<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
MOLECULAR DYNAMICS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
MOLECULAR DYNAMICS, INC.
- --------------------------------------------------------------------------------
(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> 2
MOLECULAR DYNAMICS, INC.
928 EAST ARQUES AVENUE
SUNNYVALE, CALIFORNIA 94086
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 22, 1997
------------------------
TO THE STOCKHOLDERS OF
MOLECULAR DYNAMICS, INC.
The Annual Meeting of Stockholders of Molecular Dynamics, Inc. (the
Company) will be held at the principal executive offices of the Company on
Thursday, May 22, 1997, at 11:30 a.m. (the Annual Meeting) for the following
purposes:
1. To elect the Board of Directors to serve until the next Annual
Meeting and until their successors are elected and qualified;
2. To ratify the appointment of KPMG Peat Marwick LLP as the Company's
independent auditors for the fiscal year ending December 28, 1997;
3. To approve the Company's Restated 1997 Stock Option Plan which
amends and restates the Company's predecessor Restated 1987 Stock Option
Plan to extend the term through April 11, 2007 and to increase the number
of shares of Common Stock reserved for issuance thereunder by 500,000
shares;
4. To approve an amendment to the Company's 1993 Employee Stock
Purchase Plan which will increase the number of shares of Common Stock
issuable thereunder by 500,000 shares;
5. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. Any stockholders of record at the close of
business on March 26, 1997, will be entitled to vote at the Annual Meeting and
at any adjournment thereof. The transfer books will not be closed. A list of
stockholders entitled to vote at the Annual Meeting will be available for
inspection at the offices of the Company. If you do not plan to attend the
Annual Meeting in person, please sign, date and return the enclosed proxy in the
envelope provided. If you attend the Annual Meeting and vote by ballot, your
proxy will be revoked automatically and only your vote at the Annual Meeting
will be counted. The prompt return of your proxy will assist us in preparing for
the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
James M. Schlater
Chairman of the Board of Directors
Jay Flatley
President, Chief Executive Officer,
Chief
Operating Officer, Acting Chief
Financial
Officer and Member of the Board of
Directors
Sunnyvale, California
April 23, 1997
<PAGE> 3
MOLECULAR DYNAMICS, INC.
928 EAST ARQUES AVENUE
SUNNYVALE, CALIFORNIA 94086
------------------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 22, 1997
------------------------
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Molecular Dynamics, Inc., a Delaware corporation (the Company), for use at the
annual meeting of stockholders to be held on May 22, 1997 (the Annual Meeting).
The Annual Meeting will be held at 11:30 a.m. at the Company's principal
executive offices at 928 East Arques Avenue, Sunnyvale, California, 94086.
Stockholders of record on March 26, 1997, will be entitled to notice of and to
vote at the Annual Meeting.
This Proxy Statement and accompanying proxy (the Proxy) were first mailed
to stockholders on or about April 23, 1997.
VOTING
On March 26, 1997, the record date for determination of stockholders
entitled to vote at the Annual Meeting, there were 10,124,914 shares of Common
Stock outstanding. No shares of the Company's preferred stock are outstanding.
Each stockholder is entitled to one vote for each share of Common Stock held by
such stockholder. All votes will be tabulated by the inspector of election
appointed for the meeting, who will separately tabulate affirmative and negative
votes, abstentions and broker non-votes. Abstentions and broker non-votes are
counted for purposes of determining the presence or absence of a quorum for the
transaction of business. Abstentions will be counted towards the tabulations of
votes cast on proposals presented to the stockholders and will have the same
effect as negative votes, whereas broker non-votes will not be counted for
purposes of determining whether a proposal has been approved or not.
REVOCABILITY OF PROXIES
Any person giving a proxy has the power to revoke it at any time before its
exercise. It may be revoked by filing with the Secretary of the Company at the
Company's principal executive office, Molecular Dynamics, Inc., 928 East Arques
Avenue, Sunnyvale, California 94086, a notice of revocation or another signed
proxy with a later date. You may also revoke your Proxy by attending the Annual
Meeting and voting in person.
SOLICITATION
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the Proxy
and any additional soliciting material furnished to stockholders. Copies of
solicitation materials will be furnished to brokerage houses, fiduciaries and
custodians holding shares in their names that are beneficially owned by others
so that they may forward this solicitation material to such beneficial owners.
In addition, the Company may reimburse such persons for their costs of
forwarding the solicitation materials to such beneficial owners. The original
solicitation of proxies by mail may be supplemented by solicitation by
telephone, telegram or other means by directors, officers, employees or agents
of the Company. No compensation will be paid to these individuals for any such
services. Except as described above, the Company does not presently intend to
solicit proxies other than by mail.
SHARE OWNERSHIP
The following table sets forth certain information known to the Company
regarding the ownership of the Company's Common Stock as of March 18, 1997 for
(i) each director and nominee, (ii) all persons who are
<PAGE> 4
beneficial owners of five percent (5%) or more of the Company's Common Stock,
(iii) each of the Company's executive officers named in the Summary Compensation
Table below, and (iv) all current directors and executive officers of the
Company as a group. Such information is based on Company records, filings with
the Securities and Exchange Commission and information provided by stockholders.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
NAME AND ADDRESS SHARES SHARES OUTSTANDING(1)
- -------------------------------------------------------------- --------- ---------------------
<S> <C> <C>
Amersham Holdings, Inc........................................ 1,002,000 9.90%
2636 S. Clearbrook Drive
Arlington Heights, IL 60005
Deerfield Capital, L.P.(2).................................... 735,000 7.26%
450 Lexington Avenue, Suite 1930
New York, New York 10017
State of Wisconsin Investment Board........................... 604,500 5.97%
P.O. Box 7842
Madison, WI 53707
James M. Schlater(3).......................................... 400,538 3.85%
Jay Flatley(4)................................................ 194,694 1.89%
C. Woodrow Rea, Jr.(5)........................................ 29,298 *
Robert H. Keeley(6)........................................... 12,500 *
Janice M. LeCocq(7)........................................... 7,500 *
Jack Lloyd(8)................................................. 7,500 *
David L. Barker(9)............................................ 68,005 *
Clare L. Bromley, III(10)..................................... 26,750 *
Bruce K. Leisz(11)............................................ 48,624 *
All current directors and executive officers as a group (9
persons)(12)................................................ 795,409 7.41%
</TABLE>
- ---------------
* Less than one percent (1%).
(1) Except as indicated in the other footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them.
(2) Includes 37,990 shares owned by Deerfield Management Company and 10,000
shares owned by Arnold H. Snider. Mr. Snider is the sole shareholder,
president and director of Snider Capital Corp., which serves as the general
partner of Deerfield Capital, L.P. Mr. Snider is also the sole shareholder,
president and director of Snider Management Corporation, which serves as
the general partner of Deerfield Management Company. Deerfield Capital,
L.P. and Deerfield Management Company have voting and investment power over
the shares that they each respectively beneficially own. Mr. Snider has
shared voting and investment power over the shares that are beneficially
owned by Deerfield Capital, L.P. and Deerfield Management Company and sole
voting and investment over the shares personally beneficially owned by him.
(3) Includes options to purchase 273,125 shares granted under the Company's
Restated 1987 Option Plan (the Option Plan) that may be exercised within 60
days after March 18, 1997.
(4) Includes options to purchase 168,096 shares granted under the Option Plan
that may be exercised within 60 days after March 18, 1997. Also includes
13,198 shares held in trust for the benefit of Mr. Flatley's children. Does
not include options to purchase 94,404 shares, the economic benefit and
beneficial ownership of which have been assigned to Mr. Flatley's former
spouse pursuant to a settlement agreement entered into by the parties in
connection with the dissolution of their marriage.
(5) Includes options to purchase 15,750 shares granted pursuant to the
Automatic Option Grant Program in effect under the Option Plan that may be
exercised within 60 days after March 18, 1997.
(6) Includes options to purchase 11,000 shares granted pursuant to the
Automatic Option Grant Program in effect under the Option Plan that may be
exercised within 60 days after March 18, 1997.
2
<PAGE> 5
(7) Represents options to purchase 7,500 shares granted pursuant to the
Automatic Option Grant Program in effect under the Option Plan that may be
exercised within 60 days after March 18, 1997.
(8) Represents options to purchase 7,500 shares granted pursuant to the
Automatic Option Grant Program in effect under the Option Plan that may be
exercised within 60 days after March 18, 1997.
(9) Includes options to purchase 66,125 shares granted under the Option Plan
that may be exercised within 60 days after March 18, 1997.
(10) Includes 5,000 shares held by the Bromley Living Trust, dated January 18,
1993. Also includes options to purchase 18,750 shares granted under the
Option Plan that may be exercised within 60 days after March 18, 1997.
(11) Represents options to purchase 48,624 shares granted under the Option Plan
that may be exercised within 60 days after March 18, 1997.
(12) Includes options to purchase an aggregate of 616,470 shares granted under
the Option Plan that may be exercised within 60 days after March 18, 1997.
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
The persons named below are nominees for director to serve until the next
annual meeting of stockholders and until their successors have been elected and
qualified. The Company's Bylaws provide that the authorized number of directors
shall be determined by resolution of the Board of Directors or by the
stockholders at the annual meeting of stockholders. The authorized number of
directors is currently six (6). The Board of Directors has selected six (6)
nominees, all of whom are currently directors of the Company. Proxies cannot be
voted for a greater number of persons than six (6). Each person nominated for
election has agreed to serve if elected and management has no reason to believe
that any nominee will be unavailable to serve. Unless otherwise instructed, the
proxy holders will vote the proxies received by them for the nominees named
below. The six (6) candidates receiving the highest number of affirmative votes
of the shares entitled to vote at the Annual Meeting will be elected directors
of the Company.
NOMINEES
Set forth below is information regarding the nominees, including
information furnished by them as to principal occupations, certain other
directorships held by them, any arrangements pursuant to which they were
selected as directors or nominees and their ages as of April 23, 1997.
BUSINESS EXPERIENCE OF DIRECTORS
Mr. James M. Schlater, 60, a co-founder of the Company, has served as a
director of the Company since September 1987, and was appointed Chairman of the
Board of Directors in August 1991. From August 1991 to July 1994, he served as
Chief Executive Officer of the Company. From September 1987 to August 1991, he
served as President and Chief Financial Officer. Prior to co-founding the
Company, Mr. Schlater co-founded Applied Biosystems, Inc., a bioanalytical
research instrumentation company, and served as a Senior Vice President
responsible for sales and marketing from October 1981 to January 1987.
Mr. Jay Flatley, 44, a co-founder of the Company, has served as a director
of the Company since March 1992. Mr. Flatley joined the Company as Vice
President of Operations in September 1987 and served in that position until
January 1990, when he was appointed Senior Vice President and Chief Operating
Officer. He was appointed President of the Company in August 1991 and Chief
Executive Officer in July 1994 and has served as Acting Chief Financial Officer
since October 28, 1994. Mr. Flatley holds a B.A. in Economics from Claremont
Men's College and B.S. and M.S. degrees in Industrial Engineering from Stanford
University.
Dr. Robert H. Keeley, 56, has served as director of the Company since May
1994. He has been the El Pomar Professor of Business Finance at the College of
Business and Administration, University of Colorado at Colorado Springs since
September 1992, where he is also associated with the Colorado Institute for
Technology Transfer and Implementation. From 1986 to 1992, he was an Associate
Professor of Industrial
3
<PAGE> 6
Engineering at Stanford University. Prior to 1986, he was a General Partner of
Hill, Keeley and Kirby, a venture capital firm and a Vice-President of
Electro-Science Management Corporation. Dr. Keeley is also a director of
Analytical Surveys, Inc., a geographic information system (GIS) data base
company, and Simtek Corp., a developer and marketer of semiconductor memory
products. Dr. Keeley holds a B.S. in Electrical Engineering from Stanford
University, an M.B.A. from Harvard University and a Ph.D. in Business
Administration from Stanford University.
Dr. Janice M. LeCocq, 47, has served as a director of the Company since
April 1995. Dr. LeCocq has served as Chief Executive Officer of Gryphon Sciences
since December 1994. From October 1990 to December 1994, Dr. LeCocq served as
the Executive Vice President -- Finance and Administration and Chief Financial
Officer of ICOS Corporation, a biotechnology company. Dr. LeCocq currently
serves as a director of ICOS Corporation. From 1986 to 1990, Dr. LeCocq held
positions within the corporate finance group at Montgomery Securities, an
investment banking company. Dr. LeCocq holds a Ph.D. in Medical Anthropology and
a B.A. in Human Biology from Stanford University.
Mr. Jack Lloyd, 60, has served as a director of the Company since April
1995. Mr. Lloyd currently serves as Chairman of the Board of Directors of
Aradigm Corporation, a drug delivery company. Mr. Lloyd was a founder of
Nellcor, Incorporated, a medical instrument company, in 1981 and served as its
Chief Executive Officer until August 1990. From 1974 to 1981, he was Chief
Executive Officer of Humphrey Instruments, a manufacturer of diagnostic
equipment for eye care. Mr. Lloyd holds a B.S. in Mechanical Engineering from
the University of California, Berkeley.
Mr. C. Woodrow Rea, Jr., 49, has served as a director of the Company since
September 1987. From 1984 to 1991, Mr. Rea served as a General Partner of the
New Enterprise Associates group of venture capital partnerships. From January
1992 to April 1996, he served as Director, President and Chief Executive Officer
of Spectrian, an electronics communications company. Mr. Rea is currently a
private investor and also currently serves as a director of Cirrus Logic, Inc.,
a semiconductor company. Mr. Rea holds a B.A. in Economics from the University
of Rochester, a J.D. from George Washington University and an M.B.A. from New
York University.
There are no family relationships among executive officers or directors of
the Company.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 29, 1996, the Board of Directors held
six (6) meetings and acted by Unanimous Written Consent on three (3) occasions.
As of December 29, 1996, the Company had three standing Committees: an Audit
Committee, a Compensation Committee and a Stock Option Committee.
The Audit Committee is primarily responsible for approving the services
performed by the Company's independent auditors and reviewing reports of the
Company's external auditors regarding the Company's accounting practices and
systems of internal accounting controls. This Committee currently consists of
Dr. Keeley and Dr. LeCocq. This Committee held two (2) meetings during the last
fiscal year.
The Compensation Committee reviews and approves the Company's general
compensation policies and sets compensation levels for the Company's executive
officers. The Compensation Committee is also responsible for granting options
under the Discretionary Option Grant Program of the Option Plan to officers and
directors of the Company and for administering the Company's Employee Stock
Purchase Plan. This Committee currently consists of Mr. Lloyd and Mr. Rea. This
Committee held three (3) meetings during the last fiscal year.
The Stock Option Committee is responsible for granting options under the
Discretionary Option Grant Program of the Option Plan to eligible individuals
who are not officers or directors of the Company. This Committee currently
consists of Mr. Flatley. This Committee held no meetings and acted by Unanimous
Written Consent on twenty-seven (27) occasions.
No director serving for the full fiscal year attended fewer than 75% of the
aggregate number of meetings of the Board of Directors and meetings of
Committees of the Board on which he or she serves.
4
<PAGE> 7
DIRECTOR COMPENSATION
Board members do not receive cash compensation for their services as
directors. However, certain directors are eligible for reimbursement in
accordance with Company policy for expenses incurred in connection with their
attendance at meetings of the Board of Directors and the committees thereof.
Each non-employee Board member is also eligible to receive periodic option
grants for shares of the Company's Common Stock pursuant to the Automatic Option
Grant Program in effect under the Company's Restated 1987 Stock Option Plan. If
re-elected as non-employee Board members at the Annual Meeting, Dr. Keeley, Dr.
LeCocq, Mr. Lloyd and Mr. Rea will each receive at that time an automatic option
grant for 3,500 shares. Each automatic option grant made at the Annual Meeting
will have an exercise price equal to the fair market value of the option shares
on the grant date. See Proposal No. 3 for further information concerning the
option grants made to non-employee Board members under the Automatic Option
Grant Program.
No other compensation is paid to directors of the Company in respect of
their services as directors.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends a vote FOR the nominees listed herein.
PROPOSAL NO. 2 -- RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors has appointed the firm of KPMG Peat Marwick LLP,
independent accountants, to audit the financial statements of the Company for
the fiscal year ending December 28, 1997 and is asking the stockholders to
ratify this appointment.
In the event the stockholders fail to ratify the appointment, the Board of
Directors will reconsider its selection. Even if the selection is ratified, the
Board of Directors in its discretion may direct the appointment of a different
independent accounting firm at any time during the year if the Board of
Directors feels that such a change would be in the best interest of the Company
and its stockholders. The affirmative vote of the holders of a majority of the
Company's voting shares represented and voting at the Annual Meeting is required
to ratify the selection of KPMG Peat Marwick LLP.
KPMG Peat Marwick LLP has audited the Company's financial statements
annually since inception. A representative of KPMG Peat Marwick LLP is expected
to be present at the Annual Meeting, will have the opportunity to make a
statement if he or she desires to do so, and will be available to respond to
appropriate questions.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR the
ratification of the selection of KPMG Peat Marwick LLP to serve as the Company's
independent auditors for the fiscal year ending December 28, 1997.
PROPOSAL NO. 3 -- APPROVAL AND RATIFICATION OF RESTATED
1997 STOCK OPTION PLAN
The stockholders are being asked to vote on a proposal to approve and
ratify the Company's Restated 1997 Stock Option Plan (the Option Plan) which
amends and restates the Company's predecessor Restated 1987 Stock Option Plan to
extend the term through April 11, 2007 and to increase the number of shares
available for issuance pursuant to the Option Plan by 500,000 shares. As of
March 18, 1997, and giving effect to the proposed 500,000-share increase to the
Option Plan, 1,097,568 shares had been issued upon exercise of options granted
under the Option Plan, options for 2,019,689 were outstanding under the Option
Plan and 887,243 shares remained for future grants under the Option Plan. The
Board of Directors believes it necessary
5
<PAGE> 8
to approve and ratify the Option Plan in order to allow the Company to use
equity incentives to attract and retain the services of key individuals
essential to the Company's long-term success.
The Board of Directors approved an amendment to the Company's predecessor
Restated 1987 Stock Option Plan on February 13, 1997 to increase the number of
shares available for issuance thereunder by 500,000 shares and subsequently
approved the adoption of the Option Plan which amends and restates the Restated
1987 Stock Option Plan to extend the term through April 11, 2007 and to rename
the Restated 1987 Stock Option Plan as the "Restated 1997 Stock Option Plan",
subject to stockholder approval at the Annual Meeting. The affirmative vote of a
majority of the shares of Common Stock represented and voting at the Annual
Meeting is required for approval of the Option Plan.
OPTION PLAN BACKGROUND
The Option Plan was initially adopted by the Board on December 16, 1987 and
was approved by the stockholders on December 14, 1988. It was subsequently
amended by the Board in May 1990 and April 1991 to increase the total number of
shares issuable under the Option Plan by 300,000 shares and 450,000 shares,
respectively, and such amendments were approved by the stockholders in May 1990
and August 1991, respectively. The Option Plan was restated on March 12, 1992 in
order to increase the number of shares issuable under the Option Plan by 500,000
shares, to add an Automatic Option Grant Program for the Company's non-employee
directors and to conform the Option Plan to certain requirements under the
federal securities laws. The restatement was approved by Company's stockholders
on April 21, 1992. On February 17, 1993, the Option Plan was amended to permit
the establishment of a secondary committee to administer the Discretionary
Option Grant Program. On February 18, 1994, the Option Plan was amended by the
Board to (i) increase the number of shares available for issuance pursuant to
the Option Plan by 500,000 shares, (ii) impose a limitation on the maximum
number of shares of Common Stock for which any one participant in the Option
Plan may be granted stock options and stock appreciation rights over the
remaining term of the Option Plan and (iii) increase the number of option shares
issuable under the Automatic Grant Program to newly elected or re-elected
non-employee Board members and such amendment was approved by the stockholders
on May 26, 1994. In February 1995 and 1996, the Board amended the Option Plan to
increase the total number of shares issuable under the Option Plan by 750,000
and 250,000 shares, respectively, and such amendments were approved by the
stockholders in May 1995 and May 1996.
The terms and provisions of the Option Plan, as most recently amended, are
described more fully below. The description, however, is not intended to be a
complete summary of all the terms of the Option Plan. A copy of the Option Plan
will be furnished by the Company to any stockholder upon written request to the
Secretary of the Company at the corporate offices in Sunnyvale, California.
EQUITY INCENTIVE PROGRAMS
The Option Plan is comprised of two separate equity incentive programs: (i)
the Discretionary Option Grant Program, under which options may be granted to
key employees (including officers) and consultants and independent contractors
of the Company (or its parent or subsidiary companies) and (ii) the Automatic
Option Grant Program, under which non-employee Board members will receive
automatic option grants at specified intervals over their period of Board
service.
Options granted under the Discretionary Grant Program may be either
incentive stock options designed to meet the requirements of Section 422 of the
Internal Revenue Code or non-statutory options not intended to satisfy such
requirements. All grants under the Automatic Option Grant Program will be
non-statutory options.
6
<PAGE> 9
SECURITIES SUBJECT TO THE OPTION PLAN
Assuming stockholder approval of this Proposal No. 3, 4,004,500 shares* of
the Company's Common Stock will be authorized for issuance over the term of the
Option Plan. Such shares will be made available either from the Company's
authorized but unissued Common Stock or from Common Stock reacquired by the
Company.
In no event may any one individual participating in the Option Plan be
granted stock options or separately-exercisable stock appreciation rights for
more than 1,500,000 shares* of Common Stock in the aggregate after December 31,
1993.
Should an option be terminated or canceled for any reason prior to exercise
or surrender in full, the shares subject to the portion of the option not so
exercised or surrendered will be available for subsequent grant. Shares subject
to any option or portion thereof canceled in accordance with the stock
appreciation rights provisions of the Option Plan will not be available for
subsequent grants.
ADMINISTRATION
The Compensation Committee of the Board administers the Discretionary
Option Grant Program with respect to all officers of the Company subject to the
short swing profit restrictions of the federal securities laws. With respect to
all other individuals eligible to participate in the Option Plan, the
Discretionary Option Grant Program is subject to separate administration by the
Stock Option Committee of the Board. The members of the Compensation Committee
and the Stock Option Committee are appointed by, and serve at the pleasure of,
the Board of Directors. However, no Board member is eligible to serve on the
Compensation Committee if such individual has, within the twelve month period
immediately preceding the date he or she is to be appointed thereto, received
any option grant or stock appreciation right under the Option Plan or any other
stock plan of the Company (or any parent or subsidiary corporation), other than
pursuant to the Automatic Option Grant Program.
The Plan Administrator (either the Compensation Committee or the Stock
Option Committee, to the extent the particular entity is carrying out its
administrative functions under the Option Plan with respect to one or more
classes of eligible individuals), has full authority, subject to the provisions
of the Option Plan, to determine the eligible individuals who are to receive
option grants and/or stock appreciation rights under the Option Plan, the type
of option (incentive stock option or non-statutory) or stock appreciation right
(tandem or limited) to be granted, the number of shares to be covered by each
granted option or right, the date or dates on which the option or right is to
become exercisable, and the maximum term for which the option or right is to
remain outstanding.
Option grants under the Automatic Option Grant Program will be made in
strict compliance with the express provisions of that program, and the Plan
Administrator will have no discretionary authority with respect to such option
grants.
ELIGIBILITY
Any employee (including officers, consultants and independent contractors)
of the Company (and its parent or subsidiary corporations) and non-employee
members of the board of directors of any subsidiary of the Company are eligible
to participate in the Discretionary Option Grant Program. Non-employee members
of the Board are only eligible to participate in the Automatic Option Grant
Program.
As of March 18, 1997, approximately 248 employees (including five executive
officers) were eligible to participate in the Discretionary Option Grant
Program, and the four non-employee Board members were eligible to participate in
the Automatic Option Grant Program.
- ---------------
* This number is subject to adjustment in the event of certain changes to the
capitalization of the Company. See "Changes in Capitalization" below.
7
<PAGE> 10
OPTIONS GRANTED
The table below shows, as to each of the executive officers named in the
Summary Compensation Table below and the various indicated groups, the following
information with respect to stock option transactions effected during the period
from January 1, 1996 to March 18, 1997: (i) the number of shares of Common Stock
subject to options granted under the Option Plan during that period and (ii) the
weighted average exercise price payable per share under such options.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF EXERCISE PRICE
NAME AND POSITION OPTION SHARES OF GRANTED OPTIONS
- --------------------------------------------------------------- ------------- ------------------
<S> <C> <C>
Jay Flatley.................................................... 50,000 $ 6.00
President and Chief Executive Officer
David L. Barker................................................ 20,000 $ 6.00
Vice President, Scientific Development
Clare L. Bromley, III.......................................... -- --
Sr. Vice President, Sales and Marketing
Bruce K. Leisz................................................. 20,000 $ 6.00
Vice President, Operations
All current executive officers as a group (5 persons).......... 90,000 $ 6.00
All current directors (other than executive officers) as a
group (4 persons)............................................ 14,000 $ 6.38
All employees, including current officers who are not executive
officers, as a group (243 persons)........................... 394,700 $ 7.74
</TABLE>
NEW PLAN BENEFITS
As of March 18, 1997, no options had been granted on the basis of the
500,000 share increase to the Option Plan that forms the amendment for which
stockholder approval is sought under this Proposal No. 3. However, if re-elected
as non-employee Board members at the Annual Meeting, Dr. Keeley, Dr. LeCocq, Mr.
Lloyd and Mr. Rea will each automatically be granted at that Annual Meeting an
option for 3,500 shares of Common Stock with an exercise price per share equal
to the closing selling price per share of the Company's Common Stock on that
date.
VALUATION
The fair market value per share of Common Stock on any relevant date under
the Option Plan will be the closing selling price per share on such date as
reported on the Nasdaq National Market. On March 18, 1997, the fair market value
per share of the Company's Common Stock was $14.38 per share, based on the
closing selling price per share on such date on the Nasdaq National Market.
DISCRETIONARY OPTION GRANT PROGRAM
The principal features of the Discretionary Option Grant Program may be
summarized as follows:
Exercise Price and Exercisability
The exercise price per share of an option issued under the Discretionary
Option Grant Program may not be less than 85% of the fair market value of the
Company's Common Stock on the grant date. If the granted option is intended to
be an incentive stock option under the Federal tax laws, the exercise price must
not be less than 100% of such fair market value.
The exercise price may be paid in cash or in shares of Common Stock.
Outstanding options may also be exercised through a broker-dealer sale and
remittance procedure pursuant to which a Company-designated brokerage firm is to
effect an immediate sale of the shares purchased under the option and pay over
to the Company, out of the sales proceeds available on the settlement date,
sufficient funds to cover the option price
8
<PAGE> 11
for the purchased shares plus all applicable withholding taxes. The Plan
Administrator may also assist any optionee (including an officer) in the
exercise of outstanding options under the Discretionary Option Grant Program by
authorizing a loan from the Company or permitting the optionee to pay the option
price in installments over a period of years. The terms and conditions of any
such loan or installment payment will be established by the Plan Administrator
in its sole discretion, but in no event may the maximum credit extended to the
optionee exceed the aggregate option price payable for the purchased shares
(less the par value), plus any federal and state income or employment taxes
incurred in connection with the purchase. Any such financing may be subject to
forgiveness in whole or in part, at the discretion of the Plan Administrator.
No option may be outstanding for more than a ten (10)-year term. Options
issued under the Discretionary Option Grant Program may be immediately
exercisable for vested or unvested shares or may become exercisable in
installments over the optionee's period of service as determined by the Plan
Administrator.
No optionee is to have any stockholder rights with respect to the option
shares until such optionee has exercised the option and paid the option price
for the purchased shares. Options are not assignable or transferable other than
by will or the laws of inheritance and, during the optionee's lifetime, the
option may be exercised only by such optionee.
Termination of Service and Repurchase Rights
All options granted under the Discretionary Option Grant Program must be
exercised within twelve (12) months (or such shorter period as the Plan
Administrator may establish at the time of grant) after the optionee ceases
service for any reason other than death. Each such option will generally be
exercisable only to the extent of the number of vested shares for which such
option is exercisable at the time of the optionee's cessation of service.
In the event of the optionee's death, any option outstanding under the
Discretionary Option Grant Program must be exercised, within three (3) years (or
such shorter period as the Plan Administrator may establish at the time of
grant) following the optionee's cessation of service, by the personal
representative of the optionee's estate or by the person inheriting the option.
Each such option will generally be exercisable to the extent of the number of
vested shares for which such option is exercisable on the date of the optionee's
cessation of service (less any option shares subsequently purchased by the
optionee prior to death).
For purposes of the Option Plan, an optionee will be deemed to continue in
service for so long as such individual performs services for the Company (or any
parent or subsidiary corporation), whether as an employee, a non-employee member
of the board of directors or an independent consultant or advisor.
The Plan Administrator has complete discretion to extend the period of time
for which any option is to remain exercisable following the optionee's cessation
of service and/or to accelerate the exercisability of such option in whole or in
part. Such discretion may be exercised at any time while the option remains
outstanding.
Any unvested shares of Common Stock issued under the Discretionary Option
Grant Program will be subject to repurchase by the Company, at the original
exercise price paid per share, upon the optionee's cessation of service prior to
vesting in such shares. The Plan Administrator will have complete discretion in
establishing the vesting schedule for any such unvested shares and will have
full authority to cancel the Company's outstanding repurchase rights in whole or
in part at any time.
Corporate Transaction
Each outstanding option under the Discretionary Option Grant Program will
become immediately exercisable for all of the shares of Common Stock subject to
such option in the event of a Corporate Transaction (as defined below), unless
(i) such option is assumed by the successor corporation (or its parent
corporation) or replaced with a comparable option to purchase shares of stock of
the successor corporation (or its parent corporation) or (ii) the acceleration
of such option is precluded by other limitations imposed by the Plan
Administrator at the time of the option grant. Immediately following the
consummation of the Corporate
9
<PAGE> 12
Transaction, all outstanding options will, to the extent not previously
exercised by the optionees or assumed by the successor corporation (or its
parent company), terminate and cease to be exercisable.
A Corporate Transaction is defined under the Option Plan to include any of
the following stockholder-approved transactions to which the Company is a party:
(i) a merger or consolidation in which the Company is not the surviving entity;
(ii) such option is to be replaced with a cash incentive program of the
successor corporation which preserves the option spread existing at the time of
the Corporate Transaction and provides for subsequent payment in accordance with
the vesting schedule applicable to such option; (iii) the sale, transfer or
other disposition of all or substantially all of the assets of the Company in
liquidation or dissolution of the Company; or (iv) any reverse merger in which
the Company is the surviving entity but in which fifty percent (50%) or more of
the Company's outstanding voting stock is transferred to persons different from
those who held the stock immediately prior to such merger.
Outstanding repurchase rights under the Discretionary Option Grant Program
will also terminate upon the Corporate Transaction unless (i) the repurchase
right is assigned to the successor corporation or (ii) the termination of such
repurchase right is precluded by other limitation imposed by the Plan
Administrator at the time of the option grant.
Change in Control
The Plan Administrator has full power and authority, exercisable either in
advance of any actually-anticipated Change in Control or at the time of an
actual Change in Control, to provide for the acceleration of one or more
outstanding options under the Discretionary Option Grant Program so that each
such option will, immediately prior to the Change in Control, become exercisable
for the total number of shares of Common Stock at the time subject to such
option and may be exercised for any or all of such shares. The Plan
Administrator will also have complete discretion to provide for the immediate
termination of the Company's outstanding repurchase rights in connection with
the Change in Control. Alternatively, the Plan Administrator may condition such
accelerated option vesting and termination of outstanding repurchase rights upon
the optionee's cessation of service within a specified period following the
Change in Control. Any option accelerated in connection with a Change in Control
will remain exercisable until the expiration or earlier termination of the
option term.
A Change in Control will be deemed to occur under the Option Plan upon:
(i) the acquisition of 50% or more of the Company's outstanding voting
stock pursuant to a tender or exchange offer made directly to the Company's
stockholders which the Board does not recommend such stockholders to
accept, or
(ii) a change in the composition of the Board of Directors over a
period of twenty-four (24) months or less such that a majority of the Board
members ceases, by reason of one or more contested elections for Board
membership, to be comprised of individuals who either (a) have been members
of the Board continuously since the beginning of such period or (b) have
been elected or nominated for election as Board members during such period
by at least a majority of the Board members described in clause (a) who
were still in office at the time such election or nomination was approved
by the Board.
The acceleration of options in the event of a Corporate Transaction or a
Change in Control may be seen as anti-takeover provisions and may have the
effect of discouraging a merger proposal, takeover attempt or other effort to
gain control of the Company.
Stock Appreciation Rights
At the discretion of the Plan Administrator, options may be granted under
the Discretionary Option Grant Program with tandem stock appreciation rights
which will allow the holder the right to surrender all or part of the underlying
option for an appreciation distribution from the Company equal in amount to the
excess of (i) the fair market value (on the option surrender date) of the vested
shares of Common Stock at the time subject to the surrendered option over (ii)
the aggregate exercise price payable for such shares. The appreciation
distribution may, at the discretion of the Plan Administrator, be made either in
shares of
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<PAGE> 13
Common Stock valued at fair market value on the option surrender date or in cash
or in a combination of cash and Common Stock.
One or more officers of the Company subject to the short-swing profit
restrictions of the Federal securities laws may, in the Plan Administrator's
discretion, be granted limited stock appreciation rights with respect to their
outstanding options under the Discretionary Grant Program. Any option with such
a limited stock appreciation right in effect for at least six (6) months will
automatically be canceled, to the extent the option is exercisable for vested
shares, upon the successful completion of a hostile tender offer for securities
possessing 50% or more of the combined voting power of the Company's outstanding
securities. In return for the canceled option, the officer will be entitled to a
cash distribution from the Company in an amount per canceled option share equal
to the excess of (i) the highest price per share of Common Stock paid in
effecting such hostile tender offer over (ii) the exercise price payable per
share. The balance of the option (if any) will continue to remain outstanding
and become vested in accordance with the terms of the agreement evidencing the
option.
Cancellation and New Grant of Options
The Plan Administrator has the authority to effect, at any time and from
time to time, the cancellation of any or all options outstanding under the
Discretionary Option Grant Program and to grant in substitution therefor new
options covering the same or different numbers of shares of Common Stock but
with an exercise price per share not less than 85% of the fair market value per
share of the Company's Common Stock on the new grant date (or 100% of fair
market value if the new option is to be an incentive stock option). It is
anticipated that the exercise price in effect under the new grant will in all
instances be less than the exercise price in effect under the canceled option.
AUTOMATIC OPTION GRANT PROGRAM
Under the Automatic Option Grant Program, at such time as an individual
first becomes a non-employee Board member whether through election by the
stockholders or appointment by the Board, such individual will automatically be
granted, at the time of such initial election or appointment, a non-statutory
stock option to purchase 10,000 shares of Common Stock.
In addition, on the date of each Annual Stockholder Meeting, each
individual who is reelected as a nonemployee Board member will receive an
additional nonstatutory option grant to purchase 3,500 shares of Common Stock,
provided such individual has been a member of the Board for at least six (6)
months.
Each option grant under the Automatic Option Grant Program will be subject
to the following terms and conditions:
(i) The exercise price per share of all automatic option grants will
be equal to 100% of the fair market value per share of Common Stock on the
automatic grant date. Each option is to have a maximum term of ten (10)
years measured from the grant date.
(ii) The initial automatic option grant made to each non-employee
Board member will become exercisable for the option shares as follows: the
option will be immediately exercisable for 25% of the option shares on the
automatic grant date and will become exercisable for the remaining 75% in
three (3) equal and successive annual installments over the optionee's
continued period of Board service measured from the grant date. Each annual
automatic option grant made to a re-elected non-employee Board member will
become exercisable for all the option shares upon completion of one (1)
year of Board service measured from the grant date.
(iii) Each automatic option will remain exercisable for a six (6)
month period following the optionee's termination of service as a Board
member for any reason other than death. Should the optionee die while
serving as a Board member or during the six (6) month period following his
or her cessation of Board service, then such option will remain exercisable
for a twelve (12) month period following such optionee's death and may be
exercised by the personal representatives of the optionee's estate or the
11
<PAGE> 14
person to whom the grant is transferred by the optionee's will or the laws
of inheritance. In no event, however, may the option be exercised after the
expiration date of the option term. During the applicable exercise period,
the option may not be exercised for more than the number of shares (if any)
for which it is exercisable at the time of the optionee's cessation of
Board service.
(iv) The option will become immediately exercisable for all of the
shares of Common Stock at the time subject to such option in the event of a
Corporate Transaction (see Corporate Transaction above) or Change in
Control (see Change in Control above).
(v) Upon the successful completion of a hostile tender offer for
securities possessing 50% or more of the combined voting power of the
Company's outstanding securities, each automatic option grant which has
been outstanding for at least six (6) months will automatically be
canceled, and the optionee will in return be entitled to a cash
distribution from the Company in an amount per canceled option share equal
to the highest price per share of Common Stock paid in such hostile tender
offer, less the exercise price payable per share under the canceled option.
(vi) The remaining terms and conditions of the option grants under the
Automatic Option Grant Program will in general conform to the terms
described above for option grants made under the Discretionary Option Grant
Program and will be incorporated into the option agreement evidencing the
automatic grant.
GENERAL PROVISIONS
Excess Grants
The Option Plan permits the grant of options to purchase shares of Common
Stock in excess of the number of shares then available for issuance under the
Option Plan. Any option so granted cannot become exercisable prior to
stockholder approval of an amendment increasing the number of shares available
for issuance under the Option Plan.
Changes in Capitalization
In the event any change is made to Common Stock issuable under the Option
Plan by reason of any stock split, stock dividend, combination of shares,
exchange of shares or other similar change in the corporate structure of the
Company effected without the Company's receipt of consideration, appropriate
adjustments will be made to (i) the maximum number and/or class of shares
available for issuance under the Option Plan, (ii) the maximum number and/or
class of securities for which any one individual may be granted stock options
and separately exercisable stock appreciation rights under the Option Plan after
December 31, 1993, (iii) the number and/or class of shares and price per share
in effect under each outstanding option under the Option Plan, and (iv) the
number and/or class of shares for which automatic option grants are subsequently
to be made under the Automatic Option Grant Program to each newly-elected or
continuing non-employee Board member. The purpose of such adjustments to the
outstanding options is to preclude the enlargement or dilution of rights and
benefits under such options.
Each outstanding option which is assumed or is otherwise to continue in
effect after a Corporate Transaction will be appropriately adjusted to apply and
pertain to the number and class of securities which would have been issued, in
connection with such Corporate Transaction, to the holder of such option had the
option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments will also be made to the exercise price payable per
share and to the number and class of securities subsequently available for
issuance under the Option Plan in the aggregate and per participant.
The grant of stock options or stock appreciation rights under the Option
Plan will not affect the right of the Company to adjust, reclassify, reorganize
or otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
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<PAGE> 15
Amendment and Termination of the Plan
The Company's Board may amend or modify the Option Plan in any or all
respects whatsoever; provided, however, that (i) the rights of existing
optionees may not be altered without their consent and (ii) any amendments to
the Automatic Option Grant Program (or any options outstanding thereunder) may
not occur at intervals more frequently than once every six (6) months, other
than to the extent necessary to comply with applicable Federal tax laws and
regulations. In addition, the Board may not amend the Option Plan without
stockholder approval if such amendment would materially increase the maximum
number of shares issuable under the Option Plan in the aggregate or on a per
participant basis (other than in connection with certain changes in the
Company's capital structure), materially modify the eligibility requirements for
option grants under the Option Plan or otherwise materially increase the
benefits accruing to participants under the Option Plan.
The Board may terminate the Option Plan at any time, but in all events the
Option Plan will terminate upon the earlier of April 11, 2007 or the date all
shares available for issuance under the Option Plan are issued or canceled
pursuant to the exercise or surrender of options granted under the Option Plan.
Any options outstanding at the time of the termination of the Option Plan will
remain in force in accordance with the provisions of the instruments evidencing
such grants.
FEDERAL TAX CONSEQUENCES
Options granted under the Option Plan may be either incentive stock options
which satisfy the requirements of Section 422 of the Internal Revenue Code or
nonstatutory options which are not intended to satisfy such requirements. The
Federal income tax treatment for the two types of options differs as follows:
Incentive Options. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made the
subject of disposition. For Federal tax purposes, dispositions are divided into
two categories: qualifying and disqualifying. The optionee will make a
qualifying disposition of the purchased shares if the sale or disposition is
made more than two (2) years after the grant date of the option and more than
one (1) year after the exercise date. If the optionee fails to satisfy either of
these two holding periods prior to sale or disposition of the purchased shares,
then a disqualifying disposition of the purchased shares will result.
Upon a qualifying disposition, the optionee will recognize long-term
capital gain in an amount equal to the excess of (i) the amount realized upon
the sale or other disposition of the purchased shares over (ii) the exercise
price paid for the shares. If there is a disqualifying disposition of the
shares, then the excess of (i) the fair market value of those shares on the date
of exercise over (ii) the exercise price paid for the shares will be taxable as
ordinary income. Any additional gain recognized upon the disposition will be
capital gain.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the date the option was exercised over (ii) the
exercise price paid for such shares. In no other instance will the Company be
allowed a deduction with respect to the optionee's disposition of shares
purchased pursuant to an incentive option. The Company anticipates that any
compensation deemed paid by the Company upon one or more disqualifying
dispositions of incentive stock option shares will not have to be taken into
account for purposes of the $1 million limitation per covered individual on the
deductibility of the compensation paid to certain executive officers of the
Company.
Nonstatutory Options. No taxable income is recognized by an optionee upon
the grant of a nonstatutory option. The optionee will in general recognize
ordinary income in the year in which the option is exercised equal to the excess
of (i) the fair market value of the purchased shares at the exercise date over
(ii) the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
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<PAGE> 16
Special provisions of the Internal Revenue Code apply to the acquisition of
shares under a nonstatutory option if the purchased shares are subject to
substantial risk of forfeiture. These special provisions may be summarized as
follows:
1. If the shares acquired upon exercise of the nonstatutory option are
subject to a substantial risk of forfeiture, the optionee will not
recognize any taxable income at the time of exercise but will have to
report as ordinary income, as and when the risk of forfeiture lapses, an
amount equal to the difference between the fair market value of the shares
on the date the risk of forfeiture lapses and the exercise price paid for
the shares.
2. The optionee may, however, elect under Section 83(b) of the
Internal Revenue Code to include as ordinary income in the year of exercise
an amount equal to the difference between the fair market value of the
purchased shares on the exercise date (determined as if the shares were not
subject to the risk of forfeiture) and the exercise price paid for the
shares. If the Section 83(b) election is made, the optionee will not
recognize any additional income as and when the risk of forfeiture lapses.
The Company will be entitled to a business expense deduction equal to the
amount of ordinary income recognized by the optionee in connection with the
exercise of the non-statutory option. The deduction will in general be allowed
for the taxable year of the Company in which such ordinary income is recognized
by the optionee. The Company anticipates that the compensation deemed paid by
the Company upon the exercise of non-statutory options will not have to be taken
into account for purposes of the $1 million limitation per covered individual on
the deductibility of the compensation paid to certain executive officers of the
Company.
Stock Appreciation Rights. If an option granted with a tandem stock
appreciation right is surrendered for an appreciation distribution, or if an
option granted with a limited stock appreciation right is canceled for an
appreciation distribution, the recipient will generally realize ordinary income
on the surrender or cancellation date, equal in amount to the appreciation
distribution. The Company will be entitled to a deduction equal to the amount of
such ordinary income.
VOTE REQUIRED
The affirmative vote of a majority of the shares present or represented and
entitled to vote at the Annual Meeting is required for approval of the Option
Plan. If stockholder approval of the Option Plan is not obtained, then any
options granted on the basis of the 500,000-share increase will terminate
without becoming exercisable for any of those shares, and the Option Plan will
terminate at the earlier of (i) December 15, 1997 or (ii) once the balance of
the share reserve as last approved by the stockholders has been issued pursuant
to outstanding option grants under the Option Plan.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors believes that the amendment to the Option Plan is
necessary in order to continue to provide equity incentives to attract and
retain the services of key employees, consultants and non-employee Board
members. For this reason, the Board of Directors recommends that the
stockholders vote FOR this proposal.
PROPOSAL NO. 4 -- APPROVAL OF AMENDMENT TO THE
1993 EMPLOYEE STOCK PURCHASE PLAN
The stockholders are also being asked to vote on a proposal to approve an
increase in the number of shares of Common Stock issuable under the Company's
1993 Employee Stock Purchase Plan (the Purchase Plan) by 500,000 shares in order
to assure that the Purchase Plan will continue to have a sufficient share
reserve to provide employees with an opportunity to acquire an equity interest
in the Company. As of March 18, 1997, and after giving effect to the proposed
500,000-share increase to the Purchase Plan, 573,352 shares had been issued
under the Purchase Plan, and 426,648 shares remained available for future
grants.
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<PAGE> 17
The share increase was approved by the Board on February 13, 1997. The
terms and provisions of the Purchase Plan are described more fully below. This
description, however, is not intended to be a complete summary of the Purchase
Plan. A copy of the actual plan document will be furnished to any stockholder
upon written request to the Secretary of the Company at the corporate offices in
Sunnyvale, California.
SECURITIES SUBJECT TO THE PURCHASE PLAN
The Purchase Plan was initially adopted by the Board in March 1992 and
approved by the stockholders in April 1992. It was subsequently amended by the
Board in February 1994 to increase the maximum number of shares that may be
issued over the term of the Purchase Plan by 300,000 shares, and such amendment
was approved by the stockholders in May 1994. Assuming stockholder approval of
this Proposal No. 4, 1,000,000 shares* of the Company's Common Stock will be
available for issue over the term of the Purchase Plan. Such shares will be made
available either from the Company's authorized but unissued Common Stock or
Common Stock reacquired by the Company.
ADMINISTRATION
The Purchase Plan is administered by a committee (the Committee) comprised
of two or more non-employee Board members appointed by the Board. The Committee
as plan administrator has full authority to adopt administrative rules and
procedures and to interpret the provisions of the Purchase Plan. All costs and
expenses incurred in plan administration will be paid by the Company without
charge to participants.
CHANGES IN CAPITALIZATION
In the event that any change is made to Common Stock issuable under the
Purchase Plan by reason of any stock split, stock dividend, combination of
shares, exchange of shares, or other similar change in the corporate structure
of the Company effected without the Company's receipt of consideration,
appropriate adjustments will be made to (i) maximum number and/or class of
shares available for issuance under the Purchase Plan, (ii) the maximum number
and/or class of shares purchasable per participant under any outstanding
purchase right, and (iii) the number and/or class of shares purchasable and the
price per share payable under all outstanding purchase rights. The purpose of
such adjustments to the outstanding purchase rights is to preclude the
enlargement or dilution of rights and benefits thereunder.
ELIGIBILITY AND PARTICIPATION
Any individual who customarily works more than twenty (20) hours per week
for more than five (5) months per calendar year in the employ of the Company or
any participating parent or subsidiary corporation (including any corporation
which subsequently becomes such at any time during the term of the Purchase
Plan) will become eligible to participate in the Purchase Plan on the first day
of the first purchase period following such individual's commencement of
employment.
As of March 18, 1997, approximately 243 employees (including five executive
officers) were eligible to participate under the Purchase Plan.
PLAN BENEFITS
The table below shows, as to each of the executive officers named in the
Summary Compensation Table below and the various indicated groups, the following
information with respect to Purchase Plan transactions effected during the
period from January 1, 1996 to March 18, 1997: (i) the number of shares of
Common
- ---------------
* This number is subject to adjustment in the event of certain changes to the
capitalization of the Company. See "Changes in Capitalization" below.
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<PAGE> 18
Stock purchased under the Purchase Plan during that period and (ii) the net
value realized (fair market value of the purchased shares on the purchase date
less the purchase price) in connection with such purchases.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND POSITION PURCHASED NET VALUE REALIZED
------------------------------------------------------ ---------------- ------------------
<S> <C> <C>
Jay Flatley........................................... 4,500 $ 14,672
President and Chief Executive Officer
David L. Barker....................................... -- --
Vice President, Scientific Development
Clare L. Bromley, III................................. 3,000 $ 13,153
Sr. Vice President, Sales and Marketing
Bruce K. Leisz........................................ -- --
Vice President, Operations
All current executive officers as a group (5
persons)............................................ 10,632 $ 36,104
All current directors (other than executive officers)
as a group (4 persons).............................. -- --
All employees, including current officers who are not
executive officers, as a group (243 persons)........ 250,097 $864,853
</TABLE>
PURCHASE PERIODS
Under the Purchase Plan, shares will be issued through a series of
successive purchase periods, each generally of six (6) months duration. Such
purchase periods begin on February 16 and August 16 of each calendar year and
end on the last day of the last payroll period prior to February 15 and August
15, respectively.
The participant will be granted a separate purchase right for each purchase
period in which he or she participates. The purchase right will be granted on
the first business day of the purchase period and will be automatically
exercised on the last business day of that purchase period.
PURCHASE PRICE
The purchase price of the Common Stock under the Purchase Plan will be
equal to the lesser of (i) 85% of the fair market value per share of Common
Stock on the date on which the purchase right is granted or (ii) 85% of the fair
market value per share of Common Stock on the date on which the purchase right
is exercised. The fair market value of the Common Stock on any relevant date is
the closing selling price per share on such date as reported on the Nasdaq
National Market. On March 18, 1997, the fair market value per share of Common
Stock was $14.38, based upon the closing selling price on that date on the
Nasdaq National Market.
STOCK PURCHASES
Each participant may, through authorized payroll deductions, contribute to
the Purchase Plan any multiple of 1%, up to a maximum of 15%, of his or her
eligible compensation for the purchase period. Eligible compensation for this
purpose includes the participant's base salary plus salary deferral
contributions to the Company's 401(k) Plan, overtime payments, commissions, and
bonuses.
On the last business day of each purchase period, the payroll deductions of
each participant will be automatically applied to the purchase of whole shares
of Common Stock at the purchase price in effect for such purchase period. Any
amount remaining in the participant's account after such exercise will be held
for the purchase of stock in the next purchase period.
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<PAGE> 19
SPECIAL LIMITATIONS
The Purchase Plan imposes certain limitations upon a participant's rights
to acquire Common Stock, including the following limitations:
1. Purchase rights may not be granted to any individual who owns stock
(including stock purchasable under any outstanding purchase rights)
possessing 5% or more of the total combined voting power or value of all
classes of stock of the Company or any of its affiliates.
2. Purchase rights granted to a participant may not permit such
individual to purchase more than $25,000 of Common Stock (valued at the
time each purchase right is granted) during any one calendar year.
3. The maximum number of shares purchasable by the participant
pursuant to any one outstanding purchase may not exceed 1,500 shares.
TERMINATION OF PURCHASE RIGHTS
The purchase right will terminate upon the participant's election to
withdraw from the Purchase Plan. Any payroll deductions which the participant
may have made with respect to the terminated purchase right will, at the
participant's election, be either refunded or held for the purchase of shares at
the end of the purchase period. A participant's election to withdraw from the
Purchase Plan is irrevocable, and the participant may not rejoin the purchase
period for which the terminated purchase right was granted.
The purchase right will also terminate upon the participant's termination
of employment. Any payroll deductions which the participant may have made during
the purchase period in which such termination occurs will be refunded to the
participant.
In addition, the Company has specifically reserved the right, exercisable
in the sole discretion of the Board, to terminate the Purchase Plan at any time.
If such right is exercised by the Company, then the Purchase Plan will terminate
in its entirety and no further purchase rights will be granted or exercised
thereunder.
STOCKHOLDER RIGHTS
No participant will have any stockholder rights with respect to the shares
covered by his or her purchase rights until the shares are actually purchased on
the participant's behalf. No adjustment will be made for dividends,
distributions or other rights for which the record date is prior to the date of
such purchase.
ASSIGNABILITY
No purchase rights will be assignable or transferable by the participant,
except by will or the laws of inheritance following the participant's death.
Each purchase right will, during the lifetime of the participant, be exercisable
only by the participant.
MERGER OR LIQUIDATION OF THE COMPANY
Should the Company or its stockholders enter into an agreement to dispose
of all or substantially all of the assets or outstanding capital stock of the
Company by means of (i) a sale, merger or other reorganization, (ii) a reverse
merger in which the Company is the surviving corporation but in which all of the
Company's outstanding voting stock is transferred to the acquiring entity or its
wholly owned subsidiary or (iii) a liquidation of the Company, then all
outstanding purchase rights will be exercised immediately prior to the effective
date of such sale, merger, reorganization, or liquidation by applying all
payroll deductions previously collected from participants during the purchase
period in which such transaction occurs to the purchase of whole shares of
Common Stock.
17
<PAGE> 20
AMENDMENT AND TERMINATION
The Board may from time to time alter, amend, suspend or discontinue the
provisions of the Purchase Plan. However, the Board may not, without stockholder
approval, (i) increase the number of shares issuable under the Purchase Plan or
the maximum number of shares which any participant may purchase during a single
purchase period, except in connection with certain changes in the Company's
capital structure, (ii) alter the purchase price formula so as to reduce the
purchase price, (iii) materially increase the benefits accruing to participants,
or (iv) materially modify the requirements for eligibility to participate in the
Purchase Plan.
The Purchase Plan will terminate upon the earlier of (i) the last day of
the purchase period ending in February 2002 or (ii) the date on which all shares
available for issuance thereunder are sold pursuant to exercised purchase
rights.
FEDERAL TAX CONSEQUENCES
The Purchase Plan is intended to be an "employee stock purchase plan"
within the meaning of Section 423 of the Internal Revenue Code. Under a plan
which so qualifies, no taxable income will be reportable by a participant, and
no deductions will be allowable to the Company, by reason of the grant or
exercise of the purchase rights issued thereunder. Taxable income will not be
recognized until there is a sale or other disposition of the shares acquired
under the Purchase Plan or in the event the participant should die while still
owning the purchased shares.
If the participant sells or otherwise disposes of the purchased shares
within two (2) years after commencement of the purchase period during which
those shares were purchased, the participant will recognize ordinary income in
the year of sale or disposition equal to the amount by which the fair market
value of the shares on the purchase date exceeded the purchase price paid for
those shares. If the participant sells or disposes of the purchased shares more
than two (2) years after the commencement of the purchase period in which those
shares were purchased, then the participant will recognize ordinary income in
the year of sale or disposition equal to the lesser of (i) the amount by which
the fair market value of the shares on the sale or disposition date exceeded the
purchase price paid for those shares or (ii) 15% of the fair market value of the
shares on the date of commencement of such purchase period. Any additional gain
upon the disposition will be taxed as a long-term capital gain.
If the participant still owns the purchased shares at the time of death,
the lesser of (i) the amount by which the fair market value of the shares on the
date of death exceeds the purchase price or (ii) 15% of the fair market value of
the shares on the date of commencement of the purchase period during which those
shares were purchased will constitute ordinary income in the year of death.
If the purchased shares are sold or otherwise disposed of within two (2)
years after commencement of the purchase period during which those shares were
purchased, then the Company will be entitled to an income tax deduction in the
year of sale or disposition equal to the amount of ordinary income recognized by
the participant as a result of such sale or disposition. In all other cases, no
deduction will be allowed.
Notwithstanding the foregoing, in the event that the stockholder approval
of the share increase to the Purchase Plan is not obtained, any participant who
purchased shares under the Purchase Plan on the basis of such share increase
will recognize ordinary income measured by the difference between the purchase
price of the shares and the fair market value of the shares on the date of
grant.
VOTE REQUIRED
The affirmative vote of a majority of the shares present or represented and
entitled to vote at the Annual Meeting is required for approval of the amendment
to the Purchase Plan. If stockholder approval of the amendment to the Purchase
Plan is not obtained, then the share increase to the Purchase Plan will not
become effective and the Purchase Plan will terminate once the balance of the
share reserve as last approved by the stockholders has been issued under the
Purchase Plan. In addition, any shares purchased on the basis of such share
increase will have the tax consequences described above.
18
<PAGE> 21
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors believes that the amendment to the Purchase Plan is
necessary in order to continue to provide employees with a meaningful incentive
to remain with the Company and an incentive to contribute to the growth and
long-term success of the Company by offering them an opportunity to acquire an
equity interest in the Company. For this reason, the Board of Directors
recommends that the stockholders vote FOR this proposal.
ADDITIONAL INFORMATION
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file with
the Securities and Exchange Commission (the SEC) initial reports of ownership
and reports of changes in ownership of common stock and other equity securities
of the Company. Officers, directors and greater than ten percent stockholders
are required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms they file.
To the Company's knowledge, based solely upon review of copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 29, 1996, there has
been compliance with all Section 16(a) filing requirements applicable to the
Company's officers, directors and greater than ten percent stockholders, except
James M. Schlater and C. Woodrow Rea, Jr. each filed one (1) late Statement of
Changes in Beneficial Ownership on Form 4.
19
<PAGE> 22
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning the
compensation earned for services rendered in all capacities to the Company and
its subsidiaries for the 1996, 1995 and 1994 fiscal years by the Company's Chief
Executive Officer and each of the three other most highly compensated executive
officers of the Company (determined as of the end of the last fiscal year) whose
total salary and bonus for the last fiscal year exceeded $100,000, for services
in all capacities to the Company and its subsidiaries. Such individuals will be
hereafter referred to as the Named Executive Officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION ------------------
--------------------------- NUMBER OF ALL OTHER
NAME AND FISCAL SECURITIES COMPEN-
PRINCIPAL POSITION YEAR SALARY(1) BONUS(2) UNDERLYING OPTIONS SATION(3)
- --------------------------------------------- ------ ------- -------- ------------------ ---------
<S> <C> <C> <C> <C> <C>
Jay Flatley.................................. 1996 228,000 134,688 50,000 4,248
President, Chief Executive Officer, Chief 1995 227,500 -- 50,000(4) 832
Operating Officer and Acting Chief
Financial 1994 201,635 -- 50,000(5) 731
Officer
David L. Barker.............................. 1996 148,654 38,740 20,000 5,511
Vice President, 1995 139,615 -- -- 1,303
Scientific Development 1994 129,615 -- 35,000 1,183
Clare L. Bromley, III(6)..................... 1996 170,000 44,200 -- 4,487
Sr. Vice President, 1995 19,808 -- 60,000 58
Sales and Marketing 1994 -- -- -- --
Bruce K. Leisz,.............................. 1996 163,732 39,600 20,000 4,308
Vice President, Operations 1995 144,423 -- -- 497
1994 129,808 -- 35,000 430
</TABLE>
- ---------------
(1) Includes amounts deferred under the Company's 401(k) Profit Sharing Plan.
(2) This amount is comprised of bonuses earned during the fiscal year.
(3) This amount is comprised of group term life insurance premiums paid and
amounts contributed by the Company under the 401(k) Profit Sharing Plan, on
behalf of the Named Executive Officers.
(4) Includes options to purchase 255 shares, the economic benefit and beneficial
ownership of which have been assigned to Mr. Flatley's former spouse
pursuant to a settlement agreement entered into by the parties in connection
with the dissolution of their marriage.
(5) Includes options to purchase 11,783 shares, the economic benefit and
beneficial ownership of which have been assigned to Mr. Flatley's former
spouse pursuant to a settlement agreement entered into by the parties in
connection with the dissolution of their marriage.
(6) Mr. Bromley joined the Company in November 1995.
20
<PAGE> 23
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options under the Company's Restated 1987 Stock Option Plan during the 1996
fiscal year to the Named Executive Officers. No SARs were granted to any Named
Executive Officers during 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- --------------------------------------------------------------------------------------- POTENTIAL
NUMBER OF REALIZABLE VALUE
SECURITIES AT ASSUMED ANNUAL
UNDERLYING % OF TOTAL RATES OF STOCK
OPTIONS OPTIONS PRICE
GRANTED IN GRANTED TO APPRECIATION FOR
LAST EMPLOYEES OPTION TERM(3)
FISCAL IN FISCAL EXERCISE EXPIRATION -----------------
NAME YEAR($)(1) YEAR PRICE(2) DATE 5%($) 10%($)
- -------------------------------------- ---------- ---------- -------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Jay Flatley........................... 50,000 12.10 6.00 8/20/06 188,668 478,123
President, Chief Executive Officer,
Chief Operating Officer and Acting
Chief Financial Officer
David L. Barker....................... 20,000 4.84 6.00 8/20/06 75,467 191,249
Vice President, Scientific
Development
Clare L. Bromley, III................. -- -- -- -- -- --
Sr. Vice President, Sales and
Marketing
Bruce K. Leisz........................ 20,000 4.84 6.00 8/20/06 75,467 191,249
Vice President, Operations
</TABLE>
- ---------------
(1) Each option will immediately become exercisable for all the option shares in
the event the Company is acquired by merger or asset sale, unless the option
is assumed or replaced by the acquiring entity. The Plan Administrator has
the discretionary authority to provide for the full and immediate
acceleration of the option upon a hostile change in control of the Company
or to condition such acceleration upon a termination of the optionee's
service following such change. Each option has a maximum term of 10 years,
subject to earlier termination upon the optionee's cessation of service.
(2) The exercise price may be paid in cash, in shares of Common Stock valued at
fair market value on the exercise date or through a same-day sale program.
The Plan Administrator may also allow the optionee to pay the exercise price
by delivering an interest bearing promissory note payable in installments.
(3) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission. There is no
assurance provided to any executive officer or any other holder of the
Company's securities that the actual stock price appreciation over the
10-year option term will be at the assumed 5% and 10% levels or at any other
defined level. Unless the market price of the Common Stock appreciates over
the option term, no value will be realized from the option grants made to
the executive officers.
21
<PAGE> 24
STOCK OPTION EXERCISES AND HOLDINGS
The following table sets forth certain information with respect to the
Named Executive Officers concerning the number of options they exercised during
the 1996 fiscal year and the number of shares subject to exercisable and
unexercisable stock options which they held at the end of such fiscal year. None
of the Named Executive Officers exercised any stock appreciation rights during
the 1996 fiscal year, nor did they hold any stock appreciation rights at the end
of that fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END(2)(3)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------- -------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jay Flatley.................. -- -- 221,875(4) 128,125(5) $ 1,889,288 $ 626,563
David L. Barker.............. -- -- 60,500 32,500 327,969 140,156
Clare L. Bromley, III........ -- -- 15,000 45,000 93,750 281,250
Bruce K. Leisz............... -- -- 42,999 32,500 216,692 140,156
</TABLE>
- ---------------
(1) The "value realized" represents the difference between the exercise price of
the option shares and the market price of those shares on the date the
option was exercised. The value realized was determined without considering
any taxes which may have been owed.
(2) "In-the-money" options are options whose exercise price was less than the
market price of the Company's Common Stock on December 29, 1996, the last
day of the 1996 fiscal year.
(3) Based upon the market price of $11.63 per share, which was the closing price
per share of the Company's Common Stock on the Nasdaq National Market on
December 29, 1996, less the exercise price payable per share.
(4) Includes options to purchase 91,311 shares, the economic benefit and
beneficial ownership of which have been assigned to Mr. Flatley's former
spouse pursuant to a settlement agreement entered into by the parties in
connection with the dissolution of their marriage.
(5) Includes options to purchase 7,669 shares, the economic benefit and
beneficial ownership of which have been assigned to Mr. Flatley's former
spouse pursuant to a settlement agreement entered into by the parties in
connection with the dissolution of their marriage.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT ARRANGEMENTS AND CHANGE IN
CONTROL AGREEMENTS
None of the Company's executive officers have employment agreements with
the Company, and their employment may be terminated at any time at the
discretion of the Board of Directors. However, the Compensation Committee of the
Board of Directors has the authority as Plan Administrator of the Restated 1987
Stock Option Plan to provide for the accelerated vesting of the shares of Common
Stock subject to outstanding options held by the Chief Executive Officer and the
Company's other executive officers, in the event their employment were to be
terminated (whether involuntarily or through a forced resignation) following a
hostile take-over of the Company effected through a successful tender offer for
50% or more of the Company's outstanding Common Stock or through a change in the
majority of the Board as a result of one or more contested elections for Board
membership.
In November 1995, the Company entered into an agreement with Clare L.
Bromley, III, Sr. Vice President, Sales and Marketing. The agreement provides
for maximum severance benefits of the equivalent of one year's base salary which
will be adjusted based on length of service as specified in the agreement. The
severance benefits are due upon the involuntary termination by the Company for
reasons other than willful misconduct or gross negligence and upon voluntary
termination following a change in control through merger or acquisition.
Additionally, the agreement provides for a non-qualified stock option for 60,000
shares of the Company's Common Stock which vested immediately upon Mr. Bromley's
employment date with respect to 25% of the shares. Beginning one year from the
employment date, 6.25% of the shares vests each quarter.
22
<PAGE> 25
COMPENSATION COMMITTEE REPORT
It is the duty of the Compensation Committee to set the base salary of the
Company's executive officers and to administer the Company's Restated 1987 Stock
Option Plan under which grants may be made to such officers and other key
employees.
General Compensation Policy
The fundamental policy of the Compensation Committee in compensation
matters is to offer the Company's executive officers competitive compensation
opportunities based upon their personal performance and their contribution to
the financial success of the Company. It is an objective of this policy to have
a portion of each officer's total annual compensation contingent upon the
achievement of such financial and performance goals. Accordingly, each executive
officer's compensation package may, in one or more years, be comprised of the
following three elements: (i) base salary which is designed primarily to be
competitive with base salary levels in effect at high technology companies in
the Silicon Valley that are of comparable size to the Company and with which the
Company competes for executive personnel, (ii) annual variable performance
awards payable in cash and tied to the achievement of performance goals,
financial or otherwise, established by the Compensation Committee, and (iii)
long-term stock-based incentive awards which strengthen the mutuality of
interests between the executive officers and the Company's stockholders.
Factors. Several of the more important factors considered by the
Compensation Committee in establishing the components of each executive
officer's compensation package for the 1996 fiscal year are summarized below.
- BASE SALARY. The base salary for each executive officer is
determined on the basis of internal comparability considerations and the
base salary levels in effect at high technology companies in the Silicon
Valley that are of comparable size to the Company and with which the
Company competes for executive personnel. External salary data is obtained
by reviewing a variety of compensation surveys including the American
Electronics Association Executive Compensation Survey. The base salary
level for executive officers is generally comparable to the level
determined for such individuals on the basis of such external salary data.
The base salary levels for the Company's executive officers for the 1996
fiscal year were in the 79th percentile of the surveyed salaries. Salaries
are reviewed on an annual basis, and adjustments to each executive
officer's base salary are based upon individual performance and salary
increases paid by the Company's competitors.
Several of the companies included in the Hambrecht & Quist index which
has been chosen as the Company's industry index for purposes of the stock
price performance graph were also among the companies included in the
surveys which the Compensation Committee reviewed for comparative
compensation purposes. The Compensation Committee believes that the
companies included in the compensation surveys actually compete with the
Company for executive talent and are more similar to the Company in terms
of annual revenue and profitability, market capitalization and management
style and corporate culture. For this reason, the number of companies
surveyed for compensation data was substantially less than the number of
companies included in the Hambrecht & Quist Index.
- ANNUAL INCENTIVE COMPENSATION. The Company has adopted the Variable
Compensation Plan pursuant to which bonuses are payable to eligible
employees upon achievement of specified performance goals. For fiscal year
1996, bonuses (set as a percentage of base salary) were payable on the
basis of achievement of annual operating income targets and attainment of
certain other corporate objectives. Bonuses were earned by executive
officers for fiscal 1996 since the annual operating income targets were
exceeded.
- LONG-TERM INCENTIVE COMPENSATION. Each executive officer of the
Company is eligible to receive option grants under the Company's Restated
1987 Stock Option Plan. The Compensation Committee has established certain
general guidelines in making option grants to the executive officers to
target a fixed number of unvested option shares based upon each
individual's position and tenure with the
23
<PAGE> 26
Company and his existing holdings of unvested options. Option grants were
made to the Company's executive officers during 1996 based on the foregoing
criteria.
Compensation of the Chief Executive Officer
In setting the compensation payable to Mr. Flatley in his capacity as the
Company's Chief Executive Officer, the Compensation Committee has sought to
establish a competitive rate of base salary. Mr. Flatley's base salary is
established through an evaluation of salaries paid to similarly situated chief
executive officers at high technology companies in the Silicon Valley which are
of comparable size to the Company and with which the Company competes for
executive personnel. As described above, salary information is obtained by the
Compensation Committee by reviewing a variety of compensation surveys. This
component of Mr. Flatley's total compensation is not affected to any significant
degree by Company performance factors. For the 1996 fiscal year, Mr. Flatley's
base salary was left unchanged from the prior year amount. This salary for 1996
was at the 77th percentile of salaries of chief executive officers at the
surveyed companies.
As discussed above, a bonus was awarded to Mr. Flatley for the 1996 fiscal
year. Mr. Flatley was granted an option in 1996; the number of option shares was
based on Mr. Flatley's unvested option and Common Stock holdings at the time of
the option grant.
Compliance with Internal Revenue Code Section 162(m). Section 162(m) of
the Internal Revenue Code, enacted in 1993, generally disallows a tax deduction
to publicly held corporations for compensation exceeding $1 million paid to
certain of the corporation's executive officers. It is not expected that the
cash compensation to be paid to the Company's executive officers for fiscal 1996
will exceed the $1 million limit per officer. In addition, at the 1994 Annual
Meeting, the Company obtained stockholder approval to amend the Company's
Restated 1987 Stock Option Plan to limit the maximum number of shares of Common
Stock for which any one participant may be granted stock options over the
remaining term of that Plan so that any compensation deemed paid to an executive
officer in connection with the exercise of stock options under that Plan with an
exercisable price equal to the fair market value of the option shares on the
grant date will qualify as performance-based compensation which will not be
subject to the $1 million limitation. Until final Treasury Regulations are
issued with respect to the new $1 million limitation, the Compensation Committee
will defer any decision on whether or not to restructure or otherwise limit
other components of compensation payable to such executive officers to the $1
million cap.
Compensation Committee
Jack Lloyd C. Woodrow Rea,
Jr.
24
<PAGE> 27
STOCK PERFORMANCE GRAPH
The following graph shows a comparison of cumulative stockholder returns
for the Company, the Nasdaq Stock Market Index and the Hambrecht & Quist Growth
Index for the period February 5, 1993 through December 29, 1996.
COMPARISON OF CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
MEASUREMENT PERIOD MOLECULAR
(FISCAL YEAR COVERED) DYNAMICS H&Q GROWTH NASDAQ
<S> <C> <C> <C>
2/5/93 100 100 100
JUN-93 186 100 100
DEC-93 107 109 111
JUN-94 59 87 101
DEC-94 61 113 108
JUN-95 63 142 135
DEC-95 57 183 153
JUN-96 60 208 174
DEC-96 98 202 189
</TABLE>
* $100 invested at 2/5/93 with dividend reinvestment.
Notwithstanding anything to the contrary set forth in the Company's
previous filings made under the Securities Act of 1993 or the Securities
Exchange Act of 1934 which might otherwise incorporate future filings made by
the Company under those statutes, including this Proxy Statement, neither the
preceding Compensation Committee Report on Executive Compensation nor the
preceding Stock Performance Graph is to be deemed incorporated by reference into
any such filings; nor is such report or graph to be incorporated by reference
into any future filings made by the Company under those statutes.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's Restated Certificate of Incorporation and Restated Bylaws
provide for indemnification of directors, officers and other agents of the
Company. Each of the current directors and certain officers and agents of the
Company have entered into separate indemnification agreements with the Company.
On April 6, 1994, the Company entered into an alliance with Amersham
International plc. (Amersham), a greater than five percent (5%) stockholder of
the Company, to obtain a second source reagent supply and distribution agreement
and an agreement with respect to the development and distribution of future
products. The collaboration agreement between the Company and Amersham provides
that the Company and Amersham share any net profit or loss resulting from the
sale of products pursuant to the terms of the agreements relating to the
alliance. Pursuant to the terms of such agreements, the Company realized
$164,000
25
<PAGE> 28
in profits from Amersham in 1996. Amersham has acquired approximately one
million shares of the Company's capital stock on the open market as part of this
alliance.
On January 10, 1997, the Company entered into a loan agreement with Jay
Flatley, President and Chief Executive Officer of the Company, providing for a
loan of up to $400,000 for the purchase of a residence by Mr. Flatley. The
Company issued three notes under the loan agreement on January 10, 1997, January
30, 1997 and March 27, 1997, respectively, for an aggregate principal amount of
$350,000. These notes are secured by a second deed of trust on the residence.
The principal and interest accrued to date on the notes are to be repaid in
three equal installments on each of the first, second and third anniversaries of
the date of each of the notes, respectively, provided that the third payment
includes the balance of principal plus all accrued interest as of such date.
Interest accrues on the notes at the rates of 5.63% and 6.42% per annum,
depending on the tranche of the loan. The total outstanding amount under the
loan agreement and the notes as of March 27, 1997 was $350,000, which was also
the maximum aggregate amount owed by Mr. Flatley since the beginning of the last
fiscal year.
STOCKHOLDER PROPOSALS FOR 1998 PROXY STATEMENT
Stockholder proposals that are intended to be presented at the Company's
annual meeting of stockholders to be held in 1998 must be received by the
Company no later than December 26, 1997 in order to be included in the proxy
statement and related proxy materials.
FORM 10-K
THE COMPANY WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF THE
ANNUAL REPORT ON FORM 10-K, AS AMENDED, INCLUDING THE FINANCIAL STATEMENTS,
SCHEDULES AND LIST OF EXHIBITS. REQUESTS SHOULD BE SENT TO INVESTOR RELATIONS,
MOLECULAR DYNAMICS, INC., 928 EAST ARQUES AVENUE, SUNNYVALE, CALIFORNIA 94086.
OTHER BUSINESS
The Board of Directors knows of no other business that will be presented
for consideration at the Annual Meeting. If other matters are properly brought
before the Annual Meeting, however, it is the intention of the persons named in
the accompanying proxy to vote the shares represented thereby on such matters in
accordance with their best judgment.
By Order of the Board of Directors
James M. Schlater Jay Flatley
Chairman of the Board of Directors President, Chief Executive Officer,
Chief
Operating Officer, Acting Chief
Financial Officer and Member
of the Board of Directors
Dated: April 23, 1997
26
<PAGE> 29
MOLECULAR DYNAMICS, INC.
RESTATED 1997 STOCK OPTION PLAN
Restated on April 11, 1997
ARTICLE ONE
GENERAL
I. PURPOSES OF THE PLAN
This Restated 1997 Stock Option Plan (the "Plan") is intended to
promote the interests of Molecular Dynamics, Inc., a Delaware corporation (the
"Corporation"), by providing incentives to eligible individuals to acquire a
proprietary interest, or otherwise increase their proprietary interest, in the
Corporation and remain in the employ or service of the Corporation (or its
parent or subsidiary corporations). The plan amends and restates it predecessor
Restated 1987 Stock Option Plan (the "1987 Plan"). The first restatement of the
1987 Plan was adopted by the Board on March 12, 1992 and approved by the
Corporation's stockholders in April 1992. The Discretionary Option Grant Program
in effect under Article Two became effective on the first date on which the
shares of the Corporation's common stock were registered under Section 12(g) of
the Securities Exchange Act of 1934, as amended (the "1934 Act"). Such date
shall be designated as the Effective Date of the Discretionary Option Grant
Program. The Automatic Option Grant Program in effect under Article Three became
effective immediately upon the execution of the Underwriters Agreement between
the Corporation and the underwriters of the initial public offering of the
Company's common stock. The execution date of such Underwriters Agreement is
hereby designated as the Effective Date of such Automatic Option Grant Program.
The Plan, as amended and restated, was adopted by the Board on April 11, 1997
and approved by the Corporation's stockholders in May 1997 to extend the term
through April 11, 2007. For purposes of Internal Revenue Code Section 422 and
with respect to any options issuable or issued after the date of the Board
approval of the second restatement of the Plan, the second restatement of the
Plan shall be deemed to constitute adoption of a new stock option plan.
For purposes of the Plan, the following provisions shall be applicable
in determining the parent and subsidiary corporations of the Corporation:
(i) Any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation shall be considered
to be a PARENT corporation of the Corporation, provided each such corporation in
the unbroken chain (other than the Corporation) owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
(ii) Each corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation shall be
considered to be a SUBSIDIARY, of the Corporation, provided each such
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
II. ADMINISTRATION OF THE PLAN
A. The Plan shall be comprised of two separate programs: (i) the
Discretionary Option Grant Program under Article Two pursuant to which option
grants may be made to key employees and consultants at the discretion of the
Plan Administrator and (ii) the Automatic Option Grant Program under Article
Three pursuant to which option grants will automatically be
<PAGE> 30
made to non-employee members of the Board of Directors at periodic intervals
upon the express terms and provisions of the Article Three program.
B. The Discretionary Option Grant Program shall be administered
by one or more committees comprised of members of the Corporation's Board of
Directors (the "Board"). The primary committee (the "Primary Committee") shall
be comprised of two or more non-employee Board members and shall have sole and
exclusive authority to grant stock options and stock appreciation rights under
the Discretionary Option Grant Program to officers and employee-directors of the
Company subject to the short-swing profit restrictions of the Federal securities
laws. Stock options may be granted under the Discretionary Option Grant Program
to all other eligible employees and consultants by either the Primary Committee
or a second committee comprised of one or more Board members (the "Secondary
Committee"). No Board member shall be eligible to serve on the Primary Committee
if such individual has, within the relevant period designated below, received an
option grant or stock issuance under this Plan (other than pursuant to the
Automatic Option Grant Program in effect under Article Three) or under any other
stock plan of the Corporation (or any parent or subsidiary corporation):
(i) for each of the initial members of the Primary
Committee, the period commencing with the Effective Date of the Discretionary
Option Grant Program and ending with the date of his or her appointment to the
Primary Committee, or
(ii) for any successor or substitute member, the twelve
(12)-month period immediately preceding the date of his or her appointment to
the Primary Committee or (if shorter) the period commencing with the Effective
Date of the Discretionary Option Grant Program and ending with the date of his
or her appointment to the Primary Committee.
Members of the Primary Committee and the Secondary Committee shall
serve for such period of time as the Board may determine and shall be subject to
removal by the Board at any time.
C. Subject to the limited authority provided the Secondary
Committee to effect option grants in accordance with the provisions of Section
II.B of this Article One, the Primary Committee shall serve as the Plan
Administrator and shall have full power and authority (subject to the express
provisions of the Plan) to establish such rules and regulations as it may deem
appropriate for the proper administration of the Discretionary Option Grant
Program and to make such determinations under, and issue such interpretations
of, such program and any outstanding option thereunder as it may deem necessary
or advisable. Decisions of the Plan Administrator shall be final and binding on
all parties who have an interest in the Discretionary Option Grant Program or
any outstanding option.
D. Service on the Primary or Secondary Committee shall constitute
service as a Board member, and members of either committee shall accordingly be
entitled to full indemnification and reimbursement as Board members for their
service on the committee. No member of either committee shall be liable for any
act or omission made in good faith with respect to the Plan or any option
granted under the Plan.
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E. Administration of the Automatic Option Grant Program shall be
self-executing, and the Plan Administrator shall not exercise any discretionary
functions under such program.
III. ELIGIBILITY FOR OPTION GRANTS
A. The persons eligible to receive option grants under the Plan
shall be limited to the following individuals:
(i) key employees (including officers and directors) of
the Corporation (or its parent or subsidiary corporations) who render services
which contribute to the success and growth of the Corporation (or its parent or
subsidiary corporations) or which may reasonably be anticipated to contribute to
the future success and growth of the Corporation (or its parent or subsidiary
corporations);
(ii) the non-employee members of the board of directors of
any subsidiary corporations; and
(iii) those consultants or independent contractors who
provide valuable services to the Corporation (or its parent or subsidiary
corporations).
From and after the Effective Date of the Automatic Option Grant
Program, the non-employee members of the Board shall not be eligible to receive
grants under the Discretionary Option Grant Program but shall be eligible to
receive automatic option grants pursuant to Article Three of the Plan.
B. The Plan Administrator shall have full authority to determine
which eligible individuals are to receive option grants under the Discretionary
Option Grant Program, the number of shares subject to each such grant, the
status of the granted option as either an incentive stock option ("Incentive
Option") designed to satisfy the requirements of Internal Revenue Code Section
422 or a non-statutory option not intended to meet such requirements, the time
or times at which the option is to become exercisable, and the maximum term for
which the option is to remain outstanding.
IV. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of the
Corporation's authorized but unissued or reacquired Common Stock. The aggregate
number of shares which may be issued over the term of the Plan shall not exceed
4,004,500 shares.1 The total number of shares issuable under the Plan shall be
subject to adjustment from time to time in accordance with the provisions of
this Section IV.
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1 Includes (i) the 500,000 share increase authorized by the Board on February
13, 1997 and approved at the 1997 Annual Stockholders Meeting and (ii) the
250,000 share increase authorized by the Board on February 7, 1996 and approved
at the 1996 Annual Stockholders Meeting and the 500,000 share increase
authorized by the Board on February 13, 1997 to be approved at the 1997 Annual
Stockholders Meeting. All of the references to the number of shares issuable
under the Plan have been adjusted to reflect the 3-for-5 reverse stock split
effected March 12, 1992.
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B. In no event may the maximum number of shares of Common Stock
for which any one individual participating in the Plan may be granted stock
options and separately exercisable stock appreciation rights exceed 1,500,000
shares in the aggregate over the remaining term of the Plan. For purposes of
this limitation, no stock options or stock appreciation rights granted prior to
January 1, 1994 shall be taken into account. Such limitation shall be subject to
periodic adjustment in accordance with the provisions of this Section IV.
C. Should an option expire or terminate for any reason prior to
exercise or surrender in full (including options cancelled in accordance with
the cancellation-regrant provisions of Section IV of Article Two of the Plan),
the shares subject to the portion of the option not so exercised or surrendered
shall be available for subsequent option grants under the Plan. Shares subject
to any option or portion thereof surrendered in accordance with Section V of
Article Two of the Plan and Section III of Article Three of the Plan and all
share issuances under the Plan, whether or not the shares are subsequently
repurchased by the Corporation pursuant to its repurchase rights under the Plan,
shall reduce on a share-for-share basis the number of shares of Common Stock
available for subsequent option grants under the Plan. In addition, should the
exercise price of an outstanding option under the Plan be paid with shares of
Common Stock or should shares of Common Stock otherwise issuable under the Plan
be withheld by the Corporation in satisfaction of the withholding taxes incurred
in connection with the exercise of an outstanding option under the Plan, then
the number of shares of Common Stock available for issuance under the Plan shall
be reduced by the gross number of shares for which the option is exercised, and
not by the net number of shares of Common Stock actually issued to the option
holder.
D. In the event any change is made to the Common Stock issuable
under the Plan by reason of any stock split, stock dividend, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (I) the maximum number and/or class of securities
issuable under the Plan, (II) the maximum number and/or class of securities for
which any one individual participating in the Plan may be granted stock options
and separately exercisable stock appreciation rights after December 31, 1993,
(III) the number and/or class of securities and the price per share in effect
under each outstanding option under the Discretionary Option Grant Program, (IV)
the number and/or class of securities per non-employee Board member for which
automatic option grants are subsequently to be made under the Automatic Option
Grant Program, and (V) the number and/or class of securities and the price per
share in effect under each automatic grant outstanding under the Automatic
Option Grant Program. Such adjustments to the outstanding options are to be
effected in a manner which shall preclude the enlargement or dilution of rights
and benefits under such options. The adjustments determined by the Plan
Administrator shall be final, binding and conclusive.
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ARTICLE TWO
DISCRETIONARY OPTION GRANTS
I. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to this Article Two shall be authorized by
action of the Plan Administrator and may, at the Plan Administrator's
discretion, be either Incentive Options or non-statutory options. Individuals
who are not employees of the Corporation or its parent or subsidiary
corporations may only be granted non-statutory options. Each granted option
shall be evidenced by one or more instruments in the form approved by the Plan
Administrator. Each such instrument, however, shall comply with the terms and
conditions specified below, and each instrument evidencing an Incentive Option
shall, in addition, be subject to the applicable provisions of Section II of
this Article Two.
A. Option Price.
1. The option price per share shall be fixed by the Plan
Administrator. In no event, however, shall the option price per share be less
than eighty-five percent (85%) of the fair market value per share of Common
Stock on the date of the option grant.
2. The option price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section VI of
Article Two and the instrument evidencing the grant, be payable in one of the
alternative forms specified below:
(i) full payment in cash or check payable to the
Corporation; or
(ii) full payment in shares of Common Stock held
by the optionee for the requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes and valued at fair
market value on the Exercise Date (as such term is defined below); or
(iii) full payment in a combination of shares of
Common Stock held by the optionee for the requisite period necessary to avoid a
charge to the Corporation's earnings for financial reporting purposes and valued
at fair market value on the Exercise Date and cash or check drawn to the
Corporation's order; or
(iv) full payment through a broker-dealer sale
and remittance procedure pursuant to which the optionee shall provide
irrevocable written instructions (I) to a Corporation-designated brokerage firm
to effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate option price payable for the purchased
shares plus all applicable Federal and State income and employment taxes
required to be withheld by the Corporation in connection with such purchase and
(II) to the Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale.
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<PAGE> 34
For purposes of this subparagraph 2, the Exercise Date shall be the
date on which written notice of the option exercise is delivered to the
Corporation. Except to the extent the sale and remittance procedure is utilized
in connection with the exercise of the option, payment of the option price for
the purchased shares must accompany such notice.
3. The fair market value per share of Common Stock on
any relevant date under subparagraph 1 or 2 above (and for all other valuation
purposes under the Plan) shall be determined in accordance with the following
provisions:
(i) If the Common Stock is traded on the Nasdaq National
Market, the fair market value shall be the closing selling price per share of
Common Stock on the date in question, as such price is reported by the National
Association of Securities Dealers through the Nasdaq National Market or any
successor system. If there is no closing selling price for the Common Stock on
the date in question, the closing selling price on the last preceding date for
which such quotation exists shall be determinative of fair market value.
(ii) If the Common Stock is at the time listed or admitted
to trading on any stock exchange, then the fair market value shall be the
closing selling price per share of Common Stock on the date in question on the
stock exchange determined by the Plan Administrator to be the primary market for
the Common Stock, as such price is officially quoted on such exchange. If there
is no reported sale of Common Stock on such exchange on the date in question,
then the fair market value shall be the closing selling price on the exchange on
the last preceding date for which such quotation exists.
B. Term and Exercise of Options.
Each option granted under this Article Two shall be exercisable at such
time or times, during such period, and for such number of shares as shall be
determined by the Plan Administrator and set forth in the stock option agreement
evidencing such option. However, no such option shall have a maximum term in
excess of ten (10) years measured from the grant date. During the lifetime of
the optionee, the option, together with any stock appreciation rights pertaining
to such option, shall be exercisable only by the optionee and shall not be
assignable or transferable by the optionee except for a transfer of the option
effected by will or by the laws of descent and distribution following the
optionee's death.
C. Effect of Termination of Service.
1. Should the optionee cease Service for any reason
other than death (including permanent disability as defined in Internal Revenue
Code Section 22(e)(3)) while holding one or more outstanding options under this
Article Two, then such option or options shall not (except to the extent
otherwise provided pursuant to subparagraph 4 below) remain exercisable for more
than a twelve (12) month period (or such shorter period determined by the Plan
Administrator and set forth in the instrument evidencing the grant) following
the date of such cessation of Service. In no event, however, shall any such
option be exercisable after the specified expiration date of the option term.
Each such option shall, during such twelve (12) month or shorter period, be
exercisable only to the extent of the number of vested shares of
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<PAGE> 35
Common Stock (if any) for which the option is exercisable on the date of the
optionee's cessation of Service. Upon the expiration of such twelve (12) month
or shorter period or (if earlier) upon the expiration of the option term, the
option shall terminate and cease to be exercisable. Each such option, however,
shall immediately terminate and cease to be outstanding, at the time of the
optionee's cessation of Service, with respect to any shares of Common Stock for
which such option is not otherwise at that time exercisable or in which the
optionee is not otherwise at that time vested.
2. Any option under the Plan held by the optionee at the
time of death may be subsequently exercised, but only to the extent of the
number of vested shares of Common Stock (if any) for which the option is
exercisable on the date of the optionee's cessation of Service (less any option
shares subsequently purchased by the optionee prior to death), by the personal
representative of the optionee's estate or by the person or persons to whom the
option is transferred pursuant to the optionee's will or in accordance with the
laws of descent and distribution. Any such exercise must, however, be effected
prior to the earlier of (i) the third anniversary of the date of the optionee's
cessation of Service (or such shorter period determined by the Plan
Administrator and specified in the instrument evidencing the grant) or (ii) the
specified expiration date of the option term. Upon the occurrence of the earlier
event, the option shall terminate and cease to be outstanding.
3. The Plan Administrator shall have complete
discretion, exercisable either at the time the option is granted or at any time
while the option remains outstanding, to permit one or more outstanding options
under this Article Two to be exercised, during the limited post-Service exercise
period applicable under subparagraph 1 or 2 above, not only with respect to the
number of vested shares of Common Stock for which each such option is
exercisable at the time of the optionee's cessation of Service but also with
respect to one or more subsequent installments of vested shares for which the
option would otherwise have become exercisable had such cessation of Service not
occurred.
4. The Plan Administrator shall also have full power and
authority to extend the period of time for which the option is to remain
exercisable following the optionee's cessation of Service or death from the
limited period in effect under subparagraph 1 or 2 above to such greater period
of time as the Plan Administrator shall deem appropriate. In no event, however,
shall such option be exercisable after the specified expiration date of the
option term.
5. For purposes of the foregoing provisions of this
Section I of Article Two (and all other provisions of the Plan), unless it is
specifically provided otherwise in the option agreement evidencing the option
grant and/or the purchase agreement evidencing the shares purchased under such
option, the optionee shall be deemed to remain in SERVICE for so long as such
individual renders services on a periodic basis to the Corporation or any parent
or subsidiary corporation in the capacity of an Employee, a non-employee member
of the board of directors or an independent consultant or advisor. The optionee
shall be considered to be an EMPLOYEE for so long as such individual remains in
the employ of the Corporation or one or more of its parent or subsidiary
corporations subject to the control and direction of the employer entity not
only as to the work to be performed but also as to the manner and method of
performance.
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<PAGE> 36
D. Shareholder Rights.
An optionee shall have not have any stockholder rights with respect to
any shares subject to the option until such individual shall have exercised the
option and paid the option price for the purchased shares.
E. Repurchase Rights.
The shares of Common Stock acquired upon the exercise of options
granted under this Article Two may be subject to repurchase by the Corporation
in accordance with the following provisions:
1. The Plan Administrator shall have the discretion to authorize
the issuance of unvested shares of Common Stock under this Article Two. Should
the optionee cease Service while holding such unvested shares, the Corporation
shall have the right to repurchase any or all of those unvested shares at the
option price paid per share. The terms and conditions upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the instrument evidencing such
repurchase right.
2. All of the Corporation's outstanding repurchase rights shall
automatically terminate, and all shares subject to such terminated rights shall
immediately vest in full, upon the occurrence of any Corporate Transaction under
Section III of this Article Two, except to the extent: (i) any such repurchase
right is expressly assigned to the successor corporation (or parent thereof) in
connection with the Corporate Transaction or (ii) such termination is precluded
by other limitations imposed by the Plan Administrator at the time the
repurchase right is issued.
3. The Plan Administrator shall have the discretionary authority,
exercisable either before or after the optionee's cessation of Service, to
cancel the Company's outstanding repurchase rights with respect to one or more
shares purchased or purchasable by the optionee under this Article Two and
thereby accelerate the vesting of such shares in whole or in part at any time.
II. INCENTIVE OPTIONS
The terms and conditions specified below shall be applicable to all
Incentive Options granted under this Article Two. Incentive Options may only be
granted to individuals who are Employees. Options which are specifically
designated as "non-statutory" options when issued under the Plan shall not be
subject to such terms and conditions.
A. Option Price. The option price per share of the Common Stock
subject to an Incentive Option shall in no event be less than one hundred
percent (100%) of the fair market value per share of Common Stock on the grant
date.
B. Dollar Limitation. The aggregate fair market value (determined
as of the respective date or dates of grant) of the Common Stock for which one
or more options granted to any Employee under this Article Two (or under any
other option plan of the Corporation or its
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<PAGE> 37
parent or subsidiary corporations) may for the first time become exercisable as
incentive stock options under the Federal tax laws during any one calendar year
shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two or more such options which become exercisable for
the first time in the same calendar year, the foregoing limitation on the
exercisability thereof as incentive stock options under the Federal tax laws
shall be applied on the basis of the order in which such options are granted.
Should any option under this Article Two become first exercisable in any
calendar year for shares of Common Stock in excess of such One Hundred Thousand
Dollar ($100,000) limitation, then that option may nevertheless be exercised in
that calendar year for the excess number of shares as a non-statutory option
under the Federal tax laws.
C. 10% Stockholder. If any individual to whom an option is to be
granted pursuant to the provisions of the Plan is on the date of grant the owner
of stock (as determined under Section 424(d) of the Internal Revenue Code)
possessing 10% or more of the total combined voting power of all classes of
stock of the Corporation or any one of its parent or subsidiary corporations
(such person to be herein referred to as a 10% Stockholder), then the option
price per share shall not be less than one hundred and ten percent (110%) of the
fair market value per share of Common Stock on the grant date, and the option
term shall not exceed five (5) years measured from the grant date.
Except as modified by the preceding provisions of this Section II, all
the provisions of the Plan shall be applicable to the Incentive Options granted
hereunder.
III. CORPORATE TRANSACTIONS/CHANGES IN CONTROL
A. In the event of any of the following stockholder-approved
transactions to which the Corporation is a party (a "Corporate Transaction"):
(i) a merger or consolidation in which the Corporation is
not the surviving entity, except for a transaction the principal purpose of
which is to change the State of the Corporation's incorporation,
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in liquidation or dissolution
of the Corporation, or
(iii) any reverse merger in which the Corporation is the
surviving entity but in which fifty percent (50%) or more of the Corporation's
outstanding voting stock is transferred to persons different from those who held
the stock immediately prior to such merger,
each option at the time outstanding under this Article Two but
otherwise not fully exercisable shall automatically accelerate so that such
option shall, immediately prior to the specified effective date for such
Corporate Transaction, become fully exercisable for all the shares of Common
Stock at the time subject to such option and may be exercised for all or any
portion of such shares. However, an outstanding option shall not so accelerate
if and to the extent (i) such option is to be assumed by the successor
corporation or parent thereof or replaced with a comparable option to purchase
shares of the capital stock of such successor corporation or
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<PAGE> 38
parent, (ii) such option is to be replaced with a cash incentive program of the
successor corporation which preserves the option spread existing at the time of
the Corporate Transaction and provides for subsequent payout in accordance with
the same vesting schedule applicable to such option, or (iii) such acceleration
is subject to other limitations imposed by the Plan Administrator in the
relevant option agreement. Option comparability under clause (i) shall be
determined by the Plan Administrator, and its determination shall be final,
binding and conclusive.
B. Upon the consummation of the Corporate Transaction, all
outstanding options under this Article Two shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation or its
parent company.
C. Each outstanding option under this Article Two which is
assumed in connection with the Corporate Transaction or is otherwise to continue
in effect shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply and pertain to the number and class of securities which
would have been issued to the option holder, in consummation of such Corporate
Transaction, had such person exercised the option immediately prior to such
Corporate Transaction. Appropriate adjustments shall also be made to the option
price payable per share, provided the aggregate option price payable for such
securities shall remain the same. In addition, the class and number of
securities available for issuance under the Plan on both an aggregate and per
participant basis following the consummation of the Corporate Transaction shall
be appropriately adjusted.
D. The grant of options under this Plan shall in no way affect
the right of the Corporation to adjust, reclassify, reorganize or otherwise
change its capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or assets.
E. The Plan Administrator shall have the discretionary authority,
exercisable either in advance of any actually-anticipated Change in Control or
at the time of an actual Change in Control, to provide for the automatic
acceleration of one or more outstanding options under this Article Two (and the
termination of one or more of the Corporation's outstanding repurchase rights
under this Article Two) upon the occurrence of the Change in Control. The Plan
Administrator shall also have full power and authority to condition any such
option acceleration (and the termination of any outstanding repurchase rights)
upon the subsequent termination of the optionee's Service within a specified
period following the Change in Control.
F. For purposes of this Section III, a Change in Control shall be
deemed to occur in the event:
(i) any person or related group of persons (other than
the Corporation or a person that directly or indirectly controls, is controlled
by, or is under common control with, the Corporation) directly or indirectly
acquires beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act)
of securities possessing fifty percent (50%) or more of the total combined
voting power of the Corporation's outstanding securities pursuant to a tender or
exchange offer made directly to the Corporation's stockholders which the Board
does not recommend such stockholders to accept; or
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<PAGE> 39
(ii) there is a change in the composition of the Board
over a period of twenty-four (24) consecutive months or less such that a
majority of the Board members (rounded up to the next whole number) ceases, by
reason of one or more proxy contests for the election of Board members, to be
comprised of individuals who either (A) have been Board members continuously
since the beginning of such period or (B) have been elected or nominated for
election as Board members during such period by at least a majority of the Board
members described in clause (A) who were still in office at the time such
election or nomination was approved by the Board.
G. Any options accelerated in connection with the Change in
Control shall remain fully exercisable until the expiration or sooner
termination of the option term.
H. The exercisability as incentive stock options under the
Federal tax laws of any options accelerated under this Section III in connection
with a Corporate Transaction or Change in Control shall remain subject to the
dollar limitation of Section II of this Article Two.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected optionees, the
cancellation of any or all outstanding options under this Article Two and to
grant in substitution therefor new options under this Article Two covering the
same or different numbers of shares of Common Stock but having an option price
per share not less than (i) eighty-five percent (85%) of the fair market value
of the Common Stock on the new grant date or (ii) one hundred percent (100%) of
such fair market value in the case of an Incentive Option or (iii) one hundred
and ten percent (110%) of such fair market value in the case of an Incentive
Option granted to a 10% Stockholder.
V. SURRENDER OF OPTIONS
A. Provided and only if the Plan Administrator determines in its
discretion to implement the stock appreciation right provisions of this Section
V, one or more optionees may be granted the right, exercisable upon such terms
and conditions as the Plan Administrator may establish, to surrender all or part
of an unexercised option under this Article Two in exchange for a distribution
from the Corporation equal in amount to the excess of (i) the fair market value
(on the option surrender date) of the shares of Common Stock in which the
optionee is at the time vested under the surrendered option (or surrendered
portion thereof) over (ii) the aggregate option price payable for such vested
shares.
B. No surrender of an option shall be effective hereunder unless
it is approved by the Plan Administrator. If the surrender is so approved, then
the distribution to which the optionee shall accordingly become entitled under
this Section V may be made in shares of Common Stock valued at fair market value
on the option surrender date, in cash, or partly in shares and partly in cash,
as the Plan Administrator shall in its sole discretion deem appropriate.
C. If the surrender of an option is rejected by the Plan
Administrator, then the optionee shall retain whatever rights the optionee had
under the surrendered option (or surrendered portion thereof) on the date of
surrender and may exercise such rights at any time
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<PAGE> 40
prior to the later of (i) five (5) business days after the receipt of the
rejection notice or (ii) the last day on which the option is otherwise
exercisable in accordance with the terms of the instrument evidencing such
option, but in no event may such rights be exercised more than ten (10) years
(or five (5) years in the case of a 10% Stockholder) after the date of the
option grant.
D. One or more officers of the Corporation subject to the
short-swing profit restrictions of the Federal securities laws may, in the Plan
Administrator's sole discretion, be granted limited stock appreciation rights in
tandem with their outstanding options under this Article Two. Upon the
occurrence of a Hostile Take-Over effected at any time when the Corporation's
outstanding Common Stock is registered under Section 12(g) of the 1934 Act, each
outstanding option with such a limited stock appreciation right in effect for at
least six (6) months shall automatically be cancelled, to the extent such option
is at the time exercisable for fully-vested shares of Common Stock. The optionee
shall in return be entitled to a cash distribution from the Corporation in an
amount equal to the excess of (i) the Take-Over Price of the vested shares of
Common Stock at the time subject to the cancelled option (or cancelled portion
of such option) over (ii) the aggregate exercise price payable for such shares.
The cash distribution payable upon such cancellation shall be made within five
(5) days following the consummation of the Hostile Take-Over. Neither the
approval of the Plan Administrator nor the consent of the Board shall be
required in connection with such option cancellation and cash distribution. The
balance of the option (if any) shall continue to remain outstanding and become
exercisable in accordance with the terms of the instrument evidencing such
grant.
E. For purposes of Section V.D, the following definitions shall
be in effect:
A HOSTILE TAKE-OVER shall be deemed to occur in the event (i) any
person or related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common control
with, the Corporation) directly or indirectly acquires beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing
fifty percent (50%) or more of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange offer made
directly to the Corporation's stockholders which the Board does not recommend
such stockholders to accept and (ii) more than fifty percent (50%) of the
securities so acquired in such tender or exchange offer are accepted from
holders other than the officers and directors of the Corporation subject to the
short-swing profit restrictions of Section 16 of the 1934 Act.
THE TAKE-OVER PRICE per share shall be deemed to be equal to the
greater of (a) the fair market value per share of Common Stock on the option
cancellation date, as determined pursuant to the valuation provisions of Section
I.A.3 of this Article Two, or (b) the highest reported price per share of Common
Stock paid by the tender offeror in effecting such Hostile Take-Over. However,
if the cancelled option is an Incentive Option, the Take-Over Price shall not
exceed the clause (a) price per share.
F. The shares of Common Stock subject to any option surrendered
or cancelled for an appreciation distribution pursuant to this Section V shall
NOT be available for subsequent option grant under the Plan.
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<PAGE> 41
VI. LOANS OR INSTALLMENT PAYMENTS
A. The Plan Administrator may assist any optionee in the exercise
of one or more options under this Article Two by (i) authorizing the extension
of a loan to such optionee from the Corporation or (ii) permitting the optionee
to pay the option price for the purchased Common Stock in installments over a
period of years. The terms of any loan or installment method of payment
(including the interest rate and terms of repayment) shall be established by the
Plan Administrator in its sole discretion. Loans and installment payments may be
granted without security or collateral, but the maximum credit available to the
optionee shall not exceed the sum of (i) the aggregate option price payable for
the purchased shares (less the par value thereof) plus (ii) any Federal and
State income and employment tax liability incurred by the optionee in connection
with the exercise of the option.
B. The Plan Administrator may, in its absolute discretion,
determine that one or more loans extended under subsection A above shall be
subject to forgiveness by the Corporation in whole or in part upon such terms
and conditions as the Plan Administrator in its discretion deems appropriate.
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ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
I. ELIGIBILITY
A. Eligible Optionees. The individuals eligible to receive
automatic option grants pursuant to the provisions of this Article Three shall
be limited to the following:
(1) each individual who is serving as a non-employee
member of the Board on the Effective Date of the Automatic Option Grant Program,
and
(2) each individual who is first appointed or elected as
a non-employee Board member at any time after such Effective Date.
B. Limitation. Except for the option grants to be made pursuant
to the provisions of this Article Three, non-employee Board members shall not be
eligible to receive any additional option grants under this Plan or any other
stock plan of the Corporation (or its subsidiary corporations).
II. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
A. Grant Dates. Option grants will be made under this Article
Three on the dates specified below:
(i) Each individual who first becomes a non-employee
Board member at any time on or after the 1994 Annual Stockholders Meeting,
whether through election at an Annual Stockholders Meeting or through
appointment by the Board, shall automatically be granted, at the time of such
initial election or appointment, a non-statutory stock option to purchase 10,000
shares of Common Stock upon the terms and conditions of this Article Three.
(ii) On the date of each Annual Stockholders Meeting,
beginning with the 1994 Annual Meeting, each individual who is at the time
re-elected as a non-employee Board member shall automatically be granted a
nonstatutory option under this Article Three to purchase an additional 3,500
shares of the Common Stock, provided such individual has served as a Board
member for at least six (6) months prior to such automatic grant date.
The 10,000-share limitation and the 3,500-share limitation on the
automatic option grants to be made to each non-employee Board member shall be
subject to periodic adjustment pursuant to the applicable provisions of
paragraph IV.C of Article One. There shall be no limit on the number of
3,500-share option grants any one non-employee Board member may receive under
this Article Three during his or her period of Board service.
B. Exercise Price. The exercise price per share of
Common Stock subject to each automatic option grant made under this Article
Three after the Effective Date shall be equal to one hundred percent (100%) of
the fair market value per share of Common Stock on the
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automatic grant date, as determined in accordance with the valuation provisions
of Section I.A.3 of Article Two.
C. Payment.
The exercise price shall be payable in one of the alternative forms
specified below:
(i) full payment in cash or check made payable
to the Corporation's order; or
(ii) full payment in shares of Common Stock held
for the requisite period necessary to avoid a charge to the Corporation's
reported earnings and valued at fair market value on the Exercise Date (as such
term is defined below); or
(iii) full payment in a combination of shares of
Common Stock held for the requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes and valued at fair
market value on the Exercise Date and cash or check drawn to the Corporation's
order; or
(iv) full payment through a broker-dealer sale
and remittance procedure pursuant to which the optionee shall provide
irrevocable written instructions (A) to a Corporation-designated brokerage firm
to effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate option price payable for the purchased
shares and (B) to the Corporation to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete the sale.
For purposes of this subparagraph, the Exercise Date shall be the date
on which written notice of the option exercise is delivered to the Corporation,
and the fair market value per share of Common Stock on any relevant date shall
be determined in accordance with the provisions of paragraph I.A.3 of Article
Two. Except to the extent the sale and remittance procedure specified above is
utilized for the exercise of the option, payment of the exercise price for the
purchased shares must accompany such notice.
D. Option Term. Each automatic grant under this Article Three
shall have a maximum term of ten (10) years.
E. Exercisability.
1. The initial 10,000-share automatic grants shall each
become exercisable for the option shares in four (4) installments as follows:
(i) The option shall immediately upon grant be
exercisable for twenty-five percent (25%) of the option shares.
(ii) The option shall become exercisable for an
additional twenty-five percent (25%) of the option shares upon the optionee's
completion of twelve (12) months of continuous Board service measured from the
automatic grant date.
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(iii) The option shall become exercisable for an
additional twenty-five percent (25%) of the option shares upon the optionee's
completion of twenty-four (24) months of continuous Board service measured from
the automatic grant date.
(iv) The option shall become exercisable for the
final twenty-five percent (25%) of the option shares upon the optionee's
completion of thirty-six (36) months of continuous Board service measured from
the automatic grant date.
As the option becomes exercisable for one or more installments of the
option shares, the installments shall accumulate, and the option shall remain
exercisable for the accumulated installments until the expiration or sooner
termination of the option term. The option, however, shall not become
exercisable for any additional option shares following the optionee's cessation
of Board service for any reason.
2. Each 3,500-share automatic grant shall become
exercisable upon the optionee's completion of twelve (12) months of continuous
Board service measured from the automatic grant date. The option, however, shall
not become exercisable for any additional option shares following the optionee's
cessation of Board service.
F. Non-Transferability. During the lifetime of the optionee, the
option, together with the limited stock appreciation right pertaining to such
option, shall be exercisable only by the optionee and shall not be assignable or
transferable by the optionee except for a transfer of the option effected by
will or by the laws of descent and distribution following the optionee's death.
G. Effect of Termination of Board Membership.
1. Should the optionee cease to be a Board member for
any reason (other than death) while holding one or more automatic option grants
under this Article Three, then such optionee shall have a six (6)-month period
following the date of such cessation of Board membership in which to exercise
each such option for any or all of the shares of Common Stock for which the
option is exercisable at the time of the optionee's cessation of service as a
Board member.
2. Should the optionee die while serving as a Board
member or during the six (6)-month period following his or her cessation of
Board service, then each automatic option grant held by such optionee at the
time of his or her death may subsequently be exercised, for any or all of the
shares of Common Stock for which the option was exercisable at the time of the
optionee's cessation of Board membership (less any option shares subsequently
purchased by the optionee prior to death), by the personal representative of the
optionee's estate or by the person or persons to whom the option is transferred
pursuant to the optionee's will or in accordance with the laws of descent and
distribution. Any such exercise must, however, occur within twelve (12) months
after the date of the optionee's death.
3. In no event shall any automatic grant under this
Article Three remain exercisable after the specified expiration date of the ten
(10)-year option term. Upon the expiration of the limited post-service exercise
period under subparagraph 1 or 2 above or (if
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earlier) upon the expiration of the ten (10)-year option term, the automatic
grant shall terminate and cease to be outstanding. However, each automatic
option grant held by the optionee at the time of his or her cessation of Board
service shall immediately terminate and cease to be outstanding with respect to
any option shares for which such option is not otherwise at that time
exercisable.
H. Stockholder Rights. The holder of an automatic option grant
under this Article Three shall have no stockholder rights with respect to any
shares subject to such option until such individual shall have exercised the
option and paid the exercise price for the purchased shares.
I. Remaining Terms. The remaining terms and conditions of each
automatic option grant shall be as set forth in the prototype Non-Employee
Director Automatic Grant Agreement attached as Exhibit A to the Plan.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction (as such term is
defined in Section III of Article Two), each automatic option grant at the time
outstanding under this Article Three but not otherwise fully exercisable shall
automatically accelerate so that such option shall, immediately prior to the
specified effective date for the Corporate Transaction, become fully exercisable
for all of the shares of Common Stock at the time subject to such option and may
be exercised for all or any portion of such shares. Upon the consummation of the
Corporate Transaction, all automatic option grants under this Article Three
shall terminate and cease to be outstanding.
B. In the event of any Change in Control (as such term is defined
in Section III of Article Two), each automatic option grant at the time
outstanding under this Article Three but not otherwise fully exercisable shall
automatically accelerate so that such option shall, immediately prior to the
specified effective date for the Change in Control, become fully exercisable for
all of the shares of Common Stock at the time subject to such option and may be
exercised for all or any portion of those shares. Each such automatic grant
accelerated in connection with the Change in Control shall remain fully
exercisable until the expiration or sooner termination of the option term.
C. Upon the occurrence of a Hostile Take-Over (as such term is
defined in Section V of Article Two), each automatic option grant which has been
outstanding under this Article Three for a period of at least six (6) months
shall automatically be cancelled in return for a cash distribution from the
Corporation in an amount equal to the excess of (i) the Take-Over Price of the
shares of Common Stock at the time subject to the cancelled option (whether or
not the option is otherwise at the time exercisable for such shares) over (ii)
the aggregate exercise price payable for such shares. The cash distribution
payable upon such option cancellation shall be made within five (5) days
following the consummation of the Hostile Take-Over. Neither the approval of the
Plan Administrator nor the consent of the Board shall be required in connection
with such option cancellation and cash distribution.
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D. For purposes of this Article Three, the Take-Over Price per
share shall be deemed to be equal to the greater of (i) the fair market value
per share of Common Stock on the option cancellation date, as determined
pursuant to the valuation provisions of paragraph I.A.3 of Article Two, or (ii)
the highest reported price per share of Common Stock paid by the tender offeror
in effecting such Hostile Take-Over.
E. The shares of Common Stock subject to each option cancelled in
connection with the Hostile Take-Over shall NOT be available for subsequent
issuance under this Plan.
F. The automatic option grants outstanding under this Article
Three shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
IV. AMENDMENT OF THE AUTOMATIC GRANT PROVISIONS
The provisions of this Automatic Option Grant Program, including any
automatic option grants outstanding under this Article Three, may not be amended
at intervals more frequently than once every six (6) months, other than to the
extent necessary to comply with applicable Federal income tax laws and
regulations.
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ARTICLE FOUR MISCELLANEOUS
1. AMENDMENT OF THE PLAN
The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects whatsoever. However, (i) no
such amendment or modification shall, without the consent of the holders,
adversely affect rights and obligations with respect to options at the time
outstanding under the Plan and (ii) any amendment to the Automatic Option Grant
Program (or any options outstanding thereunder) shall be made in compliance
with the limitation of Section IV of Article Three. In addition, the Board
shall not, without the approval of the Corporation's stockholders, (i) increase
the maximum number of shares issuable under the Plan or the maximum number of
shares for which any one participant may be granted stock options and
separately exercisable stock appreciation rights after December 31, 1993,
except for permissible adjustments under Section IV of Article One, (ii)
materially modify the eligibility requirements for the grant of options under
the Plan or (iii) otherwise materially increase the benefits accruing to
participants under the Plan.
II. EFFECTIVE DATE AND TERM OF PLAN
A. The 1987 Plan was initially adopted by the Board on December
16, 1987, and approved by the Corporation's stockholders on December 14, 1988.
The 1987 Plan was subsequently amended by the Board in May 1990 and in April
1991 to increase the total number of shares issuable under the 1987 Plan by
300,000 shares and 450,000 shares (adjusted to reflect the 3-for-5 reverse
stock split effected March 12, 1992), respectively, and such amendments were
approved by the stockholders in May 1990 and August 1991, respectively. The
Board restated the 1987 Plan on March 12, 1992 to increase the number of shares
of Common Stock issuable under the 1987 Plan by 500,000 shares with such
increase to become effective upon the Effective Date of the Discretionary
Option Grant Program. The stockholders approved such restatement in April 1992.
Article One, Section II of the 1987 Plan was subsequently amended to permit the
establishment of a secondary committee to administer the 1987 Plan. Such
amendment became effective on the February 17, 1993 date of its approval by the
Board.
B. On February 8, 1994, the Board amended the 1987 Plan to (i)
increase the number of shares available for issuance pursuant to the 1987 Plan
by 500,000 shares, (ii) impose a limitation on the maximum number of shares of
Common Stock for which any one participant in the 1987 Plan may be granted
stock options and separately exercisable stock appreciation rights after
December 31, 1993 and (iii) increase the number of shares of Common Stock for
which option grants are to be made under the Automatic Grant Program to each
newly elected or re-elected non-employee Board member. The amendment was
approved by the stockholders at the 1994 Annual Stockholders Meeting. On
February 8, 1995, the Board approved an amendment to the 1987 Plan to increase
the total number of shares issuable thereunder by 750,000 shares. The amendment
was approved at the 1995 Annual Stockholders Meeting. The amendment was
approved at the 1995 Annual Stockholders Meeting. On February 7, 1996, the
Board approved an amendment to the 1987 Plan to increase the total number of
shares issuable thereunder by 500,000. The amendment was approved at the 1996
Annual Shareholders Meeting. On February 13, 1997 the Board approved an
amendment to the 1987 Plan to increase the total number of shares issuable
thereunder by 500,000 and on April 11, 1997 the Board approved the Plan which
amends and restates the predecessor 1987 Plan to extend the term through April
11, 2007 and to rename the 1987 Plan as the "Restated 1997 Stock Option Plan."
The stockholders approved the Plan, including the 500,000 share increase in the
number of shares of Common Stock reserved for issuance thereunder, at the 1997
Annual Stockholders Meeting.
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<PAGE> 48
C. Except as provided in paragraph D below, the provisions of the
Discretionary Option Grant Program shall apply only to options granted under the
Plan from and after the Effective Date of that program. All options issued and
outstanding under the Plan immediately prior to such Effective Date shall
continue to be governed by the terms and conditions of the Plan (and the
respective instruments evidencing each such option) as in effect on the date
each such option was previously granted, and nothing in this restatement shall
be deemed to affect or otherwise modify the rights or obligations of the holders
of such options with respect to their acquisition of shares of Common Stock
thereunder.
D. The option acceleration provisions of Section III of Article
Two relating to Corporate Transactions and Changes in Control may, in the Plan
Administrator's discretion, be extended to one or more outstanding stock options
under the Plan which were granted prior to the Effective Date of the
Discretionary Option Grant Program and which do not otherwise provide for such
acceleration.
E. The sale and remittance procedure authorized for the exercise
of outstanding options under this Plan shall be available for all options
granted under the Discretionary Option Grant Program on or after the Effective
Date of that program and all non-statutory options outstanding under the Plan on
such Effective Date. The Plan Administrator may also allow such procedure to be
utilized in connection with one or more disqualifying dispositions of Incentive
Option shares effected after the Effective Date, whether such Incentive Options
were granted on or before such Effective Date.
F. Unless sooner terminated in accordance with Section III of
Article Two or Section III of Article Three, the Plan shall terminate upon the
earlier of (i) April 11, 2007, or (ii) the date on which all shares available
for issuance under the Plan shall have been issued or cancelled pursuant to the
exercise, surrender or cash-out of options granted hereunder. If the date of
termination is determined under clause (i) above, then each option outstanding
on such date shall thereafter continue to have force and effect in accordance
with the provisions of the instrument evidencing such option.
G. Options to purchase shares of Common Stock may be granted
under the Plan which are in excess of the number of shares then available for
issuance under the Plan, provided each option granted is not to become
exercisable, in whole or in part, at any time prior to stockholder approval of
an amendment authorizing a sufficient increase in the number of shares available
for issuance under the Plan.
III. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
pursuant to options granted under the Plan shall be used for general corporate
purposes.
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<PAGE> 49
IV. WITHHOLDING
The Corporation's obligation to deliver shares upon the exercise or
surrender of any options granted under Article Two or Article Three shall be
subject to the satisfaction of all applicable federal, state and local income
and employment tax withholding requirements.
V. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option or
surrender right hereunder, and the issuance of stock upon the exercise or
surrender of any such option shall be subject to the procurement by the
Corporation of all approvals and permits required by regulatory authorities
having jurisdiction over the Plan, the options granted under it and the stock
issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan, unless and until, in the opinion of counsel for the
Corporation (or its successor in the event of any Corporate Transaction), there
shall have been compliance with all applicable requirements of the federal and
state securities laws and the applicable regulations of any securities exchange
on which stock of the same class is then listed, and all other requirements of
law or of any regulatory bodies having jurisdiction over such issuance and
delivery.
VI. NO EMPLOYMENT/SERVICE RIGHTS
Neither the action of the Corporation in establishing this Plan, nor
any action taken by the Board or the Plan Administrator hereunder, nor any
provision of this Plan shall be construed so as to grant any individual the
right to remain in the employ or Service of the Corporation (or any parent or
subsidiary corporation) for any period of specific duration, and the Corporation
(or any parent or subsidiary corporation retaining the services of such
individual) may terminate such individual's employment or Sentence at any time
and for any reason, with or without cause.
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EXHIBIT A
NON-EMPLOYEE DIRECTOR AUTOMATIC OPTION GRANT AGREEMENT
<PAGE> 51
MOLECULAR DYNAMICS, INC.
1993 EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE
The Molecular Dynamics 1993 Employee Stock Purchase Plan (the "Plan")
is intended to provide eligible employees of the Company and one or more of its
Corporate Affiliates with the opportunity to acquire a proprietary interest in
the Company through participation in a plan designed to qualify as an employee
stock purchase plan under Section 423 of the Internal Revenue Code (the
"Code").
II. DEFINITIONS
For purposes of administration of the Plan, the following terms shall
have the meanings indicated:
BOARD means the Board of Directors of the Company.
COMPANY means Molecular Dynamics, Inc., a Delaware corporation, and any
corporate successor to all or substantially all of the assets or voting stock
of Molecular Dynamics, Inc. which shall by appropriate action adopt the Plan.
COMPENSATION means the regular base earnings paid to an Eligible
Employee by one or more Participating Companies during such individual's period
of participation in the Plan, plus (i) any salary deferral contributions made
by such individual to the Company's 401(k) Plan during such period and (ii) all
overtime payments, bonuses, commissions, and other incentive-type payments, but
excluding all contributions (other than Code Section 125 or Section 401(k)
contributions) made by the Company or its Corporate Affiliates for such
individual's benefit under any employee benefit or welfare plan now or
hereafter established.
CORPORATE AFFILIATE means any company which is either the parent
corporation or a subsidiary corporation of the Company (as determined in
accordance with Section 424 of the Code), including any parent or subsidiary
corporation which becomes such after the Effective Date.
EFFECTIVE DATE means the first day of the initial purchase period
scheduled to commence upon the later of (i) January 25, 1993 or (ii) the
effective date of the S-8 Registration Statement covering the shares of Stock
issuable under the Plan. However, any Corporate Affiliate which becomes a
Participating Company in the Plan after the Effective Date shall designate a
subsequent Effective Date with respect to its employee-Participants.
ELIGIBLE EMPLOYEE means any person who is regularly engaged, for a
period of more than twenty (20) hours per week and more than five (5) months
per calendar year, in the rendition of personal services to the Company or any
other Participating Company for earnings considered wages under Section 3121
(a) of the Code.
<PAGE> 52
PARTICIPANT means any Eligible Employee of a Participating Company who
is actively participating in the Plan.
PARTICIPATING COMPANY means the Company and such Corporate Affiliate
or Affiliates as may be authorized from time to time by the Board to extend the
benefits of the Plan to their Eligible Employees. The Participating Companies
in the Plan, as of the Effective Date, are listed in attached Schedule A.
PLAN ADMINISTRATOR shall have the meaning given such term in Article
III.
STOCK means shares of the common stock of the Company.
III. ADMINISTRATION
The Plan shall be administered by a committee (the "Plan
Administrator") comprised of two or more non-employee Board members appointed
from time to time by the Board. The Plan Administrator shall have full
authority to administer the Plan, including authority to interpret and construe
any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Section 423 of the Code. Decisions of the Plan Administrator
shall be final and binding on all parties who have an interest in the Plan.
IV. PURCHASE PERIODS
A. Stock shall be offered for purchase under the Plan through a
series of successive purchase periods until such time as (i) the maximum number
of shares of Stock available for issuance under the Plan shall have been issued
pursuant to purchase rights granted under the Plan or (ii) the Plan shall have
been sooner terminated in accordance with Article VII.J.
B. Each purchase period shall have a duration of six (6) months,
except that the initial purchase period shall have a duration of less than six
(6) months and the next subsequent purchase period shall have a duration in
excess of six (6) months. The initial purchase period shall begin upon the
later of (i) January 25, 1993 or (ii) the effective date of the S-8
Registration Statement covering the shares of Stock issuable under the Plan and
shall end on July 31, 1993. The next subsequent purchase period shall begin on
August 1, 1993 and shall end on February 15, 1994. Subsequent purchase periods
shall begin on February 16 or August 16 and shall end on August 15 or February
15 each year, respectively.
C. The Participant shall be granted a separate purchase right for
each purchase period in which he/she participates. The purchase right shall be
granted on the first business day of the purchase period and shall be
automatically exercised on the last business day of the purchase period.
D. Under no circumstances shall any purchase rights granted under
the Plan be exercised, nor shall any shares of Stock be issued hereunder, until
such time as (i) the Plan shall have been approved by the Company's
stockholders and (ii) the Company shall have complied with all applicable
requirements of the Securities Act of 1933 (as amended), all applicable listing
<PAGE> 53
requirements of any securities exchange on which the Stock is listed and all
other applicable requirements established by law or regulation.
E. The acquisition of Stock through participation in the Plan for
any purchase period shall neither limit nor require the acquisition of Stock by
the Participant in any subsequent purchase period.
V. ELIGIBILITY AND PARTICIPATION
A. Each Eligible Employee of a Participating Company may begin
participation in the Plan on the first day of any purchase period following
his/her commencement of service with the Company or any Corporate Affiliate.
B. In order to participate in the Plan, an Eligible Employee must
complete the enrollment forms prescribed by the Plan Administrator (including a
purchase agreement and a payroll deduction authorization) and file such forms
with the Plan Administrator (or its designate) during the specified enrollment
period for the purchase period.
C. The payroll deduction authorized by a Participant for purposes
of acquiring Stock under the Plan may be any whole percentage not in excess of
fifteen percent (15%) of the Compensation paid to the Participant during the
purchase period. The deduction rate so authorized shall continue in effect for
the entire purchase period and for each successive period, unless the
Participant shall change the rate by filing the appropriate form with the Plan
Administrator (or its designate). The new rate shall become effective as soon
as practicable following the filing of such form. A participant may not
increase the deduction rate more than once per purchase period, but may reduce
the deduction rate an unlimited number of times. Payroll deductions, however,
shall automatically cease upon the termination of the Participant's purchase
right in accordance with Section VII.D or E below.
VI. STOCK SUBJECT TO PLAN
A. The Stock purchasable by Participants under the Plan shall,
solely in the Board's discretion, be made available from either authorized but
unissued Stock or from reacquired Stock, including shares of Stock purchased on
the open market. The total number of shares which may be issued under the Plan
shall not exceed 1,000,000 shares (subject to adjustment under subparagraph B
below).
B. In the event any change is made to the Stock purchasable under
the Plan by reason of any stock dividend, stock split, combination of shares,
recapitalization or other change affecting the outstanding Common Stock of the
Company as a class without the Company's receipt of consideration, appropriate
adjustments shall be made by the Plan Administrator to (i) the class and
maximum number of shares issuable over the term of the Plan, (ii) the class and
maximum number of shares purchasable per Participant under any one purchase
right, and (iii) the class and number of shares and the price per share of the
Stock subject to each purchase right at the time outstanding under the Plan.
<PAGE> 54
VII. PURCHASE RIGHTS
Each Eligible Employee who participates in the Plan for a particular
purchase period shall have the right to purchase Stock upon the terms and
conditions set forth below and shall execute a purchase agreement embodying
such terms and conditions and such other provisions (not inconsistent with the
Plan) as the Plan Administrator may deem advisable.
A. PURCHASE PRICE. The purchase price per share shall be the
lesser of (i) eighty-five percent (85%) of the fair market value of a share of
Stock on the date on which the purchase right is granted or (ii) eighty-five
percent (85%) of the fair market value of a share of Stock on the date the
purchase right is exercised. For purposes of determining such fair market
value (and for all other valuation purposes under the Plan), the fair market
value of a share of Stock on the start date of the initial purchase period
shall be the price per share at which the Stock was sold to the Company's
underwriters in connection with the firm commitment initial public offering of
the Stock effected concurrently on such start date and on any subsequent date
shall be the closing selling price per share of Stock on such date, as
officially quoted on the principal exchange on which the Stock is at the time
traded or, if not traded on any exchange, the closing selling price per share
of the Stock on such date, as reported on the NASDAQ National Market System.
If there are no sales of Stock on such day, then the closing selling price for
the Stock on the next preceding day for which such closing selling price is
quoted shall be determinative of fair market value.
B. NUMBER OF PURCHASABLE SHARES. The number of shares
purchasable by a Participant upon the exercise of an outstanding purchase right
shall be the number of whole shares obtained by dividing the amount collected
from the Participant through payroll deductions during the purchase period for
which such purchase right is outstanding, together with any amount carried over
from the preceding purchase period pursuant to the provisions of Section VII.F,
by the purchase price in effect for that purchase period. However, the maximum
number of shares purchasable by any Participant during any one purchase period
shall not exceed 1,500 shares (subject to adjustment under Section VI.B).
Under no circumstances shall purchase rights be granted under the Plan
to any Eligible Employee if such individual would, immediately after the grant,
own (within the meaning of Code Section 424(d)), or hold outstanding options or
other rights to purchase, stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Company or
any Corporate Affiliate.
C. PAYMENT. Payment for Stock purchased under the Plan shall be
effected by means of the Participant's authorized payroll deductions. Such
deductions shall begin with the first pay check received after the commencement
date of the relevant purchase period and shall terminate with the last pay
check received within the purchase period. The amounts so collected shall be
credited to the Participant's individual account under the Plan, but no
interest shall be paid on the balance from time to time outstanding in the
account. The amounts collected from a Participant may be commingled with the
general assets of the Company and may be used for general corporate purposes.
<PAGE> 55
D. TERMINATION OF PURCHASE RIGHTS.
(i) A Participant may, prior to the last business day of
any purchase period, terminate his/her outstanding purchase right under the
Plan by filing the prescribed notification form with the Plan Administrator (or
its designate). No further payroll deductions shall be collected from the
Participant with respect to the terminated purchase right, and the Participant
shall have the following election with respect to any payroll deductions for
the purchase period collected prior to the termination date: (a) have the
Company refund the payroll deductions which the Participant made in that
purchase period with respect to the terminated purchase right or (b) have such
payroll deductions held for the purchase of shares at the end of such purchase
period. If no such election is made, then such payroll deductions shall
automatically be refunded promptly after the close of such purchase period.
(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the purchase
period for which such terminated purchase right was granted. In order to
resume participation in any subsequent purchase period, such individual must
re-enroll in the Plan (by making a timely filing of a new purchase agreement
and payroll deduction authorization).
E. TERMINATION OF EMPLOYMENT/CHANGE OF STATUS. Should a
Participant cease to remain in Service while his/her purchase right remains
outstanding or should there otherwise occur a change in such individual's
employee status so that he/she is no longer an Eligible Employee while holding
such purchase right, then such purchase right shall immediately terminate upon
such termination of Service or change in status and all sums previously
collected from the Participant during the purchase period in which the purchase
right so terminates shall be promptly refunded to the Participant. However,
should the Participant die or become permanently disabled while in Service or
should the Participant cease employment by reason of a leave of absence, then
the Participant (or the person or persons to whom the rights of the deceased
Participant under the Plan are transferred by will or the laws of inheritance)
shall have the election, exercisable up until the end of the purchase period in
which the Participant dies or becomes permanently disabled or in which the
leave of absence commences, to (i) withdraw all the funds credited to the
Participant's account at the time of his/her cessation of Service or at the
commencement of such leave or (ii) have such funds held for the purchase of
shares at the end of such purchase period. If no such election is made, then
such funds shall automatically be held for the purchase of shares at the end of
such purchase period. In no event, however, shall any further payroll
deductions be added to the Participant's account following his/her cessation of
Service or the commencement of such leave. Should the Participant return to
active Service following a leave of absence, then his/her payroll deductions
under the Plan shall automatically resume at the rate in effect at the time the
leave began, provided such return to Service occurs prior to the expiration
date of the purchase period in which such leave began.
For purposes of the Plan: (i) the Participant shall be considered to
remain in Service for so long as such Participant remains in the active employ
of the Company or one or more other Participating Companies and (ii) the
Participant shall be deemed to be permanently disabled if he/she is unable to
engage in any substantial gainful employment, by reason of any medically
<PAGE> 56
determinable physical or mental impairment expected to result in death or to be
of continuous duration of at least twelve (12) months.
F. STOCK PURCHASE. The Stock subject to the purchase right of
each Participant (other than Participants whose payroll deductions have been
refunded in connection with the termination of their purchase rights under
Section VII.D or E above) shall automatically be purchased on the Participant's
behalf on the last day of the purchase period. The purchase shall be effected
by applying the amount credited to each Participant's account on the last date
of the purchase period to the purchase of whole shares of Stock (subject to the
Section VII.B limitation on the maximum number of purchasable shares) at the
purchase price in effect for such purchase period. Any amount remaining in the
Participant's account after application shall be held for the purchase of Stock
in the next purchase period. However, any amount not applied to the purchase
of Stock by reason of the Section VII.B limitation shall be refunded promptly
after the close of the purchase period.
G. PRORATION OF PURCHASE RIGHTS. Should the total number of
shares of Stock which are to be purchased pursuant to outstanding purchase
rights on any particular date exceed the number of shares then available for
issuance under the Plan, the Plan Administrator shall make a pro-rata
allocation of the available shares on a uniform and nondiscriminatory basis,
and any amounts credited to the accounts of Participants shall, to the extent
not applied to the purchase of Stock, be refunded to the Participants.
H. RIGHTS AS STOCKHOLDER. A Participant shall have no rights as
a stockholder with respect to shares covered by his/her outstanding purchase
right under the Plan until the shares are actually purchased on the
Participant's behalf in accordance with Section VII.F. No adjustments shall be
made for dividends, distributions or other rights for which the record date is
prior to the date of such purchase.
A Participant shall be issued, as soon as practicable after the date
of each purchase, a stock certificate for the number of shares purchased on the
Participant's behalf. Such certificate may, upon the Participant's request, be
issued in the names of the Participant and his/her spouse as community property
or as joint tenants with right of survivorship. Title to the stock certificate
may not be subsequently transferred to any other person or entity, including
the Participant's stock broker, except in connection with (i) the actual sale
of the underlying shares or (ii) a transfer of title by will or inheritance
following the Participant's death.
In lieu of delivering a stock certificate to each Participant, the
Plan Administrator may, in its discretion, implement a designated broker
program and direct the Company to issue a single stock certificate to a broker
designated by the Plan Administrator. Such designated broker shall establish
an account for each Participant. If the participant so requests, such
designated broker shall arrange for the issuance to the participant of a stock
certificate for the shares, subject to the restrictions set forth in the
preceding paragraph.
I. ASSIGNABILITY. No purchase right granted under the Plan shall
be assignable or transferable by the Participant other than by will or by the
laws of descent and distribution, and during the Participant's lifetime the
purchase right shall be exercisable only by the Participant.
<PAGE> 57
J. MERGER OR LIQUIDATION OF COMPANY. In the event the Company or
its stockholders enter into an agreement to dispose of all or substantially all
of the assets or outstanding capital stock of the Company by means of:
(I) a sale, merger or other reorganization (other than a
reorganization effected primarily to change the State in which the Company is
incorporated),
(ii) a reverse merger in which the Company is the
surviving corporation but in which all or substantially all of the Company's
outstanding voting stock is transferred to the acquiring entity or its
wholly-owned subsidiary, or
(iii) a liquidation of the Company,
all outstanding purchase rights under the Plan shall automatically be exercised
immediately prior to the effective date of such sale, merger, reorganization,
reverse merger or liquidation by applying all sums previously collected from
Participants during the purchase period in which such transaction occurs to the
purchase of whole shares of Stock, subject, however, to the applicable
limitations of Section VII.B.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire
Stock pursuant to any purchase right outstanding under this Plan if and to the
extent such accrual, when aggregated with (i) rights to purchase Stock accrued
under other purchase rights granted to the Participant under this Plan and (ii)
similar rights accrued by the Participant under other employee stock purchase
plans (within the meaning of Code Section 423) of the Company or its Corporate
Affiliates, would otherwise permit such Participant to purchase more than
$25,000 in value of stock of the Company or any Corporate Affiliate (determined
on the basis of the fair market value of such stock on the date or dates such
rights are granted to the Participant) for each calendar year such rights are
at any time outstanding.
B. For purposes of applying the accrual limitations of Section
VIII.A, the right to acquire Stock pursuant to each purchase right granted
under the Plan shall accrue as follows:
(i) The right to acquire Stock under each such purchase
right shall accrue as and when the purchase right first becomes exercisable on
the last day of the purchase period for which such right is granted.
(ii) No right to acquire Stock under any outstanding
purchase right shall accrue to the extent the Participant has already accrued
in the same calendar year the right to acquire $25,000 in value of Stock
(determined on the basis of the fair market value on the date or dates of
grant) pursuant to one or more other purchase rights granted to the Participant
during such calendar year.
(iii) If by reason of the Section Vlll.A limitations, the
Participant's purchase right does not accrue on the last day of the particular
purchase period for which such right is
<PAGE> 58
granted, then the payroll deductions which the Participant made during that
purchase period with respect to such purchase right shall be promptly refunded.
C. In the event there is any conflict between the provisions of
this Article VIII and one or more provisions of the Plan or any instrument
issued thereunder, the provisions of this Article VIII shall be controlling.
IX. AMENDMENT AND TERMINATION
The Board may from time to time alter, amend, suspend or discontinue
the Plan; provided, however, that no such action shall adversely affect
purchase rights at the time outstanding under the Plan; and provided, further,
that no such action of the Board may, without the approval of the Company's
stockholders, increase the number of shares issuable under the Plan or the
maximum number of shares which any one Participant may purchase under the Plan
during a single purchase period (provided, however, the Plan Administrator
shall have the authority to effect adjustments pursuant to Sections VI.B and
VII.B without stockholder approval), alter the purchase price formula so as to
reduce the purchase price specified in the Plan, otherwise materially increase
the benefits accruing to Participants under the Plan, or materially modify the
requirements for eligibility to participate in the Plan.
X. GENERAL PROVISIONS
A. The Plan shall become effective on the Effective Date,
provided that no purchase rights granted under the Plan shall be exercised, and
no shares of Stock shall be issued hereunder, until (i) the Plan shall have
been approved by the Company's stockholders and (ii) the Company shall have
complied with all applicable requirements of the Securities Act of 1933 (as
amended), all applicable listing requirements of any securities exchange on
which the Stock is listed and all other applicable requirements established by
law or regulation. In the event such stockholder approval is not obtained, or
such Company compliance is not effected, within twelve (12) months after the
date on which the Plan is adopted by the Board, the Plan shall terminate and
have no further force or effect and all sums collected from Participants during
the initial purchase period hereunder shall be refunded.
B. The Plan shall terminate upon the earlier of (i) the last day
of the purchase period ending in February 2002 or (ii) the date on which all
shares available for issuance under the Plan shall have been sold pursuant to
purchase rights exercised under the Plan.
C. All costs and expenses incurred in the administration of the
Plan shall be paid by the Company.
D. Neither the action of the Company in establishing the Plan,
nor any action taken under the Plan by the Board or the Plan Administrator, nor
any provision of the Plan itself shall be construed so as to grant any person
the right to remain in the employ of the Company or any of its Corporate
Affiliates for any period of specific duration, and such person's employment
may be terminated at any time, with or without cause.
<PAGE> 59
E. The provisions of the Plan shall be governed by the laws of
the State of California without resort to that State's conflict of laws rules.
<PAGE> 60
PROXY PROXY
MOLECULAR DYNAMICS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE 1997 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of Molecular Dynamics, Inc., a Delaware
corporation, (the "Company"), hereby acknowledges receipt of the Notice of
Annual Meeting of Stockholders and Proxy Statement, each dated April 23, 1997,
and hereby appoints James M. Schlater and Jay Flatley, or either of them, as
proxies and attorneys-in-fact with full power to each of substitution, on behalf
and in the name of the undersigned, to represent the undersigned at the 1997
Annual Meeting of Stockholders of Molecular Dynamics, Inc. to be held on May 22,
1997, at 11:30 a.m., at the principal executive offices of the Company at 928
East Arques Avenue, Sunnyvale, California 94086, and at any adjournment(s) or
postponement(s) thereof, and to vote all shares of Common Stock that the
undersigned would be entitled to vote if then and there personally present, on
the matters set forth on the reverse side, and in their discretion, upon such
other matter or matters that may properly come before the meeting and any
adjournment(s) thereof.
This proxy will be voted as directed or, if no contrary direction is
indicated, will be voted as follows: (1) for the election of directors; (2) for
ratification of the appointment of KPMG Peat Marwick LLP as the Company's
independent auditors for the fiscal year ending December 28, 1997; (3) for the
approval and ratification of the Company's Restated 1997 Stock Option Plan which
amends and restates the Company's predecessor Restated 1987 Stock Option Plan to
extend the term through April 11, 2007 and to increase the number of shares of
Common Stock reserved for issuance thereunder by 500,000 shares; and (4) for the
approval and ratification of an amendment to the Company's 1993 Employee Stock
Purchase Plan to increase the number of shares of Common Stock issuable
thereunder by 500,000 shares, and as said proxies deem advisable on such other
matters as may come before the meeting.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD USING THE ENCLOSED ENVELOPE
(Continued and to be signed on reverse side.)
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<PAGE> 61
MOLECULAR DYNAMICS, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY []
1. Election of Directors FOR ALL WITHHOLD FOR ALL
Nominees: James M. Schlater, Jay Flatley, AS EXCEPT
C. Woodrow Rea, Jr., Robert Keeley,
Janice M. LeCocq [ ] [ ] [ ]
-------------------------------------------
(Except nominee(s) written above)
2. To ratify this appointment of KPMG Peat FOR AGAINST ABSTAIN
Marwick LLP as the Company's independent
auditors for the fiscal year ending [ ] [ ] [ ]
December 28, 1997
3. To approve and ratify the Company's Restated FOR AGAINST ABSTAIN
1997 Stock Option Plan which amends and
restates the Company's predecessor Restated [ ] [ ] [ ]
1987 Stock Option Plan to extend the term
through April 11, 2007 and to increase the
number of shares of Common Stock reserved for
issuance thereunder by 500,000 shares.
4. To approve and ratify an amendment to the FOR AGAINST ABSTAIN
Company's 1993 Employee Stock Purchase Plan
to increase the number of shares of Common [ ] [ ] [ ]
Stock issuable thereunder by 500,000 shares.
NOTE: This Proxy should be marked, dated, signed by the stockholder(s) exactly
as his or her name appears hereon, and returned in the enclosed envelope.
Dated , 1997
----------------------------------
Signature(s)
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Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee, or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
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FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT!
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
USING THE ENCLOSED ENVELOPE
