SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c)
[ ] or Rule 14a-12
DYNAGEN, 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):
[ ] $ 125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $ 500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
not applicable
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
not applicable
- --------------------------------------------------------------------------------
(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):
not applicable
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
not applicable
- --------------------------------------------------------------------------------
(5) Total fee paid:
not applicable
- --------------------------------------------------------------------------------
[X] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
not applicable
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
not applicable
- --------------------------------------------------------------------------------
(3) Filing Party:
not applicable
- --------------------------------------------------------------------------------
(4) Date Filed:
not applicable
- --------------------------------------------------------------------------------
DYNAGEN, INC.
99 ERIE STREET
CAMBRIDGE, MA 02139
(617) 491-2527
--------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
--------------------
TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders of DynaGen, Inc., a Delaware corporation
(the "Corporation"), will be held on Thursday, January 30, 1997, at 3:00 p.m.,
at the offices of Testa, Hurwitz & Thibeault, LLP, High Street Tower, 20th
Floor, 125 High Street, Boston, Massachusetts
02110, for the following purposes:
1. To elect a Board of Directors for the ensuing year.
The nominees the Board proposes to present for election are: Dr. Ian R.
Ferrier, Steven Georgiev, Dr. Indu A. Muni, Dr. F. Howard Schneider, Dr.
Michael Sorell and Dhananjay G. Wadekar.
2. To consider and act upon a proposal to approve an amendment to the
Corporation's Certificate of Incorporation to increase the number of
authorized shares of Common Stock, $.01 par value per share ("Common
Stock"), from 40,000,000 to 75,000,000 shares.
3. To consider and act upon a proposal to approve an amendment to the
Corporation's 1991 Stock Plan to increase the number of shares of Common
Stock of the Corporation authorized to be issued thereunder from
1,200,000 to 2,600,000 shares and to permit grants thereunder to comply
with Section 162(m) of the Internal Revenue Code.
4. To transact such other business as may properly come before the
meeting and any adjournments thereof.
Stockholders entitled to notice of and to vote at the meeting shall be
determined as of December 24, 1996, the record date fixed by the Board of
Directors for such purpose.
All stockholders are cordially invited to attend the Meeting. To ensure your
representation at the meeting, however, you are urged to sign and return the
enclosed proxy card as promptly as possible in the enclosed postage-prepaid
envelope. You may revoke your proxy in the manner described in the accompanying
Proxy Statement at any time before it has been voted at the annual meeting. Any
stockholder attending the annual meeting may vote in person even if he or she
has returned a proxy.
By Order of the Board of Directors,
DHANANJAY G. WADEKAR
Chairman
December 27, 1996
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. WHETHER OR
NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN THE ENCLOSED PROXY CARD AND
RETURN IT PROMPTLY IN THE ENCLOSED STAMPED ENVELOPE BY RETURN MAIL.
DYNAGEN, INC.
99 ERIE STREET
CAMBRIDGE, MA 02139
--------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
--------------------
DECEMBER 27, 1996
Proxies in the form enclosed with this Proxy Statement are solicited by the
Board of Directors of DynaGen, Inc., a Delaware corporation (the "Corporation"),
for use at the Annual Meeting of Stockholders to be held on Thursday, January
30, 1997, at 3:00 p.m. (the "Meeting"), at the offices of Testa, Hurwitz &
Thibeault, LLP, High Street Tower, 20th Floor, 125 High Street, Boston,
Massachusetts 02110.
Only stockholders of record as of December 24, 1996 will be entitled to
notice of and to vote at the Meeting and any adjournments thereof. As of
December 13, 1996, [29,106,231] shares of the Corporation's Common Stock, $.01
par value per share (the "Common Stock"), were issued and outstanding. The
holders of Common Stock are entitled to one vote per share on any proposal
presented at the Meeting. Stockholders may vote in person or by proxy. Execution
of a proxy will not in any way affect a stockholder's right to attend the
Meeting and vote in person. Any stockholder giving a proxy has the right to
revoke it at any time before it is exercised. Proxies may be revoked by (1)
filing with the Secretary of the Corporation, before the taking of the vote at
the Meeting, a written notice of revocation bearing a later date than the proxy,
(2) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of the Corporation before the taking of the vote
at the Meeting or (3) attending the Meeting and voting in person (although
attendance at the Meeting will not in and of itself constitute a revocation of a
proxy). Any written notice of revocation or subsequent proxy should be sent so
as to be delivered to DynaGen, Inc., 99 Erie Street, Cambridge, MA 02139,
Attention: Secretary, at or before the taking of the vote at the Meeting.
The persons named as attorneys in the proxy are directors and officers of
the Corporation. All properly executed proxies returned in time to be counted at
the Meeting will be voted and, with respect to the election of the Board of
Directors, will be voted as stated below under "Election of Directors." Any
stockholder submitting a proxy has the right to withhold authority to vote for
any individual nominee to the Board of Directors by writing that nominee's name
on the space provided on the proxy.
In addition to the election of directors, the stockholders will consider and
vote upon proposals (i) to amend the Corporation's Certificate of Incorporation
to increase the number of authorized shares of Common Stock from 40,000,000 to
75,000,000 shares and (ii) to approve an amendment to the Corporation's 1991
Stock Plan to increase the number of shares of Common Stock of the Corporation
authorized to be issued thereunder from 1,200,000 to 2,600,000 shares and to
permit grants thereunder to comply with Section 162(m) of the Internal Revenue
Code of 1986, as amended, all as further described in this Proxy Statement.
The representation in person or by proxy of at least a majority of the
outstanding shares of Common Stock entitled to vote at the Meeting is necessary
to establish a quorum for the transaction of business. Votes withheld from any
nominee, abstentions and broker non-votes are counted as present or represented
for purposes of determining the presence or absence of a quorum. A "non-vote"
occurs when a broker holding shares for a beneficial owner votes on one
proposal, but does not vote on another proposal because the broker does not have
discretionary voting power and has not received instructions from the beneficial
owner. Directors are elected by a plurality of the votes cast by stockholders
entitled to vote at the Meeting. All other matters being submitted to
stockholders require the affirmative vote of the majority of shares present in
person or represented by proxy at the Meeting, except that the
proposal to amend the Corporation's Certificate of Incorporation requires the
affirmative vote of a majority of the outstanding shares of Common Stock
entitled to vote at the Meeting. An automated system administered by the
Company's transfer agent tabulates the votes. The vote on each matter submitted
to stockholders is tabulated separately. Abstentions are included in the number
of shares present or represented and voting on each matter and, therefore, with
respect to votes on specific proposals, will have the effect of negative votes.
Broker "non-votes" are not so included but have the effect of a vote "against"
the proposal to amend the Certificate of Incorporation.
Where a choice has been specified on the proxy with respect to the foregoing
matters, the shares represented by the proxy will be voted in accordance with
the specification. The shares will be voted FOR the matter in question if no
specification is made.
The Board of Directors knows of no other matter to be presented at the
Meeting. If any other matter should be presented at the Meeting upon which a
vote properly may be taken, shares represented by all proxies received by the
Corporation will be voted with respect thereto in accordance with the best
judgment of the persons named as attorneys in the proxies.
The Corporation's Annual Report, containing financial statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the fiscal year ended June 30, 1996, is being mailed
contemporaneously with this Proxy Statement to all stockholders entitled to
vote. This Proxy Statement and the form of proxy were first mailed to
stockholders on or about December 27, 1996.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 13, 1996, certain information
concerning the ownership of the Corporation's Common Stock by: (i) each person
who is known by the Corporation to own beneficially five percent or more of the
outstanding shares of the Corporation's Common Stock; (ii) each of the
Corporation's directors; (iii) the chief executive officer and each other
executive officer of the Corporation whose annual compensation exceeded
$100,000; and (iv) all directors and executive officers as a group. Except as
otherwise indicated, to the knowledge of the Corporation, the persons listed in
the table have sole voting and investment powers with respect to the shares
indicated.
SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
NAME OF BENEFICIAL OWNER OWNED COMMON STOCK(1)
Dhananjay G. Wadekar ...................... 1,351,250 4.6%
99 Erie Street
Cambridge, Massachusetts 02139
Dr. Indu A. Muni .......................... 1,137,250 3.9%
99 Erie Street
Cambridge, Massachusetts 02139
Dr. F. Howard Schneider(2) ................ 270,000 *
99 Erie Street
Cambridge, Massachusetts 02139
Dr. Ian R. Ferrier ........................ 0 0%
c/o Bogart Delafield Ferrier, Inc.
North Tower, 5th Floor
49 Headquarters Plaza
Morristown, New Jersey 07960
Steven Georgiev ........................... 0 0%
c/o Palomar Medical Technologies, Inc.
66 Cherry Hill Drive
Beverly, Massachusetts 01915
Dr. Michael Sorell ......................... 0 0%
115 East 92nd Street
New York, NY 10128
All Directors and Executive Officers as a group
(8 persons)(3) 2,864,500 9.7%
- ---------
* Indicates less than 1%.
2
(1) As of December 13, 1996, there were [29,106,231] shares of the Corporation's
Common Stock outstanding. Pursuant to the rules of the Securities and
Exchange Commission (the "Commission"), shares of Common Stock that an
individual or group has a right to acquire on or before February 11, 1997
(i.e., within 60 days of December 13, 1996) pursuant to the exercise of
presently exercisable or outstanding options, warrants or conversion
privileges are deemed to be outstanding for the purpose of computing the
percentage ownership of such individual or group, but are not deemed to be
outstanding for the purpose of computing the percentage ownership of any
other person shown in the table. Information with respect to beneficial
ownership is based upon information furnished by such stockholder.
(2) Includes 200,000 shares issuable to Dr. Schneider pursuant to immediately
exercisable stock options. Does not include 100 shares owned by Dr.
Schneider's wife, of which he disclaims any beneficial interest or control.
(3) Includes 283,000 shares issuable pursuant to immediately exercisable stock
options. Does not include 100 shares owned by Dr. Schneider'swife of which
he disclaims any beneficial interest or control.
ELECTION OF DIRECTORS
Each director of the Corporation is elected to hold office until the next
annual meeting of stockholders, and until his successor is elected and
qualified. Shares represented by all proxies received by the Corporation and not
so marked as to withhold authority to vote for any individual nominee for
director or for all nominees will be voted (unless one or more nominees are
unable or unwilling to serve) for the election of the six nominees named below.
The Board of Directors knows of no reason why any such nominee should be unable
or unwilling to serve, but if such should be the case, proxies will be voted for
the election of another person or for fixing the number of directors at a lesser
number. All of the nominees are currently directors of the Corporation. Proxies
cannot be voted for more than six nominees.
NOMINEES FOR DIRECTOR
The nominees for directors of the Corporation are as follows:
NAME AGE POSITION
Dr. Ian R. Ferrier(2) (3) 53 Director
Steven Georgiev(2) (3) 62 Director
Dr. Indu A. Muni(1) 54 President, Chief
Executive Officer,
Treasurer
and Director
Dr. F. Howard Schneider 58 Senior Vice President --
Technology and
Director
Dr. Michael Sorell 49 Director
Dhananjay G. Wadekar(1) 43 Chairman of the Board,
Executive Vice
President and Director
- ---------
(1) Member of the Stock Option Committee, which was disbanded on October 28,
1996.
(2) Member of the Audit Committee.
(3) Member of the Executive Compensation Committee, which was established on
July 24, 1996.
The By-laws of the Corporation provide for the annual election of the Board
of Directors. All Directors of the Corporation are elected to hold office until
the next annual meeting of Stockholders, and until their successors have been
duly elected and qualified.
DR. IAN R. FERRIER. Dr. Ferrier has served as a director of the Corporation
since July 1996. In 1982, he founded Bogart Delafield Ferrier, Inc. ("Bogart
Delafield Ferrier"), a healthcare consulting firm that provides strategic
consulting services to pharmaceutical and biotechnology companies. Dr. Ferrier
has served as Chief Executive Officer of Bogart Delafield Ferrier since 1982 and
as Chairman since 1989. He earned a medical degree from Edinburgh University and
specialized in clinical pharmacology during postgraduate training. Prior to
founding Bogart Delafield Ferrier, he held various clinical research and
3
management positions with ICI Pharmaceuticals, Kalipharma Inc., and the Tech
America Group. He serves as a director on the board of NASTECH Pharmaceuticals
Co., Inc., a publicly traded company, and on the boards of several privately
held biotechnology and pharmaceutical companies.
STEVEN GEORGIEV. Mr. Georgiev has served as a director of the Corporation
since July 1996. Since November 1993, he has been Chief Executive Officer of
Palomar Medical Technologies, Inc. ("Palomar"), a publicly traded Massachusetts
firm specializing in medical applications of lasers, and from November 1993
until August 1994 he was also President of Palomar. Mr. Georgiev was a
consultant to Palomar's predecessor, Dymed Corporation, from June 1991 until
Palomar's September 1991 merger with Dymed Corporation, at which time he became
Palomar's Chairman of the Board of Directors. Since November 1995, Mr. Georgiev
has been Chairman of the Board of Directors of American Materials &
Technologies, Inc., a publicly traded company. Mr. Georgiev has been a director
of Excel Technology, Inc., a publicly traded laser system and electro-optical
component company, since October 1992 and was also a director of Cybernetics
Products, Inc., a publicly traded company, from August 1988 until January 1992.
Mr. Georgiev earned a B.S. degree in Engineering Physics from Cornell University
and a M.S. in Management from the Massachusetts Institute of Technology.
DR. INDU A. MUNI. Dr. Muni is a co-founder of the Corporation and has served
as President and a director of the Corporation since inception and as Chief
Executive Officer and Treasurer since July 1990. From May 1988 to November 1988,
Dr. Muni served as Vice President of Biomaterial and Environmental Science and
Engineering for Holometrix, Inc., a publicly traded thermal instrumentation
company. Between July 1987 and May 1988, Dr. Muni provided biological consulting
services to pharmaceutical and biotechnology companies as an independent
consultant. From February 1981 to July 1987, Dr. Muni served as Executive Vice
President of Bioassay Systems Corporation, a publicly traded provider of
contract research and development services in the areas of pharmaceutical and
diagnostic systems.
DR. F. HOWARD SCHNEIDER. Dr. Schneider has served as a director of the
Corporation since September 1989, was Chairman of the Board of the Corporation
from July 1990 until February 1991 and became Senior Vice President --
Technology effective June 1991. Dr. Schneider was previously a partner and
Senior Vice President of Bogart Delafield Ferrier. Dr. Schneider participated in
the management buyout of Bogart Delafield Ferrier from its parent corporation,
McCann Healthcare Group, a subsidiary of Inter Public Group.
DR. MICHAEL SORELL. Dr. Sorell has served as a director of the Corporation
since October 1996. Since 1986, Dr. Sorell has worked in various capacities,
including research analyst, vice president and principal, of Morgan Stanley &
Co., Inc. Dr. Sorell earned an M.D. degree from the Albert Einstein College of
Medicine in 1972.
DHANANJAY G. WADEKAR. Mr. Wadekar is a co-founder of the Corporation and has
served as a director of the Corporation since inception and as Chairman of the
Board and Executive Vice President of the Corporation since November 1991. In
addition, he served as the Chairman, Chief Executive Officer and Treasurer of
the Corporation from its inception until July 1990 and as a consultant to the
Corporation during the period July 1990 to October 1991. Since April 1996, Mr.
Wadekar has served as a director of CSL Lighting Manufacturing, Inc., a publicly
traded manufacturer of high-end lighting fixtures. Mr. Wadekar was a director of
Holometrix, Inc., a publicly traded thermal instrumentation company which he
founded, from 1985 until November 1994.
BOARD MEETINGS AND COMMITTEES
The Board of Directors met six times during the fiscal year ended June 30,
1996. Each incumbent director who served during the fiscal year ended June 30,
1996 attended at least 75% of the meetings of the Board held during the period
in which he served. During the fiscal year ended June 30, 1996, the Board of
Directors had a Stock Option Committee, of which Dr. Muni and Mr. Wadekar were
members until the committee was disbanded on October 28, 1996. The Stock Option
Committee administered the Corporation's 1989 Stock Option Plan and 1991 Stock
Plan and did not meet during the fiscal year ended June 30, 1996. The Board of
Directors has an Audit Committee, of which Dr. Ferrier and Mr. Georgiev are
currently members, which oversees all financial functions of the Corporation,
including matters relating to the appointment and activities of the
Corporation's auditors, audit plans and procedures, various accounting and
financial reporting issues and changes in accounting policies. The Audit
Committee met two times during the fiscal year ended June 30,
4
1996. Henry E. Blair and Mark Skaletsky, who served as directors of the
Corporation and the sole members of the Audit Committee until July 1996 and June
1996, respectively, both attended all meetings of the Audit Committee. The Board
of Directors does not currently have a standing nominating committee or
committee performing similar functions.
Although the Board of Directors did not have a compensation committee during
the fiscal year ended June 30, 1996, on July 24, 1996, the Board established an
Executive Compensation Committee, of which Dr. Ferrier and Mr. Georgiev are the
members. The Executive Compensation Committee will review and set cash and
non-cash compensation for Dr. Muni and Mr. Wadekar and will provide guidance to
the Board of Directors on the cash and non-cash compensation payable to other
officers and employees of the Corporation.
COMPENSATION OF DIRECTORS
Directors were not compensated during the fiscal year ended June 30, 1996
for attending meetings of the Board of Directors. The Corporation has since
instituted a policy of paying directors who are not employees of the Corporation
a participation fee of $1,000 for each meeting of the Board of Directors
attended and for each committee meeting attended, up to a maximum of $1,000 per
calendar day, regardless of how may meetings occur on one day. All directors are
also reimbursed for out-of-pocket expenses incurred in connection with
attendance at meetings and other services as directors. Directors are entitled
to receive stock options under the 1991 Stock Plan and the 1989 Stock Option
Plan. To date, Mr. Wadekar and Dr. Muni have received no options, and Dr.
Schneider has received options to purchase a total of 310,000 shares of the
Corporation's Common Stock under the 1991 Stock Plan and 1989 Stock Option Plan.
In addition, the Board of Directors granted to Dr. Ferrier, Mr. Georgiev and Dr.
Sorell options to purchase 330,000 shares each, which options were granted
outside of the 1991 Stock Plan and 1989 Stock Option Plan. The Corporation's
Stock Option Committee, which administered the Corporation's 1989 Stock Option
Plan and 1991 Stock Plan until October 28, 1996, had a general policy of
awarding stock options at not less than fair market value at the date of grant,
and options generally vest over 2, 3 or 4 years. During the fiscal year ended
June 30, 1996, however, the Stock Option Committee awarded stock options to Dr.
Schneider and certain other officers of the Corporation at an exercise price of
$.01, which options were fully vested on the date of grant.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
CONCERNING OFFICERS AND DIRECTORS
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to the Corporation for the
fiscal years ended June 30, 1996, 1995 and 1994, of those persons who were at
June 30, 1996 (i) the chief executive officer and (ii) each other executive
officer of the Corporation whose annual compensation exceeded $100,000 (the
"Named Officers"):
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION(2)
ANNUAL COMPENSATION(1) AWARDS
NUMBER OF
NAME AND PRINCIPAL FISCAL SALARY BONUS OTHER ANNUAL OPTIONS/ ALL OTHER
POSITION YEAR ($) ($) COMPENSATION ($) SARS (#) COMPENSATION ($)
<S> <C> <C> <C> <C> <C> <C>
DR. INDU A. MUNI . 1996 115,500 -- -- -- 304(3)
President, Chief
Executive 1995 115,500 -- -- -- 304(3)
Officer and
Treasurer 1994 112,875 -- -- -- 304(3)
DHANANJAY G.
WADEKAR ....... 1996 115,500 -- -- -- 304(3)
Chairman of the
Board and 1995 115,500 -- -- -- 304(3)
Executive Vice
President 1994 112,875 -- -- -- 304(3)
DR. F. HOWARD 1996 115,500 -- -- 10,000 304(3)
SCHNEIDER ......
Senior Vice 1995 115,500 -- -- -- 304(3)
President --
Technology 1994 112,875 -- -- 150,000(4) 15,476(5)
</TABLE>
- ---------
(1) Excludes perquisites and other personal benefits, the aggregate annual
amount of which for each officer was less than the lesser of $50,000 or 10%
of the total salary and bonus reported.
(2) The Corporation did not grant any restricted stock awards or stock
appreciation rights ("SARs") or make any long-term incentive plan payouts
during the fiscal years ended June 30, 1996, 1995 and 1994.
5
(3) Amount represents the dollar value of group-term life insurance premiums
paid by the Corporation for the benefit of the Named Officer.
(4) The Corporation repriced certain of Dr. Schneider's outstanding options in
Fiscal 1994 as follows: Options to purchase 150,000 shares granted in July
1992 at an exercise price of $5.25 were canceled in exchange for options to
purchase 150,000 shares at an exercise price of $.75 per share, the fair
market value of the Corporation's Common Stock on the date of exchange,
April 27, 1994.
(5) Amount is comprised of: (i) $15,172 representing forgiveness from repayment
of a loan owed to the Corporation by Dr. Schneider and (ii) $304
representing the dollar value of group-term life insurance premiums paid by
the Corporation for the benefit of Dr. Schneider.
OPTIONS/SAR GRANTS TABLE
The following table sets forth each grant of stock options made during the
year ended June 30, 1996 to each of the Named Officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE APPRECIATION
FOR OPTION TERM(2)
% OF TOTAL
NUMBER OF OPTIONS MARKET
SECURITIES GRANTED TO PRICE ON
UNDERLYING EMPLOYEES EXERCISE DATE OF
OPTIONS IN FISCAL PRICE GRANT EXPIRATION
NAME GRANTED(1) YEAR ($/SHARE) ($/SHARE) DATE 0% ($) 5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dr. Indu A. Muni -- -- -- -- -- -- -- --
Dhananjay G.
Wadekar -- -- -- -- -- -- -- --
Dr. F. Howard
Schneider 10,000 18.2% 0.01 3.19 2/02/03 31,800 44,787 62,064
</TABLE>
- ---------
(1) All options granted are reflected in the Summary Compensation Table, were
granted on February 2, 1996 and were fully exercisable immediately upon
grant.
(2) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compounded rates of appreciation (0%, 5% and
10%) on the market value of the Corporation's Common Stock over the term of
the options. These numbers are calculated based on rules promulgated by the
Commission and do not reflect the Corporation's estimate of future stock
price growth. Actual gains, if any, on stock option exercises and Common
Stock holdings are dependent on the timing of such exercises and the future
performance of the Corporation's Common Stock. There can be no assurance
that the rates of appreciation assumed in this table can be achieved or that
the amounts reflected will be received by the individuals.
OPTION EXERCISES AND FISCAL YEAR END VALUES
Presented below is further information with respect to unexercised stock
options to purchase the Corporation's Common Stock held by each Named Officer as
of June 30, 1996. None of the Named Officers exercised any stock options during
fiscal 1996.
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
JUNE 30, 1996 (#) JUNE 30, 1996 ($)
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
Dr. Indu A. Muni 0 0 -- --
Dhananjay G. Wadekar 0 0 -- --
Dr. F. Howard Schneider 200,000 60,000 332,400 101,250
Stock Plans. The Corporation currently maintains two employee stock plans:
the 1989 Stock Option Plan and the 1991 Stock Plan. During fiscal 1996, each
plan was administered by the Stock Option Committee of the Board of Directors.
The 1991 Stock Plan currently provides for the grant of
6
incentive stock options, non-qualified options, awards and authorizations to
purchase up to 1,200,000 shares of Common Stock. At the Meeting, the
stockholders will consider and vote upon a proposal to approve an amendment to
the 1991 Stock Plan to increase the number of shares of Common Stock authorized
to be issued thereunder from 1,200,000 to 2,600,000 shares and to permit grants
thereunder to comply with Section 162(m) of the Internal Revenue Code (see
"Proposal to Amend the 1991 Stock Plan" below). The terms of options issued
under the 1991 Stock Plan, including number of shares, exercise price, duration
and vesting, were generally determined by the Stock Option Committee before the
committee was disbanded on October 28, 1996 and are now determined by the full
Board of Directors. As of June 30, 1996, options to purchase a total of 640,900
shares of Common Stock were outstanding under the 1991 Stock Plan, of which
options for 418,300 shares were then exercisable, and 506,900 shares of Common
Stock were reserved for future option grants.
The 1989 Stock Option Plan provides for the grant of incentive stock options
and non-qualified options to purchase up to an aggregate of 600,000 shares of
Common Stock to the Corporation's employees, officers, directors and
consultants. The terms of such options, including number of shares, exercise
price, duration and vesting, were generally determined by the Stock Option
Committee before the committee was disbanded on October 28, 1996 and are now
determined by the full Board of Directors. As of June 30, 1996, options to
purchase a total of 220,000 shares of Common Stock were outstanding under the
1989 Stock Option Plan, of which options for 197,500 shares were then
exercisable, and no shares of Common Stock were reserved for future option
grants.
BOARD OF DIRECTORS AND STOCK OPTION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Corporation's executive compensation program was administered by the
Board of Directors during fiscal 1996. The Board of Directors' informal
executive compensation philosophy (which applies generally to all of the
Corporation's management) considers a number of factors, which may include
providing levels of compensation competitive with companies at a comparable
stage of development and in the Corporation's geographic area, recognizing the
overall cost of living in the Corporation's geographical region, integrating
management's pay with the achievement of performance goals, rewarding above
average corporate performance, recognizing and providing incentive for
individual initiative and achievement, and promoting a cooperative spirit among
the executive officers of the Corporation. Senior management's compensation is
weighted more heavily toward compensation contingent upon the Corporation's
achieving certain business objectives. The Board of Directors also endorses the
position that equity ownership by management is beneficial in aligning
management's and stockholders' interest with the enhancement of stockholder
value by providing management with longer-term incentives. Accordingly,
compensation structures for management generally include a combination of salary
and stock options.
In setting cash compensation for Dr. Muni and Mr. Wadekar and reviewing and
approving the cash compensation for all other executive officers, the Board of
Directors reviews salaries for all executive officers annually. The Board of
Directors' policy is to fix base salaries at levels comparable to the amounts
paid to senior executives with comparable qualifications, experience and
responsibilities at other companies of similar size and engaged in a similar
business to that of the Corporation in the metropolitan Boston area (which
together comprise a subset of the Corporation's Peer Group Index referred to in
the Performance Graph below). In addition, the base salaries take into account
the Corporation's relative performance as compared to these companies and the
attainment of certain planned objectives. The Corporation believes the present
compensation for its executive officers is comparable to these similarly
situated companies.
The cash compensation program for Dr. Muni and Mr. Wadekar is designed to
reward performance that enhances stockholder value. The cash compensation
package is comprised only of base pay as a function of the several factors
mentioned above. Dr. Muni and Mr. Wadekar have not been issued any stock
options. As co-founders of the Corporation, Dr. Muni and Mr. Wadekar each have
an appreciable share of the Corporation's outstanding Common Stock. As a result,
the Board of Directors currently believes that in the near term, Dr. Muni's and
Mr. Wadekar's equity interests are sufficiently aligned with the Corporation's
stockholders with respect to the goal of enhancing stockholder value.
7
Incentive-based compensation is an integral part of the overall compensation
package of the remaining members of the executive group. Incentive compensation
in the form of stock options is designed to provide long-term incentives to
executive officers and other employees, to encourage the executive officers and
other employees to remain with the Corporation and to enable them to develop and
maintain a stock ownership position in the Corporation's Common Stock. The
Corporation's 1989 Stock Option Plan and 1991 Stock Plan, which were
administered by the Stock Option Committee (of which Dr. Muni and Mr. Wadekar
were the only members) during fiscal 1996, have been used for the granting of
stock options to eligible employees, including executive officers. Because some
of the Corporation's products are still in a developmental stage and the
Corporation is only beginning to sell certain of its products, the Stock Option
Committee has granted stock options to all employees, officers and directors of
the Corporation in order to foster a spirit of cooperation and common purpose in
making the Corporation a successful enterprise.
During fiscal 1996, the Stock Option Committee granted options to purchase
55,000 shares of Common Stock to the directors, officers and employees of the
Corporation. Options generally become exercisable based upon a vesting schedule
tied to years of future service to the Corporation. The value realizable from
exercisable options is dependent upon the extent to which the Corporation's
performance is reflected in the market price of the Corporation's Common Stock
at any particular point in time. Equity compensation in the form of stock
options is designed to provide long-term incentives to executive officers and
other employees. The Stock Option Committee has granted options in order to
motivate these employees to maximize stockholder value. Generally, options
granted to officers and employees vest over 2, 3 or 4 years and expire after a 7
or 10-year period. In addition, the Stock Option Committee had a general policy
of awarding stock options at not less than the fair market value at the date of
grant in order to reward executives and other employees only to the extent that
the stockholders also benefit through appreciation in the value of the
Corporation. On February 2, 1996, however, the Stock Option Committee granted
immediately exercisable options to purchase 55,000 shares of Common Stock to
certain officers of the Corporation at an exercise price of $0.01 per share. In
addition, the Board of Directors awarded 117,250 shares of Common Stock, outside
of the 1991 Stock Plan and the 1989 Stock Option Plan, as a bonus to a number of
employees of the Corporation. The Common Stock and stock option awards were made
to recognize the past performance of all employees and to provide an incentive
to all employees to remain with the Corporation. The Board of Directors believes
that these awards foster a spirit of common purpose towards making the
corporation a successful enterprise.
Options granted to employees are based on such factors as individual
initiative, achievement and performance. In making specific grants to
executives, the Stock Option Committee evaluated each officer's total equity
compensation package. The Stock Option Committee generally reviewed the option
holdings of each of the executive officers including vesting and exercise price
and the then current value of such unvested options. The Stock Option Committee
considered equity compensation to be an integral part of a competitive executive
compensation package and an important mechanism to align the interests of
management with those of the Corporation's stockholders.
The Board of Directors is satisfied that the executive officers of the
Corporation are dedicated to achieving significant improvements in the long-term
financial performance of the Corporation and that the compensation policies and
programs implemented and administered have contributed and will continue to
contribute towards achieving this goal.
This report has been submitted by the members of the Board of Directors and
the Stock Option Committee:
DR. INDU A. MUNI
DR. F. HOWARD SCHNEIDER
DHANANJAY G. WADEKAR
8
PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return
(assuming reinvestment of dividends, if any) from investing $100 on June 30,
1991 in each of (i) the Corporation's Common Stock, (ii) The Nasdaq Stock Market
Index of U.S. Companies ("Nasdaq Index"), and (iii) the Nasdaq Pharmaceutical
Stock Index ("Peer Group Index"). The Peer Group Index reflects the performance
of all corporations that are members of the pharmaceutical industry with 2830 as
their Primary Standard Industrial Classification Code Number. The values of all
three indexes are set at $100 as of June 30, 1991 and are plotted as of the end
of each fiscal quarter through the most recent fiscal year end.
Comparison of Cumulative Return among DynaGen, Inc., Nasdaq Index and Peer Group
[In this area appears a line graph comparing the Company's
Cumulative Return with that of the Nasdaq Index and the Peer Group.
The plot points for the graph are as follows.]
NASDAQ PEER GROUP DYNAGEN
------ ---------- -------
06/30/91 100 100 100
09/30/91 112 138 93
12/31/91 125 387 82
03/31/92 129 148 106
06/30/92 120 125 82
09/30/92 125 117 74
12/31/92 146 143 64
03/31/93 148 103 75
06/30/93 151 108 67
09/30/93 164 117 52
12/31/93 168 127 41
03/31/94 160 104 12
06/30/94 153 91 9
09/30/94 165 102 19
12/30/94 163 96 26
03/31/95 178 103 36
06/30/95 204 120 59
09/30/95 228 150 51
12/31/95 231 175 29
03/31/96 242 182 36
06/30/96 261 177 32
<TABLE>
<CAPTION>
JUNE 30, 1991 JUNE 30, 1992 JUNE 30, 1993 JUNE 30, 1994 JUNE 30, 1995 JUNE 30, 1996
<S> <C> <C> <C> <C> <C> <C>
DYNAGEN, INC. $100 $ 82 $ 67 $ 9 $ 59 $ 32
NASDAQ INDEX 100 120 151 153 204 261
PEER GROUP 100 125 108 91 120 177
</TABLE>
EMPLOYMENT AND CONSULTING AGREEMENTS
The Corporation has entered into employment agreements with Dr. Muni, the
Corporation's President, Chief Executive Officer and Treasurer, Mr. Wadekar, the
Corporation's Chairman of the Board and Executive Vice President, and Dr.
Schneider, the Corporation's Senior Vice President -- Technology. Dr. Muni's
agreement expires in August 1997, and Mr. Wadekar's and Dr. Schneider's
agreements expire in October 1997. Under the agreements, Dr. Muni, Mr. Wadekar
and Dr. Schneider were paid annual base salaries of $115,500, effective October
1, 1993.
Effective July 1, 1996, the Executive Compensation Committee increased Dr.
Muni and Mr. Wadekar's annual base salaries to $145,000 and approved an
arrangement whereby Dr. Schneider is paid an annual base salary of $116,000 for
a four-day work week.
In addition, Dr. Muni, Mr. Wadekar and Dr. Schneider have each agreed that
(i) during his respective period of employment with the Corporation and for a
period of one year thereafter, he will not engage in any business activity
engaged in or under development by the Corporation and (ii) for a
9
period of three years following his respective period of employment, he will not
engage in any activities for any direct competitor similar or related to those
activities engaged in during the preceding two years of employment with the
Corporation. In the event the Corporation terminates Dr. Muni's, Mr. Wadekar's
or Dr. Schneider's employment without cause, the Corporation is obligated to pay
to him an amount equal to three months base salary.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Corporation did not have a Compensation Committee during fiscal 1996.
The Board of Directors and the Stock Option Committee were responsible for
determining compensation of executive officers of the Corporation. During fiscal
1996, Drs. Muni and Schneider and Mr. Wadekar served on the Board of Directors.
None of these three officers was present during discussion of and abstained from
voting with respect to his own compensation as an executive officer of the
Corporation. The Stock Option Committee, of which Dr. Muni and Mr. Wadekar were
members, did not grant any options to Dr. Muni or Mr. Wadekar during fiscal
1996.
PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION
By a Board of Directors resolution dated December , 1996, the Board of
Directors recommended to the stockholders that the Corporation amend the
Corporation's Certificate of Incorporation (the "Charter") to increase the
number of authorized shares of Common Stock from 40,000,000 to 75,000,000
shares. Shares of the Corporation's Common Stock, including the additional
shares proposed for authorization, do not have preemptive or similar rights.
As of December 13, 1996, there were [29,106,231) shares issued and
outstanding and approximately [6,393,000] shares reserved for future issuance
pursuant to outstanding warrants, convertible debt and options. If the amendment
to the Charter is approved, the Board of Directors will have the authority to
issue approximately[45,893,769] additional shares of Common Stock withoutfurther
stockholder approval. The Board of Directors believes that the authorized number
of shares of Common Stock should be increased to provide sufficient shares for
such corporate purposes as the Board of Directors may determine to be necessary
or desirable. These purposes may include, without limitation, acquiring other
businesses in exchange for shares of Common Stock, entering into collaborative
research arrangements with other companies, or acquiring complementary
technologies, products or businesses from third parties in exchange for Common
Stock. In addition, other corporate purposes may include issuing shares of
Common Stock in connection with research and development relationships,
strategic alliances or other corporate partnering programs and issuing shares of
Common Stock to raise additional working capital for ongoing operations or
planned research projects, and the financing of the Corporation's recent
acquisition of a generic drug manufacturer. The Corporation may also issue
additional shares of Common Stock to attract and retain valuable employees by
the issuance of additional stock options, including additional shares reserved
for future option grants under the Corporation's existing stock plans.
From time to time the Corporation is engaged in discussions with a number
of potential candidates for acquisitions of complementary technologies, product
lines or businesses. The Company does not have any current commitments or
agreements relating to any acquisitions. Any acquisition may necessarily involve
the issuance of shares of Common Stock, and, depending on the size of the
acquisition, the need for additional working capital. Additional working capital
will necessarily require the issuance of additional shares of capital stock. The
Board of Directors believes that the authorization of additional shares of
capital stock is necessary to support the future needs of the Corporation's
growth, whether through acquisitions or additional rounds of financing.
Under the Delaware General Corporation Law, the Board of Directors generally
may issue authorized but unissued shares of Common Stock without further
stockholder approval. The Board of Directors does not currently intend to seek
stockholder approval prior to any future issuance of additional shares of Common
Stock, unless stockholder action is required in a specific case by applicable
law, the rules of any exchange or market on which the Corporation's securities
may then be
10
listed, or the Charter or By-Laws of the Corporation then in effect. Frequently,
opportunities arise that require prompt action, and the Corporation believes
that the delay necessitated for stockholder approval of a specific issuance
could be to the detriment of the Corporation and its stockholders.
The additional shares of Common Stock authorized for issuance pursuant to
this proposal will have all of the rights and privileges which the presently
outstanding shares of Common Stock possess under the Corporation's Charter. The
increase in authorized shares would not affect the terms or rights of holders of
existing shares of Common Stock. All outstanding shares of Common Stock would
continue to have one vote per share on all matters to be voted on by the
stockholders, including the election of directors.
The issuance of any additional shares of Common Stock by the Corporation
may, depending on the circumstances under which those shares are issued, reduce
stockholders' equity per share and may reduce the percentage ownership of Common
Stock of existing stockholders. The Corporation, however, will receive
consideration for any additional shares of Common Stock issued, thereby reducing
or eliminating the economic effect to each stockholder of such dilution.
The authorized but unissued shares of Common Stock could be used to make
more difficult a change in control of the Corporation. For example, such shares
could be sold to purchasers who might side with the Board of Directors in
opposing a takeover bid that the Board determines not to be in the best
interests of the Corporation and its stockholders. Such a sale could have the
effect of discouraging an attempt by another person or entity, through the
acquisition of a substantial number of shares of the Corporation's Common Stock,
to acquire control of the Corporation, since the issuance of new shares could be
used to dilute the stock ownership of the acquirer. Neither the Charter nor
By-Laws of the Corporation now contain any provisions that are generally
considered to have an anti-takeover effect, and the Board of Directors does not
now plan to propose any anti-takeover measures in future proxy solicitations.
The Corporation is not aware of any pending or threatened efforts to obtain
control of the Corporation, and the Board of Directors has no current intention
to use the additional shares of Common Stock to impede a takeover attempt.
The proposal to amend the Charter requires the affirmative vote of a
majority of the outstanding shares of Common Stock entitled to vote at the
Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF THE
AMENDMENT TO THE CORPORATION'S CERTIFICATE OF INCORPORATION.
PROPOSAL TO AMEND THE 1991 STOCK PLAN
AMENDMENT TO INCREASE THE NUMBER OF AUTHORIZED SHARES UNDER THE 1991 STOCK PLAN
The Corporation's 1991 Stock Plan (the "1991 Plan") was adopted by the Board
of Directors on October 14, 1991 and approved by the stockholders of the
Corporation on June 30, 1992. Originally, 1,200,000 shares of Common Stock were
reserved for issuance thereunder. On December , 1996, the Board of Directors
approved an amendment (the "Amendment") to the 1991 Plan increasing the number
of shares reserved for issuance thereunder from 1,200,000 to 2,600,000 shares,
subject to stockholder approval of the Amendment. At the Meeting, the
stockholders are being requested to consider and approve the Amendment.
The Board of Directors believes that the Corporation's ability to continue
to attract and retain qualified employment candidates is in large part dependent
upon the Corporation's ability to provide such employment candidates long-term,
equity-based incentives in the form of stock options as part of their
compensation. As of December 13, 1996, 236,900 shares remained available for
future option grants under the 1991 Plan. The Board of Directors believes that
the shares remaining available for future option grants under the 1991 Plan are
insufficient for such purposes.
AMENDMENT TO COMPLY WITH INTERNAL REVENUE CODE SECTION 162(M)
Pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), tax deductions attributable to compensation in excess of $1
million paid by the Corporation to certain of its key executives may be
disallowed. Compensation for this purpose does not include "performance-
11
based" compensation, however, and options issued pursuant to stock option plans
may qualify as performance-based compensation. For such options to qualify as
performance-based compensation numerous requirements must be satisfied,
including the attainment of one or more preestablished, objective performance
goals. An option having a per share exercise price equal to or greater than the
fair market value of a share of stock underlying such option on the date of
grant will be deemed to satisfy this performance goal requirement if, among
other things, the plan pursuant to which such option is granted states the
maximum number of shares with respect to which options may be granted during a
specified period to any employee. If such a maximum is established, a
stockholder should be able to calculate the maximum amount of compensation that
a participant could receive in any taxable year pursuant to the grant of such an
option by multiplying the maximum number of shares that could be received by any
participant under such plan by the excess of the fair market value of the shares
at some time in the future over the exercise price.
The 1991 Plan, as described below, currently has no restrictions as to the
maximum number of shares of Common Stock that a participant may acquire
thereunder. The Board of Directors believes that it is appropriate to limit the
number of shares that any one participant can receive under the 1991 Plan.
Consequently, the Board of Directors has approved, and recommends that the
stockholders approve, an amendment to the 1991 Plan limiting to 750,000 the
number of shares of Common Stock with respect to which options may granted under
the 1991 Plan to any one participant during any taxable year of the Company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
AMENDMENT OF THE 1991 PLAN.
The essential features of the 1991 Plan are outlined below:
The 1991 Plan currently provides for the issuance of a maximum of 1,200,000
shares of Common Stock pursuant to the grant to employees of incentive stock
options ("ISOs") within the meaning of Section 422 of the Code and the grant of
non-qualified stock options ("NQSOs"), stock awards ("Awards") or opportunities
to make direct purchases of stock in the Corporation ("Purchases") to employees,
consultants, directors and officers of the Corporation. Currently, 72 employees
(including directors who are also employees of the Corporation, officers of the
Corporation and employees of Able Laboratories, Inc. the Corporation's
subsidiary), 3 non-employee directors and approximately 14 consultants are
eligible to participate in the 1991 Plan.
The 1991 Plan is currently administered by the Board of Directors. Subject
to the provisions of the 1991 Plan, the Board of Directors has the authority to
(i) determine to whom options, Awards and authorizations to make Purchases may
be granted; (ii) determine the time or times at which options or Awards may be
granted or Purchases made; (iii) determine whether each option granted shall be
an ISO or an NQSO; (iv) determine the time or times when each option shall
become exercisable and the duration of the exercise period; (v) determine
whether restrictions such as repurchase options are to be imposed on shares
subject to options, Awards and Purchases and the nature of such restrictions, if
any; and (vi) interpret the 1991 Plan and prescribe and rescind rules and
regulations relating to it. The Board of Directors determines the exercise price
per share for NQSOs, Awards and Purchases under the 1991 Plan, so long as such
exercise price is no less than the minimum legal consideration required therefor
under the laws of any jurisdiction in which the Corporation may be organized.
The exercise price per share for each ISO granted under the 1991 Plan may not be
less than the fair market value per share of Common Stock on the date of such
grant. In the case of an ISO to be granted to an employee owning stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Corporation, the price per share for such ISO may not be
less than one hundred ten percent (110%) of the fair market value per share of
Common Stock on the date of grant.
An option is not transferable by the optionholder except by will or by the
laws of descent and distribution or, with respect to NQSOs, pursuant to a
qualified domestic relations order. Each option expires on the date specified by
the Board of Directors, but not more than (i) ten years and one day from the
date of grant in the case of NQSOs, (ii) ten years from the date of grant in the
case of ISOs generally, and (iii) five years from the date of grant in the case
of ISOs granted to an employee owning stock
12
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Corporation. Generally, no ISO may be exercised more
than 90 days following termination of employment. However, in the event that
termination is due to death or disability, the ISO is exercisable for a maximum
of 180 days after such termination. Options, Awards and opportunities to make
Purchases may be granted under the 1991 Plan at any time prior to October 14,
2001.
As of December 13, 1996, options to purchase 797,900 shares of Common Stock
at a weighted average exercise price of $1.02 per share were outstanding under
the 1991 Plan. On December 13, 1996, the market price, as reported by the Nasdaq
SmallCap Market, of the Common Stock, the class of stock underlying all options,
Awards and Purchases under the 1991 Plan, was $ per share.
The following table sets forth as of December 13, 1996 options granted since
inception under the 1991 Plan to (i) the individuals named in the Summary
Compensation Table, (ii) each nominee for election as a director, (iii) all
current executive officers as a group, (iv) all current directors who are not
executive officers as a group, and (v) all employees, excluding executive
officers, as a group.
NUMBER OF SHARES
NAME AND POSITION UNDERLYING OPTIONS GRANTED
----------------- --------------------------
Dr. Ian R. Ferrier, Director 0
Steven Georgiev, Director 0
Dr. Indu A. Muni, President, Chief Executive
Officer, Treasurer and Director 0
Dr. F. Howard Schneider, Senior Vice President
-- Technology and Director 160,000
Dr. Michael Sorell 0
Dhananjay G. Wadekar, Chairman of the Board,
Executive Vice President and Director 0
All executive officers as a group (5 persons) 240,000
All current directors who are not executive
officers as a group (3 persons) 0
All employees, excluding executive officers,
as a group 402,500
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion of United States Federal income tax consequences
of the issuance and exercise of options and certain other rights granted under
the 1991 Plan is based upon the provisions of the Code as in effect on the date
of this proxy statement, current regulations, and existing administrative
rulings of the Internal Revenue Service. It is not intended to be a complete
discussion of all of the United States federal income tax consequences of the
1991 Plan or of the requirements that must be met in order to qualify for the
described tax treatment. In addition there may be foreign, state and local tax
consequences that are not discussed herein.
The following general rules are applicable under current United States
federal income tax law to ISOs granted under the 1991 Plan:
1. In general, no taxable income results to the optionee upon the grant
of an ISO or upon the issuance of shares to him or her upon the exercise of
the ISO, and no federal income tax deduction is allowed to the Corporation
upon either the grant or exercise of an ISO.
2. If shares acquired upon exercise of an ISO are not disposed of within
(i) two years following the date the ISO was granted or (ii) one year
following the date the shares are issued to the optionee pursuant to the ISO
exercise (the "Holding Periods"), the difference between the amount realized
on any subsequent disposition of the shares and the exercise price will
generally be treated as capital gain or loss to the optionee.
3. If shares acquired upon exercise of an ISO are disposed of on or
before the expiration of one or both of the requisite Holding Periods (a
"Disqualifying Disposition"), then in most cases the lesser of (i) any
excess of the fair market value of the shares at the time of exercise of the
ISO over the exercise price or (ii) the actual gain on disposition, will be
treated as compensation to the optionee and will be taxed as ordinary income
in the year of such disposition.
13
4. In any year that an optionee recognizes compensation income on a
Disqualifying Disposition of stock acquired by exercising an ISO, the
Corporation generally should be entitled to a corresponding deduction for
federal income tax purposes.
5. Any excess of the amount realized by the optionee as the result of a
Disqualifying Disposition over the sum of (i) the exercise price and (ii)
the amount of ordinary income recognized under the above rules will be
treated as capital gain.
6. Capital gain or loss recognized on a disposition of shares will be
long-term capital gain or loss if the optionee's holding period for the
shares exceeds one year.
7. An optionee may be entitled to exercise an ISO by delivering shares of
the Corporation's Common Stock to the Corporation in payment of the exercise
price, if the optionee's ISO agreement so provides. If an optionee exercises
an ISO in such fashion, special rules will apply.
8. In addition to the tax consequences described above, the exercise of
ISOs may result in a further "minimum tax" under the Code. The Code provides
that an "alternative minimum tax" (at a maximum rate of 28%) will be applied
against a taxable base which is equal to "alternative minimum taxable
income," reduced by a statutory exemption. In general, the amount by which
the value of the Common Stock received upon exercise of the ISO exceeds the
exercise price is included in the optionee's alternative minimum taxable
income. A taxpayer is required to pay the higher of his regular tax
liability or the alternative minimum tax. A taxpayer who pays alternative
minimum tax attributable to the exercise of an ISO may be entitled to a tax
credit against his or her regular tax liability in later years.
9. Special rules apply if the Common Stock acquired through the exercise
of an ISO is subject to vesting, or is subject to certain restrictions on
resale under federal securities laws applicable to directors, officers or
10% stockholders.
The following general rules are applicable under current federal income tax
law to options granted under the 1991 Plan that do not qualify as ISOs
(collectively, "NQSOs"):
1. The optionee generally does not recognize any taxable income upon the
grant of a NQSO, and the Corporation is not allowed a federal income tax
deduction by reason of such grant.
2. The optionee generally will recognize ordinary compensation income at
the time of exercise of the NQSO in an amount equal to the excess, if any,
of the fair market value of the shares on the date of exercise over the
exercise price. The Corporation may be required to withhold income tax on
this amount.
3. When the optionee sells the shares acquired through the exercise of a
NQSO, he or she generally will recognize a capital gain or loss in an amount
equal to the difference between the amount realized upon the sale of the
shares and his or her basis in the stock (generally, the exercise price plus
the amount taxed to the optionee as compensation income). If the optionee's
holding period for the shares exceeds one year, such gain or loss will be a
long-term capital gain or loss.
4. The Corporation generally should be entitled to a federal income tax
deduction when compensation income is recognized by the optionee.
5. An optionee may be entitled to exercise a NQSO by delivering shares of
the Corporation's Common Stock to the Corporation in payment of the exercise
price. If an optionee exercises a NQSO in such fashion, special rules will
apply.
6. Special rules apply if the Common Stock acquired through the exercise
of a NQSO is subject to vesting, or is subject to certain restrictions on
resale under federal securities laws applicable to directors, officers or
10% stockholders.
The following general rules are applicable under current federal income tax
law to the grant of Awards and Purchases under the 1991 Plan:
Under current federal income tax law, persons receiving Common Stock
pursuant to an Award or a grant of an opportunity to make a Purchase generally
recognize ordinary compensation income equal to the fair market value of the
shares received, reduced by any purchase price paid. The Corporation
14
generally should be entitled to a corresponding federal income tax deduction.
When such stock is sold, the seller generally will recognize capital gain or
loss. Special rules apply if the stock acquired is subject to vesting, or is
subject to certain restrictions on resale under federal securities laws
applicable to directors, officers or 10% stockholders.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In fiscal 1996, the Corporation entered into a strategic marketing and
business development relationship for certain of the Corporation's technologies
with Bogart Delafield Ferrier. To date, the Corporation has paid to Bogart
Delafield Ferrier in connection with this relationship $70,000 in fees plus
$9,570 for expenses. Bogart Delafield Ferrier is also entitled to royalties of 1
1/2% of the dollar value of any transaction with respect to certain of the
Corporation's technologies initiated with a pharmaceutical or managed care
company after March 12, 1996. No such transaction has been initiated to date.
Dr. Ferrier, a director of the Corporation, is Chief Executive Officer and
Chairman of Bogart Delafield Ferrier.
In August 1996, the Executive Compensation Committee approved a line of
credit in the amount of $250,000 for each of Mr. Wadekar and Dr. Muni, both of
whom are officers and directors of the Corporation. The interest rate on any
loans made by the Corporation to Mr. Wadekar or Dr. Muni under the line of
credit is 6.07% per annum, and such loans are secured by shares of the
Corporation's Common Stock held by the borrower at the time of the loan. To
date, Mr. Wadekar and Dr. Muni have each borrowed $55,000 under the line of
credit.
OTHER BUSINESS
The Board of Directors knows of no business which will be presented for
consideration at the Meeting other than that stated above. If any other business
should come before the Meeting, votes may be cast pursuant to proxies in respect
to any such business in the best judgment of the person or persons acting under
the proxies.
STOCKHOLDER PROPOSALS
It is contemplated that the next Annual Meeting of Stockholders will be held
on or about January 30, 1998. Proposals of stockholders intended for inclusion
in the proxy statement to be mailed to all stockholders entitled to vote at the
next annual meeting of stockholders of the Corporation must be received at the
Corporation's principal executive offices not later than August 29, 1997. In
order to curtail controversy as to the date on which a proposal was received by
the Corporation, it is suggested that proponents submit their proposals by
Certified Mail, Return Receipt Requested.
AUDITORS FOR FISCAL 1997
The Board of Directors has selected the firm of Wolf & Company, P.C.,
independent certified public accountants, to serve as independent auditors for
the fiscal year ending June 30, 1997. Wolf & Company, P.C. has acted as the
Corporation's auditors commencing with the period ending June 30, 1989. It is
expected that a member of Wolf & Company, P.C. will be present at the Meeting
with the opportunity to make a statement if so desired and will be available to
respond to appropriate questions.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Corporation's officers and directors, and persons who own more than ten
percent of a registered class of the Corporation's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission and The Nasdaq Stock Market. Officers, directors and greater-
than-ten percent stockholders are required by Securities and Exchange Commission
regulations to furnish the Corporation with all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, the
Corporation believes that during fiscal 1996 all of its officers, directors and
greater-than-ten percent stockholders complied with all Section 16(a) filing
requirements.
EXPENSES AND SOLICITATION
The cost of solicitation of proxies will be borne by the Corporation, and in
addition to soliciting stockholders by mail through its regular employees, the
Corporation may request banks and brokers to solicit their customers who have
stock of the Corporation registered in the name of a nominee and, if so, will
reimburse such banks and brokers for their reasonable out-of-pocket costs. Also,
the Corporation may retain a professional proxy solicitation firm to assist in
the proxy solicitation and, if so, will pay such proxy solicitation firm
customary fees plus expenses. Solicitation by officers and employees of the
Corporation may also be made of some stockholders in person or by mail,
telephone or telegraph, following the original solicitation.
SIDE A
DYNAGEN, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
JANUARY 30, 1997
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF DYNAGEN, INC.
The undersigned hereby appoints Dhananjay G. Wadekar and Dr. Indu A.
Muni, and each of them alone, proxies, with full power of substitution, to vote
all shares of Common Stock of DynaGen, Inc. (the "Corporation") that the
undersigned is entitled to vote at the Annual Meeting of Stockholders of the
Corporation, to be held on Thursday, January 30, 1997, at 3:00 p.m. at the
offices of Testa, Hurwitz & Thibeault, LLP, High Street Tower, 20th Floor, 125
High Street, Boston, Massachusetts 02110, and at any adjournments thereof, upon
the matters set forth in the Notice of Annual Meeting of Stockholders and
related Proxy Statement dated December 27, 1996 a copy of which has been
received by the undersigned.
1. To elect a Board of Directors for the ensuing year.
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote for all
(except as marked to the nominees listed below:
contrary below):
Dr. Ian R. Ferrier
Steven Georgiev
Dr. Indu A. Muni
Dr. F. Howard Schneider
Dr. Michael Sorell
Dhananjay G. Wadekar
INSTRUCTIONS: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below:
.
-------------------------------------------------------
2. To consider and act upon a proposal to approve an amendment to
the Corporation's Certificate of Incorporation to increase the
number of authorized shares of Common Stock, $.01 par value
per share ("Common Stock"), from 40,000,000 to 75,000,000
shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To consider and act upon a proposal to approve an amendment to
the Corporation's 1991 Stock Plan to increase the number of
shares of Common Stock of the Corporation authorized to be
issued thereunder from 1,200,000 to 2,600,000 shares and to
permit grants thereunder to comply with Section 162(m) of the
Internal Revenue Code.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To transact such other business as may properly come before
the meeting.
-2-
SIDE B
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED OR, IF
NO DIRECTION IS GIVEN, WILL BE VOTED FOR THE ELECTION OF DIRECTORS AND FOR THE
PROPOSALS IN ITEMS 2 AND 3, AND AUTHORITY WILL BE DEEMED GRANTED UNDER ITEM 4.
Dated:____________________, 199__
---------------------------------
Signature(s) of Stockholder(s)
---------------------------------
Please Print Name:
(If signing as attorney,
executor, trustee or
guardian, please give your
full title as such. If
stock is held jointly, each
owner should sign.)
DYNAGEN, INC.
1991 STOCK PLAN
---------------
1. PURPOSE. This 1991 Stock Plan (the "Plan") is intended to provide
incentives: (a) to the officers and other employees of DynaGen, Inc., a Delaware
corporation (the "Company"), its parent (if any) and any present or future
subsidiaries of the Company (collectively, "Related Corporations") by providing
them with opportunities to purchase stock in the Company pursuant to options
granted hereunder which qualify as "incentive stock options" under Section
422(b) of the Internal Revenue Code of 1986, as amended (the "Code") ("ISO" or
"ISOs"); (b) to directors, officers, employees and consultants of the Company
and Related Corporations by providing them with opportunities to purchase stock
in the Company pursuant to options granted hereunder which do not qualify as
ISOs ("Non-Qualified Option" or "Non-Qualified Options"); (c) to directors,
officers, employees and consultants of the Company and Related Corporations by
providing them with awards of stock in the Company ("Awards"); and (d) to
directors, officers, employees and consultants of the Company and Related
Corporations by providing them with opportunities to make direct purchases of
stock in the Company ("Purchases"). Both ISOs and Non-Qualified Options are
referred to hereafter individually as an "Option" and collectively as "Options."
Options, Awards and authorizations to make Purchases are referred to hereafter
collectively as "Stock Rights." As used herein, the terms "parent" and
"subsidiary" mean "parent corporation" and "subsidiary corporation,"
respectively, as those terms are defined in Section 424 of the Code.
2. ADMINISTRATION OF THE PLAN.
A. BOARD OR COMMITTEE ADMINISTRATION. The Plan shall be administered by
the Board of Directors of the Company (the "Board") or by a committee
appointed by the Board (the "Committee"); provided, that, to the extent
required by Rule 16b-3, or any successor provision ("Rule 16b-3"), of the
Securities Exchange Act of 1934, with respect to specific grants of Stock
Rights, the Plan shall be administered by a disinterested administrator or
administrators within the meaning of Rule 16b-3. Hereinafter, all
references in this Plan to the "Committee" shall mean the Board if no
Committee has been appointed. Subject to ratification of the grant or
authorization of each Stock Right by the Board (if so required by
applicable state law), and subject to the terms of the Plan, the Committee
shall have the authority to (i) determine the employees of the Company and
Related Corporations (from among the class of employees eligible under
paragraph 3 to receive ISOs) to whom ISOs may be granted, and to determine
(from among the class of individuals and entities eligible under paragraph
3 to receive Non-Qualified Options and Awards and to make Purchases) to
whom Non-Qualified Options, Awards and authorizations to make Purchases
may be granted; (ii) determine the time or times at which Options or
Awards may be granted or Purchases made; (iii) determine the option price
of shares subject to each Option, which price shall not be less than the
minimum price specified in paragraph 6, and the purchase
2
price of shares subject to each Purchase; (iv) determine whether each
Option granted shall be an ISO or a Non-Qualified Option; (v) determine
(subject to paragraph 7) the time or times when each Option shall become
exercisable and the duration of the exercise period; (vi) determine
whether restrictions such as repurchase options are to be imposed on
shares subject to Options, Awards and Purchases and the nature of such
restrictions, if any, and (vii) interpret the Plan and prescribe and
rescind rules and regulations relating to it. If the Committee determines
to issue a Non-Qualified Option, it shall take whatever actions it deems
necessary, under Section 422 of the Code and the regulations promulgated
thereunder, to ensure that such Option is not treated as an ISO. The
interpretation and construction by the Committee of any provisions of the
Plan or of any Stock Right granted under it shall be final unless
otherwise determined by the Board. The Committee may from time to time
adopt such rules and regulations for carrying out the Plan as it may deem
best. No member of the Board or the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any
Stock Right granted under it.
B. COMMITTEE ACTIONS. The Committee may select one of its members as
its chairman, and shall hold meetings at such time and places as it may
determine. Acts by a majority of the Committee, or acts reduced to or
approved in writing by a majority of the members of the Committee (if
consistent with applicable state law), shall be the valid acts of the
Committee. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill
vacancies however caused, or remove all members of the Committee and
thereafter directly administer the Plan.
C. GRANT OF STOCK RIGHTS TO BOARD MEMBERS. Stock Rights may be granted
to members of the Board consistent with the provisions of the first
sentence of paragraph 2(A) above, if applicable. All grants of Stock
Rights to members of the Board shall in all other respects be made in
accordance with the provisions of this Plan applicable to other eligible
persons. Members of the Board who are either (i) eligible for Stock Rights
pursuant to the Plan or (ii) have been granted Stock Rights may vote on
any matters affecting the administration of the Plan or the grant of any
Stock Rights pursuant to the Plan, except that no such member shall act
upon the granting to himself of Stock Rights, but any such member may be
counted in determining the existence of a quorum at any meeting of the
Board during which action is taken with respect to the granting to him of
Stock Rights.
3. ELIGIBLE EMPLOYEES AND OTHERS. ISOs may be granted to any employee
of the Company or any Related Corporation. Those officers and directors of the
Company who are not employees may not be granted ISOs under the Plan.
Non-Qualified Options, Awards and authorizations to make Purchases may be
granted to any employee, officer or director (whether or not also an employee)
or consultant of the Company or any Related Corporation. The Committee may take
into consideration a recipient's individual circumstances in determining whether
to grant an ISO, a Non-Qualified Option, an Award or an authorization to make a
Purchase. Granting of any Stock Right to any individual or entity shall neither
entitle that individual or entity to, nor disqualify him from, participation in
any other grant of Stock Rights.
3
4. STOCK. The stock subject to Options, Awards and Purchases shall be
authorized but unissued shares of Common Stock of the Company, par value $.01
per share (the "Common Stock"), or shares of Common Stock reacquired by the
Company in any manner. The aggregate number of shares which may be issued
pursuant to the Plan is 1,200,000, subject to adjustment as provided in
paragraph 13. Any such shares may be issued as ISOs, Non-Qualified Options or
Awards, or to persons or entities making Purchases, so long as the number of
shares so issued does not exceed such number, as adjusted. If any Option granted
under the Plan shall expire or terminate for any reason without having been
exercised in full or shall cease for any reason to be exercisable in whole or in
part, the unpurchased shares subject to such Options shall again be available
for grants of Stock Rights under the Plan.
5. GRANTING OF STOCK RIGHTS. Stock Rights may be granted under the Plan
at any time after October 14, 1991 and prior to October 14, 2001. The date of
grant of a Stock Right under the Plan will be the date specified by the
Committee at the time it grants the Stock Right; provided, however, that such
date shall not be prior to the date on which the Committee acts to approve the
grant. The Committee shall have the right, with the consent of the optionee, to
convert an ISO granted under the Plan to a Non-Qualified Option pursuant to
paragraph 16.
6. MINIMUM OPTION PRICE; ISO LIMITATIONS.
A. PRICE FOR NON-QUALIFIED OPTIONS. The exercise price per share
specified in the agreement relating to each Non-Qualified Option granted
under the Plan shall in no event be less than the minimum legal
consideration required therefor under the laws of the State of Delaware or
the laws of any jurisdiction in which the Company or its successors in
interest may be organized.
B. PRICE FOR ISOS. The exercise price per share specified in the
agreement relating to each ISO granted under the Plan shall not be less
than the fair market value per share of Common Stock on the date of such
grant. In the case of an ISO to be granted to an employee owning stock
possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Related Corporation, the
price per share specified in the agreement relating to such ISO shall not
be less than one hundred ten percent (110%) of the fair market value per
share of Common Stock on the date of grant.
C. $100,000 ANNUAL LIMITATION ON ISOS. Each eligible employee may be
granted ISOs only to the extent that, in the aggregate under this Plan and
all incentive stock option plans of the Company and any Related
Corporation, the value of Common Stock (determined at the time ISOs were
granted) which is subject to ISOs that become exercisable for the first
time by such employee during any calendar year does not exceed $100,000.
Any options granted to an employee in excess of such amount will be
granted as Non-Qualified Options.
D. DETERMINATION OF FAIR MARKET VALUE. If, at the time an Option is
granted under the Plan, the Company's Common Stock is publicly traded,
"fair market value" shall be determined as of the last business day for
which the prices or quotes discussed in this
4
sentence are available prior to the date such Option is granted and shall
mean (i) the average (on that date) of the high and low prices of the
Common Stock on the principal national securities exchange on which the
Common Stock is traded, if the Common Stock is then traded on a national
securities exchange; or (ii) the last reported sale price (on that date)
of the Common Stock on the NASDAQ National Market List, if the Common
Stock is not then traded on a national securities exchange; or (iii) the
closing bid price (or average of bid prices) last quoted (on that date) by
an established quotation service for over-the-counter securities, if the
Common Stock is not reported on the NASDAQ National Market List. However,
if the Common Stock is not publicly traded at the time an Option is
granted under the Plan, "fair market value" shall be deemed to be the fair
value of the Common Stock as determined by the Committee after taking into
consideration all factors which it deems appropriate, including, without
limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length.
7. OPTION DURATION. Subject to earlier termination as provided in
paragraphs 9 and 10, each Option shall expire on the date specified by the
Committee, but not more than (i) ten years and one day from the date of grant in
the case of Non-Qualified Options, (ii) ten years from the date of grant in the
case of ISOs generally, and (iii) five years from the date of grant in the case
of ISOs granted to an employee owning stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or any Related Corporation. Subject to earlier termination as provided in
paragraphs 9 and 10, the term of each ISO shall be the term set forth in the
original instrument granting such ISO, except with respect to any part of such
ISO that is converted into a Non-Qualified Option pursuant to paragraph 16.
8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 9
through 12, each Option granted under the Plan shall be exercisable as follows:
A. VESTING. The Option shall either be fully exercisable on the date of
grant or shall become exercisable thereafter in such installments as the
Committee may specify.
B. FULL VESTING OF INSTALLMENTS. Once an installment becomes
exercisable it shall remain exercisable until expiration or termination of
the Option, unless otherwise specified by the Committee.
C. PARTIAL EXERCISE. Each Option or installment may be exercised at any
time or from time to time, in whole or in part, for up to the total number
of shares with respect to which it is then exercisable.
D. ACCELERATION OF VESTING. The Committee shall have the right to
accelerate the date of exercise of any installment of any Option; provided
that the Committee shall not, without the consent of an optionee,
accelerate the exercise date of any installment of any Option granted to
any employee as an ISO (and not previously converted into a Non-Qualified
Option pursuant to paragraph 16) if such acceleration would violate the
annual vesting limitation contained in Section 422(d) of the Code, as
described in paragraph 6(C).
5
E. EXTENSION OF EXERCISE PERIOD. Notwithstanding any provision herein
to the contrary, the Committee may, in its discretion, extend the exercise
period with respect to any Non-Qualified Option.
9. TERMINATION OF EMPLOYMENT. If an ISO optionee ceases to be employed
by the Company and all Related Corporations other than by reason of death or
disability as defined in paragraph 10, no further installments of his ISOs shall
become exercisable, and his ISOs shall terminate after the passage of ninety
(90) days from the date of termination of his employment, but in no event later
than on their specified expiration dates, except to the extent that such ISOs
(or unexercised installments thereof) have been converted into Non-Qualified
Options pursuant to paragraph 16. Employment shall be considered as continuing
uninterrupted during any bona fide leave of absence (such as those attributable
to illness, military obligations or governmental service) provided that the
period of such leave does not exceed 90 days or, if longer, any period during
which such optionee's right to reemployment is guaranteed by statute. A bona
fide leave of absence with the written approval of the Committee shall not be
considered an interruption of employment under the Plan, provided that such
written approval contractually obligates the Company or any Related Corporation
to continue the employment of the optionee after the approved period of absence.
ISOs granted under the Plan shall not be affected by any change of employment
within or among the Company and Related Corporations, so long as the optionee
continues to be an employee of the Company or any Related Corporation. Nothing
in the Plan shall be deemed to give any grantee of any Stock Right the right to
be retained in employment or other service by the Company or any Related
Corporation for any period of time.
10. DEATH; DISABILITY.
A. DEATH. If an ISO optionee ceases to be employed by the Company and
all Related Corporations by reason of his death, any ISO of his may be
exercised, to the extent of the number of shares with respect to which he
could have exercised it on the date of his death, by his estate, personal
representative or beneficiary who has acquired the ISO by will or by the
laws of descent and distribution, at any time prior to the earlier of the
specified expiration date of the ISO or 180 days from the date of the
optionee's death.
B. DISABILITY. If an ISO optionee ceases to be employed by the Company
and all Related Corporations by reason of his disability, he shall have
the right to exercise any ISO held by him on the date of termination of
employment, to the extent of the number of shares with respect to which he
could have exercised it on that date, at any time prior to the earlier of
the specified expiration date of the ISO or 180 days from the date of the
termination of the optionee's employment. For the purposes of the Plan,
the term "disability" shall mean "permanent and total disability" as
defined in Section 22(e)(3) of the Code or successor statute.
11. ASSIGNABILITY. No Option shall be assignable or transferable by the
optionee except by will or by the laws of descent and distribution or, with
respect to Non-qualified Options only, pursuant to a qualified domestic
relations order as defined in the Code or Title I of
6
the Employee Retirement Income Security Act, or the rules thereunder. During the
lifetime of the optionee each ISO shall be exercisable only by him.
12. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Options. In granting any Non-Qualified Option, the
Committee may specify that such Non-Qualified Option shall be subject to the
restrictions set forth herein with respect to ISOs, or to such other termination
and cancellation provisions as the Committee may determine. The Committee may
from time to time confer authority and responsibility on one or more of its own
members and/or one or more officers of the Company to execute and deliver such
instruments. The proper officers of the Company are authorized and directed to
take any and all action necessary or advisable from time to time to carry out
the terms of such instruments.
13. ADJUSTMENTS. Upon the occurrence of any of the following events, an
optionee's rights with respect to Options granted to him hereunder shall be
adjusted as hereinafter provided, unless otherwise specifically provided in the
written agreement between the optionee and the Company relating to such Option:
A. STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common Stock
shall be subdivided or combined into a greater or smaller number of shares
or if the Company shall issue any shares of Common Stock as a stock
dividend on its outstanding Common Stock, the number of shares of Common
Stock deliverable upon the exercise of Options shall be appropriately
increased or decreased proportionately, and appropriate adjustments shall
be made in the purchase price per share to reflect such subdivision,
combination or stock dividend.
B. CONSOLIDATIONS OR MERGERS. If the Company is to be consolidated with
or acquired by another entity in a merger, sale of all or substantially
all of the Company's assets or otherwise (an "Acquisition"), the Committee
or the board of directors of any entity assuming the obligations of the
Company hereunder (the "Successor Board"), shall, as to outstanding
Options, either (i) make appropriate provision for the continuation of
such Options by substituting on an equitable basis for the shares then
subject to such Options the consideration payable with respect to the
outstanding shares of Common Stock in connection with the Acquisition; or
(ii) make appropriate provision for the continuation of such Options by
substituting on an equitable basis for the shares then subject to such
Options any equity securities of the successor corporation; or (iii) upon
written notice to the optionees, provide that all Options must be
exercised, to the extent then exercisable, within a specified number of
days of the date of such notice, at the end of which period the Options
shall terminate; or (iv) terminate all Options in exchange for a cash
payment equal to the excess of the fair market value of the shares subject
to such Options (to the extent then exercisable) over the exercise price
thereof; or (v) accelerate the date of exercise of such Options or of any
installment of such Options; or (vi) terminate all Options in exchange for
7
the right to participate in any stock option or other employee benefit
plan of any successor corporation.
C. RECAPITALIZATION OR REORGANIZATION. In the event of a
recapitalization or reorganization of the Company (other than a
transaction described in subparagraph B above) pursuant to which
securities of the Company or of another corporation are issued with
respect to the outstanding shares of Common Stock, an optionee upon
exercising an Option shall be entitled to receive for the purchase price
paid upon such exercise the securities he would have received if he had
exercised his Option prior to such recapitalization or reorganization.
D. MODIFICATION OF ISOS. Notwithstanding the foregoing, any adjustments
made pursuant to subparagraphs A, B or C with respect to ISOs shall be
made only after the Committee, after consulting with counsel for the
Company, determines whether such adjustments would constitute a
"modification" of such ISOs (as that term is defined in Section 424 of the
Code) or would cause any adverse tax consequences for the holders of such
ISOs. If the Committee determines that such adjustments made with respect
to ISOs would constitute a modification of such ISOs, it may refrain from
making such adjustments.
E. DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution
or liquidation of the Company, each Option will terminate immediately
prior to the consummation of such proposed action or at such other time
and subject to such other conditions as shall be determined by the
Committee.
F. ISSUANCES OF SECURITIES. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares subject to Options. No adjustments shall be made for
dividends paid in cash or in property other than securities of the
Company.
G. FRACTIONAL SHARES. No fractional shares shall be issued under the
Plan and the optionee shall receive from the Company cash in lieu of such
fractional shares.
H. ADJUSTMENTS. Upon the happening of any of the events described in
subparagraphs A, B or C above, the class and aggregate number of shares
set forth in paragraph 4 hereof that are subject to Stock Rights which
previously have been or subsequently may be granted under the Plan shall
also be appropriately adjusted to reflect the events described in such
subparagraphs. The Committee or the Successor Board shall determine the
specific adjustments to be made under this paragraph 13 and, subject to
paragraph 2, its determination shall be conclusive.
If any person or entity owning restricted Common Stock obtained by
exercise of a Stock Right made hereunder receives shares or securities or cash
in connection with a corporate transaction described in subparagraphs A, B or C
above as a result of owning such restricted Common Stock, such shares or
securities or cash shall be subject to all of the conditions and
8
restrictions applicable to the restricted Common Stock with respect to which
such shares or securities or cash were issued, unless otherwise determined by
the Committee or the Successor Board.
14. MEANS OF EXERCISING STOCK RIGHTS. A Stock Right (or any part or
installment thereof) shall be exercised by giving written notice to the Company
at its principal office address. Such notice shall identify the Stock Right
being exercised and specify the number of shares as to which such Stock Right is
being exercised, accompanied by full payment of the purchase price therefor
either (a) in United States dollars in cash or by check, or (b) at the
discretion of the Committee, through delivery of shares of Common Stock having a
fair market value equal as of the date of the exercise to the cash exercise
price of the Stock Right, (c) at the discretion of the Committee and consistent
with applicable law, through the delivery of an assignment to the Company of a
sufficient amount of the proceeds from the sale of the Common Stock acquired
upon exercise of the Stock Right and an authorization to the broker or selling
agent to pay that amount to the Company, which sale shall be at the
participant's direction at the time of exercise, or (d) at the discretion of the
Committee, by any combination of (a), (b) and (c) above. If the Committee
exercises its discretion to permit payment of the exercise price of an ISO by
means of the methods set forth in clauses (b), (c) or (d) of the preceding
sentence, such discretion shall be exercised in writing at the time of the grant
of the ISO in question. The holder of a Stock Right shall not have the rights of
a shareholder with respect to the shares covered by his Stock Right until the
date of issuance of a stock certificate to him for such shares. Except as
expressly provided above in paragraph 13 with respect to changes in
capitalization and stock dividends, no adjustment shall be made for dividends or
similar rights for which the record date is before the date such stock
certificate is issued.
15. TERM AND AMENDMENT OF PLAN. This Plan was adopted by the Board on
October 14, 1991, subject (with respect to the validation of ISOs granted under
the Plan) to approval of the Plan by the stockholders of the Company at the next
Meeting of Stockholders or, in lieu thereof, by written consent. If the approval
of stockholders is not obtained prior to October 14, 1992, any grants of ISOs
under the Plan made prior to that date will be rescinded. The Plan shall expire
at the end of the day on October 14, 2001 (except as to Options outstanding on
that date). Subject to the provisions of paragraph 5 above, Stock Rights may be
granted under the Plan prior to the date of stockholder approval of the Plan.
The Board may terminate or amend the Plan in any respect at any time, except
that, without the approval of the stockholders obtained within 12 months before
or after the Board adopts a resolution authorizing any of the following actions:
(a) the total number of shares that may be issued under the Plan may not be
materially increased (except by adjustment pursuant to paragraph 13); (b) the
provisions of paragraph 3 regarding eligibility for grants of ISOs may not be
modified; (c) the provisions of paragraph 6(B) regarding the exercise price at
which shares may be offered pursuant to ISOs may not be modified (except by
adjustment pursuant to paragraph 13); and (d) the expiration date of the Plan
may not be extended. Except as otherwise provided in this paragraph 15, in no
event may action of the Board or stockholders alter or impair the rights of a
grantee, without his consent, under any Stock Right previously granted to him.
9
16. CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISOS.
The Committee, at the written request of any optionee, may in its discretion
take such actions as may be necessary to convert such optionee's ISOs (or any
installments or portions of installments thereof) that have not been exercised
on the date of conversion into Non-Qualified Options at any time prior to the
expiration of such ISOs, regardless of whether the optionee is an employee of
the Company or a Related Corporation at the time of such conversion. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of the appropriate installments of such ISOs. At the
time of such conversion, the Committee (with the consent of the optionee) may
impose such conditions on the exercise of the resulting Non-Qualified Options as
the Committee in its discretion may determine, provided that such conditions
shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed to
give any optionee the right to have such optionee's ISOs converted into
Non-Qualified Options, and no such conversion shall occur until and unless the
Committee takes appropriate action. The Committee, with the consent of the
optionee, may also terminate any portion of any ISO that has not been exercised
at the time of such termination.
17. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of shares pursuant to Options granted and Purchases authorized under the
Plan shall be used for general corporate purposes.
18. GOVERNMENTAL REGULATION. The Company's obligation to sell and
deliver shares of the Common Stock under this Plan is subject to the approval of
any governmental authority required in connection with the authorization,
issuance or sale of such shares.
19. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a
Non-Qualified Option, the grant of an Award, the making of a Purchase of Common
Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 20) or the vesting of restricted Common
Stock acquired on the exercise of a Stock Right hereunder, the Company, in
accordance with Section 3402(a) of the Code, may require the optionee, Award
recipient or purchaser to pay additional withholding taxes in respect of the
amount that is considered compensation includible in such person's gross income.
The Committee in its discretion may condition (i) the exercise of an Option,
(ii) the grant of an Award, (iii) the making of a Purchase of Common Stock for
less than its fair market value, or (iv) the vesting of restricted Common Stock
acquired by exercising a Stock Right, on the grantee's payment of such
additional withholding taxes.
20. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. Each employee who
receives an ISO must agree to notify the Company in writing immediately after
the employee makes a Disqualifying Disposition of any Common Stock acquired
pursuant to the exercise of an ISO. A Disqualifying Disposition is any
disposition (including any sale) of such Common Stock before the later of (a)
two years after the date the employee was granted the ISO, or (b) one year after
the date the employee acquired Common Stock by exercising the ISO. If the
employee has died before such stock is sold, these holding period requirements
do not apply and no Disqualifying Disposition can occur thereafter.
10
21. GOVERNING LAW; CONSTRUCTION. The validity and construction of the
Plan and the instruments evidencing Stock Rights shall be governed by the laws
of the State of Delaware, or the laws of any jurisdiction in which the Company
or its successors in interest may be organized. In construing this Plan, the
singular shall include the plural and the masculine gender shall include the
feminine and neuter, unless the context otherwise requires.
