<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 14, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
------------------------
MOLECULAR DYNAMICS, INC.
(NAME OF SUBJECT COMPANY)
------------------------
MOLECULAR DYNAMICS, INC.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(INCLUDING THE ASSOCIATED RIGHTS TO PURCHASE SERIES A JUNIOR PARTICIPATING
PREFERRED STOCK)
(TITLE OF CLASS OF SECURITIES)
608514 10 5
(CUSIP NUMBER OF CLASS OF SECURITIES)
------------------------
JAY FLATLEY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MOLECULAR DYNAMICS, INC.
928 EAST ARQUES AVENUE
SUNNYVALE, CALIFORNIA 94086
(408) 773-1222
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED
TO RECEIVE NOTICE AND COMMUNICATIONS ON BEHALF
OF THE PERSON(S) FILING STATEMENT)
------------------------
WITH A COPY TO:
STEVEN J. TONSFELDT
JEFFREY Y. SUTO
HEAYOON WOO
STEPHEN B. THAU
VENTURE LAW GROUP
A PROFESSIONAL CORPORATION
2800 SAND HILL ROAD
MENLO PARK, CALIFORNIA 94025
(650) 854-4488
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is Molecular Dynamics, Inc., a Delaware
corporation ("Molecular Dynamics" or the "Company"). The address of the
principal executive offices of the Company is 928 E. Arques Avenue, Sunnyvale,
California 94086. The title of the class of equity securities to which this
Statement relates is the Company's Common Stock, par value $0.01 per share,
including the associated rights to purchase Series A Junior Participating
Preferred Stock ("Common Stock" or the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER
This Statement relates to the tender offer by APB Acquisition Corp. (the
"Purchaser"), a Delaware corporation and a wholly-owned subsidiary of Amersham
Pharmacia Biotech Inc. ("Amersham" or "Parent"), to purchase all of the Shares
held by the Company's stockholders other than Parent or its affiliates (such
stockholders, the "Public Stockholders" and such Shares, the "Publicly Held
Shares") at $20.50 per Share, net to the seller in cash, upon the terms and
subject to the conditions set forth in Purchaser's Offer to Purchase dated
August 14, 1998, (the "Offer to Purchase") and in the related Letter of
Transmittal (which together with the Offer to Purchase constitute the "Offer"),
copies of which are filed respectively as Exhibits 1 and 2 hereto and are
incorporated herein by reference. The Offer is disclosed in a Tender Offer
Statement on Schedule 14D-1 dated August 14, 1998 (the "Schedule 14D-1") filed
with the Securities and Exchange Commission (the "Commission") pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
promulgated by the Commission thereunder. The Offer is being made by the
Purchaser pursuant to the Agreement and Plan of Merger, dated as of August 9,
1998, among Parent, the Purchaser and the Company (as the same may be amended
from time to time, the "Merger Agreement").
The Offer to Purchase states that the address of the principal executive
offices of each of the Purchaser and Parent is 800 Centennial Avenue, P.O. Box
1327, Piscataway, NJ 08855-1327.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and address of the Company, which is the person filing this
Statement, is set forth in Item 1 above. All information contained in this
Statement or incorporated herein by reference concerning the Purchaser or
Parent, or actions or events with respect to either of them, was provided by the
Purchaser or Parent, respectively, and the Company takes no responsibility for
such information. Information contained in this Statement with respect to the
Company and its advisors has been provided by the Company.
(b) Certain contracts, agreements, arrangements and understandings between
the Company and certain of its executive officers are described in the
Information Statement dated August 14, 1998, included as Annex A to this
Schedule 14D-9 and incorporated herein by reference. The Information Statement
will be furnished to the Company's stockholders pursuant to Section 14(f) of the
Exchange Act and Rule 14f-1 issued under the Exchange Act in connection with
Parent's right (after consummation of the Offer) to designate persons to be
appointed to the Board of Directors of the Company (the "Board") other than at a
meeting of the stockholders of the Company. Other such contracts, arrangements
and understandings known to the Company are described below or are summarized in
the subsection titled "Other Agreements" in Section 10 of the Offer to Purchase,
which is incorporated herein by reference.
INTERESTS OF CERTAIN PERSONS IN THE OFFER AND THE MERGER.
In considering the recommendations of the Board set forth in Item 4(a) of
this Solicitation/ Recommendation Statement on Schedule 14D-9, Public
Stockholders should be aware that certain members of the Board have interests in
the Merger and the Offer which are described below and which may present them
with certain conflicts of interest.
INTERESTS OF EXECUTIVE OFFICERS, DIRECTORS AND AFFILIATES WITH RESPECT TO
SHARES CURRENTLY HELD AND OPTIONS. In the Offer, the Public Stockholders,
including certain directors and employees of the Company, will be entitled to
receive $20.50 for each Share currently held which is tendered in the Offer and
accepted for payment in accordance with its terms. Pursuant to the Merger
Agreement, at the Effective Time (as defined below), (i) each option to purchase
shares of Common Stock outstanding under any employee stock option or
2
<PAGE> 3
compensation plan or arrangement of the Company (except for the Molecular
Dynamics, Inc. 1993 Employee Stock Purchase Plan (the "Company Stock Purchase
Plan")) that is vested and exercisable (other than any option that becomes
vested and exercisable by its terms as a result of the transactions contemplated
by the Merger Agreement) shall be canceled, and the Company shall pay each such
holder in cash at the Effective Time for each such option an amount determined
by multiplying the excess, if any, of $20.50 per Share over the applicable
exercise price per Share of such option by the number of shares to which such
option relates, and (ii) each option to purchase shares of Common Stock
outstanding under any employee stock option or compensation plan or arrangement
of the Company (except for the Company Stock Purchase Plan) that is unvested or
unexercisable at the Effective Time (each, an "Unvested Option") shall be
canceled, and Parent shall replace each such Unvested Option with an award (a
"Replacement Award") with a total value determined by multiplying the excess, if
any, of $20.50 per Share over the applicable exercise price per Share of such
Unvested Option by the number of Shares to which such Unvested Option relates.
The total value of the Replacement Award shall be payable in cash to the
optionee in five installments, with the first such installment (constituting 25%
of the Replacement Award) payable at the Effective Time and thereafter, the
remaining portion of the Replacement Award shall be paid in four equal
installments on the last business day of the third, sixth, ninth and twelfth
month following the Effective Time (provided that the optionee shall only be
entitled to such quarterly payment for any quarter during which such optionee is
employed by the Company or its successor as of such quarterly payment date).
Each Replacement Award shall represent an unfunded, unsecured obligation of the
Company or its successor.
Assuming all shares beneficially owned by directors and executive officers
of the Company are tendered in the Offer and all Options held by directors and
executive officers of the Company are surrendered for cancellation prior to the
Effective Time, then the directors and executive officers of the Company will be
entitled to receive, as contemplated by the Merger Agreement, based upon their
holdings as of July 31, 1998, cash payments and Replacement Awards in the manner
set forth in the table below:
SHARE AND OPTION AMOUNTS WITH RESPECT
TO THE COMPANY'S DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
$ AMOUNT OF
$ AMOUNT OF SHARES VESTED VESTED OPTIONS UNVESTED
NAME SHARES OWNED(1) AT OFFER PRICE OPTIONS(1)(3) AT OFFER PRICE OPTIONS(1)
- ---- --------------- ------------------ ------------- -------------------- ----------
<S> <C> <C> <C> <C> <C>
James M. Schlater........ 118,082 $2,420,681.00 264,687 $4,745,879.73 10,313
Jay Flatley.............. 13,198 $ 270,559.00 226,020 $3,380,483.50 80,000
Clare L. Bromley, III.... 10,011 $ 205,225.50 62,500 $ 890,625.00 17,500
David L. Barker.......... 5,880 $ 120,540.00 82,437 $1,087,971.38 26,563
Bruce K. Leisz........... 0 $ 0.00 34,187 $ 346,758.88 17,813
Mark J. Sutherland....... 0 $ 0.00 39,675 $ 549,493.75 30,625
Janice M. LeCocq......... 0 $ 0.00 20,500 $ 251,937.50 0
Lester John Lloyd........ 0 $ 0.00 20,500 $ 251,937.50 0
Robert H. Keely.......... 1,500 $ 30,750.00 25,000 $ 279,500.00 0
C. Woodrow Rea, Jr. ..... 13,548 $ 277,734.00 27,500 $ 307,125.00 0
<CAPTION>
$ AMOUNT OF
REPLACEMENT AWARD
NAME AT OFFER PRICE(2)
- ---- -----------------
<S> <C>
James M. Schlater........ $ 65,745.38
Jay Flatley.............. $896,140.64
Clare L. Bromley, III.... $144,375.00
David L. Barker.......... $290,478.62
Bruce K. Leisz........... $201,491.13
Mark J. Sutherland....... $293,831.26
Janice M. LeCocq......... $ 0.00
Lester John Lloyd........ $ 0.00
Robert H. Keely.......... $ 0.00
C. Woodrow Rea, Jr. ..... $ 0.00
</TABLE>
- ---------------
(1) As of July 31, 1998.
(2) Assumes that each individual receives the full amount of the Replacement
Award.
(3) Options held by each of Messers. Lloyd and Rea and Drs. Keely and LeCocq
include 3,500 Options that will accelerate and become exchangeable for cash
upon completion of the Offer.
James M. Schlater, Chairman of the Board of Directors of the Company, and
Jay Flatley, President and Chief Executive Officer of the Company, have entered
into an agreement (the "Stockholder Agreement") with Parent and Purchaser
pursuant to which Messrs. Schlater and Flatley have agreed to tender any Shares
beneficially owned by them in the offer, and under certain circumstances, to
exercise their vested options to acquire Shares and to tender the Shares
received upon such exercise in the Offer. A copy of the Stockholder Agreement is
attached as Exhibit 4 to this Schedule 14D-9 and is incorporated herein by
reference.
3
<PAGE> 4
EMPLOYMENT 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 employment date with respect to 25% of the shares. Beginning
one year from the employment date, 6.25% of the shares vests each quarter.
THE MERGER AGREEMENT.
On August 10, 1998, Nycomed Amersham plc, an affiliate of Parent, issued a
press release announcing the Merger Agreement and the Purchaser's intention to
commence the Offer. A copy of that press release is filed as Exhibit 7 hereto
and is incorporated by reference in its entirety.
The following is a summary of the Merger Agreement, a copy of which is
filed as an Exhibit to this Schedule 14D-9. Such summary is qualified in its
entirety by reference to the Merger Agreement.
THE OFFER. The Merger Agreement provides for the making of the Offer. The
obligation of Purchaser to accept for payment Shares tendered pursuant to the
Offer is subject to the satisfaction of the condition that a majority of the
Shares outstanding on a fully diluted basis be tendered in accordance with the
terms of the Offer prior to the expiration date of the Offer and not be
withdrawn (the "Minimum Condition") and certain other conditions that are
described below. Purchaser has agreed that no change in the Offer may be made,
without the consent of the Company, which changes the form of consideration to
be paid or decreases the price per Share or the number of Shares sought in the
Offer, which waives the Minimum Condition, which imposes conditions to the Offer
in addition to the Minimum Condition and those conditions described below or
which otherwise adversely affects the stockholders of the Company. Purchaser
may, however, without the consent of the Company, (i) extend the Offer, if at
any scheduled or extended expiration date of the Offer any of the conditions to
the Offer shall not be satisfied and waived, (ii) extend the offer for any
period required by any rule, regulation, interpretation or position of the
Commission or the staff thereof applicable to the Offer or any period required
by applicable law and (iii) extend the Offer on one or more occasions for an
aggregate period of not more than 10 business days beyond the latest expiration
date that would otherwise be permitted under clause (i) or (ii) of this
sentence, if on such expiration date there shall not have been tendered at least
90% of the outstanding Shares.
Pursuant to the Merger Agreement, in the event of the failure of one or
more of the conditions to the Offer to be satisfied or waived on any date on
which the Offer would otherwise have expired, Purchaser shall, if such condition
could reasonably be expected to be satisfied, extend the Offer for a reasonable
period of time, except that Purchaser shall not be required to extend the Offer
beyond October 31, 1998.
Certain Conditions of the Offer.
Notwithstanding any other provision of the Offer, Purchaser shall not be
required to accept for payment or pay for any Shares, and may terminate the
Offer, if (i) the Minimum Condition has not been satisfied by October 31, 1998,
(ii) the applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements
4
<PAGE> 5
Act of 1976 (the "HSR Act") shall not have expired or been terminated by the
expiration date of the Offer, or (iii) at any time on or after August 14, 1998
and prior to the expiration of the Offer, any of the following conditions exist:
(a) there shall be instituted or pending any action, suit, investigation or
proceeding by any government or governmental authority or agency, domestic or
foreign, or by any other person, domestic or foreign, before any court or
governmental authority or agency, domestic or foreign, challenging or seeking to
make illegal, to delay materially or otherwise directly or indirectly to
restrain or prohibit the making of the Offer, the acceptance for payment of or
payment for some of or all the Shares pursuant to the Offer or the consummation
of the Merger, seeking to obtain material damages or otherwise directly or
indirectly relating to the transactions contemplated by the Offer or the Merger,
seeking to restrain, prohibit or materially restrict Parent's ownership or
operation (or that of its respective subsidiaries or affiliates) of all or any
material portion of the business or assets of the Company and the Subsidiaries,
taken as a whole, or (based on claims arising out of or relating to the Offer,
the Merger or the transactions contemplated by the Merger Agreement) of Parent
and its subsidiaries, taken as a whole, or to compel Parent or any of its
subsidiaries or affiliates to dispose of or hold separate all or any material
portion of the business or assets of the Company and the Subsidiaries, taken as
a whole, or (based on claims arising out of or relating to the Offer, the Merger
or the transactions contemplated by the Merger Agreement) of Parent and its
subsidiaries, taken as a whole, seeking to impose or confirm material
limitations on the ability of Parent or any of its subsidiaries or affiliates
effectively to exercise full rights of ownership of the Shares, including,
without limitation, the right to vote any Shares acquired or owned by Parent or
any of its subsidiaries or affiliates on all matters properly presented to the
Company's stockholders, or seeking to require divestiture by Parent or any of
its subsidiaries or affiliates of any Shares, or that otherwise is reasonably
likely to have a material adverse effect;
(b) there shall be any action taken, or any statute, rule, regulation,
injunction, order or decree enacted, enforced, promulgated, issued or deemed
applicable to the Offer or the Merger, by any court, government or governmental
authority or agency, domestic or foreign, other than the application of the
waiting period provisions of the HSR Act to the Offer or the Merger that is
reasonably likely, directly or indirectly, to result in any of the consequences
referred to in paragraph (a) above; or
(c) the Company shall have breached or failed to perform in any material
respect any of its covenants or agreements under the Merger Agreement, or any of
the representations and warranties of the Company set forth in the Merger
Agreement shall not be true when made or at any time prior to consummation of
the Offer as if made at and as of such time (except as to any representation or
warranty which speaks as of a specific date, which must be untrue as of such
date), except for such inaccuracies which, when taken together (in each case
without regard to any qualifications as to materiality or material adverse
effect contained in the applicable representations and warranties) would not be
likely to have a material adverse effect; or
(d) the Company shall have entered into, or shall have publicly announced
its intention to enter into, an agreement or an agreement in principle with
respect to any acquisition proposal or the Board of Directors of the Company
shall have withdrawn or materially modified in a manner adverse to Parent the
Board's approval or recommendation of the Offer or the Merger; or
(e) the Merger Agreement shall have been terminated in accordance with its
terms;
which, in the reasonable judgment of Parent in any such case, and regardless of
the circumstances giving rise to any such condition, makes it inadvisable to
proceed with such acceptance for payment or payment.
The foregoing conditions are for the sole benefit of Parent and Purchaser
and may, subject to the terms of the Agreement, be waived by Parent and
Purchaser in whole or in part at any time and from time to time in their
discretion. The failure by Parent or Purchaser at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such right, the waiver
of any such right with respect to particular facts and circumstances shall not
be deemed a waiver with respect to any other facts and circumstances, and each
such right shall be deemed an ongoing right that may be asserted at any time and
from time to time prior to the Effective Time.
5
<PAGE> 6
THE MERGER. The Merger Agreement provides that, upon the terms and subject
to the conditions thereof, at the time at which the Company and Purchaser file a
certificate of merger with the Secretary of State of the State of Delaware and
make all other filings or recordings required by the Delaware General
Corporation Law ("Delaware Law") in connection with the Merger, Purchaser shall
be merged with and into the Company in accordance with Delaware Law. The Merger
shall become effective at such time as the Certificate of Merger is duly filed
with the Secretary of State of the State of Delaware (the "Effective Time"). As
a result of the Merger, the separate corporate existence of Purchaser will cease
and the Company will be the surviving corporation (the "Surviving Corporation").
At the Effective Time, (i) each issued and outstanding Share held in the
treasury of the Company, or owned by Parent or any of its Subsidiaries shall be
canceled, and no payment shall be made with respect thereto; (ii) each share of
common stock of Purchaser then outstanding shall be converted into and become
one share of common stock of the Surviving Corporation; and (iii) each Share
outstanding immediately prior to the Effective Time shall, except as otherwise
provided in (i) above or with respect to Shares as to which appraisal rights
have been perfected, be converted into the right to receive $20.50 in cash
without interest.
The Merger Agreement provides that, from and after the Effective Time,
until successors are duly elected or appointed and qualified in accordance with
applicable law, (a) the directors of Purchaser at the Effective Time shall be
the directors of the Surviving Corporation and (b) the officers of the Company
at the Effective Time shall be the officers of the Surviving Corporation.
Employee Stock Options. At the Effective Time, (i) each option to purchase
shares of Common Stock outstanding under any employee stock option or
compensation plan or arrangement of the Company (except for the Molecular
Dynamics, Inc. 1993 Employee Stock Purchase Plan (the "Company Stock Purchase
Plan")) that is vested and exercisable (other than any option that becomes
vested and exercisable by its terms as a result of the transactions contemplated
by the Merger Agreement) shall be canceled, and the Company shall pay each such
holder in cash at the Effective Time for each such option an amount determined
by multiplying the excess, if any, of $20.50 per Share over the applicable
exercise price per Share of such option by the number of shares to which such
option relates, and (ii) each option to purchase shares of Common Stock
outstanding under any employee stock option or compensation plan or arrangement
of the Company (except for the Company Stock Purchase Plan) that is unvested or
unexercisable at the Effective Time (each, an "Unvested Option") shall be
canceled, and Parent shall replace each such Unvested Option with an award (a
"Replacement Award") with a total value determined by multiplying the excess, if
any, of $20.50 per Share over the applicable exercise price per Share of such
Unvested Option by the number of Shares to which such Unvested Option relates.
The total value of the Replacement Award shall be payable in cash to the
optionee in five installments, with the first such installment (constituting 25%
of the Replacement Award) payable at the Effective Time and thereafter, the
remaining portion of the Replacement Award shall be paid in four equal
installments on the last business day of the third, sixth, ninth and twelfth
month following the Effective Time (provided that the optionee shall only be
entitled to such quarterly payment for any quarter during which such optionee is
employed by the Company or its successor as of such quarterly payment date).
Each Replacement Award shall represent an unfunded, unsecured obligation of the
Company or its successor.
Employee Stock Purchase Plan. As of the Effective Time, the Company Stock
Purchase Plan shall be terminated. Parent shall pay each participant in any then
current offering under such Plan that commences after the date of the Merger
Agreement in cash at or promptly after the Effective Time, in cancellation of
all rights under such Plan, the amount of such participant's account balance
under the Plan.
Board of Directors. The Merger Agreement provides that effective upon
purchase and payment by Purchaser for a number of Shares that satisfies the
Minimum Condition, Parent shall be entitled to designate the number of
directors, rounded up to the next whole number, on the Company's Board of
Directors that equals the product of (i) the total number of directors on the
Board of Directors (giving effect to the election of any additional directors
pursuant to this paragraph) and (ii) the percentage that the number of Shares
beneficially owned by Parent (including Shares accepted for payment) bears to
the total number of Shares outstanding, and the Company shall take all action
necessary to cause Parent's designees to be elected or appointed to the Board of
Directors, including, without limitation, increasing the number of directors and
6
<PAGE> 7
seeking and accepting resignations of its incumbent directors. At such times,
the Company will use its best efforts to cause individuals designated by Parent
to constitute the same percentage as such individuals represent on the Company's
Board of Directors of (i) each committee of the Board and (ii) each board of
directors (and committee thereof) of each Subsidiary ("Subsidiary" means any
corporation or other entity in which the Company has an ownership interest
sufficient to elect a majority of the board of directors or other persons
performing similar functions). Notwithstanding the foregoing, the Company shall
use its best efforts to cause at least three members of the Company's Board of
Directors as of the date hereof who are not employees of the Company (the
"Continuing Directors") to remain members of the Board of Directors until the
Effective Time and Parent consents thereto.
Following the consummation of the Offer and until the Effective Time, the
approval of at least a majority of the Continuing Directors shall be required to
authorize any termination of the Merger Agreement by the Company, any amendment
of the Merger Agreement requiring action by the Board of Directors, any action
with respect to the Merger or the Company Stockholder Meeting (as defined below)
requiring action by the Board of Directors, and any waiver of compliance with
any of the agreements or conditions contained in the Merger Agreement for the
benefit of the Company (provided in each case that, if, following the expiration
of the Offer, Parent shall own 90% or more of the Shares, the Board of Directors
of the Company will take all actions necessary to effect the Merger).
Company Stockholder Meeting. Pursuant to the Merger Agreement, the Company
shall cause a meeting of its stockholders (the "Company Stockholder Meeting") to
be duly called and held as soon as reasonably practicable for the purpose of
voting on the approval and adoption of the Merger Agreement, unless a vote of
stockholders by the Company is not required by Delaware Law.
The Merger Agreement provides that the Company will promptly prepare and
file with the Commission under the Exchange Act a proxy statement relating to
the Company Stockholder Meeting. The Company has agreed, subject to the
fiduciary duties of its Board of Directors as advised in writing by counsel, to
use its best efforts to obtain the necessary approvals by its stockholders of
the Merger Agreement and the transactions contemplated thereby. Parent has
agreed to vote all Shares then beneficially owned by it in favor of adoption of
the Merger Agreement.
Covenants of the Company. The Company has agreed that, prior to the
Effective Time, the Company will conduct its business in the ordinary course
consistent with past practice and that it will not adopt or propose any change
in its certificate of incorporation or bylaws. In addition, the Company has
agreed that, prior to the Effective Time, the Company will not, and will not
permit any of its Subsidiaries to
(a) except pursuant to existing agreements or arrangements, (i)
acquire (by merger, consolidation or acquisition of stock or assets) any
material corporation, partnership or other business organization or
division thereof, or sell, lease or otherwise dispose of a material
subsidiary or a material amount of assets or securities, (ii) make any
investment in an amount in excess of $250,000 in the aggregate whether by
purchase of stock or securities, contributions to capital or any property
transfer (other than investments in marketable securities made in
compliance with the Company's cash management policy), or purchase for an
amount in excess of $250,000 in the aggregate, any property or assets of
any other individual or entity, (iii) waive, release, grant or transfer any
rights of material value, (iv) license, dispose of, assign, transfer or
encumber any intellectual property other than technology transfer and
technology access agreements substantially on the terms of the Company's
standard form agreements, (v) modify or change in any material respect any
existing material license, lease, contract, or other document, (vi) enter
into any supply or distribution agreement providing for a term in excess of
twelve months, (vii) except to refund or refinance commercial paper, incur,
assume or prepay an amount of long-term or short-term debt in excess of
$2,000,000 in the aggregate, (viii) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise)
for the obligations of any other person which are in excess of $250,000 in
the aggregate, (ix) make any loans to any other person which are in excess
of $250,000 in the aggregate or (x) authorize any new capital expenditures
which, individually or in the aggregate, are in excess of $500,000;
7
<PAGE> 8
(b) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock, other than cash dividends and distributions by a wholly
owned Subsidiary of the Company to the Company or to a subsidiary all of
the capital stock which is owned directly or indirectly by the Company, or
redeem, repurchase or otherwise acquire or offer to redeem, repurchase, or
otherwise acquire any of its securities or any securities of its
Subsidiaries;
(c) adopt or amend any bonus, profit sharing, compensation, severance,
termination, stock option, pension, retirement, deferred compensation,
employment or employee benefit plan, agreement, trust, plan, fund or other
arrangement for the benefit and welfare of any director, officer or
employee, or (except for normal increases in the ordinary course of
business that are consistent with past practices and that, in the
aggregate, do not result in a material increase in benefits or compensation
expense to the Company) increase in any manner the compensation or fringe
benefits of any director, officer or employee or pay any benefit not
required by any existing plan or arrangement (including, without
limitation, the granting of stock options or stock appreciation rights or
the removal of existing restrictions in any benefit plans or agreements);
(d) revalue in any material respect any of its assets, including,
without limitation, writing down the value of inventory in any material
manner or write-off of notes or accounts receivable in any material manner;
(e) pay, discharge or satisfy any material claims, liabilities or
obligations (whether absolute, accrued, asserted or unasserted, contingent
or otherwise) other than the payment, discharge or satisfaction in the
ordinary course of business, consistent with past practices, of liabilities
reflected or reserved against in the consolidated financial statements of
the Company or incurred in the ordinary course of business, consistent with
past practices;
(f) make any tax election or settle or compromise any material income
tax liability;
(g) take any action other than in the ordinary course of business and
consistent with past practices with respect to accounting policies or
procedures;
(h) agree or commit to do any of the foregoing; or
(i) take or agree or commit to take any action that would make any
representation and warranty of the Company under the Merger Agreement
inaccurate in any respect at, or as of any time prior to, the Effective
Time.
Other Offers. Pursuant to the Merger Agreement, the Company has agreed
that from the date of the Merger Agreement until the termination thereof,
neither the Company nor any of its Subsidiaries shall (whether directly or
indirectly through advisors, agents or other intermediaries), nor shall the
Company or any of its Subsidiaries authorize or permit any of its or their
officers, directors, agents, representatives, advisors or Subsidiaries to
(i) solicit, initiate or take any action knowingly to facilitate the
submission of inquiries, proposals or offers from any Third Party (as
defined below) (other than Parent) which constitutes or would reasonably be
expected to lead to (A) any acquisition or purchase of 20% or more of the
consolidated assets of the Company and its Subsidiaries or of over 20% of
any class of equity securities of the Company or any of its Subsidiaries,
(B) any tender offer (including a self tender offer) or exchange offer that
if consummated would result in any Third Party beneficially owning 20% or
more of any class of equity securities of the Company or any of its
Subsidiaries, (C) any merger, consolidation, business combination, sale of
substantially all assets, recapitalization, liquidation, dissolution or
similar transaction involving the Company or any of its Subsidiaries whose
assets, individually or in the aggregate, constitute more than 20% of the
consolidated assets of the Company other than the transactions contemplated
by Merger Agreement, or (D) any other transaction the consummation of which
would or could reasonably be expected to interfere with, prevent or
materially delay the Merger or which would or could reasonably
8
<PAGE> 9
be expected to materially dilute the benefits to Parent of the transactions
contemplated by the Merger Agreement (collectively, "Acquisition
Proposals"), or agree to or endorse any Acquisition Proposal,
(ii) enter into or participate in any discussions or negotiations
regarding any of the foregoing, or furnish to any Third Party any
information with respect to its business, properties or assets or any of
the foregoing, or otherwise cooperate in any way with, or knowingly assist
or participate in, facilitate or encourage, any effort or attempt by any
Third Party (other than Parent) to do or seek any of the foregoing, or
(iii) except for the waiver under the Standstill Agreement (as
described below), grant any waiver or release under any standstill or
similar agreement with respect to any class of equity securities of the
Company or any of its Subsidiaries. The foregoing restrictions do not
prohibit the Company (either directly or indirectly through advisors,
agents or other intermediaries) from (x) furnishing information pursuant to
an appropriate confidentiality letter (a copy of which shall be provided to
Parent) concerning the Company and its businesses, properties or assets to
a Third Party who has made or is seeking to initiate discussions with
respect to a bona fide Acquisition Proposal, (y) engaging in discussions or
negotiations with such a Third Party who has made a bona fide Acquisition
Proposal, and/or (z) following receipt of a bona fide Acquisition Proposal,
taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) under the Exchange Act or otherwise making disclosure to its
stockholders, but in each case referred to in the foregoing clauses (x)
through (z), only to the extent that the Board of Directors of the Company
shall have concluded in good faith on the basis of written advice from
Company counsel that such action by the Board of Directors is required in
order to comply with the fiduciary duties of the Board of Directors to the
stockholders of the Company under applicable law.
The Board of Directors of the Company shall not take any of the foregoing
actions referred to in clauses (x) through (z) until after reasonable notice to
Parent with respect to such action and that such Board of Directors shall
continue to advise Parent after taking such action and, in addition, if the
Board of Directors of the Company receives an Acquisition Proposal, then the
Company shall promptly inform Parent of the terms and conditions of such
proposal and the identity of the person making it.
As of the date of the Merger Agreement, the Company is obligated to
immediately cease and cause its advisors, agents and other intermediaries to
cease any and all existing activities, discussions or negotiations with any
parties conducted prior to such time with respect to any of the foregoing, and
to use its reasonable best efforts to cause any such parties in possession of
confidential information about the Company that was furnished by or on behalf of
the Company to return or destroy all such information in the possession of any
such party or in the possession of any agent or advisor of any such party.
"Third Party" means any person, corporation, entity or "group," as defined
in Section 13(d) of the Exchange Act, other than Parent or any of its
affiliates.
Company Stock Option. The Merger Agreement provides for a grant by the
Company to Parent of an irrevocable option (the "Company Stock Option") to
purchase for $20.50 per share in cash up to 1,750,000 Shares. Parent may
exercise the Company Stock Option, in whole or in part, at any time or from time
to time, from the date on which an Acquisition Proposal (as defined above) shall
have been made or occur, as applicable, until the day (the "Option Termination
Date") which is the earlier of (i) the Effective Time or (ii) nine months after
the termination of the Merger Agreement. Parent may purchase Shares pursuant to
the Company Stock Option only if all of the following conditions are satisfied:
(i) Parent is not at the time of purchase in material breach of its obligations
under the Merger Agreement, (ii) no preliminary or permanent injunction or other
order, decree or ruling against the sale or delivery of the Shares issued by any
federal or state court of competent jurisdiction in the United States is in
effect at such time and (iii) any applicable waiting period under the HSR Act
shall have expired or been terminated at or prior to such time.
In the event of any change in the Company's capital stock by reason of
stock dividends, stock splits, mergers, consolidations, recapitalizations,
combinations, conversions, exchanges of Shares, extraordinary or liquidating
dividends, or other changes in the corporate or capital structure of the Company
which would have the effect of diluting or changing Parent's rights under the
Company Stock Option, the number and kind of
9
<PAGE> 10
Shares subject to the Company Stock Option and the purchase price per Share (but
not the total purchase price) shall be appropriately and equitably adjusted so
that Parent shall receive upon exercise of the Company Stock Option the number
and class of Shares or other securities or property that Parent would have
received in respect of the Shares purchasable upon exercise of the Company Stock
Option if the Company Stock Option had been exercised immediately prior to such
event.
At any time or from time to time after the making of any Acquisition
Proposal (as defined above), in connection with the anticipated consummation of
an Acquisition Proposal Parent may, at its election, upon two days' notice to
the Company, surrender all or a part of the Company Stock Option to the Company,
in which event the Company shall pay to Parent, on the day of each such
surrender and in consideration thereof, against tender by Parent of an
instrument evidencing such surrender, an amount in cash per Share the rights to
which are surrendered equal to the excess of (i) the price per Share to be paid
in such Acquisition Proposal over (ii) the price per Share offered in connection
with the Offer. Such surrender and payment shall be subject to, and occur
substantially concurrently with, the consummation of the Acquisition Proposal.
If all or a portion of the price per Share to be paid in such Acquisition
Proposal consists of non-cash consideration, then price per Share referred to in
clause (i) above shall be the cash consideration per Share, if any, plus the
fair market value of the non-cash consideration per Share as set forth in such
Acquisition Proposal or, if not so set forth, as determined by Parent's
investment bankers. Upon exercise of its right to surrender the Company Stock
Option or any portion thereof and the receipt by the Parent of cash pursuant to
this Section, any and all rights of the Parent to purchase Shares with respect
to the portion of the Company Stock Option surrendered shall be terminated.
The Company will apply to list all of the Shares subject to the Company
Stock Option on the Nasdaq National Market and will use its best efforts to
obtain approval of such listing as soon as practicable.
If Parent requests the Company in writing to register under the Securities
Act of 1933, as amended, any of the Shares owned by Parent, the Company will use
its best efforts to cause the offering of the Shares so specified in such
request to be registered as soon as practicable so as to permit the sale or
other distribution by Parent of the Shares specified in its request.
Amendment of Rights Plan. The Company has agreed to take all necessary
action to render the Rights Agreement inapplicable to the Offer, the Merger, the
Company Stock Option, the Merger Agreement, the Stockholder Agreement and any
other transaction contemplated thereby.
Waiver of Standstill Agreement. The Company has waived all of its rights
and privileges under the Standstill Agreement with respect to the Merger, the
Offer, the Company Stock Option, the other transactions contemplated hereby, the
Stockholder Agreement (as described below) and the transactions contemplated
thereby.
Voting of Shares. Parent has agreed to vote all Shares beneficially owned
by it in favor of adoption of the Merger Agreement at the Company Stockholder
Meeting.
Director and Officer Liability. From and after the Effective Time, Parent
has agreed that it will indemnify and hold harmless each present and former
director and officer of the Company and its subsidiaries, determined as of the
Effective Time (the "Indemnified Parties"), against any costs or expenses
(including attorneys' fees), judgments, fines, losses, claims, damages or
liabilities (collectively, "Costs") incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of matters existing or occurring at
or prior to the Effective Time, whether asserted or claimed prior to, at or
after the Effective Time, to the fullest extent that the Company would have been
permitted under Delaware Law and its Certificate of Incorporation or Bylaws in
effect on the date of the Merger Agreement to indemnify such person, and Parent
will also advance expenses as incurred to the fullest extent permitted under the
Company's Bylaws. For six years after the Effective Time, Parent will cause the
Company to provide officers' and directors' liability insurance in respect of
acts or omissions occurring prior to the Effective Time covering each such
person currently covered by the Company's officers' and directors' liability
insurance policy on terms with respect to coverage and amount no less favorable
than those of such policy in effect on the date of the Merger Agreement,
provided that in satisfying this obligation, Parent shall
10
<PAGE> 11
not be obligated to cause the Company to pay premiums in excess of 125% of the
amount per annum the Company paid as of the date of the Merger Agreement, which
amount has been disclosed to Parent (the "Maximum Premium"). If such insurance
coverage cannot be obtained at all, or can only be obtained at an annual premium
in excess of the Maximum Premium, Parent shall cause the Company to maintain the
most advantageous policies of directors' and officers' liability insurance for
an annual premium equal to the Maximum Premium.
Employee Benefits. During the period commencing at the Effective Time and
ending on the first anniversary thereof, Parent has agreed to provide employees
of the Company and its subsidiaries with salary and benefits reasonably
comparable, in the aggregate, to the salary and benefits provided such employees
by the Company immediately prior to the Effective Time (disregarding for this
purpose any stock options of other equity-based compensation provided such
employees prior to the Effective Time). For purposes of any employee benefit
plan or arrangement maintained by Parent, Parent has agreed to recognize service
with the Company as service for all purposes except benefit accrual under any
defined benefit pension plan maintained by Parent.
In addition to the foregoing, Parent has agreed to cause the Company to
adopt, as of the Effective Time, retention plans for the employees of the
Company which shall include the following terms:
(a) Eligibility: The Company's Board of Directors will, in its sole
discretion, select employees entitled to receive awards ("participants")
and the category and amount of each such award;
(b) Awards: The amounts of all bonuses will be designated in the plan
and/or award agreement applicable to each individual participant. Three
categories of awards will be granted, as follows: (i) Category I: Retention
Bonus (50% of "Total Retention Bonus"): payable on the third anniversary of
the Effective Time, provided that the participant is employed by the
Company on such date; Annual Sales Target Bonuses (50% of "Total Retention
Bonus"): three consecutive annual sales target bonuses (with the first
one-year period commencing at the Effective Time), each accruing separately
subject to the attainment of the designated Company sales targets for such
one-year period. All annual sales target bonuses vest and become payable on
the third anniversary of the Effective Time, provided that the participant
is eligible to receive a Retention Bonus; Death or disability: upon a
participant's death or disability (meaning an inability to work for at
least six months in any 12-month period), the following amounts shall be
payable: (A) a pro rata portion of the Retention Bonus, (B) the full amount
of any Annual Sales Target Bonuses previously accrued and (C) a pro rata
portion of the Annual Sales Target Bonus (if any) payable with respect to
the year in which such death or disability occurred; Involuntary
Termination: upon a participant's involuntary termination other than for
cause (meaning willful misconduct or insubordination), a pro rata portion
of the Retention Bonus shall be payable; (ii) Category II: Retention Bonus:
payable on the first anniversary of the Effective Time, provided that the
participant is employed by the Company on such date; and (iii) Category
III: Retention Bonus: payable six months after the Effective Time, provided
that the participant is employed by the Company on such date.
Representations and Warranties. The Merger Agreement contains customary
representations and warranties of the parties thereto including representations
by the Company as to the absence of certain changes or events concerning its
respective business, patents and other proprietary rights, compliance with law,
litigation, employee benefit plans, taxes, environmental and other matters.
Conditions to Certain Obligations. The obligations of the Company,
Purchaser and Parent to consummate the Merger are subject to the satisfaction of
the following conditions: (i) if required by Delaware Law, the adoption by the
stockholders of the Company of the Merger Agreement in accordance with such law;
(ii) any applicable waiting period under the HSR Act relating to the Merger
shall have expired or been terminated; (iii) no provision of any applicable law
or regulation and no judgment, injunction, order or decree shall prohibit the
consummation of the Merger; and (iv) Purchaser shall have purchased Shares
pursuant to the Offer.
Termination. The Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time (notwithstanding any approval
of this Agreement by the stockholders of the
11
<PAGE> 12
Company): (a) by mutual written consent of the Company and Parent; (b) by either
the Company or Parent, (i) if Purchaser shall not have accepted for payment any
Shares pursuant to the Offer prior to October 31, 1998; provided, however, that
the right to terminate the Merger Agreement pursuant to this clause (i) shall
not be available to any party whose failure to perform any of its obligations
under the Merger Agreement results in the failure of any conditions to the Offer
described above; (ii) if there shall be any law or regulation that makes
consummation of the Offer or the Merger illegal or otherwise prohibited or if
any judgment, injunction, order or decree enjoining Parent or the Company from
consummating the Offer or the Merger is entered and such judgment, injunction,
order or decree shall become final and nonappealable; (c) by Parent, (i) if the
Board of Directors of the Company shall or shall resolve to (x) not recommend,
or withdraw its approval or recommendation of, the Offer, the Merger, the Merger
Agreement or any of the transactions contemplated thereby, (y) modify such
approval or recommendation in a manner adverse to Parent or Purchaser, or (z)
approve, recommend or fail to take a position that is adverse to any proposed
Acquisition Proposal; (ii) in the event of a material breach or failure to
perform in a material respect by the Company of any representation, warranty,
covenant or other agreement contained in the Merger Agreement which cannot be
cured, or has not been cured within 30 days after the Company receives written
notice from Parent of such breach or failure to perform; (d) by the Company, (i)
if, in order to permit the Company to consummate an Acquisition Proposal which
the Board of Directors of the Company has determined to be on terms more
favorable to the Company's stockholders from a financial point of view, the
Board of Directors of the Company shall or shall resolve to (x) not recommend,
or withdraw its approval or recommendation of, the Offer, the Merger, the Merger
Agreement or any of the transactions contemplated thereby, (y) modify such
approval or recommendation in a manner adverse to Parent or Purchaser, or (z)
approve, recommend or fail to take a position that is adverse to any proposed
Acquisition Proposal; or (ii) if Purchaser shall have failed to perform its
obligations described under "The Offer" (unless such failure shall result from a
breach by the Company of its obligations under the Merger Agreement) and such
breach cannot be cured, or has not been cured within 30 days after Parent or
Purchaser receive notice from the Company of such breach.
If the Merger Agreement is terminated, the Merger Agreement shall become
void and of no effect with no liability on the part of any party thereto, except
that termination of the Merger Agreement shall be without prejudice to any
rights any party may have thereunder against any other party for willful breach
of the Merger Agreement. The agreements regarding the Company Stock Option and
the obligation on the Company to pay certain fees and expenses (as described
below) shall survive the termination of the Merger Agreement.
Fees and Expenses. Except as provided below, all costs and expenses
incurred in connection with the Merger Agreement shall be paid by the party
incurring such cost or expense. If a Payment Event (as defined below) occurs,
the Company shall pay to Parent, within two business days following such Payment
Event, a fee of $7,000,000 (the "Termination Fee").
"Payment Event" means (i) the termination of the Merger Agreement by Parent
pursuant to clause (c)(i) described above under "Termination" or by the Company
pursuant to clause (d)(i) described above under "Termination"; (ii) the
termination of the Merger Agreement by either the Company or Parent, pursuant to
clause (b)(i) described above under "Termination" and (x) the Company shall have
failed to observe or perform in any material respect any of its obligations
described under "Other Offers" above or (y) an Acquisition Proposal is received
prior to the termination of this Agreement and not publicly rejected by the
Company's Board of Directors; or (iii) the consummation of any Acquisition
Proposal within nine months of the termination of the Merger Agreement by the
Company pursuant to clause (d)(i) described above under "Termination" provided
that any Acquisition Proposal shall have been made prior to the termination of
this Agreement.
If a Payment Event occurs, the Company shall reimburse Parent and its
affiliates not later than two business days after submission of reasonable
documentation thereof for 100% of their documented out-of-pocket fees and
expenses (including the reasonable fees and expenses of counsel) up to
$2,000,000 (plus any applicable VAT), in each case, actually incurred by any of
them or on their behalf in connection with the Merger Agreement and the
transactions contemplated thereby.
12
<PAGE> 13
The "Total Profit" (as hereinafter defined) that Parent shall be permitted
to realize in respect of the Termination Fee and the Company Stock Option shall
not exceed $10,000,000. In the event Parent's Total Profit would exceed such
amount, Parent shall, at its sole election, (a) reduce the number of Shares
subject to the Company Stock Option, (b) deliver Shares received upon an
exercise of the Company Stock Option to the Company for cancellation, (c) pay an
amount of cash to the Company or (d) do any combination of the foregoing so that
Parent's actual realized Total Profit shall not exceed $10,000,000. "Total
Profit" shall mean the aggregate (before taxes) of (i) any amount received
pursuant to the Company's repurchase of the Company Stock Option (or any portion
thereof), (ii) any amount received pursuant to the Company's repurchase of the
Shares (less the purchase price for such Shares), (iii) any net cash received
pursuant to the sale of Shares received by Parent in any exercise of the Company
Stock Option to any third party (less the purchase price of such Shares), (iv)
any amounts received on transfer of the Company Stock Option or any portion
thereof to a third party, (v) any equivalent amounts received with respect to
the Option (as adjusted pursuant to the Merger Agreement) and (vi) the
Termination Fee.
Amendment and Waivers. Any provision of the Merger Agreement may be
amended or waived prior to the Effective Time if, and only if, such amendment or
waiver is in writing and signed, and (i) in the case of an amendment, by the
Company, Parent and Purchaser or (ii) in the case of a waiver, by the party
against whom the waiver is to be effective. After the adoption of the Merger
Agreement by the stockholders of the Company, no such amendment or waiver shall
alter or change (i) the amount or kind of consideration to be received in
exchange for any shares of capital stock of the Company, (ii) any term of the
certificate of incorporation of the Surviving Corporation or (iii) any other
terms and conditions of the Merger Agreement if such change would materially
affect the holders of any shares of capital stock of the Company.
THE STOCKHOLDER AGREEMENT. The following is a summary of the Stockholder
Agreement, a copy of which is filed as Exhibit 4 to the Schedule 14D-9. Such
summary is qualified in its entirety by reference to the Stockholder Agreement.
Agreement to Tender. Pursuant to the Stockholders Agreement, Jay T.
Flatley and James M. Schlater (the "Stockholders") will tender in, and not
withdraw from, the Offer all Shares presently owned by them and any additional
Shares acquired by any of them after the date of the Stockholder Agreement (the
"Stockholder Shares").
At Parent's written request, Stockholders shall also exercise some or all
of their vested employee options; provided, however, that Parent shall only make
such a request in connection with the anticipated consummation of an Acquisition
Proposal (as defined in the Merger Agreement) or of the Offer. The exercise of
such employee options shall be subject to, and occur substantially
simultaneously with, the consummation of the Acquisition Proposal or the Offer,
as applicable. In the event Parent shall request a Stockholder to exercise some
or all of such Stockholders' employee options, Parent shall loan to such
Stockholder the aggregate exercise price payable by Stockholder in respect of
the number of employee options requested to be exercised, which amount will be
repaid to Parent at such time as the Stockholder Shares are acquired in the
Offer or pursuant to an Acquisition Proposal.
Other Offers. In the event of the consummation of any Acquisition
Proposal, each Stockholder shall pay to Parent a portion of the consideration
per Share or vested employee option, as applicable (the "Consideration")
received by such Stockholder at the consummation of such Acquisition Proposal
equal to (i) in the case of Stockholder Shares, an amount equal to the excess,
if any, of the Consideration over $20.50 multiplied by the number of Stockholder
Shares acquired pursuant to such Acquisition Proposal, or (ii) in the case of
vested employee options, an amount equal to the excess, if any, of the
Consideration over $20.50 multiplied by the number of Stockholder Shares
underlying such vested employee options which are cashed or rolled over pursuant
to such Acquisition Proposal.
Grant of Proxy. Pursuant to the Stockholder Agreement, each Stockholder
has granted an irrevocable proxy appointing Parent as such Stockholder's
attorney-in-fact and proxy, with full power of substitution, for and in such
Stockholder's name, to vote, express consent or dissent, or otherwise to utilize
such voting power in such manner and upon such matters related to the Offer and
the Merger as Parent or its proxy or substitute shall, in Parent's sole
discretion, deem proper with respect to the Stockholder Shares.
13
<PAGE> 14
Representations and Warranties. The Stockholder Agreement contains
customary representations and warranties of the parties thereto.
No Shopping. Until such time as the Merger Agreement shall be terminated,
no Stockholder shall directly or indirectly (i) solicit, initiate or encourage
(or authorize any person to solicit, initiate or encourage) any inquiry,
proposal or offer from any person to acquire the business, property or capital
stock of the Company or any direct or indirect subsidiary thereof, or any
acquisition of a substantial equity interest in, or a substantial amount of the
assets of, the Company or any direct or indirect subsidiary thereof, whether by
merger, purchase of assets, tender offer or other transaction or (ii) subject to
the fiduciary duty of the Stockholder as a director of the Company under
applicable law, participate in any discussion or negotiations regarding, or
furnish to any other person any information with respect to, or otherwise
cooperate in any way with, or participate in, facilitate or encourage any effort
or attempt by any other person to do or seek any of the foregoing. The
Stockholder shall promptly advise Parent of the terms of any communications it
may receive relating to any of the foregoing.
Amendments; Termination. The Stockholder Agreement may not be modified,
amended, altered or supplemented, except upon the execution and delivery of a
written agreement executed by the parties thereto. The Stockholder Agreement
shall terminate automatically upon the termination of the Merger Agreement,
provided that the payment obligation on the part of the Stockholders described
under "Other Offers" will survive any such termination until the date which is
nine months thereafter, provided further, that if an Acquisition Proposal shall
have been made on or prior to such date, such payment obligation shall survive
until 30 days following the consummation of such Acquisition Proposal.
EMPLOYMENT AGREEMENT OF MR. FLATLEY. As a condition to the execution of
the Merger Agreement by Parent and Purchaser, Jay Flatley, President and Chief
Executive Officer of the Company, was requested to enter into a letter agreement
with the Company regarding the terms of his continued employment following
consummation of the Merger (the "Flatley Agreement").
Under the Flatley Agreement, which will only become effective upon the
consummation of the Merger, Mr. Flatley will retain his position as Chief
Executive Officer of the Company for a period of up to one year from the date of
the Merger for the purpose of managing the Company's integration with Parent.
During this period, Mr. Flatley will receive salary at an annual rate of
$252,000 through December 31, 1998 and thereafter at an annual rate of $265,000.
In addition, in partial consideration of (1) his continued employment and
contribution towards the integration objectives described above, (2) the fact
that he will no longer be entitled to awards of options or other incentive
compensation, and (3) his agreeing to the confidentiality, noncompetition and
nonsolicitation provisions described below, Mr. Flatley will be paid an
additional award of $1,000,000 in a single lump sum on the first anniversary of
the effective date of the Merger (the "Payment Date") (provided he has not,
subject to certain exceptions, voluntarily terminated his employment with the
Company prior to that date).
If the Company should determine that the integration of the organizational
structures pursuant to the Merger has been successfully completed before the
Payment Date, the payment of the $1,000,000 referenced above may be accelerated.
In that event, Mr. Flatley's employment with the Company will be terminated at
the time the payment is made, but he will continue to receive his normal salary
and benefits through the Payment Date.
The Flatley Agreement also requires Mr. Flatley to (i) abide by certain
confidentiality agreements, (ii) not hire or solicit the employment of any of
the Company's employees for a one-year period following the termination of his
employment with the Company and (iii) agree to certain noncompetition
arrangements for a period ending on the second anniversary of the date of the
Merger.
The foregoing description is qualified in its entirety by reference to the
Flatley Agreement, which is included as Exhibit 5 to this Schedule 14D-9.
14
<PAGE> 15
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) RECOMMENDATIONS WITH RESPECT TO THE OFFER.
Recommendation of the Board.
At a meeting held on August 9, 1998, the Board, by unanimous vote (a)
determined that each of the Offer and the Merger is fair to and in the best
interests of the Public Stockholders, (b) approved the Offer and the Merger, (c)
approved and adopted the Merger Agreement, the execution of such agreement and
the transactions contemplated by such agreement and (d) recommended that such
stockholders accept the Offer and tender their Shares pursuant thereto.
THEREFORE, THE MOLECULAR DYNAMICS BOARD RECOMMENDS THAT THE PUBLIC
STOCKHOLDERS TENDER ALL THEIR SHARES PURSUANT TO THE OFFER.
A copy of a letter to all stockholders of the Company communicating the
recommendations of the members of the Board is filed as Exhibit 6 hereto and is
incorporated by reference in its entirety.
(b) BACKGROUND; REASONS FOR THE RECOMMENDATION OF THE BOARD.
(1) BACKGROUND OF THE OFFER.
In April 1994, Amersham International plc, the predecessor of Parent, and
the Company established a strategic alliance to bring together the molecular
biology and chemistry skills of Parent with the instrumentation skills of the
Company to create complete DNA sequencing and genomic analysis systems. This
strategic alliance was documented in a series of Collaboration, Cross
Co-Promotion and Co-Development Agreements. At the same time Parent purchased
1,002,000 Shares and entered into the Standstill Agreement.
From 1994 until 1997, the parties co-operated in marketing a variety of
products, including a fluorescent scanner for electrophoresis gels together with
fluorescent labeling kits used in detecting DNA and proteins, a DNA labstation
and a fluorescent DNA sequencers. The development of these products and the
strategic direction of the alliance was directed by a Business Steering Group
("BSG"), comprised of representatives of both parties.
In 1996 and 1997, the BSG refocused the alliance on developing and
marketing technologies for genomic analysis. The major technologies comprised
microarrays for gene expression analysis, marketed as the Microarray Technology
Access Program ("MTAP") and capillary electrophoresis sequencing marketed as the
MegaBACE 1000(TM) instrument and associated reagents.
The BSG recognized as early as early 1997 that better coordination between
Parent and the Company of R&D and sales and marketing was desirable for
commercial success of the MegaBACE and the MTAP. At that time, several options
were discussed between the parties, ranging from acquisition of part or all of
the Company by Parent to large scale secondment or joint venture arrangements.
These discussions were inconclusive and ceased by December 1997.
Beginning in October 1997, the Company also discussed with Parent and
another company the possibility of the formation of a joint venture between
Parent and such other company that would acquire the Company. These discussions
were formally terminated in March 1998.
In June 1997, the Company engaged Vector Securities International, Inc.
("Vector Securities") to act as its exclusive financial advisor with respect to
the potential sale of all or a portion of the Company.
The Company was also engaged in discussions with a second company regarding
the potential acquisition of the Company in January and February 1998. These
discussions terminated when the Board of Directors of the other company elected
to not proceed.
Further discussions on improved coordination between Parent and the Company
took place at a meeting of the BSG in February 1998 in Silverado, California. At
this meeting, the Company proposed a change in the profit sharing arrangements
for the MTAP. The parties were unable to agree on the proposed change. Over the
next few months, several other options were also discussed among the
representatives of the parties with no
15
<PAGE> 16
results. These options included an R&D joint venture, an exclusive marketing
arrangement for the products by one of the parties' salesforce or an acquisition
by Parent of the assets of the MegaBACE program.
In May 1998, the Company met informally with a third company about the
possibility of a joint venture, a sale of assets of the MegaBACE program or an
acquisition of the Company, but nothing resulted from these meetings.
On May 19, 1998, the Company held a Board of Directors meeting at which the
Board discussed the current status of the various corporate opportunities that
the Company had been discussing over the past several months.
On June 25, 1998, the Company held a special meeting of its Board of
Directors to discuss a meeting requested by Parent about the various options
that had previously been discussed by Parent and the Company. At this meeting,
the Board of Directors and its external advisors held a lengthy discussion
regarding the options and the other corporate opportunities that had been
previously discussed with respect to other companies.
On June 26, 1998, Ron Long (Chief Executive Officer of Parent), Michael
Evans (Vice President, Applied Genomics of Parent) and Alan Dance (Vice
President, Corporate Development of Parent) met Mark Sutherland (Vice President,
Microarray Business Segment), Jay Flatley (President and Chief Executive Officer
of the Company) and David Barker (Vice President, Research and Scientific
Development) in Sunnyvale, California to discuss in greater detail a potential
acquisition by Parent of the MegaBACE assets. The parties were, however, unable
to agree on price. The meeting closed with both parties agreeing that the
existing arrangements were not satisfactory and that both would explore other
options.
On June 29, 1998, Mr. Long telephoned James Schlater (Chairman of the
Company) indicating that the options that Parent would consider were for Parent
to become the distributor for MegaBACE, to contribute MegaBACE into a company to
be jointly owned by the two parties, or to consider an outright acquisition of
the Company. On June 30, 1998, on a conference call, Mr. Long, Mr. Schlater and
Mr. Flatley agreed that these were the options that should be considered by the
respective management teams.
On July 7, 1998, Mr. Long and Mr. Flatley discussed the progress made on
the evaluation of the options, and Mr. Long advised Mr. Flatley that Parent had
requested its external advisors to help with the analysis.
On July 28, 1998, Mr. Long informed Mr. Flatley that Parent's evaluation of
the options discussed was nearly complete and that Parent would present these
options to its Board of Directors at a meeting to be held on July 30, 1998 and
to the Board of Directors of Nycomed Amersham plc, the indirect parent Company
of Parent, at a meeting to be held on August 6, 1998. Mr. Long suggested that
the parties meet on the afternoon of August 7 to discuss these options with a
view to reaching a settlement on one of them. Mr. Flatley said he would be
reviewing the same options with the Board of Directors of the Company and agreed
to the proposed meeting.
On July 31, 1998, the Company held a special meeting of its Board of
Directors to discuss these options and the parameters under which management of
the Company would operate with respect to the meeting with Parent.
On August 7, 1998, Mr. Long met Mr. Schlater and Mr. Flatley with their
respective legal and financial advisors in New York in order to discuss the
possibility of pursuing one of the options identified at previous meetings. The
parties agreed that the best option would be for Parent to offer to acquire all
the outstanding Shares, provided an acceptable price and other terms could be
agreed upon. The parties proceeded on August 7 to discuss the price of an
acquisition, the text of a draft merger agreement and the details of an employee
incentive plan. During these discussions, APB proposed an offer price of $18.50
per share, which was rejected by representatives of the Company. Negotiations
regarding price and other terms continued, and on the afternoon of August 8,
1998, the parties reached an agreement in principle on $20.50 per share in cash,
but such agreement was contingent on satisfactory resolution of the Merger
Agreement and other ancillary issues and the receipt of approvals from the
Company's Board of Directors, APB Ltd's shareholders, Nycomed Amersham and
Pharmacia & Upjohn Inc. The Company held a special meeting of its Board of
Directors to
16
<PAGE> 17
update them on the status of the negotiations at which the Board of Directors
indicated certain issues which required resolution.
On the morning of August 9, 1998, APB Ltd obtained the approvals of its
shareholders and later in the day the parties reached agreement on the Merger
Agreement, the terms of an employee incentive plan and other ancillary
agreements. Following a telephonic meeting of the Board of Directors of the
Company on August 9, 1998, the Merger Agreement and Stockholder Agreements were
executed.
(2) REASONS FOR THE RECOMMENDATION OF THE BOARD.
In reaching its determinations referred to immediately above, the Board
considered the following factors, each of which, in the view of the Board,
supported such determinations:
(i) the amount of consideration to be received by the Company's
stockholders in the Offer and the Merger;
(ii) the Company's prospects if it were to remain independent,
including the risks and benefits inherent in remaining independent,
including that the life sciences instrumentation and genomics industries
were becoming increasingly competitive with the entry of larger companies
offering a full range of products and services and that the Company's
relationship with the Parent could be materially altered if the Merger did
not proceed;
(iii) the costs and potential adverse consequences of the Company's
current lawsuit with the Applied Biosystems Division of the Perkin-Elmer
Corporation with whom Parent is also engaged in litigation in a separate
matter, and the benefits that a combined entity might gain from integrated
defenses;
(iv) the possible alternatives to the Offer and the Merger (including
the possibility of continuing to operate the Company as an independent
entity, a sale of a major portion of the Company's assets and the
establishment of R&D joint ventures), the range of possible benefits to the
Company's stockholders of such alternatives and the timing and likelihood
of accomplishing the goal of any of such alternatives;
(v) information with regard to the financial condition, results of
operations, business and prospects of the Company, the regulatory approvals
required to consummate the Offer and the Merger as well as current economic
and market conditions (including current conditions in the industry in
which the Company is engaged);
(vi) the historical and recent market prices of the Shares and the
fact that the Offer and the Merger will enable the holders of the Shares to
realize a significant premium over the prices at which the Shares traded
prior to the execution of the Merger Agreement;
(vii) the presentation of Vector Securities to the Board on August 9,
1998, and the oral opinion of Vector Securities (which opinion was
subsequently confirmed by delivery of a written opinion dated August 9,
1998, the date of execution of the Merger Agreement) to the effect that, as
of the date of such opinion and based upon and subject to the matters
considered, assumptions made and limits of review set forth therein, the
$20.50 per Share cash consideration to be offered to holders of Shares
(other than Parent and its affiliates) in the Offer and the Merger was
fair, from a financial point of view, to such holders. The full text of
Vector Securities' written opinion dated August 9, 1998, which sets forth
the assumptions made, matters considered and limitations on the review
undertaken by Vector Securities, is attached hereto as Annex B and is
incorporated herein by reference. Vector Securities' opinion is directed
only to the fairness, from a financial point of view, of the cash
consideration to be received in the Offer and the Merger by holders of
Shares (other than Parent and its affiliates) and does not constitute a
recommendation to any stockholder of the Company as to how any such
stockholder should vote on the Merger or whether such Stockholder should
tender Shares pursuant to the Offer. HOLDERS OF SHARES ARE URGED TO READ
SUCH OPINION CAREFULLY IN ITS ENTIRETY;
(viii) the high likelihood that the proposed acquisition would be
consummated, in light of the experience, reputation and financial
capabilities of Parent and the close relationship between Parent and
17
<PAGE> 18
the Company, and that the structure of the transaction (including the
Offer) would permit earlier consummation of the transaction than other
structures; and
(ix) the terms of the Merger Agreement, including the parties'
representations, warranties and covenants and the conditions to their
respective obligations and the fact that the Merger Agreement permits the
Board of Directors of the Company to terminate the proposed transaction
(upon the payment of the Termination Fee) in the event that the Company
receives an acquisition proposal which the Board of Directors of the
Company determines to be on terms more favorable to the Company from a
financial point of view than the proposed Offer and Merger.
In reaching its determinations to recommend the Offer and the Merger to the
Public Stockholders, the Board considered the factors set forth immediately
above, each of which, in view of the Board, supported such determinations.
The members of the Board evaluated the various factors listed above in
light of their knowledge of the business, financial condition and prospects of
the Company, and based upon the advice of financial and legal advisors. In light
of the number and variety of factors that the Board considered in connection
with their evaluation of the Offer and the Merger, the Board did not find it
practicable to assign relative weights to the foregoing factors and,
accordingly, the Board did not do so. In addition to the factors listed above,
the Board considered the fact that consummation of the Offer and the Merger
would eliminate the opportunity of the Public Stockholders to participate in any
potential future growth in the value of the Company, but determined that this
loss of opportunity was reflected by the price of $20.50 per Share to be paid in
the Offer and the Merger. In addition, the Board considered the possibility
that, in the event the Offer but not the Merger is consummated, the number of
stockholders could be reduced, which could adversely affect the liquidity and
market value of the Shares.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
The Company has retained Vector Securities as its exclusive financial
advisor in connection with the potential sale of all or a percentage of the
Company. Pursuant to the terms of Vector Securities' engagement, the Company has
agreed to pay Vector Securities for its services a non-refundable retainer fee
of $50,000 and a financial advisory fee equal to one percent (1.0%) of the
aggregate consideration (as defined) payable upon consummation of the Offer and
the Merger. The Company also has agreed to reimburse Vector Securities for
reasonable out-of-pocket expenses, including fees and disbursements of counsel,
and to indemnify Vector Securities and certain related parties against certain
liabilities, including, but not limited to, liabilities under the federal
securities laws, arising out of Vector Securities' engagement. In the event such
indemnification were not available, however, the Company has agreed to
contribute to the settlement, loss or expense involved in the proportion that
the relative benefits of the Company bears to Vector Securities' relative
benefits. Vector Securities has in the past provided investment banking services
to the Company unrelated to the Offer and the Merger, for which services Vector
Securities has received customary compensation. In the ordinary course of its
business, Vector Securities and its affiliates may actively trade or hold the
securities of the Company for their own account and for the accounts of their
customers and, accordingly, may at any time hold a long or short position in
such securities.
Neither the Company nor any person acting on its behalf currently intends
to employ, retain or compensate any person to make solicitations or
recommendations to stockholders on its behalf concerning the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) To the best knowledge of the Company, no transactions in Shares have
been effected during the past 60 days by the Company or any of its executive
officers, directors or affiliates.
(b) To the best knowledge of the Company, its executive officers, directors
and affiliates currently intend to tender their Shares to Purchaser pursuant to
the Offer.
18
<PAGE> 19
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) Except as described in Items 3 and 4 above, including as set forth in
the Offer, to the best knowledge of the Company, no negotiation is being
undertaken or is underway by the Company in response to the Offer which relates
to or would result in (1) any extraordinary transaction, such as a merger or
reorganization, involving the Company or any affiliate or subsidiary of the
Company, (2) a purchase, sale or transfer of a material amount of assets by the
Company or any subsidiary of the Company, (3) a tender offer for or other
acquisition of securities by or of the Company, or (4) any material change in
the present capitalization or dividend policy of the Company.
(b) Except as described in Items 3 and 4 above, there are no transactions,
board resolutions, agreements in principle, or signed contracts in response to
the Offer which relate to or would result in one or more of the matters referred
to in clauses (1) through (4) of paragraph (a) of this Item 7.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
Reference is hereby made to the Offer to Purchase and the related Letter of
Transmittal which are attached as Exhibits 1 and 2, respectively, and are
incorporated herein by reference in their entirety.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
<TABLE>
<S> <C>
Exhibit 1*+ Form of Offer to Purchase, dated August 14, 1998.
Exhibit 2*+ Form of Letter of Transmittal.
Exhibit 3* Agreement and Plan of Merger among the Company, Purchaser
and Parent dated as of August 9, 1998.
Exhibit 4* Stockholder Agreement dated as of August 9, 1998, among
James M. Schlater, Jay Flatley, Purchaser and Parent.
Exhibit 5 Letter Agreement dated August 9, 1998, between the Company
and Jay Flatley.
Exhibit 6+ Letter to Stockholders of the Company dated August 14, 1998.
Exhibit 7+ Opinion of Vector Securities International, Inc., dated
August 9, 1998 (incorporated by reference to Annex B of this
Schedule 14D-9).
Exhibit 8* Text of Press Release Issued by Nycomed Amersham plc, dated
August 10, 1998.
Exhibit 9# Warrant Purchase Agreement, dated April 6, 1994, by and
between Molecular Dynamics, Inc. and Amersham Holdings, Inc.
Exhibit 10# Warrant to Purchase 1,002,000 shares dated April 6, 1994, by
and between Molecular Dynamics, Inc., Amersham Holdings,
Inc. and Amersham International plc.
Exhibit 11# Standstill Agreement, dated April 6, 1994, by and between
Molecular Dynamics, Inc., Amersham Holdings, Inc. and
Amersham International plc.
Exhibit 12# Collaboration Agreement, dated April 6, 1994, by and between
Molecular Dynamics, Inc. and Amersham International plc.
Exhibit 13# Co-Development and Co-Promotion Agreement for FluorImager
Reagents, dated April 6, 1994, by and between Amersham
International plc and Molecular Dynamics, Inc.
Exhibit 14# Cross Co-Promotion Agreement, dated April 6, 1994, by and
between Amersham International plc and Molecular Dynamics,
Inc.
</TABLE>
- ---------------
+ Included with materials delivered to stockholders of the Company.
* Filed as an Exhibit to the Purchaser's Tender Offer Statement on Schedule
14D-1 dated August 14, 1998, and incorporated herein by reference.
# Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended July 3, 1994 (File No. 0-19955) filed with the
Securities and Exchange Commission on August 17, 1994, and incorporated herein
by reference.
19
<PAGE> 20
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete and
correct.
By: [JAY FLATLEY SIGNATURE]
--------------------------------------
Jay Flatley
President and Chief Executive
Officer
Dated: August 14, 1998
20
<PAGE> 21
ANNEX A
MOLECULAR DYNAMICS
928 EAST ARQUES AVENUE
SUNNYVALE, CALIFORNIA 94086
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, AND RULE 14f-1 THEREUNDER
------------------------
NO VOTE OR OTHER ACTION OF THE COMPANY'S STOCKHOLDERS
IS REQUIRED IN CONNECTION WITH THIS INFORMATION STATEMENT.
NO PROXIES ARE BEING SOLICITED AND YOU ARE REQUESTED NOT
TO SEND THE COMPANY A PROXY.
------------------------
This Information Statement is being mailed on or about August 14, 1998, as
a part of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of Molecular Dynamics, Inc. (the "Company") to the holders of
record of shares of Common Stock, par value $0.01 per share (including the
associated rights to purchase Series A Junior Participating Preferred Stock, the
"Shares"), of the Company. You are receiving this Information Statement in
connection with the possible election of persons designated by Merger Sub (as
defined below) to a majority of the seats on the Board of Directors of the
Company (the "Board"). Capitalized terms used herein and not otherwise defined
herein shall have the meaning set forth in the Schedule 14D-9.
On August 9, 1998, the Company, Amersham Pharmacia Biotech Inc., a Delaware
corporation ("Parent"), and APB Acquisition Corp., Inc., a Delaware corporation
and a wholly-owned subsidiary of Parent ("Merger Sub"), entered into an
Agreement and Plan of Merger dated as of August 9, 1998 (the "Merger
Agreement"), in accordance with the terms and subject to the conditions of which
Merger Sub commenced the Offer. The Offer is scheduled to expire at Midnight,
New York City time, on Friday, September 11, 1998, unless the Offer is extended.
The Merger Agreement requires the Company to cause the directors designated
by Parent to be elected to the Board under the circumstances described therein
following consummation of the Offer.
This Information Statement is required by Section 14(f) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14f-1
thereunder. You are urged to read this Information Statement carefully. You are
not, however, required to take any action at this time.
The information contained in the Information Statement (including
information incorporated by reference) concerning Parent and Merger Sub and the
Parent Designees (as defined herein) has been furnished to the Company by Parent
and Merger Sub, and the Company assumes no responsibility for the accuracy or
completeness of such information.
GENERAL INFORMATION REGARDING THE COMPANY
The Shares are the only class of voting securities of the Company
outstanding. Each Share has one vote. As of July 31, 1998, there were 10,285,125
Shares outstanding. The Board currently consists of one class with six members.
At each annual meeting of stockholders, all the directors are elected for
one-year terms. The officers of the Company serve at the discretion of the
Board.
<PAGE> 22
INFORMATION WITH RESPECT TO PARENT DESIGNEES
In the event the Offer is consummated, Parent shall be entitled to
designate the number of directors, rounded up to the next whole number, on the
Company's Board of Directors that equals the product of (i) the total number of
directors on the Company's Board of Directors (giving effect to the election of
any additional directors pursuant to this Section) multiplied by (ii) the
percentage that the number of Shares beneficially owned by Parent (including
Shares accepted for payment) bears to the total number of Shares outstanding. At
such time, the Company will use its best efforts to cause individuals designated
by Parent to constitute the same percentage as such individuals represent on the
Company's Board of Directors of (i) each committee of the Board and (ii) each
board of directors (and committee thereof) of each Subsidiary. Notwithstanding
the foregoing, the Company shall use its best efforts to cause at least three
members of the Company's Board of Directors as of the date hereof who are not
employees of the Company (the "Continuing Directors") to remain members of the
Board of Directors until the Effective Time, and Parent consents thereto.
Information about the Parent Designees is contained in Schedule I to the
Offer to Purchaser, a copy of which is being mailed to stockholders together
with this Schedule 14D-9. The information on such Schedule I, as well as
supporting information contained in Section 8 of the Offer to Purchase, is
incorporated herein by reference.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Biographical information concerning each of the Company's current directors
and executive officers as of July 31, 1998, is as follows:
DIRECTORS OF THE COMPANY
JAMES M. SCHLATER. Mr. 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.
JAY FLATLEY. Mr. 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.
ROBERT H. KEELEY. Dr. 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.
JANICE M. LECOCQ. Dr. 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 1996. From
A-2
<PAGE> 23
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.
LESTER JOHN LLOYD. Mr. 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.
C. WOODROW REA, JR. Mr. Rea, 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.
EXECUTIVE OFFICERS OF THE COMPANY
DAVID L. BARKER. Dr. Barker, 56, joined the Company as Director of
Biochemical Research in February 1988 and was appointed Vice President,
Scientific Development in March 1991. From May 1985 to January 1988, Dr. Barker
was employed as Scientific Sales Consultant for Protein Databases, Inc., a
protein separation and analysis company. Dr. Barker holds a B.S. in Chemistry
from the California Institute of Technology and a Ph.D. in Biochemistry from
Brandeis University, and he was a Postdoctoral Research Fellow at Harvard
Medical School from 1969 to 1971.
BUD L. BROMLEY. Mr. Bromley, 47, joined the Company in November 1995 as
Senior Vice President, Sales and Marketing. Prior to working for the Company,
Mr. Bromley held a variety of positions with Hewlett-Packard Company (HP) in the
Chemical Analysis Group. From November 1994, Mr. Bromley was the Manager of
Information Architecture, HP Chemical Analysis Group Sales and Marketing. From
July 1993 to November 1994 he was Worldwide Bioscience Sales and Marketing
Manager. From November 1988 to July 1993 he was Global Accounts Marketing
Manager, Chemical Analysis Group. Mr. Bromley holds a B.S. in Natural Sciences
with a Chemistry concentration from Mercer University.
BRUCE K. LEISZ. Mr. Leisz, 46, joined the Company in February 1988 as
Director of Manufacturing and was appointed Vice President, Manufacturing in
January 1990. In February 1995, Mr. Leisz was appointed Vice President of
Operations. From April 1983 to February 1988, Mr. Leisz served as Vice
President, Manufacturing of Ridge Computers, a manufacturer of RISC-based
computers. Mr. Leisz holds a B.S. in Mechanical Engineering and an M.B.A. from
the University of California at Berkeley.
MARK J. SUTHERLAND. Mr. Sutherland, 41, joined the Company in August 1988
as Asia/Pacific Sales Manager and in 1994 was appointed Vice President,
Strategic Programs. In June 1997, he was appointed Vice President, Microarray
Business Segment. Mr. Sutherland holds a B.S. in Chemistry from Stanford
University.
BOARD MEETINGS AND COMMITTEES
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
A-3
<PAGE> 24
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.
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.
Following re-election as non-employee Board members at the Company's 1998 Annual
Meeting, Dr. Keeley, Dr. LeCocq, Mr. Lloyd and Mr. Rea each became entitled to
receive at that time an automatic option grant for 3,500 shares. Each automatic
option grant made at the Annual Meeting had an exercise price equal to the fair
market value of the option shares on the grant date.
No other compensation is paid to directors of the Company in respect of
their services as directors.
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.
A-4
<PAGE> 25
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION ------------------
----------------------------- NUMBER OF
NAME AND FISCAL SECURITIES ALL OTHER
PRINCIPAL POSITION YEAR SALARY(1) BONUS(2) UNDERLYING OPTIONS COMPENSATION(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, Research 1996 148,654 38,740 20,000 5,511
and Scientific Development 1995 139,615 -- -- 1,303
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 Service 1995 19,808 -- 60,000 58
Bruce K. Leisz..................... 1997 152,297 -- 10,000 1,431
Vice President, Operations 1996 163,732 39,600 20,000 4,308
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 Segment 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;
(ii) Mr. Barker: GTL insurance premiums of $2,369, $2,182 and $1,303 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;
(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.
STOCK OPTION PLANS
At the Company's 1998 Annual Meeting, holders of a majority of shares of
Common Stock of the Company voted 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
A-5
<PAGE> 26
(ii) to increase the number of shares available for issuance pursuant to the
Option Plan by 500,000 shares. As of July 31, 998, and giving effect to the
500,000-share increase to the Option Plan, 1,376,246 shares had been issued upon
exercise of options granted under the Option Plan, options for 2,227,491 were
outstanding under the Option Plan and 900,763 shares remained for future grants
under the Option Plan.
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 Company's
1998 Annual Meeting.
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.
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.
A-6
<PAGE> 27
SECURITIES SUBJECT TO THE OPTION PLAN
4,504,500 shares* of the Company's Common Stock are 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 July 31, 1998, approximately 295 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.
- ---------------
* This number is subject to adjustment in the event of certain changes to the
capitalization of the Company.
A-7
<PAGE> 28
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 July 31, 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 OF EXERCISE PRICE OF
NAME AND POSITION OPTION SHARES GRANTED OPTIONS
- ----------------- ------------- -----------------
<S> <C> <C>
Jay Flatley................................................. 55,000 $12.40
President and Chief Executive Officer
David L. Barker............................................. 20,000 $12.23
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.......................................... 30,000 $12.86
Vice President, Microarray Business Segment
All current executive officers as a group (6 persons)....... 150,000 $12.30
All current directors (other than executive officers) as a
group (4 persons)......................................... 28,000 $13.00
All employees, including current officers who are not
executive officers, as a group (approximately 295
persons).................................................. 526,950 $16.11
</TABLE>
NEW PLAN BENEFITS
Upon reelection as non-employee Board members at the Company's 1998 Annual
Meeting, Dr. Keeley, Dr. LeCocq, Mr. Lloyd and Mr. Rea were each automatically
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 August 7, 1998, the fair market value
per share of the Company's Common Stock was $15.00 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
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
A-8
<PAGE> 29
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 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
A-9
<PAGE> 30
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 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
A-10
<PAGE> 31
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 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.
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
A-11
<PAGE> 32
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.
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.
A-12
<PAGE> 33
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. 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
A-13
<PAGE> 34
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 $1 million
limitation per covered individual on the deductibility of the compensation paid
to certain executive officers of the Company.
Stock Appreciation Rights. If an option granted with a tandem stock
appreciation right is surrendered for an appreciation distribution, or if an
option granted with a limited stock appreciation right is canceled for an
appreciation distribution, the recipient will generally realize ordinary income
on the surrender or cancellation date, equal in amount to the appreciation
distribution. The Company will be entitled to a deduction equal to the amount of
such ordinary income.
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options under the Company's Restated 1997 Stock Option Plan during the 1997
fiscal year to the Named Executive Officers. No SARs were granted to any Named
Executive Officers during 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE
SECURITIES OPTIONS VALUE AT ASSUMED
UNDERLYING GRANTED ANNUAL RATES OF STOCK
OPTIONS TO PRICE APPRECIATION FOR
GRANTED IN EMPLOYEES OPTION TERM(3)
LAST FISCAL IN FISCAL EXERCISE EXPIRATION -----------------------
NAME YEAR(1) YEAR PRICE(2) DATE 5%($) 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............. 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.
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
A-14
<PAGE> 35
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 VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT FISCAL
ACQUIRED AT FISCAL YEAR-END 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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company
regarding the ownership of the Company's Common Stock as of July 31, 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
A-15
<PAGE> 36
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>
Kopp Holding Company(2)..................................... 1,077,300 10.47%
7701 France Avenue South, Suite 500
Edina, MN 55435
Amersham Pharmacia Biotech Inc.............................. 1,002,000 9.72%
800 Centennial Avenue
Piscataway, NJ 08855-1327
Deerfield Capital, L.P.(3).................................. 960,000 9.33%
450 Lexington Avenue, Suite 1930
New York, New York 10017
State of Wisconsin Investment Board......................... 585,000 5.69%
P.O. Box 7842
Madison, WI 53707
James M. Schlater(4)........................................ 382,769 3.63%
Jay Flatley(5).............................................. 239,218 2.28%
C. Woodrow Rea, Jr.(6)...................................... 37,548 *
Robert H. Keeley(7)......................................... 22,000 *
Janice M. LeCocq(8)......................................... 17,000 *
Lester John Lloyd(9)........................................ 17,000 *
David L. Barker(10)......................................... 88,317 *
Clare L. Bromley, III(11)................................... 72,511 *
Bruce K. Leisz(12).......................................... 34,187 *
Mark J. Sutherland(13)...................................... 39,675 *
All current directors and executive officers as a group (10
persons)(14).............................................. 950,225 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 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 264,687 shares granted under the Company's
Restated 1997 Option Plan (the Option Plan) that may be exercised within 60
days after July 31, 1998.
(5) Includes options to purchase 226,020 shares granted under the Option Plan
that may be exercised within 60 days after July 31, 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
A-16
<PAGE> 37
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 24,000 shares granted pursuant to the
Automatic Option Grant Program in effect under the Option Plan that may be
exercised within 60 days after July 31, 1998.
(7) 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 July 31, 1998.
(8) Represents 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 July 31, 1998.
(9) Represents 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 July 31, 1998.
(10) Includes options to purchase 82,437 shares granted under the Option Plan
that may be exercised within 60 days after July 31, 1998.
(11) Includes 5,000 shares held by the Bromley Living Trust, dated January 18,
1993. Also includes options to purchase 62,500 shares granted under the
Option Plan that may be exercised within 60 days after July 31, 1998.
(12) Represents options to purchase 34,187 shares granted under the Option Plan
that may be exercised within 60 days after July 31, 1998.
(13) Represents options to purchase 39,675 shares granted under the Option Plan
that may be exercised within 60 days after July 31, 1998.
(14) Includes options to purchase an aggregate of 788,006 shares granted under
the Option Plan that may be exercised within 60 days after July 31, 1998.
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 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.
A-17
<PAGE> 38
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.
- 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
A-18
<PAGE> 39
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.
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.
A-19
<PAGE> 40
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>
<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 99 100
Dec-93 107 111 111
Jun-94 59 89 101
Dec-94 61 114 108
Jun-95 63 144 135
Dec-95 57 191 153
Jun-96 60 215 174
Dec-96 98 200 189
Jun-97 127 188 211
Dec-97 148 205 231
</TABLE>
- ---------------
* $100 invested at 2/5/93 with dividend reinvestment.
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
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.
A-20
<PAGE> 41
ANNEX B
[VECTOR SECURITIES INTERNATIONAL LETTERHEAD]
August 9, 1998
The Board of Directors
Molecular Dynamics, Inc.
928 East Arques Avenue
Sunnyvale, California 94086
Members of the Board:
You have requested our opinion as investment bankers with respect to the
fairness, from a financial point of view as of the date hereof, to the holders
of common stock, par value $0.01 per share ("Common Stock"), of Molecular
Dynamics, Inc. ("Molecular Dynamics"), a Delaware corporation, of the cash
consideration to be offered to such stockholders pursuant to the terms of the
Agreement and Plan of Merger, dated August 9, 1998 (the "Agreement"), among (i)
Amersham Pharmacia Biotech Inc., a Delaware corporation ("Amersham Pharmacia"),
(ii) APB Acquisition Corp., a Delaware corporation and a wholly owned subsidiary
of Amersham Pharmacia ("Merger Sub"), and (iii) Molecular Dynamics.
The Agreement provides, among other things, that Merger Sub will make a
cash tender offer for all outstanding shares of Common Stock of Molecular
Dynamics (together with associated share purchase rights), other than shares
held by Amersham Pharmacia or its affiliates at $20.50 per share and that
following consummation of the offer, Merger Sub will merge with Molecular
Dynamics in a transaction in which all outstanding shares of Common Stock of
Molecular Dynamics, other than shares held by Amersham Pharmacia or its
affiliates, will be converted into the right to receive $20.50 per share in cash
(the "Proposed Transaction"). The terms and conditions of the Proposed
Transaction are more fully set forth in the Agreement.
In arriving at the opinion set forth herein, we, among other things: (i)
reviewed Molecular Dynamics' Annual Reports, Forms 10-K and related financial
information for the four fiscal years ended December 31, 1997, Form 10-Q and
related unaudited financial information for the three months ended March 31,
1998, and unaudited financial information for the six months ended June 30,
1998; (ii) reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flows, assets and prospects of Molecular
Dynamics, furnished to us by Molecular Dynamics; (iii) conducted discussions
with members of senior management of Molecular Dynamics concerning its business
and prospects; (iv) reviewed the historical market prices and trading activity
for Molecular Dynamics Common Stock and compared such prices and trading
histories with those of certain publicly traded companies which we deemed to be
relevant; (v) compared the financial position and operating results of Molecular
Dynamics with those of certain other publicly traded companies which we deemed
relevant; (vi) compared the proposed financial terms of the Proposed Transaction
with the financial terms of certain other transactions which we deemed to be
relevant; (vii) reviewed the financial terms of the Proposed Transaction as set
forth in the Agreement; and (viii) reviewed such other financial studies and
analyses and performed such other investigations and took into account such
other matters as we deemed appropriate.
In connection with our opinion, we have not assumed any responsibility for
independent verification of any information publicly available or supplied or
otherwise made available to us regarding Molecular Dynamics and we have assumed
and relied on such information being accurate and complete in all respects. We
have not made or obtained or been provided with any independent evaluation or
appraisal of the assets or liabilities of Molecular Dynamics. With respect to
the financial projections of Molecular Dynamics referred to above, we have
assumed that they have been reasonably prepared on bases reflecting the best
available estimates and judgements of the management of Molecular Dynamics as to
the future financial performance of Molecular Dynamics and that Molecular
Dynamics will perform in accordance with such projections. We
<PAGE> 42
Molecular Dynamics, Inc.
August 9, 1998
Page 2
assume no responsibility for and express no view as to such forecasts or the
assumptions under which they are prepared. Our conclusions are based solely on
information available to us on or before the date hereof and reflect economic,
market, and other conditions as of such date. In rendering our opinion, we have
assumed that the Proposed Transaction will be consummated on the terms described
in the Agreement, without any waiver of any material terms or conditions, and
that obtaining any necessary regulatory approvals for the transaction will not
have an adverse effect on Molecular Dynamics.
Vector Securities International, Inc. is a full service securities firm,
and in the course of its normal trading activities, may from time to time effect
transactions and hold positions in securities of Molecular Dynamics. We have
performed investment banking services for Molecular Dynamics in the past and
have received customary compensation for such services. We are currently acting
as financial advisor to Molecular Dynamics in connection with the Proposed
Transaction and will receive a fee in connection therewith, with such fee being
contingent upon consummation of the Proposed Transaction.
This opinion has been prepared at the request and for the use and benefit
of the Board of Directors of Molecular Dynamics and is rendered to the Board of
Directors of Molecular Dynamics in connection with its consideration of the
Proposed Transaction. This opinion does not constitute a recommendation to any
stockholder of Molecular Dynamics as to whether to accept the consideration to
be offered to the stockholders in connection with the Proposed Transaction. This
opinion does not address the relative merits of the Proposed Transaction or any
other transactions or business strategies discussed by the Board of Directors of
Molecular Dynamics as alternatives to the Proposed Transaction or the decision
of the Board of Directors of Molecular Dynamics to proceed with the Proposed
Transaction.
This opinion shall not be reproduced, summarized, described or referred to,
or provided to any other person, without our prior written consent.
On the basis of and subject to the foregoing, including the various
assumptions and limitations set forth herein, and based upon such other matters
as we consider relevant, it is our opinion as of the date hereof that the cash
consideration to be offered to the holders of Common Stock of Molecular Dynamics
(other than Amersham Pharmacia and its affiliates) pursuant to the Proposed
Transaction is fair to such stockholders from a financial point of view.
Very truly yours,
VECTOR SECURITIES INTERNATIONAL, INC.
By:[JEFFREY A. FINK SIGNATURE]
-------------------------------------------
Jeffrey A. Fink
Managing Director
<PAGE> 43
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT NAME
- ------- ------------
<S> <C>
1*+ Form of Offer to Purchase, dated August 14, 1998.
2*+ Form of Letter of Transmittal.
3* Agreement and Plan of Merger among the Company, Purchaser
and Parent dated as of August 9, 1998.
4* Stockholder Agreement dated as of August 9, 1998, among
James M. Schlater, Jay Flatley, Purchaser and Parent.
5 Letter Agreement dated August 9, 1998, between the Company
and Jay Flatley.
6+ Letter to Stockholders of the Company dated August 14, 1998.
7+ Opinion of Vector Securities International, Inc., dated
August 9, 1998 (incorporated by reference to Annex B of
this Schedule 14D-9).
8* Text of Press Release Issued by Nycomed Amershan plc, dated
August 10, 1998.
9# Warrant Purchase Agreement, dated April 6, 1994, by and
between Molecular Dynamics, Inc. and Amersham Holdings,
Inc.
10# Warrant to Purchase 1,002,000 shares dated April 6, 1994, by
and between Molecular Dynamics, Inc., Amersham Holdings,
Inc. and Amersham International plc.
11# Standstill Agreement, dated April 6, 1994, by and between
Molecular Dynamics, Inc., Amersham Holdings, Inc. and
Amersham International plc.
12# Collaboration Agreement, dated April 6, 1994, by and between
Molecular Dynamics, Inc. and Amersham International plc.
13# Co-Development and Co-Promotion Agreement for FluorImager
Reagents, dated April 6, 1994, by and between Amersham
International plc and Molecular Dynamics, Inc.
14# Cross Co-Promotion Agreement, dated April 6, 1994, by and
between Amersham International plc and Molecular Dynamics,
Inc.
</TABLE>
- ---------------
+ Included with materials delivered to stockholders of the Company.
* Filed as an Exhibit to the Purchaser's Tender Offer Statement on Schedule
14D-1 dated August 14, 1998, and incorporated herein by reference.
# Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended July 3, 1994 (File No. 0-19955) filed with the
Securities and Exchange Commission on August 17, 1994, and incorporated herein
by reference.
<PAGE> 1
EXHIBIT 5
MOLECULR DYNAMICS INC.
August 9, 1998
Mr. Jay Flatley
18930 Congress Junction Ct.
Saratoga, CA 95070
Dear Jay,
In light of the agreement by Molecular Dynamics, Inc. (the "Company") to
merge with APB Acquisition Corp. in accordance with the terms set forth in the
Agreement and Plan of Merger dated as of the date hereof among the Company,
Amersham Pharmacia Biotech Inc. ("APB") and APB Acquisition Corp. (the "Merger
Agreement"), the following sets forth our understanding concerning your
continued employment. The effectiveness of this letter is conditioned on
consummation of the merger contemplated by the Merger Agreement (the "Merger").
(References in this letter to the Company shall, after the effective date of
the Merger, be interpreted as references to the Surviving Corporation (as
defined in the Merger Agreement.)
You will retain your position as Chief Executive Officer of the Company
for a period of up to one year from the consummation of the Merger, for the
purpose of managing the Company's integration with APB. The integration of the
two organizations' structures, alignment of the terms and conditions applicable
to their employees, and establishment of an environment in which the Company
can recruit, develop, and retain staff of the highest caliber, remain
priorities to which both the Company and APB are fully committed. During the
period of your continued employment, you agree to carry out your duties to the
Company, including the pursuit of these priorities, in good faith and to the
best of your ability.
During the period of your continued employment, you will receive salary at
an annual rate of $252,000 through December 31, 1998 and at an annual rate of
$265,000 from January 1, 1999 to the Payment Date (as defined below), and
benefits at the level currently applicable to you (excluding stock options and
bonuses (other than your 1998 bonus) or any other incentive awards).
<PAGE> 2
In addition, in partial consideration of: (i) your continued employment and
contribution towards the objectives described above; (ii) the fact that you will
no longer be entitled to awards of options or other incentive compensation; and
(iii) your agreeing to the confidentiality, noncompetition and nonsolicitation
provisions referred to below, the Company will pay you an additional award of
$1,000,000 (the "Transition Incentive Compensation") in a single lump sum in
cash (net of any required withholding) on the first anniversary of the effective
date of the Merger (the "Payment Date"), provided you have not voluntarily
terminated your employment with the Company (or its successor) prior to the
Payment Date. You shall not have been deemed to have voluntarily terminated your
employment with the Company (or its successor) if you terminate your employment
following a constructive termination. A "constructive termination" shall have
occurred in the event that (i) your position and responsibility shall have been
materially altered from that contemplated by this agreement without your
consent, (ii) the terms and conditions of this agreement are materially breached
through no action of yours; or (iii) the principal place of business of the
Company (or its successor) is relocated more than 50 miles without your consent.
Notwithstanding the foregoing, if your employment is terminated before the
Payment Date by reason of either disability or death, you (or your estate) will
be entitled to receive a pro rata portion of the Transition Incentive
Compensation, reduced to reflect the period between the termination of your
employment and the Payment Date. For this purpose, termination by reason of
"disability" means termination of employment after your inability, as a result
of physical or mental incapacity, to work for a period of at least six months in
any 12-month period.
As of the Payment Date, your employment will be terminated and you will not
be entitled to any further compensation from the Company (except benefits
previously accrued and payable in accordance with the terms of any applicable
employee benefit plan), provided that the Company agrees that repayment of the
note delivered by you to the Company for a principal amount of $330,000 will not
be accelerated by reason of your termination of employment hereunder, and that
such note will remain outstanding with the same repayment and other terms and
conditions as in effect immediately before such termination (it being understood
that such loan will be repaid in full no later than January 28, 2001).
If the Company should determine, in its discretion, that the integration of
organizational structures pursuant to the Merger has been successfully completed
before the Payment Date, the Transition Incentive Compensation may be paid to
you by the Company in advance of the Payment Date. In such case, your employment
will be terminated as of the date of payment of the Transition
2
<PAGE> 3
Incentive Compensation, but you will continue to receive salary and benefits
until the Payment Date at the levels in effect as of the date of termination of
your employment.
As a condition to entitlement to the compensation and benefits described
in this letter, and in partial consideration for the amounts to be received by
you in accordance with the Merger Agreement, you agree (i) to continue to
adhere to the provisions of the confidentiality and inventions assignment
agreement previously executed by you in connection with your employment with
the Company; and (ii) for a period of one year from the date of termination of
your employment, not to hire or solicit the employment of any person then
employed by the Company, or otherwise induce any such person to leave such
employment.
In addition, for a period of two years from the effective date of the
Merger, you will not compete with the Company, except as may be otherwise
agreed by you and the Company in writing. For the purposes of this agreement,
"compete" shall mean engaging in, or otherwise directly or indirectly being
employed by or acting as a consultant to, or being a director, officer,
employee, principal, licensor, trustee, broker, agent, stockholder, member,
owner joint venturer or partner of, or permitting your name to be used in
connection with the activities of any other business or organization which
engages in, the Business, as defined below. For this purpose, "Business" means
the development, production or marketing of microarrays, DNA sequencing
instruments, or fluorescent scanners. Notwithstanding the foregoing, you will
not be deemed to be competing with the Company if you become the registered or
beneficial owner of up to five percent of any class of capital stock of a
corporation engaged in the Business and registered under the Securities
Exchange Act of 1934, as amended, provided you do not actively participate in
the business of such corporation until such time as this covenant expires. You
acknowledge that due to the uniqueness of your services and the confidential
nature of the information you will possess, the covenants set forth herein are
reasonable and necessary for the protection of the business and goodwill of the
Company.
This new opportunity for our organization represents another significant
milestone in the Company's history. It reflects your loyal and committed
leadership and direction since the Company's formation, for which the Board of
Directors wishes to express its sincere gratitude.
This letter agreement shall be governed by and construed in accordance
with the laws of the State of New York. The terms and conditions set forth in
this
3
<PAGE> 4
letter may only be amended pursuant to a written document between the Company
(or its successor) and you.
If you agree to the terms and conditions set forth in this letter,
kindly so indicate by signing in the space provided below.
Very truly yours,
Molecular Dynamics, Inc.
By: /s/ James M. Schlater
----------------------------------
Name: James M. Schlater
Title: Chairman of the Board
Accepted and agreed to as of
the date first above written.
/s/ Jay Flatley
- -----------------------------
Jay Flatley
4
<PAGE> 1
[MOLECULAR DYNAMICS LETTERHEAD]
August 14, 1998
To Our Stockholders:
I am pleased to inform you that on August 9, 1998, Molecular Dynamics, Inc.
(the "Company") entered into an Agreement and Plan of Merger with Amersham
Pharmacia Biotech Inc. and APB Acquisition Corp., a wholly owned subsidiary of
Amersham Pharmacia Biotech Inc. Under the Agreement, APB Acquisition Corp. has
commenced a cash tender offer to purchase all of the outstanding shares of the
Company's Common Stock for $20.50 per share. The Offer will be followed by a
Merger in which any remaining shares of the Company's Common Stock will be
converted into the right to receive $20.50 per share in cash, without interest.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE OFFER AND THE MERGER ARE
FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS (OTHER
THAN AMERSHAM PHARMACIA BIOTECH INC. AND ITS AFFILIATES), HAS APPROVED THE OFFER
AND THE MERGER, AND RECOMMENDS THAT COMPANY STOCKHOLDERS ACCEPT THE OFFER AND
TENDER THEIR SHARES PURSUANT TO THE OFFER.
In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors, which are described in the attached
Schedule 14D-9 that has been filed today with the Securities and Exchange
Commission. These factors include, among other things, the opinion of Vector
Securities International, Inc., the Company's exclusive financial advisor, that
the consideration to be received by the stockholders of the Company pursuant to
the Agreement is fair to the stockholders of the Company (other than Amersham
Pharmacia Biotech, Inc. and its affiliates) from a financial point of view.
In addition to the attached Schedule 14D-9 relating to the Offer, also
enclosed is the Offer to Purchase, dated August 14, 1998, of APB Acquisition
Corp., together with related materials to be used for tendering your shares.
These documents set forth the terms and conditions of the Offer and the Merger
and provide instructions as to how to tender your shares. I urge you to read the
enclosed materials carefully.
Sincerely,
[JAY FLATLEY SIGNATURE]
Jay Flatley
President and Chief Executive Officer
