SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act
of 1934 (Amendment No. ____)
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
Quantech Ltd.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing:
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
QUANTECH LTD.
1419 ENERGY PARK DRIVE
ST. PAUL, MINNESOTA 55108
TELEPHONE (651) 647-6370
FAX (651) 647-6369
--------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 8, 1998
--------------------
TO THE SHAREHOLDERS OF QUANTECH LTD.
Please take notice that the Annual Meeting of Shareholders of Quantech Ltd.
(the "Meeting") will be held, pursuant to due call by the Board of Directors of
the Company, at the Minneapolis Hilton and Towers, 1001 Marquette Avenue,
Minneapolis, Minnesota on December 8, 1998, at 3:30 p.m., or at any adjournment
or adjournments thereof, for the purpose of considering and taking appropriate
action with respect to the following:
1. To elect one (1) Class 3 director for a term of three years;
2. To adopt the 1998 Stock Option Plan;
3. To adopt an amendment to the Articles of Incorporation to increase the
number of authorized shares; and
4. To transact any other business as may properly come before the Meeting
or any adjournments thereof.
Pursuant to due action of the Board of Directors, shareholders of record on
October 30, 1998, will be entitled to vote at the Meeting or any adjournments
thereof.
A Proxy for the Meeting is enclosed herewith. You are requested to fill in
and sign the Proxy, which is solicited by the Board of Directors, and mail it
promptly in the enclosed envelope.
St. Paul, Minnesota Robert Case
November 6, 1998 Chief Executive Officer
<PAGE>
QUANTECH LTD.
1419 ENERGY PARK DRIVE
ST. PAUL, MINNESOTA 55108
TELEPHONE (651) 647-6370
FAX (651) 647-6369
--------------------
PROXY STATEMENT
--------------------
Annual Meeting of Shareholders - December 8, 1998
INFORMATION CONCERNING SOLICITATION OF VOTING
This Proxy Statement is furnished by the Board of Directors of Quantech
Ltd. (the "Company") in connection with the solicitation of proxies to be used
at the Annual Meeting of Shareholders (the "Meeting") of the Company to be held
on Tuesday, December 8, 1998, at 3:30 p.m. Central Time, at the Minneapolis
Hilton and Towers, 1001 Marquette Avenue, Minneapolis, Minnesota 55403, and at
all adjournments thereof for the purposes set forth herein and in the
accompanying Notice of Annual Meeting of Shareholders. ANY PROXY IN WHICH NO
DIRECTION IS SPECIFIED WILL BE VOTED IN FAVOR OF EACH OF THE MATTERS TO BE
CONSIDERED AND IN FAVOR OF THE DIRECTOR NOMINEES LISTED HEREIN. This Proxy
Statement and the accompanying Annual Report, Notice and Proxy are being mailed
to shareholders on or about November 6, 1998.
The close of business on October 30, 1998 has been fixed as the record date
for the determination of shareholders entitled to receive notice of and to vote
at the Meeting. At that date, the Company's outstanding voting securities
consisted of 2,587,395 shares of common stock, no par value (the "Common
Stock"), and 2,100,000 shares of Series A preferred stock (the "Preferred
Stock") convertible into Common Stock at the rate of four shares of Common Stock
for each share of Preferred Stock. On all matters which will come before the
Meeting, each shareholder or his proxy will be entitled to one vote for each
share of Common Stock of which such shareholder was the holder of record or had
rights to acquire pursuant to Series A Preferred Stock on the record date.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time prior to its use by: (I) delivering to the principal
office of the Company a written notice of revocation; or (II) filing with the
Company a duly executed Proxy bearing a later date. Proxies not revoked will be
voted in accordance with the choice specified by shareholders by means of the
ballot provided on the Proxy for that purpose. Proxies which are signed but
which lack any such specification will, subject to the following, be voted in
favor of the proposals set forth in the Notice of Meeting and in favor of the
number and slate of directors proposed by the Board of Directors and listed
herein. If a shareholder abstains from voting as to any matter, then the shares
held by such shareholder shall be deemed present at the meeting for purposes of
determining a quorum and for purposes of calculating the vote with respect to
such matter, but shall not be deemed to have been voted in favor of such matter.
Abstentions, therefore, as to any proposal will have the same effect as votes
against such proposal. If a broker returns a "non-vote" proxy, indicating a lack
of voting instructions by the beneficial holder of the shares and a lack of
discretionary authority on the part of the broker to vote on a particular
matter, then the shares covered by such non-vote proxy shall be deemed present
at the meeting for purposes of determining a quorum but shall not be deemed to
be represented at the meeting for purposes of calculating the vote required for
approval of such matter.
<PAGE>
The costs of this solicitation will be borne by the Company. The Company
will request brokerage houses and other nominees, custodians and fiduciaries to
forward soliciting material to beneficial owners of the Company's Common Stock.
The Company will reimburse brokerage firms and other persons representing
beneficial owners for their expenses in forwarding solicitation materials to
beneficial owners. Proxies are being solicited primarily by mail, but, in
addition, officers and regular employees of the Company may solicit proxies
personally, by telephone, by telegram or by special letter.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND EXECUTIVE MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of October 30, 1998: (I) by each of
the executive officers of the Company named in the Summary Compensation Table;
(II) by each director and director nominee; (III) by all current directors and
executive officers of the Company as a group; and (IV) by each person known to
the Company to be the beneficial owner of more than 5% of the outstanding shares
of the Company's Common Stock. Except as otherwise indicated, each shareholder
has sole voting and investment power with respect to the shares beneficially
owned.
<TABLE>
<CAPTION>
Number of Shares Percent of Shares
Officers and Directors(1) Beneficially Owned Beneficially Owned(10)
- --------------------------------------------- ----------------------- --------------------------
<S> <C> <C>
Robert Case 364,241 (2) 4.9%
Gregory G. Freitag 332,611 (3) 4.5%
James F. Lyons 460,017 (4) 6.3%
Richard W. Perkins 52,500 (5) 0.7%
Edward E. Strickland 301,537 (6) 4.2%
All directors and executive officers as a
group (5 persons) 1,510,906 (7) 18.7%
5% Shareholders
- ---------------------------------------------
The Perkin-Elmer Corporation 1,400,000 (8) 16.4%
David S. Goldsteen, M.D. 602,533 (9) 8.5%
</TABLE>
(1) The address of such persons is 1419 Energy Park Drive, St. Paul,
Minnesota 55108.
(2) Includes 43,760 shares that may be obtained upon conversion of
Preferred Stock, and 320,481 shares that may be purchased upon exercise
of options and warrants that are currently exercisable or exercisable
within 60 days of the record date.
(3) Includes 15,075 shares that may be obtained upon conversion of
Preferred Stock, and 317,261 shares that may be purchased
upon exercise of options and warrants that are currently exercisable.
(4) Includes 274,829 shares that may be obtained upon conversion of
Preferred Stock, and 170,188 shares that may be purchased
upon exercise of options and warrants that are currently exercisable.
(5) Includes 37,500 shares that may be purchased upon exercise of options
and warrants that are currently exercisable.
(6) Includes 127,571 shares that may be obtained upon conversion of
Preferred Stock, and 108,435 shares that may be purchased upon exercise
of options and warrants that are currently exercisable. Also includes
5,000 shares, 44,151 shares that may be obtained upon conversion of
Preferred Stock, and 6,380 shares that may be purchased upon exercise
of options and warrants that are currently exercisable held by the
Strickland Family Limited Partnership of which entity Mr. Strickland
is a general partner.
(footnotes continue on next page)
<PAGE>
(7) Includes 461,235 shares that may be obtained upon conversion of
Preferred Stock, and 953,865 shares that may be purchased upon exercise
of options and warrants that are currently exercisable or exercisable
within 60 days of the record date. Also includes 5,000 shares, 44,151
shares that may be obtained upon conversion of Preferred Stock and
6,380 shares that may be purchased upon exercise of warrants that are
currently exercisable held by the Strickland Family Limited Partnership
of which entity Mr. Strickland is a general partner.
(8) Includes a warrant to purchase 1.4 million shares of Quantech Common
Stock at a price equal to 95% of the average of the last sale price of
Quantech Common Stock for each of the 25 consecutive trading days
immediately preceding the date of the first notice of exercise of the
warrant provided to Quantech by Perkin-Elmer. This warrant may be
exercised at any time before December 17, 2002. Perkin-Elmer's address
is 761 Main Avenue, Norwalk, CT 06589.
(9) Includes 359,089 shares that may be obtained upon conversion of
Preferred Stock. Dr. Goldsteen's address is IDS Center, Suite 2332, 80
South 8th Street, Minneapolis, MN 55402.
(10) Common Shares that may be obtained upon conversion of Preferred Stock
are included in the outstanding Common Stock for the purposes of this
table.
PROPOSAL ONE
ELECTION OF DIRECTORS
General
The Company's Bylaws provide that the Board of Directors consist of three
or more persons and be divided into three classes of directors of as nearly
equal size as possible. Directors are elected for a term of three years and the
terms are staggered so that the class of directors whose term expires is elected
each year by the shareholders of the Company. There are currently five persons
serving as directors. The Company is proposing that one director be elected at
the Meeting to serve as a Class 3 director with a term of three years expiring
in 2001, or until his successor is elected and qualified. The Board of Directors
has nominated for election Mr. James F. Lyons. Mr. Lyons is currently a Class 3
director of the Company.
Board Recommendation
The Board of Directors recommends that the nominee, Mr. Lyons, be elected
as a Class 3 director to hold office for a term of three years and until his
successor is duly elected and qualified.
Proxies and Voting
Proxies solicited by the Board of Directors will, unless otherwise
directed, be voted to elect the nominee. The affirmative vote of the greater of
(I) a majority of shares of Common Stock present and entitled to vote at the
Meeting or (II) a majority of the voting power of the minimum number of shares
that would constitute a quorum for the transaction of business at the Meeting is
necessary to elect the nominee. A shareholder submitting a Proxy may vote for
the nominee for election to the Board of Directors or may withhold his or her
vote. The nominee, Mr. Lyons, has consented to being named as nominee. Should
Mr. Lyons become unable to serve if elected, the Proxy Agents named in the Proxy
will exercise their voting power in favor of such other person as the Board of
Directors of the Company may recommend. The Company's Articles of Incorporation
prohibit cumulative voting.
<PAGE>
Nominees, Directors and Executive Officers
Class 1 Director (Term Expiring 1999).
Robert Case, age 54, has been Chief Executive Officer since June 1997 and a
director of the Company since October 1996. He founded Case + Associates, Inc.
in 1978 and has been its President since such time. Case + Associates is a
leading consultant in the research, design, development and engineering of
medical products. Its consulting activities include work for major
multinational, as well as development stage, medical companies in the design of
products from diagnostic instrumentation and implantable devices to surgical
instruments. He has served as a Chairman of the Industrial Designers Society of
America, and was a member of its national Board of Directors. Mr. Case has also
been a long-time member of the Biomedical Marketing Association. In addition,
Mr. Case conducts both U.S. and European seminars in product definition and
development for Frost & Sullivan, the Society of Plastics Engineers, the Society
for the Advancement of Medical Packaging Institute and Northwestern University.
His educational background includes product design, engineering and marketing at
Syracuse University, the Illinois Institute of Technology and DePaul University.
Class 2 Directors (Term Expiring 2000)
Richard W. Perkins, age 67, has been a director of the Company since
September 1995. Since 1985, Mr. Perkins has been President, Chief Executive
Officer and a director of Perkins Capital Management, Inc., Wayzata, Minnesota.
Prior thereto he was a Senior Vice President of Piper Jaffray Inc., Minneapolis,
Minnesota. He is also a director of Bio-Vascular, Inc., Eagle Pacific
Industries, Inc., Children's Broadcasting Corporation, Lifecore Biomedical,
Inc., Nortech Systems, Inc., CNS, Inc, and Vital Images, Inc.
Edward E. Strickland, age 71, has been a director of the Company since
September 1995. Mr. Strickland has been an independent financial consultant for
more than seven years. From October 1990 to January 1991, he performed the
duties of Chief Executive Officer while serving on the Executive Committee of
the Board of Directors of Reuter, Inc. where he currently serves as their
Chairman of the Board. Mr. Strickland also serves as a director of Bio-Vascular,
Inc., Hector Communications Corp., and Communication Systems, Inc.
Class 3 Nominee (Term Expiring 2001)
James F. Lyons, age 68, has been Chairman of the Board of the Company since
June 1997, and a director of the Company since September 1995. From September
1993 through October 1994, when he retired, Mr. Lyons was Chief Executive
Officer of Bio-Vascular, Inc., a cardiovascular medical products company. From
1978 through 1990, Mr. Lyons was President and Chief Executive Officer of
Bio-Medicus, Inc., a cardiovascular medical products company. Mr. Lyons was also
a director and Chairman of the Board from 1991 through 1996 of AVECOR
Cardiovascular Inc. and was a director of ATS Medical, Inc., Bio-Vascular, Inc.
and Spine-Tech, Inc.
Executive Officers
Gregory G. Freitag, age 36, has been Chief Operating Officer of the
Company since June 1997, and Chief Financial Officer and Secretary of the
Company since December 1995. From 1987 until joining the Company Mr. Freitag was
a lawyer with the Minneapolis, Minnesota law firm of Fredrikson & Byron, P.A. As
a shareholder with Fredrikson & Byron he practiced in the corporate, securities
and merger and acquisition areas of law. Mr. Freitag has his J.D. and CPA, has
served on securities advisory committees to the Minnesota Commissioner of
Commerce, is included in the Minnesota Business Guide to Law & Leading
Attorneys, and received from City Business its "40 Under 40" award recognizing
Mr. Freitag as one of the Twin Cities' next generation of business and community
leaders.
<PAGE>
Director Compensation
The Company does not currently compensate its directors. The Company
has, however, granted options to its directors from time to time. In April 1998
options to purchase 10,000 shares of Common Stock were granted to Messrs. Lyons,
Perkins and Strickland, directors of the Company. All of the options have an
exercise price of $3.00 per share, are immediately exercisable, and expire five
years from the date granted. If the 1998 Stock Option Plan is approved by the
shareholders, non-employee directors will be granted an option to purchase
10,000 shares upon election to the Board and an option to purchase 2,500 shares
after each shareholders meeting if the director is re-elected or his term of
office continues after such shareholders meeting. See Proposal Two - Adoption of
the 1998 Stock Options Plan.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the cash and noncash compensation for each
of the last three fiscal years awarded to, or earned by, the Chief Executive
Officer of the Company and to all executive officers whose compensation exceeded
$100,000 for fiscal 1998.
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
---------------------------------------- ------------
All Other
Other Annual Securities Compen-
Name and Fiscal Salary Bonus Compensation Underlying sation
Principal Position Year ($) ($) ($) Options (#) ($)
- -------------------- ------- --------- ------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Robert Case, 1998 $0 0 0 102,500 0
CEO 1997 $0 0 0 12,500 0
Gregory G. Freitag, 1998 $125,000 0 0 115,000
COO, CFO 1997 $125,000 0 0 0 0
1996 $ 72,917 0 0 25,000 0
Robert R. McKiel, 1998 $119,792 0 $5,200(1) 0 0
former Executive 1997 $125,000 0 0 0 0
VP of R & D 1996 $117,500 0 0 0 0
- ------------------------
</TABLE>
(1) Other Annual Compensation for Mr. McKiel consisted of amounts paid for
consulting services pursuant to an arrangement in connection with his
resignation from the Company.
<PAGE>
Option/SAR Grants During 1998 Fiscal Year
The following table provides information related to options granted to the
named executive officers during fiscal 1998. The Company has not granted any
stock appreciation rights.
<TABLE>
<CAPTION>
Individual Grants
- --------------------- --------------------- -- ------------------ -- ------------ -- ----------------
Number of Securities Percent of Total
Underlying Options/SARs
Options/SARs Granted to Exercise or
Granted Employees in Base Price Expiration
Name (#) Fiscal Year ($/Share) Date
- --------------------- --------------------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C>
Robert Case 2,500 (1) 0.6% $3.00 April 3, 2003
Robert Case 100,000 (2) 25.3% $3.00 July 14, 2002
Gregory G. Freitag 90,000 (2) 22.7% $3.00 July 14, 2002
Gregory G. Freitag 25,000 (2) 6.3% $3.00 December 1, 2000
Robert R. McKiel 0 N/A N/A N/A
- ------------------------
</TABLE>
(1) Such option is a nonqualified stock option with 1,667 shares immediately
exercisable and 833 shares exercisable on April 3, 1999.
(2) Such option is an incentive stock option and is immediately exercisable.
<PAGE>
Option Exercises and Value of Options at End of Fiscal 1998
The following table sets forth, for each of the executive officers named in
the Summary Compensation Table above, the year-end value of unexercised options.
<TABLE>
<CAPTION>
Number of Unexercised
Securities Underlying Value of Unexercised
Shares Options at End In-the-Money Options
Acquired of Fiscal 1998 (1) at End of Fiscal 1998 (1)(2)
on Value ----------------------------- -------------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- --------------- --------- --------- ----------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Robert Case 0 N/A 114,167 883 $25,417 $208
Gregory G.
Freitag 0 N/A 115,000 0 $28,750 $0
Robert R.
McKiel 0 N/A 41,542 0 $0 $0
- ------------------------
</TABLE>
(1) The shares represented for Mr. McKiel were granted as warrants to purchase
Common Stock and not options. As such, these shares are not included in the
Company's Nonqualified Stock Option Plan described below.
(2) Value based on market value of the Company's Common Stock on June 30,
1998 ($3.25 per share closing price) less the exercise price.
Compensation Arrangements
In December 1997, the Company entered into "at will" employment agreements
with Mr. Case and Mr. Freitag (the "Employment Agreements"). Mr. Case's
employment agreement provides that if his employment is terminated by the
Company due to a sale of substantially all of the assets of the Company or a
change in the control of more than 50% of the Company's Capital Stock by an
acquiring party, he would receive a lump-sum payment of $150,000. Mr. Freitag's
employment agreement provides for a base salary of $125,000 per year and further
provides that if his employment is terminated by the Company "without cause" he
would receive six months' salary, except in the event his employment is
terminated as a result of a sale of substantially all of the assets of the
Company or a change in the control of more than 50% of the Company's Common
Stock by an acquiring party he would receive a lump-sum payment of one year's
salary and bonus.
<PAGE>
Nonqualified Stock Options
On September 3, 1996, the Company's Board of Directors adopted the
Quantech Ltd. Nonqualified Stock Option Plan (the "Plan"). The Plan provides for
the granting of nonqualified options to purchase Common Stock of the Company to
employees, directors and members of the Company's Scientific Advisory Board. A
total of 560,750 shares of the Company's Common Stock have been reserved for
issuance upon exercise of options granted under the Plan. Outstanding options
for the purchase of up to 560,750 shares of Company Common Stock have been
granted under the Plan of which 509,086 have vested. The Company's Compensation
Committee has complete discretion to determine the persons to whom options are
granted under the Plan and to set the terms of such options including, but not
limited to, terms relating to price (which generally will be the fair market
value of the Company's Common Stock on the date of grant), duration, vesting,
termination and the number of shares subject to such option. The Plan will
continue for an indefinite period until terminated by the Board of Directors or
Compensation Committee. No additional options will be granted under this plan if
the 1998 Stock Option Plan is adopted at the Company's 1998 Annual Meeting.
Certain Transactions
In March 1998, the Company issued warrants to purchase 60,000 and 15,000
shares of its Common Stock to James F. Lyons and Edward E. Strickland,
respectively, directors of the Company, as compensation for the guarantee of a
$500,000 bank loan to the Company. The warrants have an exercise price of $0.75.
The amount under such loan was increased by $250,000 in August and such
directors received additional options to purchase 75,000 shares of Common Stock
at $3.00 per share for their extension of the guarantee to this amount. In April
1998, the Company issued a warrant to purchase 2,500 shares of its Common Stock
to Gregory G. Freitag, the Company's COO and CFO, as compensation for providing
short term loans to the Company on several occasions during 1997 and 1998. The
warrant has an exercise price of $1.49.
<PAGE>
PROPOSAL TWO
ADOPTION OF THE 1998 STOCK OPTION PLAN
In April 1998, the Company's Board of Directors adopted the 1998 Stock
Option Plan (the "Plan") and reserved 2,000,000 shares for issuance thereunder
subject to approval of the Company's shareholders at the 1998 annual meeting. If
any options granted under the 1998 plan expire or are terminated prior to being
exercised in full, then the unexercised portion of such options will once again
be available for additional option grants.
The purpose of the Plan is to promote the success of the Company and its
subsidiaries by facilitating the retention of competent personnel and by
furnishing incentive to officers, directors, employees, consultants, and
advisors upon whose efforts the success of the Company will depend to a large
degree.
Under the 1998 Stock Plan, all employees, officers and directors
(including Non-Employee Directors) of the Company or a subsidiary, and
consultants and advisors who perform bona fide services for the Company or a
subsidiary, provided such services are not in connection with the offer or sale
of securities in a capital raising transaction, are eligible to receive stock
options. It is the intention of the Company to grant options which qualify as
incentive stock options ("ISOs") under section 422 of the Internal Revenue Code,
as well as nonqualified stock options ("NSOs"). The 1998 Plan is administered by
the Board of Directors or by a Committee appointed by the Board (referred to as
the "Administrator") which selects the individuals to whom options will be
granted, the number of shares subject to each option and the exercise price and
terms and conditions of each option.
The exercise price for ISOs cannot be less than 100% of the fair market
value of the Common Stock per share on the date the option is granted, and, in
the case of ISOs granted to holders of more than 10% of the voting power of the
Company, not less than 110% of such fair market value. The term of an option
cannot exceed 10 years, and the term of an ISO granted to a holder of more than
10% of the voting power of the Company cannot exceed five years. The exercise
price for NSOs is generally 100% of the fair market value of the Common Stock
per share on the date the option is granted unless otherwise determined by the
Administrator, provided that the exercise price is not less than 85% of the fair
market value of the Common Stock per share on the date granted.
Non-Employee Directors of the Company are granted upon election an
option to purchase 10,000 shares of Common Stock at a price per share equal to
100% of the fair market value of the Common Stock on such date. One-third of
such options are exercisable immediately, with one-third becoming exercisable on
each of the second and third anniversaries of the date of grant. After each
shareholders meeting, if the director is re-elected or his term of office
continues after such shareholders meeting, each Non-Empoyee Director is granted
an option to purchase 2,500 shares of the Common Stock at an exercise price per
share equal to 100% of the fair market value of the Common Stock on such date.
These options are immediately exercisable.
Board Recommendation and Shareholder Vote Required
The Board of Directors recommends a vote FOR adoption of the 1998 Stock
Option Plan. Approval of the adoption of the 1998 Stock Option Plan requires
the affirmative vote of the greater of (I) a majority of the number of shares of
Common Stock present and entitled to vote at the Meeting or (II) a majority of
the voting power of the minimum number of shares that would constitute a quorum
for the transaction of business at the Meeting.
<PAGE>
PROPOSAL THREE
ADOPTION OF AMENDMENT TO INCREASE THE NUMBER OF AUTHORIZED SHARES
Article 3.1 of the Company's Articles of Incorporation provides that
the aggregate number of shares of all classes of stock which the Company shall
have the authority to issue is 12,500,000 shares consisting of 10,000,000 shares
of Common Stock and 2,500,000 shares of Series A Convertible Preferred Stock.
The Board of Directors recommends to the shareholders that Article 3.1 of the
Company's Articles of Incorporation be amended to increase the number of
authorized shares to 75,000,000 shares. Of the 75,000,000 shares, 50,000,000
shares would be deemed Common Stock, 2,500,000 would be deemed Series A
Convertible Preferred Stock, and 22,500,000 shares would be deemed undesignated
shares.
The undesignated shares allow the Board of Directors of the Company to
designate the shares and issue them upon such terms and at such times as it
considers appropriate without further shareholder approval. This flexibility
allows for a greater ability to structure future financings or transactions, if
required. However, in the event of a proposed merger, tender offer or other
attempt to gain control of the Company of which the Board does not approve, the
unissued Common Stock, through the dilution of percentage ownership, and the
undesignated shares, through the issuance of a series of stock with certain
rights and preferences, could allow the Board to impede the completion of such a
transaction. An effect of the proposed amendment, therefore, may be to deter a
future takeover attempt. The Board does not intend to issue any shares except on
terms which the Board deems to be in the best interests of the Company and its
then existing shareholders. Neither the Board of Directors nor management of the
Company is aware of any specific effort to accumulate the Company's securities
or to obtain control of the Company by means of a merger, tender offer or
solicitation of proxies in opposition to management.
Of the shares now authorized for issuance, as of October 30, 1998,
2,100,000 shares were issued and outstanding as Series A Preferred Stock,
2,587,395 shares were issued and outstanding as Common Stock, an additional
3,618,723 shares of Common Stock were reserved for issuance pursuant to stock
options and warrants, and 8,400,000 shares of Common Stock were reserved for
conversion of the Preferred Stock. Currently the total number of shares of
Common Stock issued or subject to issuance pursuant to options, warrants and
conversion of Preferred Stock exceeds the number of authorized shares. Messrs.
Case, Lyons, Perkins, Strickland and Freitag have agreed not to exercise
warrants or options or convert Preferred Stock held by them until sufficient
shares of Common Stock are authorized.
Management and the Board of Directors believe that it is desirable to
increase the number of authorized shares of Common Stock and undesignated shares
available for issuance as recommended to enable the Company to issue Common
Stock or other shares in the future to finance its business, for issuance
pursuant to stock options so as to continue to retain and obtain qualified
employees, directors and scientific advisors, for issuance pursuant to currently
outstanding warrants and warrants that could be issued to strategic partners,
for issuance in the event shares of Preferred Stock are converted to Common, and
for possible issuance in connection with acquisitions or other business
combinations. The Company has no present plans, understandings or agreements for
issuance or use of the proposed additional shares in connection with any
acquisitions or business combinations. However, the Board of Directors believes
that the proposed increase is desirable so that, as the need may arise, the
Company will have more financial flexibility and be able to issue shares of
equity securities, without the expense and delay of a special shareholders'
meeting, in connection with possible equity financing, future opportunities for
expanding the business through investments, strategic arrangements or
acquisitions and employee benefit plans or other purposes.
Accordingly, the Board of Directors recommends that Article 3.1 of the
Articles of Incorporation of the Company be amended as follows:
<PAGE>
ARTICLE 3.1
CAPITAL STOCK
The aggregate number of shares the corporation has the
authority to issue shall be 75,000,000, which shall have a par value of
$.01 per share solely for the purpose of a statute or regulation
imposing a tax or fee based upon the capitalization of the corporation,
and which shall consist of 50,000,000 Common Shares, 2,500,000 Series A
Convertible Preferred Shares and 22,500,000 undesignated shares. The
Board of Directors of the corporation is authorized to establish from
the undesignated shares, by resolution adopted and filed in the manner
provided by law, one or more classes or series of shares, to designate
each such class or series (which may include but is not limited to
designation as additional common shares), and to fix the relative
rights and preferences of each such class or series.
Board Recommendation and Shareholder Vote Required
The Board of Directors recommends a vote FOR an amendment to Article 3.1 of
the Articles of Incorporation. Approval of the adoption of the amendment to the
Articles of Incorporation requires the affirmative vote of the greater of (I) a
majority of shares of Common Stock present and entitled to vote at the Meeting
or (II) a majority of the voting power of the minimum number of shares that
would constitute a quorum for the transaction of business at the Meeting.
SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Any shareholder proposals intended to be presented at the Company's next
Annual Meeting of Shareholders must be received by the Company at its office
located at 1419 Energy Park Drive, St. Paul, Minnesota 55108 on or before July
9, 1999 to be considered for inclusion in the Company's Proxy Statement and form
of Proxy relating to such meeting. Shareholder proposals intended to be
presented at the next annual meeting but not included in the Company's proxy
statement and proxy will be considered untimely if received by the Company after
September 22, 1999.
OTHER MATTERS
Board of Directors and Committees
The Board of Directors held three meetings during the fiscal year ended
June 30, 1998. Each director attended all of these meetings. The directors also
meet informally from time to time to discuss issues concerning the Company and
take action through unanimous written consent. The Company has Audit and
Compensation Committees, but does not have a Nominating Committee of the Board
of Directors.
The Audit Committee is comprised of directors Perkins, Lyons and Strickland
with Mr. Strickland as Chairman. The Audit Committee has the responsibility of
selecting Quantech's independent auditors and communicating with such auditors
on matters of auditing and accounting. The Audit Committee met once during the
fiscal year ended June 30, 1998 and all members were present.
The Compensation Committee is also comprised of directors Perkins, Lyons
and Strickland with Mr. Lyons as Chairman. The Compensation Committee has the
responsibility of reviewing on an annual basis all officer compensation and
administering any employee options and plans related thereto. The Compensation
Committee met one time during the fiscal year ended June 30, 1998 and all
members were present. The Compensation Committee also meets informally to
discuss compensation issues and takes action through unanimous written consent.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
<PAGE>
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "SEC"). Officers, directors and greater than ten percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file. Based solely on review of the copies of such forms
furnished to the Company, or written representations that no Forms 5 were
required, the Company believes that during the fiscal year ended June 30, 1998,
all Section 16(a) filing requirements applicable to its officers, directors and
greater than ten-percent beneficial owners were satisfied except with respect to
Mr. Lyons who filed two Forms 4 late reporting two transactions and Mr.
Freitag who filed one Form 4 late reporting one transaction.
Independent Auditors
McGladrey & Pullen, LLP served as the Company's independent auditors for
the fiscal year ended June 30, 1998 and has been selected to serve for the
current year. Representatives of McGladrey & Pullen, LLP will be present at the
Meeting, will be given an opportunity to make a statement regarding financial
and accounting matters of the Company if they so desire, and will be available
to respond to appropriate questions from shareholders.
Form 10-KSB
The Company will furnish without charge to each person whose proxy is
being solicited, upon written request of any such person, a copy of the
Company's Annual Report on Form 10-KSB for the fiscal year ended June 30, 1998,
as filed with the Securities and Exchange Commission, including the Financial
Statements and the Financial Statement Schedules thereto. The Company will
furnish to any such person any exhibit described in the list accompanying the
Form 10-KSB upon the payment, in advance, of reasonable fees related to the
Company's furnishing such exhibit(s). Requests for copies of such report and/or
exhibit(s) should be directed to Gregory Freitag, Chief Financial Officer, at
the Company's principal address.
Other Business
All properly executed proxies delivered pursuant to this solicitation and
not revoked will be voted at the Meeting in accordance with the directions
given. In voting by proxy in regard to the matters presented, shareholders may
vote in favor of the item, against the item or abstain from voting. Shareholders
should specify their choices on the enclosed Proxy. Any Proxy on which no
direction is specified will be voted in favor of each of the matters to be
considered.
The Board of Directors does not intend to bring any matters before the
Meeting other than as stated in this Proxy Statement and is not aware that any
other matters will be presented for action at the Meeting. Should any other
matters be properly presented, the persons named in the enclosed form of Proxy
will vote the Proxy with respect thereto in accordance with their best judgment,
pursuant to the discretionary authority granted by the Proxy.
Dated: November 6, 1998 Robert Case
Chief Executive Officer
<PAGE>
Quantech Ltd.
----------------------------------------
PROXY FOR 1998 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 8, 1998
--------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert Case and Gregory G. Freitag,
officers of the Company, with full power of substitution, his or her Proxy to
represent and vote, as designated below, all shares of Quantech Ltd. registered
in the name of the undersigned, with the powers the undersigned would possess if
personally present at the Company's 1998 Annual Meeting of Shareholders to be
held on Tuesday, December 8, 1998, at 3:30 p.m. Central Time, at the Minneapolis
Hilton and Towers, 1001 Marquette Avenue, Minneapolis, Minnesota 55403, and at
any adjournment thereof, hereby revoking all proxies previously given with
respect to the meeting.
The Board of Directors recommends that you vote "FOR" each proposal
1. ELECT JAMES F. LYONS AS A CLASS 3 DIRECTOR OF THE COMPANY:
[ ] FOR nominee [ ] WITHHOLD AUTHORITY to vote for nominee
2. ADOPT THE 1998 STOCK OPTION PLAN:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. AMEND ARTICLES OF INCORPORATION to increase the number of authorized shares
to 75,000,000 shares consisting of 50,000,000 Common Shares, 2,500,000
Series A Convertible Preferred Shares and 22,500,000 undesignated shares:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. OTHER MATTERS: In their discretion, the appointed Proxies are
[ ] Authorized [ ] Not Authorized
to vote upon such other business as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO
DIRECTION IS GIVEN, WILL BE VOTED FOR PROPOSALS #1, #2 AND #3 AND WILL BE
DEEMED TO GRANT AUTHORITY UNDER PROPOSAL #4.
Dated: November 6, 1998
----------------------------------------
------------------------------------
PLEASE DATE AND SIGN ABOVE exactly
as name(s) appear at the left.
Executors, administrators, trustees,
guardians, etc., should indicate
capacity when signing. For stock
held in Joint Tenancy, each joint
owner should sign.
<PAGE>
Appendix
QUANTECH LTD.
1998 STOCK OPTION PLAN
(As amended through October 20, 1998)
SECTION 1.
DEFINITIONS
As used herein, the following terms shall have the meanings indicated
below:
(a) "Committee" shall mean a Committee of two or more directors who
shall be appointed by and serve at the pleasure of the Board. As long
as the Company's securities are registered pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended, then, to the extent
necessary for compliance with Rule 16b-3, or any successor provision,
each of the members of the Committee shall be a "Non-Employee
Director." For purposes of this Section 1(a) "Non-Employee Director"
shall have the same meaning as set forth in Rule 16b-3, or any
successor provision, as then in effect, of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended.
(b) The "Company" shall mean Quantech Ltd., a Minnesota corporation.
(c) "Fair Market Value" shall mean (i) if such stock is reported by the
Nasdaq National Market or Nasdaq SmallCap Market or is listed upon an
established stock exchange or exchanges, the reported closing price of
such stock by the Nasdaq National Market or Nasdaq SmallCap Market or
on such stock exchange or exchanges on the date the option is granted
or, if no sale of such stock shall have occurred on that date, on the
next preceding day on which there was a sale of stock; (ii) if such
stock is not so reported by the Nasdaq National Market or Nasdaq
SmallCap Market or listed upon an established stock exchange, the
average of the closing "bid" and "asked" prices quoted by the NASD
Bulletin Board (or any comparable reporting service) on the
date the option is granted, or if there are no quoted "bid" and "asked"
prices on such date, on the next preceding date for which there are
such quotes; or (iii) if such stock is not publicly traded as of the
date the option is granted, the per share value as determined by the
Board, or the Committee, in its sole discretion by applying principles
of valuation with respect to all such options.
(d) The "Internal Revenue Code" is the Internal Revenue Code of 1986,
as amended from time to time.
(e) "Non-Employee Director" shall mean members of the Board who are not
employees of the Company or any Subsidiary.
<PAGE>
(f) "Option Stock" shall mean Common Stock of the Company (subject to
adjustment as described in Section 13) reserved for options pursuant to
this Plan.
(g) The "Optionee" means an employee of the Company or any Subsidiary
to whom an incentive stock option has been granted pursuant to Section
9; a consultant or advisor to or director (including a Non-Employee
Director), employee or officer of the Company or any Subsidiary to whom
a nonqualified stock option has been granted pursuant to Section 10; or
a Non-Employee Director to whom a nonqualified stock option has been
granted pursuant to Section 11.
(h) "Parent" shall mean any corporation which owns, directly or
indirectly in an unbroken chain, fifty percent (50%) or more of the
total voting power of the Company's outstanding stock.
(i) The "Plan" means the Quantech 1998 Stock Option Plan, as amended
hereafter from time to time, including the form of Option Agreements as
they may be modified by the Board from time to time.
(j) A "Subsidiary" shall mean any corporation of which fifty percent
(50%) or more of the total voting power of outstanding stock is owned,
directly or indirectly in an unbroken chain, by the Company.
SECTION 2.
PURPOSE
The purpose of the Plan is to promote the success of the Company and
its Subsidiaries by facilitating the retention of competent personnel and by
furnishing incentive to officers, directors, employees, consultants, and
advisors upon whose efforts the success of the Company and its Subsidiaries will
depend to a large degree.
It is the intention of the Company to carry out the Plan through the
granting of stock options which will qualify as "incentive stock options" under
the provisions of Section 422 of the Internal Revenue Code, or any successor
provision, pursuant to Section 9 of this Plan, and through the granting of
"nonqualified stock options" pursuant to Sections 10 and 11 of this Plan.
Adoption of this Plan shall be and is expressly subject to the condition of
approval by the shareholders of the Company within twelve (12) months before or
after the adoption of the Plan by the Board of Directors. Any incentive stock
options granted after adoption of the Plan by the Board of Directors shall be
treated as nonqualified stock options if shareholder approval is not obtained
within such twelve-month period.
<PAGE>
SECTION 3.
EFFECTIVE DATE OF PLAN
The Plan shall be effective as of the date of adoption by the Board of
Directors, subject to approval by the shareholders of the Company as required in
Section 2.
SECTION 4.
ADMINISTRATION
The Plan shall be administered by the Board of Directors of the Company
(hereinafter referred to as the "Board") or by a Committee which may be
appointed by the Board from time to time (collectively referred to as the
"Administrator"). The Administrator shall have all of the powers vested in it
under the provisions of the Plan, including but not limited to exclusive
authority (where applicable and within the limitations described in this Plan)
to determine, in its sole discretion, whether an incentive stock option or
nonqualified stock option shall be granted, the individuals to whom, and the
time or times at which, options shall be granted, the number of shares subject
to each option and the option price and terms and conditions of each option. The
Administrator shall have full power and authority to administer and interpret
the Plan, to make and amend rules, regulations and guidelines for administering
the Plan, to prescribe the form and conditions of the respective stock option
agreements (which may vary from Optionee to Optionee) evidencing each option and
to make all other determinations necessary or advisable for the administration
of the Plan. The Administrator's interpretation of the Plan, and all actions
taken and determinations made by the Administrator pursuant to the power vested
in it hereunder, shall be conclusive and binding on all parties concerned.
No member of the Board or the Committee shall be liable for any action
taken or determination made in good faith in connection with the administration
of the Plan. In the event the Board appoints a Committee as provided hereunder,
any action of the Committee with respect to the administration of the Plan shall
be taken pursuant to a majority vote of the Committee members or pursuant to the
written resolution of all Committee members.
SECTION 5.
PARTICIPANTS
The Administrator shall from time to time, at its discretion and
without approval of the shareholders, designate those employees, officers,
directors (including Non-Employee Directors), consultants, and advisors of the
Company or of any Subsidiary to whom nonqualified stock options shall be granted
pursuant to Section 10 of this Plan; provided, however, that consultants or
advisors shall not be eligible to receive stock options hereunder unless such
<PAGE>
consultant or advisor renders bona fide services to the Company or Subsidiary
and such services are not in connection with the offer or sale of securities in
a capital raising transaction; and, provided further, that Non-Employee
Directors will be granted options pursuant to Section 11 of this Plan without
any further action by the Administrator. The Administrator shall, from time to
time, at its discretion and without approval of the shareholders, designate
those employees of the Company or any Subsidiary to whom incentive stock options
shall be granted under Section 9 of this Plan. The Administrator may grant
additional incentive stock options or nonqualified stock options under this Plan
to some or all participants then holding options or may grant options solely or
partially to new participants. In designating participants, the Administrator
shall also determine the number of shares to be optioned to each such
participant. The Board may from time to time designate individuals as being
ineligible to participate in the Plan.
SECTION 6.
STOCK
The Stock to be optioned under this Plan shall consist of authorized
but unissued shares of Option Stock. Two Million (2,000,000) shares of Option
Stock shall be reserved and available for options under the Plan; provided,
however, that the total number of shares of Option Stock reserved for options
under this Plan shall be subject to adjustment as provided in Section 13 of the
Plan. In the event that any outstanding option under the Plan for any reason
expires or is terminated prior to the exercise thereof, the shares of Option
Stock allocable to the unexercised portion of such option shall continue to be
reserved for options under the Plan and may be optioned hereunder.
SECTION 7.
DURATION OF PLAN
Incentive stock options may be granted pursuant to the Plan from time
to time during a period of ten (10) years from the effective date as defined in
Section 3. Nonqualified stock options may be granted pursuant to the Plan from
time to time after the effective date of the Plan and until the Plan is
discontinued or terminated by the Board. Any incentive stock option granted
during such ten-year period and any nonqualified stock option granted prior to
the termination of the Plan by the Board shall remain in full force and effect
until the expiration of the option as specified in the written stock option
agreement and shall remain subject to the terms and conditions of this Plan.
SECTION 8.
PAYMENT
Optionees may pay for shares upon exercise of options granted pursuant
to this Plan with cash, personal check, certified check or, if approved by the
Administrator in its sole discretion, Common Stock of the Company valued at such
<PAGE>
Stock's then Fair Market Value, or such other form of payment as may be
authorized by the Administrator. The Administrator may, in its sole discretion,
limit the forms of payment available to the Optionee and may exercise such
discretion any time prior to the termination of the option granted to the
Optionee or upon any exercise of the option by the Optionee.
With respect to payment in the form of Common Stock of the Company, the
Administrator may require advance approval or adopt such rules as it deems
necessary to assure compliance with Rule 16b-3, or any successor provision, as
then in effect, of the General Rules and Regulations under the Securities
Exchange Act of 1934, if applicable.
SECTION 9.
TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS
Each incentive stock option granted pursuant to this Section 9 shall be
evidenced by a written stock option agreement (the "Option Agreement"). The
Option Agreement shall be in such form as may be approved from time to time by
the Administrator and may vary from Optionee to Optionee; provided, however,
that each Optionee and each Option Agreement shall comply with and be subject to
the following terms and conditions:
(a) Number of Shares and Option Price. The Option Agreement shall state
the total number of shares covered by the incentive stock option. To
the extent required to qualify the Option as an incentive stock option
under Section 422 of the Internal Revenue Code, or any successor
provision, the option price per share shall not be less than one
hundred percent (100%) of the Fair Market Value of the Common Stock per
share on the date the Administrator grants the option; provided,
however, that if an Optionee owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of
stock of the Company or of its Parent or any Subsidiary, the option
price per share of an incentive stock option granted to such Optionee
shall not be less than one hundred ten percent (110%) of the Fair
Market Value of the Common Stock per share on the date of the grant of
the option. The Administrator shall have full authority and discretion
in establishing the option price and shall be fully protected in so
doing.
(b) Term and Exercisability of Incentive Stock Option. The term during
which any incentive stock option granted under the Plan may be
exercised shall be established in each case by the Administrator. To
the extent required to qualify the Option as an incentive stock option
under Section 422 of the Internal Revenue Code, or any successor
provision, in no event shall any incentive stock option be exercisable
during a term of more than ten (10) years after the date on which it is
granted; provided, however, that if an Optionee owns stock possessing
more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or of its parent or any Subsidiary, the
incentive stock option granted to such Optionee shall be exercisable
during a term of not more than five (5) years after the date on which
it is granted.
<PAGE>
The Option Agreement shall state when the incentive stock option
becomes exercisable and shall also state the maximum term during which
the option may be exercised. In the event an incentive stock option is
exercisable immediately, the manner of exercise of the option in the
event it is not exercised in full immediately shall be specified in the
Option Agreement. The Administrator may accelerate the exercisability
of any incentive stock option granted hereunder which is not
immediately exercisable as of the date of grant.
(c) Other Provisions. The Option Agreement authorized under this
Section 9 shall contain such other provisions as the Administrator
shall deem advisable. Any such Option Agreement shall contain such
limitations and restrictions upon the exercise of the option as shall
be necessary to ensure that such option will be considered an
"incentive stock option" as defined in Section 422 of the Internal
Revenue Code or to conform to any change therein.
SECTION 10.
TERMS AND CONDITIONS OF NONQUALIFIED STOCK OPTIONS
Each nonqualified stock option granted pursuant to this Section 10
shall be evidenced by a written Option Agreement. The Option Agreement shall be
in such form as may be approved from time to time by the Administrator and may
vary from Optionee to Optionee; provided, however, that each Optionee and each
Option Agreement shall comply with and be subject to the following terms and
conditions:
(a) Number of Shares and Option Price. The Option Agreement shall state
the total number of shares covered by the nonqualified stock option.
Unless otherwise determined by the Administrator, the option price per
share shall be one hundred percent (100%) of the Fair Market Value of
the Common Stock per share on the date the Administrator grants the
option; provided, however, that the option price may not be less than
eighty-five percent (85%) of the Fair Market Value of the Common Stock
per share on the date of grant.
(b) Term and Exercisability of Nonqualified Stock Option. The term
during which any nonqualified stock option granted under the Plan may
be exercised shall be established in each case by the Administrator.
The Option Agreement shall state when the nonqualified stock option
becomes exercisable and shall also state the maximum term during which
the option may be exercised. In the event a nonqualified stock option
is exercisable immediately, the manner of exercise of the option in the
event it is not exercised in full immediately shall be specified in the
stock option agreement. The Administrator may accelerate the
exercisability of any nonqualified stock option granted hereunder which
is not immediately exercisable as of the date of grant.
(c) Withholding. The Company or its Subsidiary shall be entitled to
withhold and deduct from future wages of the Optionee all legally
required amounts necessary to satisfy any and all withholding and
employment-related taxes attributable to the Optionee's exercise of a
<PAGE>
nonqualified stock option. In the event the Optionee is required under
the Option Agreement to pay the Company, or make arrangements
satisfactory to the Company respecting payment of, such withholding and
employment-related taxes, the Administrator may, in its discretion and
pursuant to such rules as it may adopt, permit the Optionee to satisfy
such obligation, in whole or in part, by electing to have the Company
withhold shares of Common Stock otherwise issuable to the Optionee as a
result of the option's exercise equal to the amount required to be
withheld for tax purposes. Any stock elected to be withheld shall be
valued at its Fair Market Value, as of the date the amount of tax to be
withheld is determined under applicable tax law. The Optionee's
election to have shares withheld for this purpose shall be made on or
before the date the option is exercised or, if later, the date that the
amount of tax to be withheld is determined under applicable tax law.
Such election shall be approved by the Administrator and otherwise
comply with such rules as the Administrator may adopt to assure
compliance with Rule 16b-3, or any successor provision, as then in
effect, of the General Rules and Regulations under the Securities
Exchange Act of 1934, if applicable.
(d) Other Provisions. The Option Agreement authorized under this
Section 10 shall contain such other provisions as the Administrator
shall deem advisable.
SECTION 11.
GRANTING OF OPTIONS TO NON-EMPLOYEE DIRECTORS
(a) Upon Joining Board. Each Non-Employee Director of the Company whose
initial election or appointment to the Board of Directors occurs on or
after the date this Plan is approved by the Company's shareholders
shall, as of the date of such election, automatically be granted an
option to purchase 10,000 shares of the Common Stock at an option
price per share equal to 100% of the Fair Market Value of the Common
Stock on such date. Options granted pursuant to this subsection (a)
shall be immediately exercisable to the extent of 3,333 shares subject
to such option and to the extent of an additional 3,333 and 3,334
shares on each of the first and second anniversaries, respectively, of
the date of grant.
(b) Upon Re-election to Board. Each Non-Employee Director who, on and
after the date this Plan is approved by the Company's shareholders, is
re-elected as a director of the Company or whose term of office
continues after a meeting of shareholders at which directors are
elected shall, as of the date of such re-election or shareholder
meeting, automatically be granted an option to purchase 2,500 shares
of the Common Stock at an option price per share equal to 100% of the
Fair Market Value of the Common Stock on the date of such re-election
or shareholder meeting. Options granted pursuant to this subsection (b)
shall be immediately exercisable in full.
(c) General. No director shall receive more than one option pursuant to
subsection (b) of this Section 11 in any one fiscal year. All options
granted pursuant to this Section 11 shall be designated as nonqualified
<PAGE>
options and shall be subject to the same terms and provisions as are
then in effect with respect to granting of nonqualified options to
officers and employees of the Company except that the option shall
expire on the earlier of (i) three months after the Optionee ceases to
be a director (except by death) and (ii) ten (10) years after the date
of grant. Notwithstanding the foregoing, in the event of the death of a
Non-Employee Director, any option granted to such Non-Employee Director
pursuant to this Section 11 may be exercised at any time within six
months of the death of such Non-Employee Director or on the date on
which the option, by its terms expires, whichever is earlier.
SECTION 12.
TRANSFER OF OPTION
No incentive stock option shall be transferable, in whole or in part,
by the Optionee other than by will or by the laws of descent and distribution
and, during the Optionee's lifetime, the option may be exercised only by the
Optionee. If the Optionee shall attempt any transfer of any incentive stock
option granted under the Plan during the Optionee's lifetime, such transfer
shall be void and the incentive stock option, to the extent not fully exercised,
shall terminate.
The Administrator may, in its sole discretion, permit the Optionee to
transfer any or all nonqualified stock options to any member of the Optionee's
"immediate family" as such term is defined in Rule 16a-1(e) promulgated under
the Securities Exchange Act of 1934, or any successor provision, or to one or
more trusts whose beneficiaries are members of such Optionee's "immediate
family" or partnerships in which such family members are the only partners;
provided, however, that the Optionee receives no consideration for the transfer
and such transferred nonqualified stock option shall continue to be subject to
the same terms and conditions as were applicable to such nonqualified stock
option immediately prior to its transfer.
SECTION 13.
RECAPITALIZATION, SALE, MERGER, EXCHANGE
OR LIQUIDATION
In the event of an increase or decrease in the number of shares of
Common Stock resulting from a subdivision or consolidation of shares or the
payment of a stock dividend or any other increase or decrease in the number of
shares of Common Stock effected without receipt of consideration by the Company,
the number of shares of Option Stock reserved under Section 6 hereof and the
number of shares of Option Stock covered by each outstanding option and the
price per share thereof shall be adjusted by the Board to reflect such change.
Additional shares which may be credited pursuant to such adjustment shall be
subject to the same restrictions as are applicable to the shares with respect to
which the adjustment relates.
<PAGE>
Unless otherwise provided in the stock option agreement, in the event
of an acquisition of the Company through the sale of substantially all of the
Company's assets and the consequent discontinuance of its business or through a
merger, consolidation, exchange, reorganization, reclassification, extraordinary
dividend, divestiture or liquidation of the Company (collectively referred to as
a "transaction"), all outstanding options shall become immediately exercisable,
whether or not such options had become exercisable prior to the transaction;
provided, however, that if the acquiring party seeks to have the transaction
accounted for on a "pooling of interests" basis and, in the opinion of the
Company's independent certified public accountants, accelerating the
exercisability of such options would preclude a pooling of interests under
generally accepted accounting principles, the exercisability of such options
shall not accelerate. In addition to the foregoing, in the event of such a
transaction, the Board may provide for one or more of the following:
(a) the complete termination of this Plan and cancellation of
outstanding options not exercised prior to a date specified by the
Board (which date shall give Optionees a reasonable period of time in
which to exercise the options prior to the effectiveness of such
transaction);
(b) that Optionees holding outstanding incentive or nonqualified
options shall receive, with respect to each share of Option Stock
subject to such options, as of the effective date of any such
transaction, cash in an amount equal to the excess of the Fair Market
Value of such Option Stock on the date immediately preceding the
effective date of such transaction over the option price per share of
such options; provided that the Board may, in lieu of such cash
payment, distribute to such Optionees shares of stock of the Company or
shares of stock of any corporation succeeding the Company by reason of
such transaction, such shares having a value equal to the cash payment
herein; or
(c) the continuance of the Plan with respect to the exercise of options
which were outstanding as of the date of adoption by the Board of such
plan for such transaction and provide to Optionees holding such options
the right to exercise their respective options as to an equivalent
number of shares of stock of the corporation succeeding the Company by
reason of such transaction.
The Board may restrict the rights of or the applicability of this Section 13 to
the extent necessary to comply with Section 16(b) of the Securities Exchange Act
of 1934, the Internal Revenue Code or any other applicable law or regulation.
The grant of an option pursuant to the Plan shall not limit in any way the right
or power of the Company to make adjustments, reclassifications, reorganizations
or changes of its capital or business structure or to merge, exchange or
consolidate or to dissolve, liquidate, sell or transfer all or any part of its
business or assets.
<PAGE>
SECTION 14.
SECURITIES LAW COMPLIANCE
No shares of Common Stock shall be issued pursuant to the Plan unless
and until there has been compliance, in the opinion of Company's counsel, with
all applicable legal requirements, including without limitation, those relating
to securities laws and stock exchange listing requirements. As a condition to
the issuance of Option Stock to Optionee, the Administrator may require Optionee
to (i) represent that the shares of Option Stock are being acquired for
investment and not resale and to make such other representations as the
Administrator shall deem necessary or appropriate to qualify the issuance of the
shares as exempt from the Securities Act of 1933 and any other applicable
securities laws, and (ii) represent that Optionee shall not dispose of the
shares of Option Stock in violation of the Securities Act of 1933 or any other
applicable securities laws.
As a further condition to the grant of any incentive or nonqualified
stock option or the issuance of Option Stock to Optionee, Optionee agrees to the
following:
(a) In the event the Company advises Optionee that it plans an
underwritten public offering of its Common Stock in compliance with the
Securities Act of 1933, as amended, and the underwriter(s) seek to
impose restrictions under which certain shareholders may not sell or
contract to sell or grant any option to buy or otherwise dispose of
part or all of their stock purchase rights of the underlying Common
Stock, Optionee will not, for a period not to exceed 180 days from the
prospectus, sell or contract to sell or grant an option to buy or
otherwise dispose of any incentive or nonqualified stock option granted
to Optionee pursuant to the Plan or any of the underlying shares of
Common Stock without the prior written consent of the underwriter(s) or
its representative(s).
(b) In the event the Company makes any public offering of its
securities and determines in its sole discretion that it is necessary
to reduce the number of issued but unexercised stock purchase rights so
as to comply with any states securities or Blue Sky law limitations
with respect thereto, the Board of Directors of the Company shall have
the right (i) to accelerate the exercisability of any incentive or
nonqualified stock option and the date on which such option must be
exercised, provided that the Company gives Optionee prior written
notice of such acceleration, and (ii) to cancel any options or portions
thereof which Optionee does not exercise prior to or contemporaneously
with such public offering.
(c) In the event of a transaction (as defined in Section 13 of the
Plan) which is treated as a "pooling of interests" under generally
accepted accounting principles, Optionee will comply with Rule 145 of
the Securities Act of 1933 and any other restrictions imposed under
other applicable legal or accounting principles if Optionee is an
"affiliate" (as defined in such applicable legal and accounting
principles) at the time of the transaction, and Optionee will execute
any documents necessary to ensure compliance with such rules.
The Company reserves the right to place a legend on any stock
certificate issued upon exercise of an option granted pursuant to the Plan to
assure compliance with this Section 14.
<PAGE>
SECTION 15.
RIGHTS AS A SHAREHOLDER
An Optionee (or the Optionee's successor or successors) shall have no
rights as a shareholder with respect to any shares covered by an option until
the date of the issuance of a stock certificate evidencing such shares. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property), distributions or other rights for which the
record date is prior to the date such stock certificate is actually issued
(except as otherwise provided in Section 13 of the Plan).
SECTION 16.
AMENDMENT OF THE PLAN
The Board may from time to time, insofar as permitted by law, suspend
or discontinue the Plan or revise or amend it in any respect; provided, however,
that no such revision or amendment, except as is authorized in Section 13, shall
impair the terms and conditions of any option which is outstanding on the date
of such revision or amendment to the material detriment of the Optionee without
the consent of the Optionee. Notwithstanding the foregoing, no such revision or
amendment shall (i) materially increase the number of shares subject to the Plan
except as provided in Section 13 hereof, (ii) change the designation of the
class of employees eligible to receive options, (iii) decrease the price at
which options may be granted, or (iv) materially increase the benefits accruing
to Optionees under the Plan without the approval of the shareholders of the
Company if such approval is required for compliance with the requirements of any
applicable law or regulation. Furthermore, the Plan may not, without the
approval of the shareholders, be amended in any manner that will cause incentive
stock options to fail to meet the requirements of Section 422 of the Internal
Revenue Code.
SECTION 17.
NO OBLIGATION TO EXERCISE OPTION
The granting of an option shall impose no obligation upon the Optionee
to exercise such option. Further, the granting of an option hereunder shall not
impose upon the Company or any Subsidiary any obligation to retain the Optionee
in its employ for any period
