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:
[ ] Preliminary Proxy Statement [ ] Soliciting Material Pursuant to
sec.240.14a-11(c) or sec.240.14a-12
[X] Definitive Proxy Statement [ ] Confidential, for Use of the
Commission Only
[ ] Definitive Additional Materials (as permitted by Rule 14a-6(e)(2))
MOLECULAR DYNAMICS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] 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>
MOLECULAR DYNAMICS, INC.
928 East Arques Avenue
Sunnyvale, California 94086
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 19, 1998
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 Tuesday, May 19, 1998, 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 January 3,
1999;
3. To approve amendments to the Company's Restated 1997 Stock
Option Plan which (i) eliminate the provision allowing grants to be made
at below market exercise prices and (ii) increase the number of shares
of Common Stock reserved for issuance thereunder by 500,000 shares;
4. 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, 1998, 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 and Chief Executive Officer
Sunnyvale, California
April 17, 1998
<PAGE>
MOLECULAR DYNAMICS, INC.
928 East Arques Avenue
Sunnyvale, California 94086
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 19, 1998
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 19, 1998 (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 17, 1998.
VOTING
On March 26, 1998, the record date for determination of
stockholders entitled to vote at the Annual Meeting, there were
10,443,495 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
<PAGE>
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, 1998 for (i) each director and nominee, (ii) all persons who
are 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>
Percent
Number of Total
of Shares
Name and Address Shares Outstamnding(1)
- ----------------------------------------- -------------- ----------------
<S> <C> <C>
Kopp Holding Company (2) 1,038,200 9.94%
7701 France Avenue South, Suite 500
Edina, MN 55435
Amersham Holdings, Inc. 1,002,000 9.59%
2636 S. Clearbrook Drive
Arlington Heights, IL 60005
Deerfield Capital, L.P. (3) 960,000 9.19%
450 Lexington Avenue, Suite 1930
New York, New York 10017
James M. Schlater (4) 410,894 3.83%
Jay Flatley (5) 241,983 2.27%
C. Woodrow Rea, Jr. (6) 34,048 *
Robert Keeley (7) 18,500 *
Janice M. LeCocq (8) 13,500 *
Lester John Lloyd (9) 13,500 *
David L. Barker (10) 82,380 *
Clare L. Bromley, III (11) 62,511 *
Bruce K. Leisz (12) 52,500 *
Mark J. Sutherland (13) 33,268 *
All current directors and executive
officers as a group (9 persons)(14) 963,084 8.58%
</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 463,000 shares owned by Kopp Investment Advisors, Inc., a
wholly-owned subsidiary of Kopp Holding Company. Kopp Investment
Advisors, Inc. has sole voting power over 463,000 shares and sole
investment power over 310,000 shares. LeRoy C. Kopp is the sole
<PAGE>
shareholder of Kopp Holding Company. Mr. Kopp, Kopp Holding
Company and Kopp Investment Advisors, Inc. share voting power over
575,200 shares and share investment power over 728,200 shares.
(3) Includes 115,330 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.
(4) Includes options to purchase 282,812 shares granted under the
Company's Restated 1997 Option Plan (the Option Plan) that may be
exercised within 60 days after March 18, 1998.
(5) Includes options to purchase 212,895 shares granted under the
Option Plan that may be exercised within 60 days after March 18,
1998. Also includes 13,198 shares held in trust for the benefit
of Mr. Flatley's children. Does not include options to purchase
68,980 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) Includes options to purchase 20,500 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, 1998.
(7) Includes options to purchase 17,000 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, 1998.
(8) Represents options to purchase 13,500 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, 1998.
(9) Represents options to purchase 13,500 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, 1998.
(10) Includes options to purchase 76,500 shares granted under the
Option Plan that may be exercised within 60 days after March 18,
1998.
(11) Includes 5,000 shares held by the Bromley Living Trust, dated
January 18, 1993. Also includes options to purchase 52,500 shares
granted under the Option Plan that may be exercised within 60 days
after March 18, 1998.
(12) Represents options to purchase 52,500 shares granted under the
Option Plan that may be exercised within 60 days after March 18,
1998.
(13) Represents options to purchase 33,268 shares granted under the
Option Plan that may be exercised within 60 days after March 18,
1998.
(14) Includes options to purchase an aggregate of 774,975 shares
granted under the Option Plan that may be exercised within 60 days
after March 18, 1998.
<PAGE>
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 March 18, 1998.
BUSINESS EXPERIENCE OF DIRECTORS
Mr. James M. Schlater, 61, 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. Schlater is also a director of Argonaut Technologies, Inc., a
biotechnology instrumentation company.
Mr. Jay Flatley, 45, 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 is also a director of Cimarron Software, a privately-held
software company.
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, 57, 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 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, 48, has served as a director of the Company
since April 1995. Dr. LeCocq has served as Chairman and Chief Executive
Officer of Gryphon Sciences since November 1996 and served as its
President and Chief Executive Officer from December 1994 to November
<PAGE>
1996. 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. Lester John Lloyd, 61, has served as a director of the Company
since April 1995. 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 also serves as a director of several privately-
held companies. Mr. Lloyd holds a B.S. in Mechanical Engineering from
the University of California, Berkeley.
Mr. C. Woodrow Rea, Jr., 50, 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. 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 28, 1997, the Board of
Directors held six (6) meetings. As of December 28, 1997, 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. The
Audit Committee currently consists of Dr. Keeley and Dr. LeCocq. The
Audit Committee held two (2) meetings and took no action by Unanimous
Written Consent 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. The
Compensation Committee currently consists of Mr. Lloyd and Mr. Rea. The
Compensation Committee held two (2) meetings and took no action by
Unanimous Written Consent 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.
The Stock Option Committee currently consists of Mr. Flatley. The Stock
Option Committee held no meetings and acted by Unanimous Written Consent
on forty-five (45) 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 serves.
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.
<PAGE>
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 1997 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.
<PAGE>
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 January 3, 1999 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 JANUARY 3,
1999.
<PAGE>
PROPOSAL NO. 3
APPROVAL AND RATIFICATION
OF AMENDMENTS TO THE
RESTATED 1997 STOCK OPTION PLAN
The stockholders are being asked to vote on a proposal to approve
and ratify amendments to the Company's Restated 1997 Stock Option Plan
(the Option Plan) (i) to eliminate the provision allowing grants to be
made at below market exercise prices and (ii) to increase the number of
shares available for issuance pursuant to the Option Plan by 500,000
shares. As of March 18, 1998, and giving effect to the proposed
500,000-share increase to the Option Plan, 1,300,616 shares had been
issued upon exercise of options granted under the Option Plan, options
for 2,254,855 were outstanding under the Option Plan and 949,029 shares
remained for future grants under the Option Plan. The Board of
Directors believes it necessary to approve and ratify the amendments to
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 amendments to the Option Plan on
February 12, 1998 (i) to eliminate the provision allowing grants to be
made at below market exercise prices and (ii) to increase the number of
shares available for issuance thereunder by 500,000, 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 amendments to 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. In February 1997, the Board approved an amendment to the Option
Plan 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." Such
amendments were approved by the stockholders on May 22, 1997.
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.
<PAGE>
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.
SECURITIES SUBJECT TO THE OPTION PLAN
Assuming stockholder approval of this Proposal No. 3, 4,504,500
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.
*/ This number is subject to adjustment in the event of certain changes to
the capitalization of the Company. See "Changes in Capitalization" below.
<PAGE>
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, 1998, approximately 290 employees (including six
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.
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, 1997 to March
18, 1998: (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 Exercise
of Price of
Option Granted
Name and Position Shares Options
- ----------------------------------------- -------------- ------------
<S> <C> <C>
Jay Flatley
President and Chief Executive Officer 30,000 $14.13
David L. Barker 10,000 $14.13
Vice President, Research and Scientific
Development
Clare L. Bromley, III 20,000 $14.13
Sr. Vice President, Sales, Marketing and
Service
Bruce K. Leisz 10,000 $14.13
Vice President, Operations
Mark J. Sutherland 20,000 $14.13
Vice President, Microarray Business Segment
All current executive officers as a group 105,000 $14.13
(6 persons)
All current directors (other than executive 14,000 $14.13
officers) as a group (4 persons)
All employees, including current officers 586,325 $15.87
who are not executive officers, as a group
(290 persons)
</TABLE>
<PAGE>
NEW PLAN BENEFITS
As of March 18, 1998, no options had been granted on the basis of
the 500,000 share increase to the Option Plan 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,
1998, the fair market value per share of the Company's Common Stock was
$13.44 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. Assuming stockholder approval
of this Proposal No. 3, the exercise price per share of an option issued
under the Discretionary Option Grant Program may not be less than 100%
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 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).
<PAGE>
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 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.
<PAGE>
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 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 100% of the fair market
value per share, assuming stockholder approval of this Proposal No. 3,
of the Company's Common Stock on the new grant date. 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.
<PAGE>
In addition, on the date of each Annual Stockholder Meeting, each
individual who is reelected as a non-employee 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 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
<PAGE>
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.
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.
<PAGE>
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. The current Federal tax rate on long-term capital gain is capped
at 28 percent for shares held more than one year but not more than 18
months after exercise and at 20 percent for shares held more than 18
months after exercise.
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.
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
<PAGE>
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 amendments to the Option Plan. If stockholder approval
of the amendments to 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.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS BELIEVES THAT THE AMENDMENTS TO THE OPTION
PLAN ARE 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.
<PAGE>
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
28, 1997, 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 as follows:
Form 5's for the year ended December 31, 1997 were filed late for
the following officers and directors: James M. Schlater, Jay Flatley, C.
Woodrow Rea, Robert H. Keeley, Janice M. LeCocq, Lester John Lloyd,
David L. Barker, Clare L. Bromley, III, Bruce K. Leisz and Mark J.
Sutherland.
An incorrect Form 4 was filed for Bruce K. Leisz, indicating the
disposition of Employee Stock Purchase Plan Shares instead of an option
exercise and sale. The Form 4 is currently being amended and will be
filed upon completion.
A Form 4 to report a gift transfer of 50 shares was not filed for
Jay Flatley. The Form 4 was filed in April 1998.
<PAGE>
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 1997, 1996 and
1995 fiscal years by the Company's Chief Executive Officer and each of
the four 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
Compensation
------------
Annual Compensation Number of All
-------------------------- Securrities Other
Name and Principal Fiscal Underlying Compen-
Position Year Salary(1) Bonus(2) Options sation(3)
- -------------------------- ------- --------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Jay Flatley 1997 $239,244 $25,000 30,000 $2,234
President and Chief 1996 228,000 134,688 50,000 4,248
Executive Officer 1995 227,500 -- 50,000 (4) 832
David L. Barker 1997 $157,585 $10,000 10,000 2,916
Vice President, 1996 148,654 38,740 20,000 5,511
Research and Scientific 1995 139,615 -- -- 1,303
Development
Clare L. Bromley, III (5) 1997 $180,039 -- 20,000 1,623
Sr. Vice President, 1996 170,000 44,200 -- 4,487
Sales, Marketing and 1995 19,808 -- 60,000 58
Service
Bruce K. Leisz, 1997 $152,297 -- 10,000 1,431
Vice President, 1996 163,732 39,600 20,000 4,308
Operations 1995 144,423 -- -- 497
Mark J. Sutherland (6) 1997 $139,962 $40,040 20,000 768
Vice President, 1996 119,442 31,200 15,000 913
Microarray Business Segme 1995 105,500 15,000 -- 217
</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 ("GTL") insurance
premiums paid and amounts contributed by the Company under the 401(k)
Profit Sharing Plan, on behalf of the Named Executive Officers, as
follows:
(i) Mr. Flatley: GTL insurance premiums of $1,484, $828 and $832 in
1997,1996 and 1995, respectively, and 401(k) contributions of
$750, $3,420 and none in 1997, 1996 and 1995, respectively;
in 1997,1996 and 1995, respectively, and 401(k) contributions of
$547, $3,329 and none in 1997, 1996 and 1995, respectively;
(iii)Mr. Bromley: GTL insurance premiums of $1,075, $1,016 and $58
in 1997,1996 and 1995, respectively, and 401(k) contributions of
$548, $3,471 and none in 1997, 1996 and 1995, respectively;
<PAGE>
(iv)Mr. Leisz: GTL insurance premiums of $903, $953 and $497 in
1997,1996 and 1995, respectively, and 401(k) contributions of
$527, $3,355 and none in 1997, 1996 and 1995, respectively; and
(v)Mr. Sutherland: GTL insurance premiums of $468, $253 and $217 in
1997,1996 and 1995, respectively, and 401(k) contributions of
$300, $660 and none in 1997, 1996 and 1995, respectively.
(4) Includes options to purchase 255 shares, the economic benefit and
beneficial ownership of which have been assigned to Mr. Flatley's
former spouse pursuant to a settlement agreement entered into by the
parties in connection with the dissolution of their marriage.
(5) Mr. Bromley joined the Company in November 1995.
(6) Mr. Sutherland became an executive officer of the Company in June
1997.
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of
stock options under the Company's Restated 1997 Stock Option Plan during
the 1997 fiscal year to the Named Executive Officers. No SARs were
granted to any Named Executive Officers during 1997.
<TABLE>
<CAPTION>
Number of % of Total Potential Realizable
Securities Options Value at Assumed
Underlying Granted Annual Rates of Stock
Options to Price Appreciation for
Granted in Employees Expir- Option Term(3)
Last Fiscal In Fiscal Exercise ation -----------------------
Name Year(1) Year Price($) Date 5%($) 10%($)
- -------------------------- ----------- --------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Jay Flatley 30,000 5.35 14.13 5-21-07 266,494 675,348
David L. Barker 10,000 1.78 14.13 5-21-07 88,831 225,116
Clare L. Bromley, III (4) 20,000 3.57 14.13 5-21-07 177,663 450,232
Bruce K. Leisz, 10,000 1.78 14.13 5-21-07 88,831 225,116
Mark J. Sutherland 20,000 3.57 14.13 5-21-07 177,663 450,232
</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.
<PAGE>
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 1997 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 1997 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
underlying unexercised Value of unexercised
Shares options at fiscal in-the-money options at
acquired 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 -- -- 271,098 (4) 78,902 $2,727,454 $458,926
David L. Barker -- -- 75,500 27,500 603,906 158,593
Clare L. Bromley, III -- -- 47,500 32,500 423,437 151,562
Bruce K. Leisz, 10,499 140,346 47,500 27,500 286,406 158,593
Mark J. Sutherland 4,800 67,200 29,674 30,625 272,001 122,884
</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 that 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 28,
1997, the last day of the 1997 fiscal year.
(3) Based upon the market price of $14.75 per share, which was the
closing price per share of the Company's Common Stock on the Nasdaq
National Market on December 28, 1997, less the exercise price payable
per share.
(4) Includes options to purchase 68,980 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 connections 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 1997 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, Marketing and Service. 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
<PAGE>
employment date with respect to 25% of the shares. Beginning one year
from the employment date, 6.25% of the shares vests each quarter.
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 1997 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 1997 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 1997 fiscal year were in the 75th 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 1997, no bonuses (set as a percentage of base salary) were
earned by executive officers for fiscal 1997 based on Company sales and
net income. Bonuses were awarded to certain executives based on
achievement of individual performance objectives.
<PAGE>
* Long-Term Incentive Compensation. Each executive officer of
the Company is eligible to receive option grants under the Company's
Restated 1997 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 Company and
his existing holdings of unvested options. Option grants were made to
the Company's executive officers during 1997 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 1997 fiscal year, Mr. Flatley's
base salary was increased by 5.3% to $239,244. This salary for 1997 was
below the 75th percentile of salaries of chief executive officers at the
surveyed companies.
As discussed above, a bonus was awarded to Mr. Flatley for the
1997 fiscal year. Mr. Flatley was granted an option in 1997; 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 1997 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 1997 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 exercise 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
Lester John Lloyd C. Woodrow Rea, Jr.
<PAGE>
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
28, 1997.
<TABLE>
COMPARISON OF CUMMULATIVE TOTAL RETURNS *
<CAPTION>
2/5/93 Jun-93 Dec-93 Jun-94 Dec-94 Jun-95 Dec-95 Jun-96 Dec-96 Jun-97 Dec-97
- ------------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Molecular
Dynamics $100 $186 $107 $59 $61 $63 $57 $60 $98 $127 $148
H&Q Growth $100 $99 $111 $89 $114 $144 $191 $215 $200 $188 $205
Nasdaq $100 $100 $111 $101 $108 $135 $153 $174 $189 $211 $231
* $100 invested at 2/5/93 with dividend reinvestment.
</TABLE>
Notwithstanding anything to the contrary set forth in the
Company's previous filings made under the Securities Act of 1933 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
<PAGE>
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 Pharmacia Biotech, (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
agreements between the Company and Amersham provide that the Company and
Amersham share net profit or loss resulting from the sale of certain
products. The agreements vary according to which products are involved.
In the fiscal year ended December 31, 1997, the Company realized
$538,700 in profits or credits to expenses directly from Amersham as a
result of the agreements.
Amersham has acquired approximately one million shares of the
Company's capital stock on the open market as part of the agreements.
The Company has entered into a loan agreement dated January 10,
1997, with Jay Flatley, President and Chief Executive Officer of the
Company, under which it issued three notes on January 10, 1997, January
30, 1997 and March 27, 1997, respectively, for an aggregate principal
amount of $350,000 for the purpose of purchasing a residence. On
January 28, 1998, the Company issued a new note to replace the above
notes, for a principal amount of $330,000. This note, as well as the
notes it replaced, is secured by a second deed of trust on Mr. Flatley's
residence. The principal and interest accrued to date on the notes are
to be repaid on December 31, 2000. At the time of the issuance of the
new note, Mr. Flatley paid the interest accrued to date on the prior
notes and repaid $20,000 of the principal amount. Interest accrues on
the note at the rate of 5.7% per annum. The maximum amount outstanding
under the loan agreement during 1997 was $350,000.
STOCKHOLDER PROPOSALS FOR 1999 PROXY STATEMENT
Stockholder proposals that are intended to be presented at the
Company's annual meeting of stockholders to be held in 1999 must be
received by the Company no later than December 15, 1998 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 and Chief Executive
Officer
Dated: April 17, 1998
<PAGE>
PROXY PROXY
MOLECULAR DYNAMICS, INC.
This Proxy is Solicited on Behalf of the Board of Directors
For the 1998 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 17, 1998, 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 1998 Annual Meeting of
Stockholders of Molecular Dynamics, Inc. to be held on May 19, 1998, 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
January 3, 1999; (3) for amendments of the Company's Restated 1997 Stock
Option Plan which (i) eliminate the provision allowing grants to be made
at below market exercise prices and (ii) increase the number of shares
of Common Stock reserved for issuance 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.)
<PAGE>
1. ELECTION OF DIRECTORS
Nominees: James M. Schlater, Jay Flatley, C. Woodrow Rea, Jr., Robert
H. Keeley, Janice M. LeCocq, Lester John Lloyd
For all _____
Withhold all _____
For all except _____
_______________________________________
(Except nominee(s) written above)
2. To ratify the appointment of KPMG Peat Marwick LLP as the Company's
independent auditors for the fiscal year ending January 3, 1999.
For _____
Against _____
Abstain _____
3. To approve amendments to the Company's Restated 1997 Stock Option
Plan which (i) eliminate the provision allowing grants to be made at
below market exercise prices and (ii) increase the number of shares
of Common Stock reserved for issuance thereunder by 500,000 shares.
For _____
Against _____
Abstain _____
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: ____________________________, 1998
Signature(s) ________________________________________________
__________________________________________________________
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.
