of
the Company to such performance. The performance of the Company is determined by
the Company's research developments, progress in its clinical trials, sales
performance and progress in its product approval process. The compensation
levels of the Company's executives are also compared to the levels of executive
compensation paid by other corporations in the health care industry. In
particular, comparisons are made by the Committee with respect to salary levels,
bonuses, and stock option awards. Such comparisons are made to companies in the
health care industry with which the members of the Committee are familiar and to
other companies which are similar in size and complexity of research and
operations. These companies are not chosen based on any published index or the
peer group index used in the stock performance graph below. The Company strives
to set its overall compensation level, as well as the individual components of
such compensation, near the median of such comparison companies.
BASE COMPENSATION
The Committee's approach to base compensation is to offer competitive
salaries in comparison to competitive market practices. The Committee uses
market compensation levels as a frame of reference for starting salary offers
and annual salary adjustments. Salary reviews are conducted annually with input
from the CEO and President. The Committee considers the decision-making
responsibilities for each position and the experience and work performance of
position incumbents. While it is the general policy of the Company not to award
performance-based cash bonuses, the Committee has from time to time authorized
cash bonuses if deemed to be in the best interest of the Company. The
circumstances for such awards vary but have included bonus payments pursuant to
the terms of negotiated employment agreements; arrangement of transactions,
acquisition and financing; and the development of certain technology.
STOCK OPTIONS
Historically, the Committee has awarded stock options to each of the
Company's executive officers (i) to attract new quality officers to join the
Company and (ii) to reward executive officers for accomplishing performance
objectives. Performance objectives are generally set based on the Company's
sales performance, research developments and progress in its clinical trials and
its product approval process, and are specifically set
13
<PAGE> 17
based on the measure which corresponds to the position held by the executive
officer. The Committee considers market practices for similar positions in
similar industries and the amount and terms of prior awards to an individual in
granting stock options. There were 380,000 stock options granted to executive
officers in 1997.
DEDUCTION LIMIT FOR EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to publicly held companies for compensation exceeding
$1 million paid to certain of the corporation's executive officers. The
limitation applies only to compensation which is not considered to be
performance-based compensation. Compensation which qualifies as
performance-based compensation will not have to be taken into account for
purposes of this limitation. The 1992 Stock Option Plan contains certain
provisions which are intended to assure that any compensation deemed paid in
connection with the exercise of stock options granted under the plan with an
exercise price equal to the market price of the option shares on the grant date
will qualify as performance-based compensation. The non-performance based
compensation paid to the Company's executive officers for 1997 did not exceed
the $1 million limit per officer, nor is it expected that the non-performance
based compensation to be paid to the Company's executive officers for fiscal
1998 will exceed that limit. Because it is very unlikely that the compensation
payable to any of the Company's executive officers in the foreseeable future
will approach the $1 million limit, the Committee has not taken any action to
limit or restructure the elements of cash compensation payable to the Company's
executive officers. The Committee will reconsider this matter should the
individual compensation of any executive officer ever approach the $1 million
level.
SPECIAL OPTION REGRANT PROGRAM
During the 1997 fiscal year, the Compensation Committee felt that
circumstances had made it necessary for the Company to implement the 1997
Regrant Program. Accordingly, on May 23, 1997, all of the Company's employees
(including executive officers, except for Messrs. Kost, Coker and Turner) and
non-employee Board members were given the opportunity to surrender their
outstanding options issued under the 1992 Stock Option Plan with exercise prices
in excess of $3.625 per share in return for a new option grant for the same
number of shares but with a lower exercise price of $3.625 per share, the fair
market value per share of the Company's Common Stock on the regrant date. Each
employee eligible for a new option grant was given the choice of accepting that
option with a new vesting schedule in cancellation of his or her higher-priced
option or rejecting the new grant and retaining the higher-priced option with
its original vesting schedule.
The Compensation Committee determined that this program was necessary
because equity incentives are a significant component of the total compensation
package of each Company employee and play a substantial role in the Company's
ability to retain the services of individuals essential to the Company's
long-term financial success. Prior to the implementation of the program, the
market price of the Company's Common Stock had fallen as a result of market
factors which adversely impacted the Company's financial results and which did
not necessarily reflect the employees' contributions to the Company's progress.
The Compensation Committee felt that the Company's ability to retain key
employees and non-employee Board members would be significantly impaired unless
value was restored to their options in the form of regranted options at the
current market price of the Company's Common Stock. However, in order for the
regranted options to serve their primary purpose of assuring the continued
service of each optionee, a new vesting schedule was imposed with respect to the
option shares. The new options will become exercisable with respect to 25% of
the option shares upon completion of one year of service measured from the grant
date and will become exercisable for the remaining shares in equal annual
installments over the next three years of service thereafter. Accordingly, each
optionee will only have the opportunity to acquire the option shares at the
lower exercise price if he or she remains in the Company's employ.
As a result of the new exercise schedules imposed on the regranted options,
the Compensation Committee believes that the program strikes an appropriate
balance between the interests of the option holders and those of the
stockholders. The lower exercise prices in effect under the regranted options
make those options valuable
14
<PAGE> 18
once again to the executive officers and key employees critical to the Company's
financial performance. However, those individuals will enjoy the benefits of the
regranted options only if they in fact remain in the Company's employ and
contribute to the Company's financial success.
CEO COMPENSATION
The annual compensation package for Stephen Turner, the Company's former
Chief Executive Officer, was determined in the same manner as the other
executives of the Company. The annual base salary of Mr. Turner was set at
$150,000 in 1990 and was not increased in 1991. Mr. Turner's salary was
increased in 1992 to $200,000 per year and in 1993 to $240,000 per year and was
not increased in 1994, 1995, 1996 or 1997. Mr. Turner was granted stock options
to purchase 200,000 shares of Common Stock at an exercise price of $5.375 per
share in 1993, in recognition of the Company's increased revenues and research
and development accomplishments and to keep pace with options being granted to
other chief executive officers in the biotechnology industry. Mr. Turner was
paid a bonus of $50,000 in 1994 in recognition of his role in the two
acquisitions the Company made in 1994, the OncorMed, Inc. initial public
offering and the formation of Codon Pharmaceuticals, Inc. (formerly known as
OncorPharm, Inc.).
Compensation and Stock Option Committee
Derace L. Schaffer, Chairman
William H. Taylor II
15
<PAGE> 19
STOCK PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the cumulative
total stockholder return on the Company's Common Stock during the five years
ended December 31, 1997 with the cumulative return on each of the Russell 2000
Index and the Biotechnology Index. The Russell 2000 Index is published from time
to time in various business periodicals. The Biotechnology Index, which is
published by the American Stock Exchange, consists of Amgen Inc., Biogen, Inc.,
Calgene, Inc., CellPro, Inc., Centocor Inc., Cephalon, Inc., Chiron Corporation,
COR Therapeutics, Inc., Genzyme Corporation, Gilead Sciences Inc., The Immune
Response Corporation, Liposome Company, Organogenesis, Inc., Protein Design
Labs, Inc., and Vertex Pharmaceuticals, Inc.
<TABLE>
<CAPTION>
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
AMONG ONCOR, INC., THE RUSSELL 2000 INDEX AND THE BIOTECHNOLOGY INDEX
(PERFORMANCE RESULTS THROUGH 12/31/97)
As of December 31,
-----------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ONCOR $ 100.00 $ 148.00 $ 64.00 $ 64.00 $ 57.00 $ 66.00
Russell 2000 100.00 119.00 117.00 150.00 175.00 214.00
Biotechnology 100.00 84.40 89.40 164.72 149.92 148.68
Index
</TABLE>
Assumes $100 invested at the close of trading on December 31, 1992 in Oncor,
Inc. Common Stock, the Russell 2000 Index and the Biotechnology Index.
- ----------
* Cumulative total return assumes reinvestment of dividends.
SOURCE: Research Data Group, Inc. Factual material is obtained from sources
believed to be reliable, but the publisher is not responsible for any errors or
omissions contained herein.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings made under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate future
filings made by the Company under those statutes, neither the preceding Stock
Performance Graph nor the Compensation and Stock Option Committee Report is to
be incorporated by reference into any such prior filings, nor shall such graph
or report be incorporated by reference into any future filings made by the
Company under those statutes.
DESIGNATION OF AUDITORS
Upon the recommendation of the Audit Committee, the Board of Directors
proposes that Arthur Andersen LLP, the independent public accountants of the
Company since the Company's inception, be re-elected as independent public
accountants of the Company to serve until the annual meeting of stockholders in
1999. A majority of the votes cast at the Annual Meeting is required to elect
the auditors. A representative of Arthur Andersen LLP will attend the annual
meeting of stockholders with the opportunity to make a statement if he or she so
desires and will also be available to answer reasonable inquiries.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
16
<PAGE> 20
APPROVAL OF AN AMENDMENT TO 1992 STOCK OPTION PLAN
The Company's stockholders are being asked to approve an amendment to
the 1992 Stock Option Plan (the "Option Plan"), which includes the following
changes:
(i) increase the number of shares of Common Stock available for issuance by
500,000 shares;
(ii) render non-employee Board members eligible to receive option grants
under the Discretionary Option Grant Program of the Option Plan;
(iii) require stockholder approval of future amendments to the Option Plan
only to the extent necessary to satisfy applicable laws or regulations;
(iv) allow the shares issued under the Option Plan which are subsequently
reacquired by the Company pursuant to the Company's exercise of its
repurchase rights to be added back to the share reserve available for
future issuance under the Option Plan; and
(v) effect a series of additional changes to the provisions of the Option
Plan (including the acceleration of options assumed in connection with the
acquisition of the Company, the transferability of non-statutory stock
options and the elimination of the six (6)-month holding period requirement
as a condition to the exercise of stock appreciation rights) in order to
provide incentives to employees and to take advantage of the recent
amendments to Rule 16b-3 of the Securities and Exchange Commission which
exempts certain officer and director transactions under the Option Plan
from the short-swing liability provisions of the Federal securities laws.
The Option Plan was adopted by the Board of Directors and became
effective on March 17, 1992 (the "Effective Date"), as the successor to the
Company's Incentive Stock Option Plan, as amended (the "ISO Plan"), the
Company's Non-Qualified Stock Option Plan, as amended (the "NQSO Plan") and the
Company's 1991 Non-Qualified Stock Option Plan for Non-Employee Directors (the
"Director Plan") (the ISO, NQSO and Director Plans collectively hereinafter
referred to as the "Predecessor Plans"). The Option Plan was approved by the
Company's Stockholders at the Annual Meeting of Stockholders held on May 27,
1992. All options outstanding under the Predecessor Plans were incorporated into
the Option Plan and are treated as outstanding options under the Option Plan.
However, each outstanding option so incorporated continues to be governed solely
by the express terms and conditions of the instrument evidencing such grant. No
further option grants were made under the Predecessor Plans after the Effective
Date. The Option Plan was subsequently amended on each of June 7, 1995 and June
28, 1996 to increase the share reserve by 500,000 shares; the amendments were
subsequently approved by the stockholders. The amendment to the Option Plan that
is the subject of this Proposal was adopted by the Board on April 27, 1998,
subject to stockholder approval at the Annual Meeting.
The proposed share increase will assure that a sufficient reserve of
Common Stock is available under the Option Plan to attract and retain the
services of employees, which is essential to the Company's long-term growth and
success. The remaining amendments will provide the Company with more
opportunities to make equity incentives available to the employees and
non-employee Board members as an inducement for their continued service and to
facilitate plan administration by eliminating a number of limitations and
restrictions previously incorporated into the Option Plan to comply with the
applicable requirements of SEC Rule 16b-3 prior to its recent amendment.
The following is a summary of the principal features of the Option Plan
as amended. The summary, however, does not purport to be a complete description
of all the provisions of the Option Plan. Any stockholder of the Company who
wishes to obtain a copy of the actual plan document may do so upon written
request to the attention of John L. Coker, the Corporate Secretary, at the
Company's principal executive offices in Gaithersburg, Maryland.
17
<PAGE> 21
EQUITY INCENTIVE PROGRAMS
The Option Plan contains two separate equity incentive programs: (i) a
Discretionary Option Grant Program and (ii) an Automatic Option Grant Program.
The Compensation and Stock Option Committee of the Board and the Board have
separate but concurrent authority to administer the Discretionary Option Grant
Program. The Plan Administrator (which as used in this summary will mean either
the Compensation and Stock Option Committee or the Board to the extent each such
entity is administering the Option Plan) will have complete discretion (subject
to the provisions of the Option Plan) to authorize option grants under the
Option Plan. However, all grants under the Automatic Option Grant Program will
be made in strict compliance with the provisions of that program, and no
administrative discretion will be exercised by the Option Plan Administrator
with respect to the grants made thereunder. Stockholder approval of the
amendment to the Option Plan subject to this Proposal will constitute
pre-approval of all option grants subsequently made on the basis of the amended
Plan under that program and the subsequent exercise and cancellation of those
options in accordance with those terms.
SHARE RESERVE
The maximum number of shares of the Company's Common Stock available
for issuance over the term of the Option Plan may not exceed 5,515,604 shares,
including the 500,000-share increase for which stockholder approval is sought
under this Proposal. In no event may any one participant in the Option Plan
receive options or separately exercisable stock appreciation rights for more
than 800,000 shares in the aggregate over the term of the Option Plan (excluding
for such purposes options granted prior to January 1, 1994). Stockholder
approval of this Proposal will constitute re-approval of such limit. As of March
31, 1998, options for 4,067,485 shares were outstanding (of which options for
2,258,915 shares were then exercisable) and 540,339 shares (including the
share increase subject to this Proposal) were available for future option
grants.
The shares of Common Stock issuable under the Option Plan may be drawn
from shares of the Company's authorized but unissued Common Stock or from shares
of Common Stock reacquired by the Company, including shares repurchased on the
open market.
In the event any change is made to the outstanding shares of Common
Stock by reason of any recapitalization, stock dividend, stock split,
combination of shares, exchange of shares or other change in corporate structure
effected without the Company's receipt of consideration, appropriate adjustments
will be made to the securities issuable (in the aggregate and to each
participant) under the Option Plan and to each outstanding option.
Should an option expire or terminate prior to exercise in full, the
shares subject to the portion of the option not so exercised will be available
for subsequent issuance under the Option Plan. Unvested shares issued under the
Option Plan and subsequently repurchased by the Company at the original option
or issue price paid per share will be added back to the share reserve and will
accordingly be available for subsequent issuance under the Option Plan. However,
shares subject to any options surrendered in connection with outstanding stock
appreciation rights under the Option Plan will not be available for subsequent
issuance.
ELIGIBILITY
Officers and other employees of the Company and its parent or
subsidiaries (whether now existing or subsequently established), non-employee
members of the Board and the board of directors of its parent or subsidiaries
and consultants and independent advisors of the Company and its parent and
subsidiaries will be eligible to participate in the Discretionary Option Grant
Program. Non-employee members of the Board will also be eligible to participate
in the Automatic Option Grant Program.
As of March 31, 1998, approximately 9 executive officers, 117 other
employees and 5 non-employee Board members were eligible to participate in the
Option Plan, and 5 non-employee Board members were eligible to participate in
the Automatic Option Grant Program.
18
<PAGE> 22
VALUATION
The fair market value per share of Common Stock on any relevant date
under the Option Plan will be the closing selling price per share on that date
on the American Stock Exchange. On March 31, 1998, the closing selling price per
share was $2.00.
DISCRETIONARY OPTION GRANT PROGRAM
Options may be granted under the Discretionary Option Grant Program at
an exercise price per share not less than fifty percent (50%) of the fair market
value per share of Common Stock on the option grant date. No granted option will
have a term in excess of ten years.
Upon cessation of service, the optionee will have a limited period of
time in which to exercise any outstanding option to the extent such option is
exercisable for vested shares. The Option Plan Administrator will have complete
discretion to extend the period following the optionee's cessation of service
during which his or her outstanding options may be exercised and/or to
accelerate the exercisability or vesting of such options in whole or in part.
Such discretion may be exercised at any time while the options remain
outstanding, whether before or after the optionee's actual cessation of service.
The Option Plan Administrator is authorized to issue two types of stock
appreciation rights in connection with option grants made under the
Discretionary Option Grant Program:
Tandem stock appreciation rights provide the holders with the right to
surrender their options for an appreciation distribution from the Company
equal in amount to the excess of (a) the fair market value of the vested
shares of Common Stock subject to the surrendered option over (b) the
aggregate exercise price payable for such shares. Such appreciation
distribution may, at the discretion of the Option Plan Administrator, be
made in cash or in shares of Common Stock.
Limited stock appreciation rights may be granted to officers of the
Company as part of their option grants. Any option with such a limited
stock appreciation right in effect will be automatically cancelled upon the
successful completion of a hostile take-over of the Company. In return for
the cancelled option, the officer will be entitled to a cash distribution
from the Company in an amount per cancelled option share equal to the
excess of (a) the take-over price per share over (b) the exercise price
payable for such share.
The Option Plan Administrator will have the authority to effect the
cancellation of outstanding options under the Discretionary Option Grant Program
which have exercise prices in excess of the then current market price of Common
Stock and to issue replacement options with an exercise price based on the
market price of Common Stock at the time of the new grant.
AUTOMATIC OPTION GRANT PROGRAM
Under the Automatic Option Grant Program, each individual who first
becomes a non-employee Board member will automatically be granted at that time
an option grant for 50,000 shares of Common Stock. In addition, each
non-employee Board member who is re-elected at an Annual Stockholders Meeting
after each three (3) years of consecutive Board service as a non-employee Board
member will automatically be granted an option on the date of such Annual
Stockholders Meeting to purchase 50,000 shares of Common Stock.
Each option will have an exercise price per share equal to 100% of the
fair market value per share of Common Stock on the option grant date and a
maximum term of five (5) years measured from the option grant date. Each option
will become exercisable with respect to 12,500 shares of Common Stock upon
completion of six (6) months of Board service measured from the option grant
date and with respect to 12,500 shares upon completion of each of the next three
(3) years of Board service thereafter.
19
<PAGE> 23
Each automatic option grant will become immediately exercisable in full
upon certain changes in the ownership or control of the Company. In addition,
upon the successful completion of a hostile take-over, each automatic option
grant will automatically be cancelled for a cash distribution per cancelled
option share in an amount equal to the excess of (a) the take-over price per
share over (b) the exercise price payable for such share. Stockholder approval
of this Proposal will also constitute pre-approval of each option granted on or
after the date of the Annual Meeting with such a cancellation right and the
subsequent cancellation of that option in accordance with the foregoing
provisions.
GENERAL PROVISIONS
ACCELERATION
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not to
be assumed by the successor corporation or replaced with a comparable option to
purchase shares of the capital stock of the successor corporation will
automatically accelerate in full. The Plan Administrator will have complete
discretion to grant one or more options under the Discretionary Option Grant
Program which will become fully exercisable for all option shares in the event
those options are assumed in the acquisition and the optionee's service with the
Company or the acquiring entity is involuntarily terminated (whether
involuntarily or through a resignation for good reason) within a designated
period following such acquisition. The Plan Administrator will have similar
discretion to grant options which will become fully exercisable for all the
option shares should the optionee's service terminate, whether involuntarily or
through a resignation for good reason, within a designated period following a
change in control of the Company (whether by successful tender offer for more
than fifty percent (50%) of the outstanding voting stock or by proxy contest for
the election of Board members).
The acceleration of vesting in the event of a change in the ownership
or control of the Company may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of the Company.
AMENDMENT AND TERMINATION
The Board may amend or modify the Option Plan in any or all respects
whatsoever subject to any required stockholder approval. The Board may terminate
the Option Plan at any time, and the Option Plan will in all events terminate on
March 16, 2002.
20
<PAGE> 24
STOCK AWARDS
The table below shows, as to each of the Company's Named Executive
Officers and the various indicated individuals and groups, the number of shares
of Common Stock subject to options granted between January 1, 1997 and March 31,
1998 under the Option Plan together with the weighted average exercise price
payable per share.
<TABLE>
<CAPTION>
=====================================================================================================
OPTION TRANSACTIONS
- -----------------------------------------------------------------------------------------------------
Weighted
Number of Average
Name Option Shares Exercise Price
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Jose J. Coronas -- --
Chairman of the Board of Directors and Acting
Chief Executive Officer
- -----------------------------------------------------------------------------------------------------
Stephen Turner -- --
Former Chief Executive Officer and Director
- -----------------------------------------------------------------------------------------------------
Cecil Kost -- --
President, Chief Operating Officer and Director
- -----------------------------------------------------------------------------------------------------
John L. Coker -- --
Vice President, Finance and Administration,
Secretary, Treasurer and Chief Financial Officer
- -----------------------------------------------------------------------------------------------------
Robert J. Hohman 60,000 3.625
Vice President, Research and Development
- -----------------------------------------------------------------------------------------------------
John P. Kennealy 100,000 3.625
Vice President, Corporate Development
- -----------------------------------------------------------------------------------------------------
All current executive officers as a group 380,000 3.9046
(9 persons)
- -----------------------------------------------------------------------------------------------------
Derace L. Schaffer -- --
Director
- -----------------------------------------------------------------------------------------------------
William H. Taylor II -- --
Director
- -----------------------------------------------------------------------------------------------------
Timothy J. Triche -- --
Director
- -----------------------------------------------------------------------------------------------------
All non-employee directors as a group -- --
(4 persons)
- -----------------------------------------------------------------------------------------------------
All employees, including current officers who are 948,400 3.9748
not executive officers, as a group
(53 persons)
=====================================================================================================
</TABLE>
21
<PAGE> 25
During the 1997 fiscal year, the Compensation and Stock Option
Committee felt that circumstances had made it necessary for the Company to
implement the 1997 Regrant Program. Accordingly, on May 23, 1997, all of
the Company's employees (including executive officers, except for Messrs. Kost,
Coker and Turner) and non-employee Board members were given the opportunity to
surrender their outstanding options issued under the Option Plan with exercise
prices in excess of $3.625 per share in return for a new option grant for the
same number of shares but with a lower exercise price of $3.625 per share, the
fair market value per share of the Company's Common Stock on the regrant date.
Each employee eligible for a new option grant was given the choice of accepting
that option with a new vesting schedule in cancellation of his or her
higher-priced option or rejecting the new grant and retaining the higher-priced
option with its original vesting schedule.
FEDERAL INCOME TAX CONSEQUENCES
OPTION GRANTS
Options granted under the Option Plan may be either incentive stock
options which satisfy the requirements of Section 422 of the Internal Revenue
Code or non-statutory options which are not intended to meet such requirements.
The Federal income tax treatment for the two types of options differs as
follows:
Incentive Stock Options. No taxable income is recognized by the
optionee at the time of the option grant, and no taxable income is generally
recognized at the time the option is exercised. The optionee will, however,
recognize taxable income in the year in which the purchased shares are sold or
otherwise disposed of. For Federal tax purposes, dispositions are divided into
two categories: (i) qualifying and (ii) disqualifying. A qualifying disposition
occurs if the sale or other disposition is made after the optionee has held the
shares for more than two years after the option grant date and more than one
year after the exercise date. If either of these two holding periods is not
satisfied, then a disqualifying disposition will result.
If the optionee makes a disqualifying disposition of the purchased
shares, then the Company will be entitled to an income tax deduction, for the
taxable year in which such disposition occurs, equal to the excess of (i) the
fair market value of such shares on the option exercise date over (ii) the
exercise price paid for the shares. In no other instance will the Company be
allowed a deduction with respect to the optionee's disposition of the purchased
shares.
Non-Statutory Options. No taxable income is recognized by an optionee
upon the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when the Company's repurchase right lapses, an amount
equal to the excess of (i) the fair market value of the shares on the date the
repurchase right lapses over (ii) the exercise price paid for the shares. The
optionee may, however, elect under Section 83(b) of the Internal Revenue Code to
include as ordinary income in the year of exercise of the option an amount equal
to the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the Section
83(b) election is made, the optionee will not recognize any additional income as
and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed for the
taxable year of the Company in which such ordinary income is recognized by the
optionee.
22
<PAGE> 26
STOCK APPRECIATION RIGHTS
An optionee who is granted a stock appreciation right will recognize
ordinary income in the year of exercise equal to the amount of the appreciation
distribution. The Company will be entitled to an income tax deduction equal to
the appreciation distribution for the taxable year in which such ordinary income
is recognized by the optionee.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Company anticipates that any compensation deemed paid by it in
connection with disqualifying dispositions of incentive stock option shares or
exercises of non-statutory options granted with exercise prices equal to the
fair market value of the option shares on the grant date will qualify as
performance-based compensation for purposes of Code Section 162(m) and will not
have to be taken into account for purposes of the $1 million limitation per
covered individual on the deductibility of the compensation paid to certain
executive officers of the Company. Accordingly, all compensation deemed paid
with respect to those options is expected to remain deductible by the Company
without limitation under Code Section 162(m).
ACCOUNTING TREATMENT
Option grants with exercise prices less than the fair market value of
the shares on the grant date will result in a compensation expense to the
Company's earnings equal to the difference between the exercise price and the
fair market value of the shares on the grant date. Such expense will be
accruable by the Company over the period that the option shares are to vest.
Option grants or stock issuances at 100% of fair market value will not result in
any charge to the Company's earnings. However, the Company must disclose in
footnotes and pro-forma statements to the Company's financial statements, the
impact those options would have upon the Company's reported earnings were the
value of those options at the time of grant treated as a compensation expense.
Whether or not granted at a discount, the number of outstanding options may be a
factor in determining the Company's earnings per share on a fully-diluted basis.
Should one or more optionees be granted stock appreciation rights which
have no conditions upon exercisability other than a service or employment
requirement, then such rights will result in a compensation expense to the
Company's earnings.
NEW PLAN BENEFITS
As of March 31, 1998, no option grants have been made under the
Option Plan on the basis of the 500,000-share increase for which stockholder
approval is sought as part of this Proposal. In April 1998, Dr. Ross
received an option grant for 50,000 shares at an exercise price equal to the
fair market value on the date of his appointment to the Board. In addition, on
the date of the Annual Meeting, Drs. Taylor and Triche (if each is re-elected)
will each receive an option grant for 50,000 shares under the Automatic Option
Grant Program at an exercise price equal to the fair market value of the shares
on that date.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of
the Company present or represented and entitled to vote at the 1998 Annual
Meeting is required for approval of the amendment to the Option Plan. Should
such stockholder approval not be obtained, then the share reserve will not be
increased, non-employee Board members will not become eligible to receive option
grants under the Discretionary Option Grant Program and any unvested shares
repurchased by the Company will not be added back to the share reserve for
reissuance. The Option Plan will, however, continue to remain in effect, and
option grants may continue to be made pursuant to the provisions of the Option
Plan prior to its amendment until the available reserve of Common Stock under
such plan is issued.
23
<PAGE> 27
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
APPROVAL OF THE AMENDMENT TO THE OPTION PLAN. THE BOARD BELIEVES THAT IT IS IN
THE BEST INTERESTS OF THE COMPANY TO IMPLEMENT A COMPREHENSIVE EQUITY INCENTIVE
PROGRAM FOR THE COMPANY WHICH WILL PROVIDE A MEANINGFUL OPPORTUNITY FOR
OFFICERS, EMPLOYEES AND NON-EMPLOYEE BOARD MEMBERS TO ACQUIRE A SUBSTANTIAL
PROPRIETARY INTEREST IN THE ENTERPRISE AND THEREBY ENCOURAGE SUCH INDIVIDUALS TO
REMAIN IN THE COMPANY'S SERVICE AND MORE CLOSELY ALIGN THEIR INTERESTS WITH
THOSE OF THE STOCKHOLDERS.
STOCKHOLDER PROPOSALS
The Company has not received any proposals for action at the meeting from
its stockholders. The Company anticipates that its 1999 annual meeting of
stockholders will be held during June 1999. Stockholder proposals intended to be
presented at such meeting and to be included in the Company's proxy statement
and form of proxy for that meeting must have been received at the Company not
later than February 1, 1999.
OTHER INFORMATION
Management knows of no other matters which may be presented at the meeting.
However, if any matters are properly brought before the meeting, the persons
named in the enclosed proxy will vote thereon in accordance with their judgment.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ JOHN L. COKER
John L. Coker
Secretary
Gaithersburg, Maryland
April 30, 1998
24
<PAGE> 28
APPENDIX A-1 (EDGAR FILING ONLY)
FORM OF PROXY
<PAGE> 29
ONCOR, INC.
209 PERRY PARKWAY
GAITHERSBURG, MARYLAND 20877
Cecil Kost, John L. Coker, or either of them, are hereby authorized, with full
power of substitution, to represent and to vote the stock of the undersigned at
the Annual Meeting of Stockholders of the Corporation to be held on June 25,
1998, or at any adjournment of such meeting, upon such business as may properly
come before the meeting, including the following items as set forth in the Proxy
Statement:
<TABLE>
<S> <C> <C>
1. ELECTION OF SEVEN (7) DIRECTORS FOR ALL NOMINEES LISTED BELOW (EXCEPT AS WITHHOLD AUTHORITY TO VOTE FOR
MARKED TO THE CONTRARY BELOW) [ ] ALL NOMINEES LISTED BELOW [ ]
</TABLE>
Jose J. Coronas, Cecil Kost, Jeffrey S. Ross, Derace L. Schaffer, William
H. Taylor II, Timothy J. Triche and Stephen Turner
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE
(NOMINEES), WRITE THE NAME OF SUCH NOMINEE (NOMINEES) IN THE SPACE BELOW:
- --------------------------------------------------------------------------------
2. RATIFICATION OF SELECTION OF ARTHUR ANDERSEN LLP AS INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. APPROVAL OF AMENDMENT TO THE COMPANY'S 1992 STOCK OPTION PLAN, WHICH INCLUDES
AN INCREASE IN THE NUMBER OF SHARES OF COMMON STOCK AVAILABLE FOR ISSUANCE
THEREUNDER BY 500,000 SHARES TO A TOTAL OF 5,515,604 SHARES.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS AND WILL BE VOTED AS
SPECIFIED. IF NO SPECIFICATION IS MADE, IT WILL BE VOTED FOR THE ELECTION OF
DIRECTORS AND FOR ITEM 2.
(Continued on other side)
<PAGE> 30
(Continued from other side)
PLEASE MARK, DATE, SIGN AND MAIL PROMPTLY
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
Dated , ______________ 1998
____________________________
Print Name
____________________________
Signature(s)
Please sign exactly as name appears above. If shares are held jointly, each
stockholder should sign. Executors, administrators, trustees, etc. should use
full title and, if more than one, all should sign. If the stockholder is a
corporation, please sign full corporate name by an authorized officer.
<PAGE> 31
APPENDIX A-2 (EDGAR FILING ONLY)
1992 STOCK OPTION PLAN, AS AMENDED EFFECTIVE APRIL 27, 1998
<PAGE> 32
ONCOR, INC.
1992 STOCK OPTION PLAN
AMENDED EFFECTIVE APRIL 27, 1998
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSES OF THE PLAN
A. This 1992 Stock Option Plan (the "Plan") was implemented,
as of March 17, 1992 (the "Effective Date"), to promote the interests of Oncor,
Inc., a Maryland corporation (the "Company"), by providing a method whereby (i)
key employees (including officers and directors) of the Company (or its parent
or subsidiary corporations) who are responsible for the management, growth and
financial success of the Company (or its parent or subsidiary corporations),
(ii) the non-employee members of the Company's Board of Directors and (iii)
consultants and other independent contractors who provide valuable services to
the Company (or its parent or subsidiary corporations) may be offered the
opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Company as an incentive for them to remain in the
service of the Company (or its parent or subsidiary corporations).
B. This Plan shall serve as the successor to the Company's
Incentive Stock Option Plan, as amended (the "ISO Plan"), the Company's
Non-Qualified Stock Option Plan, as amended (the "NQSO Plan") and the Company's
1991 Non-Qualified Stock Option Plan for Non-Employee Directors (the "Director
Plan"), and no further option grants shall be made under the ISO, NQSO and
Director Plans (such Plans to be hereinafter referred to as the "Predecessor
Plans") from and after the Effective Date of this Plan. All options outstanding
under the Predecessor Plans on such Effective Date are hereby incorporated into
this Plan and shall accordingly be treated as outstanding options under this
Plan. However, each outstanding option so incorporated shall continue to be
governed solely by the express terms and conditions of the instrument evidencing
such grant, and no provision of this Plan shall be deemed to affect or otherwise
modify the rights or obligations of the holders of such incorporated options
with respect to their acquisition of shares of the Company's common stock
thereunder.
C. For purposes of the Plan, the following provisions shall be
applicable in determining the parent and subsidiary corporations of the Company:
Any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company shall be
considered to be a PARENT corporation of
<PAGE> 33
the Company, provided each such corporation in the unbroken chain
(other than the Company) owns, at the time of the determination, stock
possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in such
chain.
Each corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company shall be
considered to be a SUBSIDIARY of the Company, provided each such
corporation (other than the last corporation) in the unbroken chain
owns, at the time of the determination, stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
II. STRUCTURE OF THE PLAN
A. Stock Programs. The Plan shall be divided into two separate
components: the Discretionary Option Grant Program specified in Article Two and
the Automatic Option Grant Program specified in Article Three. Under the
Discretionary Option Grant Program, eligible individuals may, at the discretion
of the Plan Administrator, be granted options to purchase shares of common stock
in accordance with the provisions of Article Two. Under the Automatic Option
Grant Program, each eligible member of the Company's Board of Directors (the
"Board") will automatically receive periodic option grants to purchase shares of
common stock in accordance with the provisions of Article Three.
B. General Provisions. Unless the context clearly indicates
otherwise, the provisions of Articles One and Four of the Plan shall apply to
the Discretionary Option Grant Program and the Automatic Option Grant Program
and shall accordingly govern the interests of all individuals under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Board and the primary committee (the "Primary
Committee") comprised of two or more non-employee Board members shall have
separate but concurrent authority to grant options and stock appreciation rights
under the Discretionary Option Grant Program to officers and directors of the
Company subject to the short-swing profit restrictions of the Federal securities
laws. Stock options may be granted under the Discretionary Option Grant Program
to all other eligible persons by either the Primary Committee or a second
committee comprised of two or more employee Board members (the "Secondary
Committee") or the Board may retain the power to administer that program with
respect to all such persons. For purposes of the Plan, the Plan Administrator
shall mean the particular entity, whether the Primary Committee, the Board or
the Secondary Committee, which is authorized to administer the Discretionary
Option Grant Program with respect to one or more classes of eligible persons, to
the extent such entity is carrying out its administrative functions under that
program with respect to the persons under its jurisdiction.
2.
<PAGE> 34
B. The members of the Primary Committee and the Secondary
Committee shall each serve for such period of time as the Board may determine
and shall be subject to removal by the Board at any time.
C. The Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority (subject
to the express provisions of the Discretionary Option Grant Program) to
establish such rules and regulations as it may deem appropriate for the proper
administration of such program and to make such determinations under the program
and any outstanding option as it may deem necessary or advisable. Decisions of
the Plan Administrator shall be final and binding on all parties with an
interest in the Plan or any outstanding option under this Discretionary Option
Grant Program.
D. Administration of the Automatic Option Grant Program shall
be self- executing in accordance with the express terms and conditions of
Article Three.
IV. ELIGIBILITY FOR OPTION GRANTS
A. The persons eligible to participate in the Discretionary
Option Grant Program under Article Two of the Plan shall be limited to the
following:
(i) officers and other key employees of the
Company (or its parent or subsidiary corporations) who render services
which contribute to the management, growth and financial success of the
Company (or its parent or subsidiary corporations);
(ii) non-employee members of the Board or the
board of directors of any Parent or Subsidiary, and
(iii) those consultants or independent
contractors who provide valuable services to the Company (or its parent
or subsidiary corporations).
B. Non-employee members of the Board shall also be eligible to
receive automatic option grants pursuant to the provisions of Article Three.
C. The Plan Administrator shall have full authority to
determine which eligible individuals are to receive option grants under the
Discretionary Option Grant Program, the number of shares to be covered by each
such grant, whether the granted option is to be an incentive stock option
("Incentive Option") which satisfies the requirements of Section 422 of the
Internal Revenue Code or a non-statutory option not intended to meet such
requirements, the time or times at which each such option is to become
exercisable, and the maximum term for which the option is to remain outstanding.
3.
<PAGE> 35
V. STOCK SUBJECT TO THE PLAN
A. Shares of the Company's common stock, par value $0.01 per
share (the "Common Stock"), shall be available for issuance under the Plan and
shall be drawn from either the Company's authorized but unissued shares of
Common Stock or from reacquired shares of Common Stock, including shares
repurchased by the Company on the open market. The maximum number of shares of
Common Stock which may be issued over the term of the Plan shall not exceed Five
Million Five Hundred Fifteen Thousand Six Hundred and Four (5,515,604) shares,
subject to adjustment from time to time in accordance with the provisions of
this Section V. Such authorized share reserve is comprised of (i) the number of
shares remaining available for issuance under the Predecessor Plans as of the
Effective Date, including the shares subject to the outstanding options
incorporated into this Plan and any other shares which would have been available
for future option grant under the Predecessor Plans, (ii) the additional
increase of Two Million Five Hundred Thousand (2,500,000) shares of Common Stock
authorized by the Board and subsequently approved by the stockholders, (iii) an
increase of Five Hundred Thousand (500,000) shares of Common Stock authorized by
the Board on June 28, 1995 and approved by the stockholders at the 1995 Annual
Stockholders Meeting, (iv) an increase of Five Hundred Thousand (500,000) shares
of Common Stock authorized by the Board on June 7, 1996 and approved by the
stockholders at the 1996 Annual Stockholders Meeting and (v) an increase of
Five Hundred Thousand (500,000) shares authorized by the Board on April 27,
1998, subject to shareholder approval at the 1998 Annual Stockholders Meeting.
B. In no event may any one individual participating in the
Plan be granted stock options and direct stock issuances for more than 800,000
shares of Common Stock in the aggregate over the remaining term of the Plan,
subject to adjustment from time to time in accordance with the provisions of
this Section V. For purposes of such limitation, no stock options or direct
stock issuances granted prior to January 1, 1994 shall be taken into account.
C. Should one or more outstanding options under this Plan
(including outstanding options under the Predecessor Plans incorporated into
this Plan) expire or terminate for any reason prior to exercise in full
(including any option cancelled in accordance with the cancellation-regrant
provisions of Section IV of Article Two of the Plan), then the shares subject to
the portion of each option not so exercised shall be available for subsequent
option grant under the Plan. Shares subject to any option cancelled in
accordance with Section V of Article Two or Section III of Article Three shall
not be available for subsequent option grant under the Plan. Unvested shares
issued under the Plan (including unvested shares issued under the Predecessor
Plans) and subsequently repurchased by the Corporation, at the original exercise
price paid per share, pursuant to the Corporation's repurchase rights under the
Plan, shall be added back to the number of shares of Common Stock reserved for
issuance under the Plan and shall accordingly be available for reissuance
through one or more subsequent option grants under the Plan. Shares subject to
any stock appreciation rights exercised under the Plan shall reduce on a
share-for-share basis the number of shares of Common Stock available for
subsequent issuance under the Plan. In addition, should the exercise price of an
option under the Plan (including any option incorporated from the Predecessor
Plans) be paid with shares of Common Stock or should shares
4.
<PAGE> 36
of Common Stock otherwise issuable under the Plan be withheld by the Corporation
in satisfaction of the withholding taxes incurred in connection with the
exercise of an option or the vesting of a stock issuance under the Plan, then
the number of shares of Common Stock available for issuance under the Plan shall
be reduced by the gross number of shares for which the option is exercised or
which vest under the stock issuance, and not by the net number of shares of
Common Stock issued to the holder of such option or stock issuance.
D. In the event any change is made to the Common Stock
issuable under the Plan by reason of any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without receipt of
consideration, then appropriate adjustments shall be made to (i) the number
and/or class of shares issuable under the Plan, (ii) the number and/or class of
shares and price per share in effect under each outstanding option under the
Discretionary Option Grant Program, (iii) the number and/or class of shares per
non-employee Board member for which automatic option grants are subsequently to
be made under the Automatic Option Grant Program, (iv) the number and/or class
of shares and price per share in effect under each automatic grant outstanding
under the Automatic Option Grant Program and (v) the number and/or class of
shares and price per share in effect under each outstanding option incorporated
into this Plan from the Predecessor Plans. Such adjustments to the outstanding
options are to be effected in a manner which shall preclude the enlargement or
dilution of rights and benefits under such options.
5.
<PAGE> 37
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to this Article Two shall be
authorized by action of the Plan Administrator making the grant and may, at the
Plan Administrator's discretion, be either Incentive Options or non-statutory
options. Individuals who are not Employees may only be granted non-statutory
options under this Article Two. Each granted option shall be evidenced by one or
more instruments in the form approved by the Plan Administrator to evidence
option grants made under this Article Two. Each such instrument shall, however,
comply with the terms and conditions specified below, and each instrument
evidencing an Incentive Option shall, in addition, be subject to the applicable
provisions of Section II of this Article Two.
A. Option Price.
1. The option price per share shall be fixed by
the Plan Administrator making the option grant. In no event, however, shall the
option price per share be less than fifty percent (50%) of the fair market value
per share of Common Stock on the date of the option grant.
2. The option price shall become immediately
due upon exercise of the option and shall, subject to the provisions of Section
VI of this Article Two and the instrument evidencing the grant, be payable as
follows:
- full payment in cash or check drawn to the
Company's order;
- full payment in shares of Common Stock held by the
optionee for the requisite period necessary to avoid a charge to the
Company's earnings for financial reporting purposes and valued at fair
market value on the Exercise Date (as such term is defined below);
- full payment through a combination of shares of
Common Stock held by the optionee for the requisite period necessary to
avoid a charge to the Company's earnings for financial reporting
purposes and valued at fair market value on the Exercise Date and cash
or cash equivalent; or
- full payment through a broker-dealer sale and
remittance procedure pursuant to which the optionee (I) shall provide
irrevocable written instructions to a designated brokerage firm to
effect the immediate sale of the purchased shares and remit to the
Company, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate option price payable for the
purchased shares plus all applicable
6.
<PAGE> 38
Federal and State income and employment taxes required to be withheld
by the Company in connection with such purchase and (II) shall provide
written directives to the Company to deliver the certificates for the
purchased shares directly to such brokerage firm in order to complete
the sale transaction.
For purposes of this subparagraph 2, the Exercise
Date shall be the date on which written notice of the option exercise is
delivered to the Company. Except to the extent the sale and remittance procedure
is utilized in connection with the exercise of the option, payment of the option
price for the purchased shares must accompany such notice.
3. The fair market value per share of Common
Stock on any relevant date under the Plan shall be determined in accordance with
the following provisions:
- If the Common Stock is not at the time listed or
admitted to trading on any national stock exchange but is traded on the
over-the-counter market, the fair market value shall be the mean
between the highest bid and lowest asked prices (or, if such
information is available, the closing selling price) per share of
Common Stock on the date in question on the over-the-counter market, as
such prices are reported by the National Association of Securities
Dealers through its NASDAQ system or any successor system. If there are
no reported bid and asked prices (or closing selling price) for the
Common Stock on the date in question, then the mean between the highest
bid price and lowest asked price (or the closing selling price) on the
last preceding date for which such quotations exist shall be
determinative of fair market value.
- If the Common Stock is at the time listed or
admitted to trading on any national stock exchange, then the fair
market value shall be the closing selling price per share of Common
Stock on the date in question on the stock exchange determined by the
Plan Administrator to be the primary market for the Common Stock, as
such price is officially quoted in the composite tape of transactions
on such exchange. If there is no reported sale of Common Stock on such
exchange on the date in question, then the fair market value shall be
the closing selling price on the exchange on the last preceding date
for which such quotation exists.
B. Term and Exercise of Options.
Each option granted under this Article Two shall be
exercisable at such time or times, during such period, and for such number of
shares as shall be determined by the Plan Administrator making the grant and set
forth in the instrument evidencing such grant. No such option, however, shall
have a maximum term in excess of ten (10) years from the grant date. During the
lifetime of the optionee, Incentive Options shall be exercisable only by the
optionee and shall not be assignable or transferable by the optionee otherwise
than by will or by the laws of descent and distribution following the optionee's
death. However, a Non-Statutory Option may, in connection with the optionee's
estate plan, be assigned in whole or in part during the optionee's lifetime to
one or more members of the optionee's immediate family or to a trust
7.
<PAGE> 39
established exclusively for the benefit of one or more such family members. The
assigned portion may only be exercised by the person or persons who acquire a
proprietary interest in the option pursuant to the assignment.
C. Termination of Service.
1. Except to the extent otherwise provided
pursuant to Section VII of this Article Two, the following provisions shall
govern the exercise period applicable to any outstanding options under this
Article II which are held by the optionee at the time of his or her cessation of
Service or death.
- Should the optionee cease to remain in Service for
any reason other than death or permanent disability, then the period
for which each outstanding option held by such optionee is to remain
exercisable shall be limited to the three (3)-month period following
the date of such cessation of Service.
- In the event such Service terminates by reason of
permanent disability (as defined in Section 22(e)(3) of the Internal
Revenue Code), then the period for which each outstanding option held
by the optionee is to remain exercisable shall be limited to the twelve
(12)-month period following the date of such cessation of Service.
- Should the optionee die while in Service or during
the three (3)- month period following his or her cessation of Service,
then the period for which each of his or her outstanding options is to
remain exercisable shall be limited to the twelve (12)-month period
following the date of the optionee's death. During such limited period,
the option may be exercised by the personal representative of the
optionee's estate or by the person or persons to whom the option is
transferred pursuant to the optionee's will or in accordance with the
laws of descent and distribution.
- Under no circumstances, however, shall any such
option be exercisable after the specified expiration date of the option
term.
- Each such option shall, during such limited
exercise period, be exercisable for any or all of the shares for which
the option is exercisable on the date of the optionee's cessation of
Service. Upon the expiration of such limited exercise period or (if
earlier) upon the expiration of the option term, the option shall
terminate and cease to be exercisable.
- Should the optionee's Service terminate under the
circumstances specified in subparagraph (A) or (B) below, then all
outstanding options held by such optionee under the Discretionary
Option Grant Program shall immediately terminate and cease to be
exercisable upon such termination of Service:
8.
<PAGE> 40
(A) The optionee's Service is
involuntarily terminated by the Company by reason of such individual's
proven dishonesty, his or her commission of any willful act of violence
to the injury of the Company, his or her breach of any fiduciary duty
owed to the Company, or his or her failure to perform, in a competent
manner reasonably satisfactory to the Company, the services for which
such individual was retained; or
(B) The optionee voluntarily
terminates his or her Service, but the Company could have involuntarily
terminated the optionee's Service at such time for one or more of the
reasons specified in subparagraph (A) above.
The acts of misconduct specified in this subsection
for the immediate termination of the outstanding options held by such
optionee are not intended to be, and are accordingly not inclusive of,
all acts or omissions which the Company may deem to constitute
misconduct or other grounds for the involuntary termination of the
optionee's (or any other individual's) Service, whether or not such
other acts or omissions would otherwise result in the termination of
such individual's outstanding options under the Discretionary Option
Grant Program.
2. The Plan Administrator shall have complete
discretion, exercisable either at the time the option is granted or at
any time while the option remains outstanding, to permit one or more
options held by the optionee under this Article Two to be exercised,
during the limited period of exercisability provided under subparagraph
1 above, not only with respect to the number of shares for which each
such option is exercisable at the time of the optionee's cessation of
Service but also with respect to one or more subsequent installments of
purchasable shares for which the option would otherwise have become
exercisable had such cessation of Service not occurred.
3. For purposes of the foregoing provisions of
this Section I.C (and for all other purposes under the Plan):
- The optionee shall be deemed to remain in the
SERVICE of the Company for so long as such individual renders services
on a periodic basis to the Company (or any parent or subsidiary
corporation) in the capacity of an Employee, a non-employee member of
the Board or an independent consultant or advisor.
- The optionee shall be considered to be an EMPLOYEE
for so long as such individual remains in the employ of the Company or
one or more of its parent or subsidiary corporations, subject to the
control and direction of the employer entity not only as to the work to
be performed but also as to the manner and method of performance.
9.
<PAGE> 41
D. Shareholder Rights.
An optionee shall have no shareholder rights with
respect to any shares covered by the option until such individual shall have
exercised the option, paid the option price for the purchased shares and been
issued a stock certificate for such shares.
E. Repurchase Rights.
1. The Plan Administrator making the option
grant shall have the discretion to authorize the issuance of unvested shares of
Common Stock under such grant. Should the optionee cease Service while holding
such unvested shares, the Company shall have the right to repurchase any or all
of those unvested shares at the option price paid per share. The terms and
conditions upon which such repurchase right shall be exercisable (including the
period and procedure for exercise and the appropriate vesting schedule for the
purchased shares) shall be established by the Plan Administrator and set forth
in the instrument evidencing such repurchase right.
2. All of the Company's outstanding repurchase
rights shall automatically terminate, and all shares subject to such terminated
rights shall immediately vest in full, upon the occurrence of any Corporate
Transaction under Section III of this Article Two, except to the extent: (i) any
such repurchase right is to be assigned to the successor corporation (or parent
thereof) in connection with the Corporate Transaction or (ii) such termination
is precluded by other limitations imposed by the Plan Administrator at the time
the repurchase right is issued.
3. The Plan Administrator shall have the
discretionary authority, exercisable either before or after the optionee's
cessation of Service, to cancel the Company's outstanding repurchase rights with
respect to one or more shares purchased or purchasable by the optionee under the
granted option and thereby accelerate the vesting of such shares in connection
with the optionee's cessation of Service.
II. INCENTIVE OPTIONS
The terms and conditions specified below shall be applicable
to all Incentive Options granted under this Article Two. Incentive Options may
only be granted to individuals who are Employees of the Company. Options which
are specifically designated as "non-statutory" options when issued under the
Plan shall not be subject to such terms and conditions.
A. Option Price. The option price per share of the
Common Stock subject to an Incentive Option shall in no event be less
than one hundred percent (100%) of the fair market value of such Common
Stock on the grant date.
B. Dollar Limitation. The aggregate fair market value
(determined as of the respective date or dates of grant) of the Common
Stock for which one or more options
10.
<PAGE> 42
granted after December 31, 1986 to any Employee under this Plan (or any
other option plan of the Company or its parent or subsidiary
corporations) may for the first time become exercisable as incentive
stock options under the Federal tax laws during any one post-1986
calendar year shall not exceed the sum of One Hundred Thousand Dollars
($100,000.00). To the extent the Employee holds two or more such
post-1986 options which become exercisable for the first time in the
same calendar year, the foregoing limitation on the exercisability of
such options as incentive stock options under the Federal tax laws
shall be applied on the basis of the order in which such options are
granted.
C. 10% Shareholder. If any individual to whom the Incentive
Option is granted is the owner of stock (as determined under Section
424(d) of the Internal Revenue Code) possessing more than 10% of the
total combined voting power of all classes of stock of the Company or
any one of its parent or subsidiary corporations, then the option price
per share shall not be less than one hundred and ten percent (110%) of
the fair market value per share of Common Stock on the grant date, and
the option term shall not exceed five (5) years, measured from such
grant date.
Except as modified by the preceding provisions of this Section
II, the provisions of Articles One, Two and Four of the Plan shall apply to all
Incentive Options granted hereunder.
III. CORPORATE TRANSACTIONS/CHANGE IN CONTROL
A. In the event of any of the following
shareholder-approved transactions (a "Corporate Transaction"):
(i) a merger or consolidation in which
the Company is not the surviving entity, except for a transaction the
principal purpose of which is to change the State of the Company's
incorporation,
(ii) the sale, transfer or other
disposition of all or substantially all of the assets of the Company in
liquidation or dissolution of the Company, or
(iii) any reverse merger in which the
Company is the surviving entity but in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Company's outstanding securities are transferred to holders different
from those who held such securities immediately prior to such merger,
then the exercisability of each option outstanding under this
Article Two shall automatically accelerate so that each such option shall,
immediately prior to the specified effective date for the Corporate Transaction,
become fully exercisable with respect to the total number of shares of Common
Stock at the time subject to such option and may be exercised for all or any
portion of such shares. However, an outstanding option under this Article Two
shall not so accelerate if and to the extent: (i) such option is, in connection
with the Corporate
11.
<PAGE> 43
Transaction, to be assumed by the successor corporation or parent thereof or
replaced with a comparable option to purchase shares of the capital stock of the
successor corporation or parent thereof, (ii) such option is to be replaced by a
comparable cash incentive program of the successor corporation based on the
option spread at the time of the Corporate Transaction, or (iii) the
acceleration of such option is subject to other limitations imposed by the Plan
Administrator making the option grant at the time of such grant. The
determination of comparability under clause (i) or (ii) above shall be made by
the Plan Administrator, and its determination shall be final, binding and
conclusive.
B. Upon the consummation of the Corporate Transaction,
all outstanding options under this Article Two shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation or its
parent company.
C. Each outstanding option under this Article Two which
is assumed in connection with the Corporate Transaction or is otherwise to
continue in effect shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply and pertain to the number and class of
securities which would have been issuable, in consummation of such Corporate
Transaction, to an actual holder of the same number of shares of Common Stock as
are subject to such option immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the option price payable per
share, provided the aggregate option price payable for such securities shall
remain the same. In addition, the class and number of securities available for
issuance under the Plan following the consummation of the Corporate Transaction
shall be appropriately adjusted.
D. The Plan Administrator shall have the discretion,
exercisable at the time the option is granted or at any time while the option
remains outstanding, to provide for the automatic acceleration of any options
which are assumed or replaced in a Corporate Transaction and do not otherwise
accelerate at that time (and the automatic termination of any of the
Corporation's outstanding repurchase rights which do not otherwise terminate at
the time of the Corporate Transaction) in the event the optionee's Service
should subsequently terminate by reason of an Involuntary Termination within a
specified period following the effective date of such Corporate Transaction. Any
options so accelerated shall remain exercisable for fully-vested shares until
the earlier of (i) the expiration of the option term or (ii) the expiration of
the one (1)- year period measured from the effective date of the Involuntary
Termination.
E. The Plan Administrator shall have the discretion,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to provide for the automatic acceleration of one or
more outstanding options (and the automatic termination of one or more
outstanding repurchase rights with the immediate vesting of the shares of Common
Stock subject to those rights) in the event the optionee's Service should
terminate by reason of an Involuntary Termination within a specified period
following the effective date of any Change in Control. Any options accelerated
in connection with a Change in Control shall remain fully exercisable until the
expiration or sooner termination of the option term.
12.
<PAGE> 44
F. For purposes of this Article Two, a Change in Control
shall be deemed to occur in the event:
(i) any person or related group of
persons (other than the Company or a person that directly or indirectly
controls, is controlled by, or is under common control with, the
Company) directly or indirectly acquires beneficial ownership (within
the meaning of Rule 13d-3 of the 1934 Act) of securities possessing
more than forty percent (40%) of the total combined voting power of the
Company's outstanding securities pursuant to a tender or exchange offer
which the Board does not recommend the Company's stockholders to
accept; or
(ii) there is a change in the composition
of the Board over a period of twenty-four (24) consecutive months or
less such that a majority of the Board members (rounded up to the next
whole number) cease, by reason of one or more proxy contests for the
election of Board members, to be comprised of individuals who either
(A) have been Board members continuously since the beginning of such
period or (B) have been elected or nominated for election as Board
members during such period by at least two-thirds of the Board members
described in clause (A) who were still in office at the time such
election or nomination was approved by the Board.
G. The portion of any Incentive Option accelerated in
connection with a Corporate Transaction or Change in Control shall remain
exercisable as an Incentive Option only to the extent the applicable One Hundred
Thousand Dollar ($100,000) limitation is not exceeded. To the extent such dollar
limitation is exceeded, the accelerated portion of such option shall be
exercisable as a Non-Statutory Option under the Federal tax laws.
H. The grant of options under this Article Two shall in
no way affect the right of the Company to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at
any time and from time to time, with the consent of the affected optionees, the
cancellation of any or all outstanding options under this Article Two (including
outstanding options under the ISO and NQSO Plans incorporated into this Plan)
and to grant in substitution new options under the Plan covering the same or
different numbers of shares of Common Stock but having an option price per share
not less than fifty percent (50%) of the fair market value of the Common Stock
on the new grant date (or one hundred percent (100%) of such fair market value
in the case of an Incentive Option).
13.
<PAGE> 45
V. STOCK APPRECIATION RIGHTS
A. Provided and only if the Plan Administrator determines in
its discretion to implement the stock appreciation right provisions of this
Section V, the Plan Administrator may grant one or more optionees the right,
exercisable upon such terms and conditions as the Plan Administrator may
establish, to surrender all or part of an unexercised option under this Article
Two in exchange for a distribution from the Company in an amount equal to the
excess of (i) the fair market value (on the option surrender date) of the number
of shares in which the optionee is at the time vested under the surrendered
option (or surrendered portion thereof) over (ii) the aggregate option price
payable for such vested shares.
B. No surrender of an option shall be effective hereunder
unless it is approved by the Plan Administrator. If the surrender is so
approved, then the distribution to which the optionee shall accordingly become
entitled under this Section V may be made in shares of Common Stock valued at
fair market value on the option surrender date, in cash, or partly in shares and
partly in cash, as the Plan Administrator shall in its sole discretion deem
appropriate.
C. If the option surrender is rejected by the Plan
Administrator, the optionee shall retain whatever rights the optionee had under
the surrendered option (or surrendered portion thereof) on the option surrender
date and may exercise such rights at any time prior to the later of (i) five (5)
business days after the receipt of the rejection notice or (ii) the last day on
which the option is otherwise exercisable in accordance with the terms of the
instrument evidencing such option, but in no event may such rights be exercised
more than ten (10) years after the grant date of the option.
D. One or more officers of the Company subject to the
short-swing profit restrictions of the Federal securities laws may, in the Plan
Administrator's sole discretion, be granted limited stock appreciation rights in
tandem with their outstanding options under this Discretionary Option Grant
Program. Upon the occurrence of a Hostile Take-Over, each outstanding option
with such a limited stock appreciation right in effect shall automatically be
cancelled, and the optionee shall in return be entitled to a cash distribution
from the Company in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to the cancelled option (whether
or not the option is otherwise at the time exercisable for such shares) over
(ii) the aggregate exercise price payable for such shares. The cash distribution
payable upon such cancellation shall be made within five (5) days following the
consummation of the Hostile Take-Over. Neither the approval of the Plan
Administrator nor the consent of the Board shall be required in connection with
such option cancellation and cash distribution.
E. For purposes of Section V.D, the following definitions
shall be in effect:
A Hostile Take-Over shall be deemed to occur
in the event any person or related group of persons (other than the
Company or a person that directly or indirectly controls, is controlled
by, or is under common control with, the Company)
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<PAGE> 46
directly or indirectly acquires beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than forty percent (40%) of the total combined voting power of the
Company's outstanding securities pursuant to a tender or exchange offer
which the Board does not recommend the Company's stockholders to
accept.
The Take-Over Price per share shall be
deemed to be equal to the greater of (a) the fair market value per
share on the date of cancellation, as determined pursuant to the
valuation provisions of Section I.A.3 of this Article Two, or (b) the
highest reported price per share paid in effecting such Hostile
Take-Over. However, if the cancelled option is an Incentive Option, the
Take-Over Price shall not exceed the clause (a) price per share.
F. The shares of Common Stock subject to any option
surrendered or cancelled for an appreciation distribution pursuant to this
Section V shall NOT be available for subsequent option grant under the Plan.
VI. EXTENSION OF EXERCISE PERIOD
The Plan Administrator shall have full power and authority to
extend the period of time for which any option granted under this Article Two is
to remain exercisable following the optionee's cessation of Service or death
from the limited period in effect under Section I.C.1 of this Article Two to
such greater period of time as the Plan Administrator shall deem appropriate;
provided, however, that in no event shall such option be exercisable after the
specified expiration date of the option term.
15.
<PAGE> 47
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
I. ELIGIBILITY
A. Successor Program. The automatic option grant program
established pursuant to the provisions of this Article Three shall serve as a
successor to the special stock option program previously in effect for
non-employee Board members under the Director Plan. No further grants shall be
made under the Director Plan, and all outstanding option grants under the
Director Plan are hereby incorporated into this Plan and shall accordingly be
treated as outstanding options under this Plan. However, each such option grant
incorporated into this Plan shall continue to be governed solely by the express
terms and conditions of the instrument evidencing such grant, and no provision
of this Article Three automatic option grant program shall be deemed to affect
or otherwise modify the rights or obligations of the holders of such
incorporated option grants with respect to their acquisitions of shares of the
Company's Common Stock thereunder or the exercise of their outstanding stock
appreciation rights thereunder.
B. Eligible Optionees. The individuals eligible for automatic
option grants under this Article Three shall include each non-employee Board
member initially elected or appointed after the Effective Date, plus each
continuing non-employee Board member.
C. Limitation. Except for the option grants to be made
pursuant to the provisions of this Article Three, non-employee Board members
shall not be eligible to receive any additional option grants or stock issuances
under this Plan or any other stock plan of the Company (or its subsidiary
corporations).
II. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
A. Grant Dates. Option grants will be made under this Article
Three on the dates specified below:
(i) Each individual who initially becomes a
non-employee Board member at any time after the Effective Date, whether
through election at an Annual Stockholders Meeting or through
appointment by the Board, shall automatically be granted, at the time
of such initial election or appointment, a non-statutory stock option
to purchase 50,000 shares of Common Stock upon the terms and conditions
of this Article Three.
(ii) On the date of each Annual Stockholders Meeting,
beginning with the 1995 Annual Stockholders Meeting, each non-employee
Board member who is re-elected at such Annual Meeting and who has
completed three (3) consecutive years of service as a non-employee
Board member as of the date of such Annual Meeting shall
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<PAGE> 48
automatically be granted a non-statutory option under the Plan to
purchase 50,000 shares of Common Stock. There shall be no limit on the
number of 50,000 share options grants any non-employee Board member may
receive every three (3) year period over his or her continued Board
service. As such, a non-employee Board member would receive an option
grant at the Annual Meeting at which he or she is elected to the Board
for the fourth consecutive year, the seventh consecutive year, the
tenth consecutive year, and so on.
B. Exercise Price. The exercise price per share shall be
equal to one hundred percent (100%) of the fair market value per share of Common
Stock on the automatic grant date.
C. Payment.
The exercise price shall be payable in one of the
alternative forms specified below:
- full payment in cash or check made payable to the Company's
order;
- full payment in shares of Common Stock held for the
requisite period necessary to avoid a charge to the Company's earnings
for financial reporting purposes and valued at fair market value on the
Exercise Date (as such term is defined below);
- full payment in a combination of shares of Common Stock held
for the requisite period necessary to avoid a charge to the Company's
earnings for financial reporting purposes and valued at fair market
value on the Exercise Date and cash or check payable to the Company's
order; or
- full payment through a broker-dealer sale and remittance
procedure pursuant to which the optionee (I) shall provide irrevocable
written instructions to a designated brokerage firm to effect the
immediate sale of the purchased shares and remit to the Company, out of
the sale proceeds available on the settlement date, sufficient funds to
cover the aggregate option price payable for the purchased shares and
(II) shall provide written directives to the Company to deliver the
certificates for the purchased shares directly to such brokerage firm
in order to complete the sale transaction.
For purposes of this subparagraph, the Exercise Date shall be
the date on which written notice of the option exercise is delivered to the
Company, and the fair market value per share of Common Stock on any relevant
date shall be determined in accordance with the provisions of Section I.A.3 of
Article Two. Except to the extent the sale and remittance procedure is utilized
for the exercise of the option, payment of the exercise price for the purchased
shares must accompany the exercise notice.
17.
<PAGE> 49
D. Option Term. Each automatic grant under this Article
Three shall have a maximum term of five (5) years measured from the automatic
grant date.
E. Exercisability. The option shall become exercisable
for the option shares in a series of four (4) installments as follows:
(i) The option shall become exercisable
for twenty-five percent (25%) of the option shares upon the optionee's
completion of (6) continuous months of Board service measured from the
automatic grant date.
(ii) The option shall become exercisable
for an additional twenty-five percent (25%) of the option shares upon
the optionee's completion of eighteen (18) continuous months of Board
service measured from the automatic grant date.
(iii) The option shall become exercisable
for an additional twenty-five percent (25%) of the option shares upon
the optionee's completion of thirty (30) continuous months of Board
service measured from the automatic grant date.
(iv) The option shall become exercisable
for the final twenty-five percent (25%) of the option shares upon the
optionee's completion of forty-two (42) continuous months of Board
service measured from the automatic grant date.
As the option becomes exercisable for one or more
installments of the option shares, the installments shall accumulate, and the
option shall remain exercisable for the accumulated installments until the
expiration or sooner termination of the option term.
The option, however, shall not become exercisable for
any additional option shares following the optionee's cessation of Board
service, except to the extent the option is otherwise to become exercisable in
accordance with the provisions of Section III of this Article Three.
F. Limited Transferability. The option may, in
connection with the optionee's estate plan, be assigned in whole or in part
during the optionee's lifetime to one or more members of the optionee's
immediate family or to a trust established exclusively for the benefit of one or
more such family members. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant to
the assignment.
G. Termination of Board Membership.
1. Should the optionee cease to serve as a
Board member for any reason (other than death) while holding an automatic option
grant under this Article Three, then such optionee shall have a twelve
(12)-month period following the date of such cessation of Board service in which
to exercise such option for any or all of the shares of Common Stock for which
the option is exercisable at the time of the optionee's cessation of Board
service.
18.
<PAGE> 50
2. Should the optionee die while serving as a
Board member, then the option may subsequently be exercised, for any or all of
the shares of Common Stock for which the option is exercisable at the time of
the optionee's cessation of Board service, by the personal representative of the
optionee's estate or by the person or persons to whom the option is transferred
pursuant to the optionee's will or in accordance with the laws of descent and
distribution. Any such exercise must, however, occur within twelve (12) months
after the date of the optionee's death.
3. In no event shall any automatic grant under
this Article Three remain exercisable after the specified expiration date of the
five (5)-year option term. Upon the expiration of the applicable exercise period
in accordance with subparagraphs 1 and 2 above or (if earlier) upon the
expiration of the five (5)-year option term, the automatic grant shall terminate
and cease to be exercisable.
H. Shareholder Rights. The holder of an automatic
option grant under this Article Three shall have no shareholder rights with
respect to any shares covered by such option until such individual shall have
exercised the option, paid the exercise price for the purchased shares and been
issued a stock certificate for such shares.
I. Remaining Terms. The remaining terms and conditions
of each automatic option grant shall be as set forth in the prototype
Non-Statutory Stock Option Agreement attached as Exhibit A to the Plan.
III. CORPORATE TRANSACTION/ CHANGE IN CONTROL/ HOSTILE
TAKE-OVER
A. In the event of any of the following
shareholder-approved transactions (a "Corporate Transaction"):
(i) a merger or consolidation in which
the Company is not the surviving entity, except for a transaction the
principal purpose of which is to change the State of the Company's
incorporation,
(ii) the sale, transfer or other
disposition of all or substantially all of the assets of the Company in
liquidation or dissolution of the Company, or
(iii) any reverse merger in which the
Company is the surviving entity but in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Company's outstanding securities are transferred to holders different
from those who held such securities immediately prior to such merger,
then the exercisability of each automatic option grant
outstanding under this Article Three shall automatically accelerate so that each
such option shall, immediately prior to the specified effective date for the
Corporate Transaction, become fully exercisable with respect to
19.
<PAGE> 51
the total number of shares of Common Stock at the time subject to such option
and may be exercised for all or any portion of such shares. Upon the
consummation of the Corporate Transaction, all automatic option grants under
this Article Three shall terminate and cease to be outstanding.
B. In connection with any Change in Control of the Company,
each automatic option grant at the time outstanding under this Article Three
shall automatically accelerate so that each such option shall, immediately prior
to the specified effective date for the Change in Control, become fully
exercisable with respect to the total number of shares of Common Stock at the
time subject to such option and may be exercised for all or any portion of such
shares at any time prior to the expiration or sooner termination of the option
term. For purposes of this Article Three, a Change in Control shall be deemed to
occur in the event:
(i) any person or related group of
persons (other than the Company or a person that directly or indirectly
controls, is controlled by, or is under common control with, the
Company) directly or indirectly acquires beneficial ownership (within
the meaning of Rule 13d-3 of the 1934 Act) of securities possessing
more than forty percent (40%) of the total combined voting power of the
Company's outstanding securities pursuant to a tender or exchange offer
which the Board does not recommend the Company's stockholders to
accept; or
(ii) there is a change in the composition
of the Board over a period of twenty-four (24) consecutive months or
less such that a majority of the Board members (rounded up to the next
whole number) cease, by reason of one or more proxy contests for the
election of Board members, to be comprised of individuals who either
(A) have been Board members continuously since the beginning of such
period or (B) have been elected or nominated for election as Board
members during such period by at least two-thirds of the Board members
described in clause (A) who were still in office at the time such
election or nomination was approved by the Board.
C. Upon the occurrence of a Hostile Take-Over, each automatic
option grant shall automatically be cancelled in return for a cash distribution
from the Company in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to the cancelled option (whether
or not the option is otherwise at the time exercisable for such shares) over
(ii) the aggregate exercise price payable for such shares. The cash distribution
payable upon such cancellation shall be made to the option holder within five
(5) days following the consummation of the Hostile Take-Over. Neither the
approval of the Plan Administrator nor the consent of the Board shall be
required in connection with such option cancellation and cash distribution.
D. For purposes of this Section III, the following definitions
shall be in effect:
A Hostile Take-Over shall be deemed to occur
in the event any person or related group of persons (other than the
Company or a person that directly or
20.
<PAGE> 52
indirectly controls, is controlled by, or is under common control with,
the Company) directly or indirectly acquires beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than forty percent (40%) of the total combined voting
power of the Company's outstanding securities pursuant to a tender or
exchange offer which the Board does not recommend the Company's
stockholders to accept.
The Take-Over Price per share shall be
deemed to be equal to the greater of (a) the fair market value per
share on the date of cancellation, as determined pursuant to the
valuation provisions of Section I.A.3 of Article Two, or (b) the
highest reported price per share paid in effecting such Hostile
Take-Over.
D. The shares of Common Stock subject to each option cancelled
in connection with the Hostile Take-Over shall NOT be available for subsequent
issuance under this Plan.
E. The automatic option grants outstanding under this Article
Three shall in no way affect the right of the Company to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
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ARTICLE FOUR
MISCELLANEOUS
I. AMENDMENT OF THE PLAN
The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects whatsoever.
However, (i) no such amendment or modification shall, without the consent of the
holders, adversely affect their rights and obligations with respect to options
at the time outstanding under the Plan and (ii) any amendment made to the
Automatic Option Grant Program (or any options outstanding thereunder) shall be
effected in compliance with the limitation of Section IV of Article Three. In
addition, certain amendments to the Plan may require shareholder approval
pursuant to applicable laws or regulations.
II. TAX WITHHOLDING
The Company's obligation to deliver shares or cash upon the
exercise of stock options or stock appreciation rights granted under the
Discretionary Option Grant Program shall be subject to the satisfaction of all
applicable Federal, State and local income and employment tax withholding
requirements.
III. EFFECTIVE DATE AND TERM OF PLAN
A. This Plan, as successor to the Company's ISO, NQSO and
Director Plans, was initially adopted by the Board of Directors on the Effective
Date and approved by the Company's stockholders on May 27, 1992. The Plan was
amended by the Board effective June 3, 1994, and such amendment was approved by
the stockholders on June 3, 1994. The Plan was further amended by the Board
effective June 7, 1995 to (i) increase the number of shares authorized for
issuance thereunder and (ii) amend the automatic grant program in Article III to
provide for additional grants of options for 50,000 shares every three years.
The stockholders approved the amendments on June 7, 1995. The Plan was further
amended by the Board on June 28, 1996 to increase the number of shares
authorized for issuance by 500,000 shares; the amendment was approved by the
stockholders at the 1996 Annual Stockholders Meeting.
On April 27, 1998 the Board amended the Plan to
effect the following changes: (i) increase the number of shares of Common Stock
available for issuance under the Plan by 500,000 shares; (ii) render
non-employee Board members eligible to receive option grants under the
Discretionary Option Grant Program of the Plan; (iii) eliminate the restriction
that the individuals who serve as Plan Administrator may not receive any
discretionary option grants from the Company while serving as Plan Administrator
or during the twelve month period preceding appointment as Plan Administrator;
(iv) require shareholder approval of future amendments to the Plan only to the
extent necessary to satisfy applicable laws or regulations; (v) allow the shares
issued under the Plan which are subsequently reacquired by the Company pursuant
to the
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Company's exercise of its repurchase rights to be added back to the share
reserve available for future issuance under the Plan; (vi) allow the Plan
Administrator to provide for the acceleration of options upon the Involuntary
Termination of the optionee's service within a specified period following (A) a
Corporate Transaction in which the options are assumed or (B) a Change in
Control; and (vii) effect a series of additional changes to the provisions of
the Plan (including the transferability of non-statutory stock options and the
elimination of the six (6)-month holding period requirement as a condition to
the exercise of stock appreciation rights) in order to take advantage of the
recent amendments to Rule 16b-3 of the Securities and Exchange Commission which
exempts certain officer and director transactions under the Plan from the
short-swing liability provisions of the federal securities laws. If such
shareholder approval is not obtained at the 1998 Annual Stockholders Meeting,
then (A) any options previously granted on the basis of the 500,000-share
increase shall terminate, and no further options based on such increase shall
be granted, (B) non-employee Board members shall not be eligible to receive
option grants under the Discretionary Option Grant Program and (C) shares of
Common Stock reacquired by the Corporation shall not be added back to the
reserve available for issuance under the Plan. Those options granted under the
Plan which are not based on such increase shall remain outstanding in
accordance with the terms and conditions of the respective agreements
evidencing such options, whether or not the requisite shareholder approval of
the share increase is obtained. Subject to the foregoing limitations, the Plan
Administrator may grant options under the Plan at any time before the date
fixed herein for termination of the Plan.
B. The provisions of this amended and restated Plan shall
apply only to options and stock appreciation rights granted under the Plan from
and after the April 27, 1998 effective date of the amendments. All stock options
and stock appreciation rights issued and outstanding under the Plan immediately
prior to such effective date shall continue to be governed by the terms and
conditions of the Plan (and the respective instruments evidencing each such
option or stock appreciation right) as in effect on the date each such option or
stock appreciation right was previously granted, and nothing in this restatement
shall be deemed to affect or otherwise modify the rights or obligations of the
holders of such options or stock appreciation rights with respect to their
acquisition of shares of Common Stock under such options or their exercise of
such stock appreciation rights.
C. Each option issued and outstanding under the Predecessor
Plans immediately prior to the Effective Date of this Plan shall be incorporated
into this Plan and treated as an outstanding option under this Plan, but each
such option shall continue to be governed solely by the terms and conditions of
the instrument evidencing such grant, and nothing in this Plan shall be deemed
to affect or otherwise modify the rights or obligations of the holders of such
options with respect to their acquisition of shares of Common Stock thereunder.
D. The sale and remittance procedure authorized for the
exercise of outstanding options under this Plan shall be available for all
options granted under this Plan on or after the Effective Date and for all
non-statutory options outstanding under the Predecessor Plans and incorporated
into this Plan. The Plan Administrator may also allow such procedure to be
utilized in connection with one or more disqualifying dispositions of Incentive
Option shares effected
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after the Effective Date, whether such Incentive Options were granted under this
Plan or the ISO Plan.
E. Unless sooner terminated in accordance with Section III of
Article Two and Section III of Article Three, the Plan shall terminate upon the
earlier of (i) the expiration of the ten (10) year period measured from the date
of the Board's initial adoption of the Plan or (ii) the date on which all shares
available for issuance under the Plan shall have been issued or cancelled
pursuant to the exercise, surrender or cash-out of the options granted
hereunder. If the date of termination is determined under clause (i) above, then
options outstanding on such date shall thereafter continue to have force and
effect in accordance with the provisions of the instruments evidencing such
options.
F. Options may be granted under this Plan to purchase shares
of Common Stock in excess of the number of shares then available for issuance
under the Plan, provided each option granted is not to become exercisable, in
whole or in part, at any time prior to shareholder approval of an amendment
authorizing a sufficient increase in the number of shares issuable under the
Plan.
III. USE OF PROCEEDS
Any cash proceeds received by the Company from the sale of
shares pursuant to options granted under the Plan shall be used for general
corporate purposes.
IV. REGULATORY APPROVALS
The implementation of the Plan, the granting of any option
hereunder, and the issuance of stock upon the exercise or surrender of any such
option shall be subject to the procurement by the Company of all approvals and
permits required by regulatory authorities having jurisdiction over the Plan,
the options granted under it and the stock issued pursuant to it.
V. NO EMPLOYMENT/SERVICE RIGHTS
Neither the action of the Company in establishing or amending
the Plan, nor any action taken by the Plan Administrator hereunder, nor any
provision of the amended Plan shall be construed so as to grant any individual
the right to remain in the employ or service of the Company (or any parent or
subsidiary corporation) for any period of specific duration, and the Company (or
any parent or subsidiary corporation retaining the services of such individual)
may terminate such individual's employment or service at any time and for any
reason, with or without cause.
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