<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
VENTANA MEDICAL SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(I)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined:
-----------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------
(5) Total fee paid:
--------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------
(2) Form, Schedule or Registration Statement No.:
--------------------
(3) Filing Party:
----------------------------------------------------
(4) Date Filed:
------------------------------------------------------
<PAGE> 2
VENTANA MEDICAL SYSTEMS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 6, 1999
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of VENTANA
MEDICAL SYSTEMS, INC., a Delaware corporation (the "Company"), will be held on
Thursday, May 6, 1999, at 10:00 a.m. local time, at the Arizona Inn,
African-Safari Room, 2200 East Elm Street, Tucson, Arizona 85719 for the
following purposes (as more fully described in the Proxy Statement accompanying
this Notice):
1. To elect three Class III directors of the Company to serve for terms
of three years expiring upon the date of the Annual Meeting of
Stockholders held in the year 2002 or until their successors are
elected
2. To approve an amendment to the Company's 1996 Stock Option Plan to
increase the number of shares of Common Stock reserved for issuance
thereunder by 725,000 shares to a new total of 2,475,000 shares.
3. To ratify the appointment of Ernst & Young LLP as the independent
auditors of the Company for the fiscal year ending December 31, 1999.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on March 26, 1999, are
entitled to notice of and to vote at the Annual Meeting.
All stockholders are cordially invited to attend the meeting. However, to
ensure your representation at the meeting, you are urged to mark, sign, date and
return the enclosed proxy as promptly as possible in the postage-prepaid
envelope enclosed for that purpose. If you attend the meeting, you may vote in
person even if you return a proxy.
By Order of The Board of Directors
Pierre H. Sice
Secretary
Tucson, Arizona
April 5, 1999
- --------------------------------------------------------------------------------
IMPORTANT
TO ENSURE YOUR REPRESENTATION AT THE MEETING, PLEASE MARK, SIGN, DATE AND RETURN
THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON EVEN IF YOU RETURNED
A PROXY
- --------------------------------------------------------------------------------
<PAGE> 3
VENTANA MEDICAL SYSTEMS, INC.
PROXY STATEMENT FOR
1999 ANNUAL MEETING OF STOCKHOLDERS
MAY 6, 1999
INFORMATION CONCERNING VOTING AND PROXY SOLICITATION
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Ventana Medical Systems, Inc. ("Ventana" or the "Company") for use at the Annual
Meeting of Stockholders to be held on May 6, 1999 at 10:00 a.m., local time, or
at any adjournment thereof. The Annual Meeting will be held at the Arizona Inn,
African-Safari Room, 2200 East Elm Street, Tucson, Arizona 85719. The telephone
number at the meeting location is (520) 325-1541.
These proxy solicitation materials and the Annual Report to stockholders
for the fiscal year ended December 31, 1998 (the "Last Fiscal Year"), including
financial statements, were first mailed on or about April 5, 1999, to all
stockholders entitled to vote at the Annual Meeting.
RECORD DATE AND VOTING SECURITIES
Stockholders of record at the close of business on March 26, 1999 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting. At
the Record Date, 13,425,206 shares of the Company's Common Stock, $.001 par
value (the "Common Stock"), were issued and outstanding and held of record by
approximately 303 stockholders.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a later
date or by attending the meeting and voting in person. Attending the Annual
Meeting in and of itself may not constitute a revocation of a proxy.
VOTING AND SOLICITATION
Each stockholder is entitled to one vote for each share held as of the
Record Date. Stockholders will not be entitled to cumulate their votes in the
election of directors.
The cost of soliciting proxies will be borne by the Company. The Company
expects to reimburse brokerage firms and other persons representing beneficial
owners of shares for their expense in forwarding solicitation material to such
beneficial owners. Proxies may be solicited by certain of the Company's
directors, officers and regular employees, without additional compensation, in
person or by telephone or facsimile.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the Inspector of Elections (the "Inspector") with the assistance of the
Company's Transfer Agent. The Inspector will also determine whether or not a
quorum is present. Except in certain specific circumstances, the affirmative
vote of a majority of shares present in person or represented by proxy at a duly
held meeting at which a quorum is present is required under Delaware law for
approval of proposals presented to stockholders. In general, Delaware law also
provides that a quorum consists of a majority of shares entitled to vote and
present or represented by proxy at the meeting.
<PAGE> 4
The Inspector will treat shares that are voted "WITHHELD" or "ABSTAIN" as
being present and entitled to vote for purposes of determining the presence of a
quorum but will not be treated as votes in favor of approving any matter
submitted to the stockholders for a vote. Any proxy which is returned using the
form of proxy enclosed and which is not marked as to a particular item will be
voted for the election of the three Class III directors, for the increase in the
number of shares of common stock reserved for issuance under the 1996 Stock
Option Plan, and for the confirmation of the appointment of the designated
independent auditors and, as the proxy holders deem advisable, on other matters
that may come before the meeting, as the case may be with respect to the items
not marked.
If a broker indicates on the enclosed proxy or its substitute that it does
not have discretionary authority as to certain shares to vote on a particular
matter ("Broker Non-Votes"), those shares will not be considered as present with
respect to that matter. The Company believes that the tabulation procedures to
be followed by the Inspector are consistent with the general statutory
requirements in Delaware concerning voting of shares and determination of a
quorum.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS TO BE PRESENTED AT 1999
ANNUAL MEETING
Proposals that are intended to be presented by stockholders of the Company
at the 2000 Annual Meeting must be received by the Company no later than
December 7, 1999, in order to be considered for inclusion in the proxy statement
and form of proxy relating to that meeting. Additionally, stockholders who
intend to present a proposal at the 2000 Annual Meeting of Stockholders without
inclusion of such proposal in the Company's proxy materials for the 2000 Annual
Meeting must provide notice of such proposal to the Company no later than
December 7, 1999. The Company reserves the right to reject, rule out of order,
or take other appropriate action with respect to any proposal that does not
comply with these and other applicable requirements.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's executive officers and directors and
persons who own more than ten percent of a registered class of the Company's
equity securities to file an initial report of ownership on Form 3 and changes
in ownership on Form 4 or 5 with the Securities and Exchange Commission (the
"SEC") and the National Association of Securities Dealers, Inc. Executive
officers, directors and greater-than-ten-percent stockholders are also required
by SEC rules to furnish the Company with copies of all Section 16(a) forms they
file. Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons, the Company believes
that, with respect to fiscal year 1998, all filing requirements applicable to
its officers, directors and ten percent stockholders were complied with.
SHARE OWNERSHIP OF DIRECTORS, OFFICERS AND CERTAIN BENEFICIAL OWNERS
The following table sets forth information known to the Company with
respect to the beneficial ownership of its Common Stock as of December 31, 1998,
for (i) each person who is known by the Company to own beneficially more than 5%
of the Company's Common Stock, (ii) each of the Company's directors and nominees
for director, (iii) each officer named in the Summary Compensation Table below,
and (iv) all directors, nominees for election and executive officers as a group.
Unless otherwise indicated, officers and directors can be reached at the
Company's principal executive offices. A total of 13,381,819 shares of the
Company's Common Stock were issued and outstanding as of December 31, 1998.
-2-
<PAGE> 5
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED AS
OF DECEMBER 31, 1998(1)(2)
CERTAIN EXECUTIVE OFFICERS, ----------------------------
DIRECTORS AND 5% STOCKHOLDERS NUMBER PERCENT
- ----------------------------- ----------- ----------
<S> <C> <C>
J.P. Morgan & Co. Inc.
60 Wall Street
New York, NY 10015............................ 1,456,900 10.2%
MFS Investments
500 Boyltston St., 15th Floor.
Boston, MA 02116................................... 1,190,986 8.4%
MBW Venture Partners, L.P.(3)
James R. Weersing
365 South Street
Morristown, NJ 07960.......................... 1,442,349 10.1%
Jack W. Schuler(4)................................. 1,121,916 7.9%
John Patience(5)................................... 429,767 3.0%
Henry T. Pietraszek(6)............................. 130,020 *
Carl B. Kunkleman(7)............................... 15,845 *
Johnny D. Powers, Ph.D.(8)......................... 37,669 *
Bernard O.C. Questier(9)........................... 57,042 *
Pierre Sice(10).................................... 41,152 *
Rex J. Bates(11)................................... 48,102 *
Edward M. Giles(12)................................ 263,882 1.9%
Thomas M. Grogan, M.D.(13)......................... 174,917 1.2%
James R. Weersing(3)(14)........................... 1,458,008 10.2%
All directors and executive officers
as a group (16 persons)......................... 3,881,935 27.3%
</TABLE>
- ---------------------
* Less than 1%.
1. Except as indicated in the 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.
2. Applicable percentage of ownership is based on 13,381,819 shares of Common
Stock outstanding as of December 31, 1998, together with shares issuable
pursuant to applicable options and warrants of such stockholder which may
be exercised within 60 days after December 31, 1998. Shares of Common Stock
subject to options and/or warrants currently exercisable or exercisable
within 60 days after December 31, 1998, are deemed outstanding for
computing the percentage ownership of the person holding such options
and/or warrants, but are not deemed outstanding for computing the
percentage of any other person.
3. Includes 162,059 shares issuable upon the exercise of warrants held by MBW
Venture Partners, L.P. Mr. Weersing, a director of the Company, is Managing
Director of MBW Venture Partners Limited. Mr. Weersing disclaims beneficial
ownership of the shares beneficially owned by MBW Venture Partners, L.P.
except to the extent of his proportional partnership interest therein.
4. Includes 119,526 shares issuable upon the exercise of warrants and 85,275
shares issuable upon the exercise of options exercisable within 60 days of
December 31, 1998, held by Mr. Schuler; 73,512 shares beneficially owned by
Mr. Schuler, as custodian for Tanya Eva Schuler; 73,513 shares beneficially
owned by Mr. Schuler, as custodian for Therese Heidi Schuler; and 73,512
shares beneficially owned by Mr. Schuler, as custodian for Tino Hans
Schuler; and 10,000 shares beneficially owned by The Schuler Family
Foundation, and 1,250 shares owned by Mrs. Schuler.
5. Includes 96,689 shares issuable upon the exercise of warrants and 85,492
shares issuable upon the exercise of options exercisable within 60 days of
December 31, 1998, held by Mr. Patience as well as 4,800 shares held in the
name of Mrs. Patience.
6. Includes 15,738 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1998, held by Mr. Pietraszek.
7. Includes 14,979 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1998, held by Mr. Kunkleman.
8. Includes 36,022 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1998, held by Dr. Powers.
-3-
<PAGE> 6
9. Includes 40,735 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1998, held by Mr. Questier.
10. Includes 37,840 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1998, held by Mr. Sice.
11. Includes 11,173 shares issuable upon the exercise of warrants and 9,450
shares issuable upon the exercise of options exercisable within 60 days of
December 31, 1998, held by Mr. Bates.
12. Includes 230,903 shares beneficially owned by Vertical Fund Associates,
L.P. Also includes 9,450 shares issuable upon the exercise of options
exercisable within 60 days of December 31, 1998, held by Edward M. Giles.
Also includes 18,372 shares beneficially owned by Edward M. Giles IRA plus
5,156 shares issuable upon the exercise of warrants held by Edward M. Giles
IRA. Mr. Giles, a director of the Company, is Chairman of The Vertical
Group, Inc. Mr. Giles disclaims beneficial ownership of the shares
beneficially owned by such entities affiliated with The Vertical Group,
Inc., except to the extent of his partnership interest therein.
13. Includes 9,612 shares beneficially owned by Andrew Grogan and 10,612 shares
beneficially owned by Emily Grogan including 7,710 shares beneficially
owned by C. Ovens, Inc. (of which 459 shares are issuable upon the exercise
of warrants held by C. Ovens, Inc.); and 31,229 shares issuable upon
exercise of options exercisable within 60 days of December 31, 1998, held
by Dr. Grogan.
14. Includes 6,209 shares beneficially owned by James R. Weersing and Mary H.
Weersing, Trustees of the Weersing Family Trust U/D/T dated April 24, 1991.
Also includes 9,450 shares issuable upon the exercise of options
exercisable within 60 days of December 31, 1998, held by Mr. Weersing.
-4-
<PAGE> 7
PROPOSAL NO. 1
ELECTION OF DIRECTORS
DIRECTORS AND NOMINEES FOR DIRECTOR
Pursuant to the Company's Certificate of Incorporation, as amended, the
Company's Board of Directors currently consists of seven persons, divided into
three classes serving staggered terms of three years. Currently there are two
directors in Class I, two directors in Class II and three directors in Class
III. Three Class III directors are to be elected at the Annual Meeting. The
Class I and Class II directors will be elected at the Company's 2000 and 2001
Annual Meetings of Stockholders, respectively. Each of the three Class III
directors elected at the Annual Meeting will hold office until the 2002 Annual
Meeting of Stockholders or until his successor has been duly elected and
qualified.
In the event that any of such persons becomes unavailable or declines to
serve as a director at the time of the Annual Meeting, the proxy holders will
vote the proxies in their discretion for any nominee who is designated by the
current Board of Directors to fill the vacancy. It is not expected that any of
the nominees will be unavailable to serve.
The names of the three Class III nominees for election to the Board of
Directors at the Annual Meeting, their ages as of the Record Date, and certain
information about them are set forth below. The names of the current Class I and
Class II directors with unexpired terms, their ages as of the Record Date, and
certain information about them are also set forth below.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION SINCE
<S> <C> <C> <C>
NOMINEES FOR CLASS III DIRECTORS
Thomas M. Grogan, M.D. 53 Professor, University of Arizona, 1985
College of Medicine
John Patience 51 General Partner, Crabtree Partners 1989
Jack W. Schuler 58 General Partner, Crabtree Partners 1991
CONTINUING CLASS I DIRECTORS
Henry T. Pietraszek 52 President and Chief Executive Officer 1997
of Ventana Medical Systems, Inc.
James R. Weersing 59 Managing Director of MBW Venture 1994
Partners
CONTINUING CLASS II DIRECTORS
Edward M. Giles 63 Chairman of The Vertical Group, Inc. 1992
Rex J. Bates 75 Private Investor 1996
</TABLE>
There are no family relationships among directors or executive officers of
the Company.
DR. GROGAN is a founder, a director and Chairman Emeritus of Ventana. He
has served as a director since the founding of the Company in June 1985 and as
Chairman of the Board of Ventana from June 1985 to November 1995. He is
currently a professor of pathology at the University of Arizona, College of
Medicine, where he has taught since 1979. He received a B.A. in Biology from the
University of Virginia and an M.D. from George Washington School of Medicine.
Dr. Grogan completed a post-doctorate fellowship at Stanford University.
MR. PATIENCE has served as a director of Ventana since July 1989 and as
Vice Chairman of the Board of Directors since January 1999. Mr. Patience was a
co-founder and served as a General Partner of Marquette Venture Partners, a
venture capital investment firm, from January 1988 until March 1995. Since April
1995, Mr. Patience has
-5-
<PAGE> 8
been a partner in Crabtree Partners, a Chicago-based venture capital firm. Mr.
Patience was previously a partner in the consulting firm of McKinsey & Co.,
specializing in health care. He is currently a director of TRO Learning, Inc.
and Stericycle, Inc. Mr. Patience received a B.A. in Liberal Arts and an L.L.B.
from the University of Sydney, Australia, and an M.B.A. from the University of
Pennsylvania Wharton School of Business.
MR. SCHULER has served as a director of Ventana since April 1991 and as
Chairman of the Board of Directors since November 1995. Mr. Schuler has been
Chairman of the Board of Directors of Stericycle, Inc., a specialized medical
waste management company, since March 1990. Mr. Schuler is also a partner in
Crabtree Partners, a Chicago-based venture capital firm. Prior to joining
Stericycle, Mr. Schuler held various executive positions at Abbott Laboratories
from December 1972 through August 1989, serving most recently as President and
Chief Operating Officer. He is currently a director of Medtronic, Inc. and
Chiron Corporation. Mr. Schuler received a B.S. in Mechanical Engineering from
Tufts University and an M.B.A. from Stanford University.
MR. PIETRASZEK became President, Chief Executive Officer and a director in
March 1997. Prior to joining the Company, Mr. Pietraszek served as President and
Chief Executive Officer of Biostar, Inc., a medical diagnostic company. From
1975 to 1994, Mr. Pietraszek held a variety of executive positions at Abbott
Laboratories and Takeda Chemical Industries. From 1982 to 1986, he served as
President of Dainabot K.K., a joint venture between Abbott and Dainippon
Pharmaceutical Company of Japan and from 1980 to 1982 he was Vice President of
Field Service Operations for Abbott's Diagnostic Division. He is a director of
Specialty Laboratories. Mr. Pietraszek received a B.S. in Marketing from Gannon
University.
MR. WEERSING has served as a director of Ventana since October 1994. Since
1984, Mr. Weersing has been a Managing Director of MBW Venture Partners, a
venture capital investment firm. Mr. Weersing has also served as President of
JRW Technology, Inc., a consulting firm. Mr. Weersing served as a director of
Circadian, Inc., an asthma dosage management company, from December 1993 until
January 1996. Circadian filed a petition under Chapter 7 of the federal
bankruptcy laws in January 1996. Mr. Weersing received a B.S.M.E. and an M.B.A.
from Stanford University.
MR. GILES has served as a director of Ventana since September 1992. Mr.
Giles has served as Chairman of The Vertical Group, Inc., a venture capital
investment firm, since January 1989. Mr. Giles was previously President of F.
Eberstadt & Co., Inc., a securities firm, and Vice Chairman of Peter B. Cannell
& Co., Inc., an investment management firm. He is currently a director of
McWhorter Technologies, Inc. and Synthetech, Inc. Mr. Giles received a B.S.Ch.E.
in Chemical Engineering from Princeton University and an M.S. in Industrial
Management from the Massachusetts Institute of Technology.
MR. BATES has served as a director of Ventana since April of 1996. From
August 1991 to May 1995, Mr. Bates served on the Board of Directors of Twentieth
Century Industries and was a member of its compensation committee. Prior to
Twentieth Century Industries, Mr. Bates served as the Vice-Chairman of the Board
of Directors of the State Farm Mutual Automobile Insurance Company. Mr. Bates
also served as State Farm's Chief Investment Officer. In March of 1991, Mr.
Bates retired from State Farm. Prior to Mr. Bates' employment with State Farm,
he was a partner in the investment firm of Stein, Roe & Farnham in Chicago. Mr.
Bates received a B.S. and an M.S. from the University of Chicago.
BOARD MEETINGS, COMMITTEES AND DIRECTOR COMPENSATION
The Board of Directors of the Company held six meetings during the fiscal
year ended December 31, 1998.
The Board of Directors has an Audit Committee, a Compensation Committee and
a Nominating Committee. From time to time, the Board has created various ad hoc
committees for special purposes. No such committee is currently functioning.
The Audit Committee consists of directors Rex Bates (Chairman), Dr. Thomas
Grogan, and John Patience. The Audit Committee is responsible for reviewing the
results and scope of the audit and other services provided by the Company's
independent auditors. The Audit Committee held two meetings in the last fiscal
year.
-6-
<PAGE> 9
The Compensation Committee consists of directors James Weersing (Chairman),
Edward Giles and Jack Schuler. The Compensation Committee reviews and makes
recommendations to the Board concerning salaries and incentive compensation for
executive officers and certain employees of the Company. The Compensation
Committee held six meetings during the last fiscal year. The President and Chief
Executive Officer of the Company participates fully with all other committee
members in recommending salaries and incentive compensation to the board of
directors, except that he does not participate in committee proceedings relating
to his salary and compensation.
The Nominating Committee consists of directors Jack Schuler (Chairman),
Edward Giles and James Weersing. The Nominating Committee is responsible for the
development of general criteria regarding the qualifications and selection of
board members and recommends candidates for election to the board. The
Nominating Committee held six meetings in the last fiscal year.
COMPENSATION OF DIRECTORS
Directors of the Company do not receive cash for services they provide as
directors. From time to time, certain directors who are not employees of the
Company have received grants of options to purchase shares of the Company's
Common Stock. Under the 1996 Director Option Plan, each nonemployee director may
be granted a nonstatutory option to purchase an amount of shares of Common Stock
of the Company equal to 5,000 shares multiplied by a fraction, the numerator of
which shall be $15.00 and the denominator of which shall be the fair market
value of one share of the Company's Common Stock on the date of grant. In
November 1998, the Board of Directors amended the 1996 Director Option Plan to
allow the grant of a minimum of 16,500 shares per Director to vest monthly over
a 5-year period. The Company does not provide additional compensation for
committee participation or special assignments of the Board of Directors.
VOTE REQUIRED
The three nominees receiving the highest number of affirmative votes of the
shares entitled to vote on this matter shall be elected as the Class III
directors.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
NOMINEES SET FORTH HEREIN.
-7-
<PAGE> 10
PROPOSAL NO. 2
APPROVAL OF AMENDMENT OF 1996 STOCK OPTION PLAN
The Company's Board of Directors and stockholders have previously adopted
and approved the Company's 1996 Stock Option Plan (the "Option Plan"). A total
of 1,750,000 shares of Common Stock are presently reserved for issuance under
the Option Plan. In January 1999, the Board of Directors approved an amendment
to the Option Plan, subject to stockholder approval, to increase the shares
reserved for issuance thereunder by 725,000 shares, bringing the total number of
shares issuable under the Option Plan to 2,475,000.
As of January 29, 1999, 273,995 shares were available for future issuance
under the Option Plan.
At the Annual Meeting, the stockholders are being requested to consider and
approve the proposed amendment to the Option Plan to increase the number of
shares of Common Stock reserved for issuance thereunder by 725,000 shares,
bringing the total number of shares issuable under the Option Plan to 2,475,000.
The Board believes that the amendment will enable the Company to continue its
policy of widespread employee stock ownership as a means to motivate high levels
of performance and to recognize key employee accomplishments.
The Plan authorizes the Board of Directors to grant stock options to
eligible employees, directors and consultants of the Company. The Plan is
structured to allow the Board of Directors broad discretion in creating equity
incentives in order to assist the Company in attracting, retaining and
motivating the best available personnel for the successful conduct of the
Company's business. The Company has had a longstanding practice of linking key
employee compensation to corporate performance, because it believes that this
increases employee motivation to improve shareholder value. The Company has,
therefore, consistently included equity incentives as a significant component of
compensation for a broad range of the Company's employees. This practice has
enabled the Company to attract and retain the talent that it continues to
require.
The Board of Directors believes that the remaining shares available for
grant under the Plan are insufficient to accomplish the purposes of the Plan
described above. The Company anticipates there will be a need to hire additional
technical or management employees, and it will be necessary to offer equity
incentives to attract and motivate these individuals, particularly in the
current extremely competitive job market. In addition, in order to retain the
services of valuable employees as the Company matures and its employee base
grows larger, it will be necessary to grant additional options to current
employees as older options become fully vested.
A summary of the essential features of the Option Plan is set forth below.
SUMMARY OF THE STOCK PLAN
General. The Stock Plan authorizes the Board of Directors (the "Board"), or
one or more committees which the Board may appoint from among its members (the
"Committee"), to grant options ("Option") and rights to purchase Common Stock.
Options granted under the Stock Plan may be either "incentive stock options" as
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or nonstatutory stock options, as determined by the Board or the
Committee.
Purpose. The general purpose of the Stock Plan is to attract and retain the
best available personnel for positions of substantial responsibility, to provide
additional incentive to employees and consultants and to promote the success of
the Company's business.
Administration. The Stock Plan may be administered by the Board or the
Committee. Subject to the other provisions of the Stock Plan, the Administrator
has the authority: (i) to determine the Fair Market Value of the Common Stock in
accordance with the Stock Plan; (ii) to select the Employees or Consultants to
whom Options may be granted under the Stock Plan; (iii) to determine whether and
to what extent Options are granted hereunder; (iv) to determine the number of
shares of Common Stock to be covered by each Option granted under the Stock
Plan; (v) to approve forms of
-8-
<PAGE> 11
agreement for use under the Stock Plan; (vi) to determine the terms and
conditions, not inconsistent with the terms of the Stock Plan, including the
exercise price, the time or times when Options may be exercised (which may be
based on performance criteria), any vesting, acceleration, or waiver of
forfeiture restrictions, and any restriction or limitation regarding any Option
or the shares of Common Stock relating thereto, based in each case on such
factors as the Administrator, in its sole discretion, shall determine; (vii) to
reduce the exercise price of any Option to the then current Fair Market Value if
the Fair Market Value of the Common Stock covered by such Option shall have
declined since the date the Option was granted; (viii) to institute an Option
Exchange Program; (ix) to construe and interpret the terms of the Stock Plan and
awards granted pursuant to the Stock Plan; (x) to prescribe, amend and rescind
rules and regulations relating to the Stock Plan, including rules and
regulations relating to sub-plans established for the purpose of qualifying for
preferred tax treatment under foreign tax laws; (xi) to modify or amend each
Option (subject to Section 14(c) of the Stock Plan), including the discretionary
authority to extend the post-termination exercisability period of Options longer
than is otherwise provided for in the Stock Plan; (xii) to authorize any person
to execute on behalf of the Company any instrument required to effect the grant
of an Option previously granted by the Administrator; and (xiii) to make all
other determinations deemed necessary or advisable for administering the Stock
Plan.
Eligibility. The Stock Plan provides that options may be granted to the
Company's employees and consultants. Incentive stock options may be granted only
to employees. Any optionee who owns more than 10% of the combined voting power
of all classes of outstanding stock of the Company (a "10% Stockholder") is not
eligible for the grant of an incentive stock option unless the exercise price of
the option is at least 110% of the fair market value of the Common Stock on the
date of grant.
Limitations. To the extent that the aggregate Fair Market Value of the
shares with respect to which Incentive Stock Options are exercisable for the
first time by the Optionee during any regular calendar year exceeds $100,000,
such Options shall be treated as Non-Statutory Stock Options. Neither the Plan
nor any Option shall confer any right of continuing employment to Optionee nor
interfere with any right of Optionee to terminate employment. No employee shall
be granted, in any fiscal year of the Company, options to purchase more than
500,000 shares of Common Stock with the exception of a grant of Options to
purchase up to 750,000 shares of Common Stock in connection with an Employee's
initial employment. The foregoing limitation, which shall be adjusted
proportionately in connection with any change in the Company's capitalization,
is intended to satisfy the requirements applicable to options intended to
qualify as "performance-based compensation" within the meaning of Section 162(m)
of the Code. In the event that the Administrator determines that such limitation
is not required to qualify options as performance-based compensation, the
Administrator may modify or eliminate such limitation. A stock option cancelled
in the same fiscal year it was granted will be counted against such limitation.
Terms of Plan and Option. The Plan shall continue in effect for ten (10)
years unless terminated earlier in accordance with the provisions of the Plan.
Each stock option agreement specifies the term of the option and the date when
the option is to become exercisable. However, in no event shall an option
granted under the Stock Plan be exercised more than 10 years after the date of
grant. Moreover, in the case of an incentive stock option granted to a 10%
Stockholder, the term of the option shall be for no more than five years from
the date of grant.
Exercise Price. The Board or the Committee determines the exercise price of
options to purchase shares of Common Stock at the time the options are granted.
However, excluding options issued to 10% Stockholders, the exercise price under
an incentive stock option must not be less than 100% of the fair market value of
the Common Stock on the date the option is granted. If the Common Stock is
traded on the over-the-counter market, the fair market value shall be the mean
of the high bid and high ask prices on the date the option is granted.
Form of Consideration. The means of payment for shares issued upon exercise
of an option is specified in each option agreement and generally may be made by
cash, check, promissory note, other shares of Common Stock of the Company owned
by the optionee, documentation required to effect delivery of sale or loan
proceeds sufficient to pay exercise price, a reduction in the amount of any
Company liability to the Optionee, or by a combination thereof.
Termination of Employment or Consulting Relationship. If an optionee's
employment terminates for any reason (other than death or permanent disability),
then all options held by such optionee under the Stock Plan expire upon the
earlier of (i) such period of time as is set forth in his or her option
agreement (but not to exceed 3 months after the
-9-
<PAGE> 12
termination of his or her employment in the event of an incentive stock option)
or (ii) the expiration date of the option. The optionee may exercise all or part
of his or her option at any time before such expiration to the extent that such
option was exercisable at the time of termination of employment.
Disability of Optionee. If an employee is unable to continue employment
with the Company as a result of permanent and total disability (as defined in
the Code), then all options held by such optionee under the Stock Plan shall
expire and revert to the Plan (i) 12 months after the date of termination of the
optionee's employment or (ii) the expiration date of the option. The optionee
may exercise all or part of his or her option at any time before such expiration
to the extent that such option was exercisable at the time of termination of
employment.
Death of Optionee. If an optionee dies while employed by the Company, his
or her option shall expire upon the earlier of (i) 12 months after the
optionee's death or (ii) the expiration date of the option. The executors or
other legal representative of the optionee may exercise all or part of the
optionee's option at any time before such expiration to the extent that such
option was exercisable at the time of death.
Nontransferability of Options. Unless determined otherwise by the
Administrator, during an optionee's lifetime, his or her option(s) shall be
exercisable only by the optionee and shall not be transferable other than by
will or laws of descent and distribution.
Other Provisions. The stock option agreement may contain such terms,
provisions and conditions not inconsistent with the Stock Plan as may be
determined by the Board or Committee.
Adjustment upon Changes in Capitalization, Corporate Transactions. In the
event that the stock of the Company is changed by reason of any stock split,
reverse stock split, stock dividend, recapitalization or other change in the
capital structure of the Company, appropriate proportional adjustments shall be
made in the number and class of shares of stock subject to the Stock Plan, the
number and class of shares of stock subject to any option or right outstanding
under the Stock Plan, and the exercise price of any such outstanding option or
night. Any such adjustment shall be made upon approval of the Board and, if
required, the stockholders of the Company, whose determination shall be
conclusive. Notwithstanding the above, in connection with any merger,
consolidation, acquisition of assets or like occurrence involving the Company,
each outstanding option and right shall be assumed or an equivalent option or
right substituted by a successor corporation. If the successor corporation does
not assume the options or substitute substantially equivalent options, then the
exercisability of all outstanding options and rights shall be accelerated. In
the event of the proposed dissolution or liquidation of the Company, the
exercisability of all outstanding options and rights may be accelerated at the
discretion of the Administrator. To the extent they have not been previously
exercised, options shall terminate upon consummation of the proposed action.
Amendment, Suspensions and Termination of the Stock Plan. The Board may
amend, suspend or terminate the Stock Plan at any time; provided, however, that
the Company shall obtain stockholder approval of any amendment to the extent
necessary and desirable to comply with Rule 16b-3 or with Section 422 of the
Code or any other applicable rule or statute.
Federal Tax Information. Options granted under the Stock Plan may be either
incentive stock options, as defined in Section 422 of the Code, or nonstatutory
options.
An optionee who is granted an incentive stock option will not recognize
taxable income either at the time the option is granted or upon its exercise,
although the exercise may subject the optionee to the alternative minimum tax.
Upon the sale or exchange of the shares more than two years after grant of the
option and one year after exercising the option, any gain or loss will be
treated as long-term capital gain or loss. If these holding periods are not
satisfied, the optionee will recognize ordinary income at the time of sale or
exchange equal to the difference between the exercise price and the lower of (i)
the fair market value of the shares at the date of the option exercise or (ii)
the sale price of the shares. A different rule for measuring ordinary income
upon such a premature disposition may apply if the optionee is also an officer,
director, or 10% stockholder of the Company. The Company will be entitled to a
deduction in the same amount as the ordinary income recognized by the optionee.
Any gain or loss recognized on such a premature disposition
-10-
<PAGE> 13
of the shares in excess of the amount treated as ordinary income will be
characterized as long-term or short-term capital gain or loss, depending on the
holding period.
All other options, which do not quality as incentive stock options, are
referred to as nonstatutory options. An optionee will not recognize any taxable
income at the time he is granted a nonstatutory option. However, upon its
exercise, the optionee will recognize taxable income generally measured as the
excess of the then fair market value of the shares purchased over the purchase
price. Any taxable income recognized in connection with an option exercise by an
optionee who is also an employee of the Company will be subject to tax
withholding by the Company. Upon resale of such shares by the optionee, any
difference between the sales price and the optionee's purchase price, to the
extent not recognized as taxable income as described above, will be treated as
long-term or short-term capital gain or loss, depending on the holding period.
Subject to Section 162(m) of the Code, the Company will be entitled to a
tax deduction in the same amount as the ordinary income recognized by the
optionee with respect to shares acquired upon exercise of a nonstatutory option.
The foregoing is only a summary of the effect of federal income taxation
upon the optionee and the Company with respect to the grant and exercise of
options under the Stock Plan, does not purport to be complete, and does not
discuss the tax consequences of the optionee's death or the income tax laws of
any municipality, state or foreign country in which an optionee may reside.
VOTE REQUIRED
The approval of the amendment to the Option Plan requires the affirmative
vote of a majority of the votes cast on the proposal at the Annual Meeting.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
AMENDMENT OF THE OPTION PLAN TO INCREASE THE NUMBER OF SHARES RESERVED FOR
ISSUANCE THEREUNDER.
-11-
<PAGE> 14
PROPOSAL NO. 3
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP, independent
auditors, to audit the financial statements of the Company for the fiscal year
ending December 31, 1999, and recommends that the stockholders vote FOR
confirmation of such selection. In the event of a negative vote on such
ratification, the Board of Directors will reconsider its selection.
Representatives of Ernst & Young LLP are expected to be present at the Annual
Meeting with the opportunity to make a statement if they desire to do so, and
are expected to be available to respond to appropriate questions.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999.
-12-
<PAGE> 15
EXECUTIVE COMPENSATION
COMPENSATION TABLES
Summary Compensation Table. The following table sets forth certain
compensation paid by the Company to the Chief Executive Officer and the four
other most highly compensated executive officers of the Company for services
rendered during each of the fiscal years ended December 31, 1996, 1997 and 1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
-----------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES ALL
-------------------- STOCK UNDERLYING OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) AWARDS($) OPTIONS COMPENSATION
- --------------------------- ---- --------- -------- --------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Henry T. Pietraszek 1998 205,000 -- -- 15,738 131,738(1)
President and Chief Executive 1997 167,942 -- -- 350,000 707(1)
Officer 1996 -- -- -- -- --
- --------------------------------------
Pierre H. Sice 1998 164,041 -- -- 16,968 53,927(1)
Vice President, Finance and Chief 1997 122,963 -- -- 55,000 8,264(1)
Financial Officer and Secretary 1996 -- -- -- -- --
- --------------------------------------
Bernard O. C. Questier (3) 1998 150,000 -- -- 16,836 8,800(2)
Vice President, European 1997 150,000 -- -- 10,000 8,800(2)
Operations 1996 137,500 7,500(4) -- -- 8,067(2)
- --------------------------------------
Johnny D. Powers, Ph.D. 1998 133,654 12,500 -- 14,213 --
Vice President, Operations & 1997 118,375 -- -- 15,000
General Manager Molecular 1996 16,154 15,000(5) -- 35,000 23,872(1)
Diagnostics
- --------------------------------------
Carl B. Kunkleman 1998 129,029 -- -- 12,082 56,432(1)
Vice President, Sales 1997 72,599 -- -- 35,000 --
1996 -- -- -- -- --
</TABLE>
- ------------------------
(1) Relocation expenses inclusive of tax reimbursement on non-deductible
portion.
(2) Automobile allowance.
(3) Mr. Questier signed an employment contract with the Company in October of
1995 and began working at the Company in February 1996. His annual
compensation is set at $150,000 and his salary is fixed to the French Franc
to protect against currency fluctuations should the United States Dollar
depreciate relative to the French Franc; however, if the United States
Dollar appreciates relative to the French Franc, Mr. Questier's salary
shall remain unchanged.
(4) Mr. Questier received a one-time nonrecurring $7,500 bonus in 1996 for
signing his employment contract in October of 1995 and meeting certain
other conditions.
(5) Dr. Powers was offered a sign-on bonus of $15,000 in connection with his
joining the Company.
-13-
<PAGE> 16
Option Grants in Last Fiscal Year. The following table sets forth
information with respect to each grant of stock options made during the fiscal
year ended December 31, 1998 to each executive officer named in the Summary
Compensation Table above:
OPTION GRANTS IN FISCAL 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANS
------------------------------------------------------- POTENTIAL REALIZABLE VALUES
NUMBER OF AT ASSUMED ANNUAL RATES OF
SECURITIES % OF TOTAL STOCK PRICE APPRECIATION
UNDERLYING OPTIONS EXERCISE OR FOR OPTION TERM(4)
OPTIONS GRANTED BASE PRICE EXPIRATION ---------------------------
NAME GRANTED(1) IN 1998(2) ($/SH))(3) DATE 5%($) 10%($)
- ----------------------- ---------- ---------- ---------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Henry T. Pietraszek 15,738 3.7% $27.375 1/14/08 $270,945 $ 686,629
Pierre H. Sice 9,968 2.4% $27.375 1/14/08 $171,609 $ 434,891
7,000 1.7% $16.625 1/29/08 $ 73,188 $ 185,472
Bernard O. C. Questier 6,000 1.4% $15.25 1/14/08 $ 57,544 $ 145,827
3,836 0.9% $27.375 1/14/08 $ 66,041 $ 167,360
7,000 1.7% $16.625 1/29/08 $ 73,188 $ 185,472
Johnny D. Powers, Ph.D. 7,213 1.7% $27.375 1/14/08 $124,179 $ 314,694
7,000 1.7% $16.625 1/29/08 $ 73,188 $ 185,472
Carl B. Kunkleman 7,082 1.7% $15.25 1/14/08 $ 67,921 $ 172,125
5,000 1.2% $16.625 1/29/08 $ 52,277 $ 132,480
</TABLE>
- -----------------------
1. Options were granted under the Company's under the 1996 Stock Option Plan.
The grants expiring on 1/29/08 vest over five years from the date of grant,
while the grants expiring on 1/14/08 are fully vested.
2. Based on an aggregate of 421,525 options granted by the Company in the year
ended December 31, 1998 under the Company's stock option plans to all
employees of and consultants to the Company, including the Chief Executive
Officer and four other most-highly-compensated officers. The aggregate
number of options includes 169,222 non-qualified stock options granted to
employees who were not officers or directors of the Company.
3. The exercise price per share of each option was equal to the fair market
value of the Common Stock on the date of grant.
4. The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission. There can
be 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.
-14-
<PAGE> 17
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End
Values. The following table sets forth, for each of the executive officers named
in the Summary Compensation Table above, information with respect to each
exercise of stock options during the fiscal year ended December 31, 1998 and the
value of unexercised options at December 31, 1998.
AGGREGATE OPTION EXERCISES IN FISCAL 1998 AND YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT DECEMBER 31, 1998 AT DECEMBER 31, 1998(1)
ACQUIRED ON VALUE ----------------------------- --------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- ------------ ----------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Henry T. Pietraszek -- -- 15,738 350,000 -- 3,281,250
Pierre H. Sice -- -- 35,315 36,653 232,011 318,614
Bernard O.C. Questier 6,000 91,500 38,545 19,248 653,648 243,297
Johnny D. Powers, Ph.D. -- -- 33,706 30,507 152,699 184,801
Carl B. Kunkleman 8,500 90,250 13,354 25,228 117,235 266,226
</TABLE>
- ----------------------
(1) The value of "in-the-money" stock options represents the positive spread
between the exercise price of stock options, which ranges from $0.84 per
share to $27.375 per share, and the fair market value for the Company's
Common Stock of $21.625 per share as of December 31, 1998, which was the
closing price of the Company's Common Stock on December 31, 1998.
EMPLOYMENT AGREEMENTS
The Company has an employment agreement with Bernard O.C. Questier, its
Vice President of European Operations. The agreement provides for annual
compensation of $150,000, which is fixed to the French Franc to protect against
currency fluctuations should the United States Dollar depreciate relative to the
French Franc; however, if the United States Dollar appreciates relative to the
French Franc, Mr. Questier's salary shall remain unchanged. The agreement also
provides for, in the event of Mr. Questier's termination, continued compensation
through the quarter in which notice of termination is given plus one additional
full quarter. The agreement does not provide for any specified term of
employment. The Company currently has no employment contracts or agreements
with any of the other officers named in the Summary Compensation Table or with
any other person.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The Compensation Committee of the Board of Directors consists of Jack W.
Schuler, James Weersing and Edward M. Giles. The Compensation Committee makes
recommendations to the Board of Directors concerning salaries and incentive
compensation for employees of and consultants to the Company, except that the
Compensation Committee has full power and authority to grant stock options to
the Company's executive officers under the Company's 1996 Stock Option Plan.
-15-
<PAGE> 18
BOARD COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The following is provided to stockholders by the members of the
Compensation Committee of the Board of Directors:
The Compensation Committee of the Board of Directors (the "Committee"),
consisting of three outside directors, is responsible for the administration of
the Company's compensation programs. These programs include base salary for
executive officers and both annual and long-term incentive compensation
programs. The Company's compensation programs are designed to provide a
competitive level of total compensation and include incentive and equity
ownership opportunities linked to the Company's performance and stockholder
return.
COMPENSATION PHILOSOPHY
The design and implementation of the Company's executive compensation
programs are based on a series of guiding principles derived from the Company's
values, business strategy and management requirements. These principles may be
summarized as follows:
o Align the financial interests of the management team with the Company
and its stockholders;
o Attract, motivate and retain high-caliber individuals necessary to
increase total return to stockholders;
o Provide a total compensation program where a significant portion of
pay is linked to individual achievement and short- and long-term
Company performance; and
o Emphasize reward for performance at the individual, team and Company
levels.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
The Committee has considered the potential impact of Section 162(m) of the
Internal Revenue Code adopted under the Federal Revenue Reconciliation Act of
1993. Section 162(m) disallows a tax deduction for any publicly held corporation
for individual compensation exceeding $1 million in any taxable year for any of
the named executive officers, unless compensation is performance based. Since
the targeted cash compensation of each of the named executive officers is well
below the $1 million threshold and the Committee believes that any options
granted under the Company's stock option plan will meet the requirement of being
performance based under the transition provisions provided in the regulations
under Section 162(m), the Committee believes that Section 162(m) will not reduce
the tax deduction available to the Company. The Company's policy is to qualify
to the extent reasonable its executive officers' compensation for deductibility
under applicable tax laws.
COMPENSATION PROGRAM
The Company's executive compensation program has three major components,
all of which are intended to attract, retain and motivate executive officers
consistent with the principles set forth above. The Committee considers these
components of compensation individually as well as collectively in determining
total compensation for executive officers.
1. Base salary. Each fiscal year the Committee establishes base salaries
for individual executive officers based upon (i) industry and peer group
surveys, (ii) responsibilities, scope and complexity of each position and (iii)
performance judgments as to each individual's past and expected future
contributions. The Committee reviews with the Chief Executive Officer and
approves, with appropriate modifications, an annual base salary plan for the
Company's executive officers other than the Chief Executive Officer. The
Committee reviews and fixes the base salary of the Chief Executive Officer based
on similar competitive compensation data and the Committee's assessment of his
past performance and its expectations as to his future contributions in leading
the Company.
-16-
<PAGE> 19
2. Annual cash (short-term) incentives. Annual cash incentives will be
established to provide a direct linkage between individual pay and annual
corporate performance. Target annual bonus awards will be established for
executive officer positions based upon industry and peer group surveys and range
from 5% to 25% of base salary, with 25% for the chief executive officer
position. Each officer who served in an executive capacity during the last
fiscal year, including the Chief Executive Officer, received a bonus for such
service in the form of fully vested stock options. In establishing bonus amounts
in the future, the Committee will primarily consider the financial performance
of the Company measured in terms of revenue growth and growth in earnings, and
secondarily consider the performance of each officer in his or her respective
area of accountability. Each officer will establish operating objectives for the
functional area of the business for which they take responsibility at the
beginning of the Company's fiscal year. At the end of the year, they will be
rated on the attainment of those objectives. Each officer may receive a portion
or the full amount of their targeted annual performance based bonus.
3. Equity based incentive compensation. Long-term incentives for the
Company's employees are provided under the Company's stock option plan. Each
fiscal year, the Committee considers the desirability of granting to executive
officers long-term incentives in the form of stock options. These option grants
are intended to motivate the executive officers to manage the business to
improve long-term Company performance and align the financial interests of the
management team with the Company and its stockholders. The Committee established
the grants of stock options to executive officers (other than the Chief
Executive Officer) in the Last Fiscal Year, based upon a review with the Chief
Executive Officer of proposed individual awards, taking into account each
officer's scope of responsibility and specific assignments, strategic and
operational goals applicable to the officer, anticipated performance
requirements and contributions of the officer and competitive data for similar
positions. The Committee independently reviewed these same factors in
determining the option grant to Mr. Pietraszek as Chief Executive Officer.
Respectfully submitted,
Jack W. Schuler
James R. Weersing
Edward M. Giles
The foregoing Compensation Committee Report shall not be deemed to be
"soliciting material" or be "filed" with the SEC, nor shall such information be
incorporated by reference into any future filing under the Securities Act of
1933, as amended (the "Securities Act" or the Exchange Act, except to the extent
the Company specifically incorporates it by reference into such filing.
-17-
<PAGE> 20
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total return to stockholders of
the Company's Common Stock at December 31, 1998 since July 26, 1996 (the date
the Company first became subject to the reporting requirements of the Exchange
Act) to the cumulative total return over such period of (i) the NASDAQ Stock
Market Composite Index, (ii) the Russell 2000 Index and (iii) the Dillon, Read &
Co. Medical Diagnostic Index. The graph assumes the investment of $100 on July
26, 1996 in the Company's Common Stock and each of such indices (from July 28,
1996) and reflects the change in the market price of the Company's Common Stock
relative to the noted indices at December 31, 1998, and not for any interim
period. The performance shown is not necessarily indicative of future price
performance.
<TABLE>
<CAPTION>
7/96 9/96 12/96 3/97 6/97 9/97 12/97 3/98 6/98 9/98 12/98
---- -------- -------- ------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ventana 100 178.3133 78.3784 75.6757 66.8919 87.1622 82.4324 143.9189 151.3514 97.2973 116.6918
Nasdaq US ($) 100 110.1154 105.2253 99.5745 117.5358 137.3920 127.9912 148.6169 154.4306 138.0563 178.7150
Russell 2000 100 113.6626 104.6826 98.8943 114.4288 131.0142 126.1641 138.7684 132.0448 104.9655 121.8164
Dillon Read & Co. Med 100 100.4348 102.6087 95.2174 106.0870 128.2609 116.5217 132.6087 122.1739 115.6522 138.6957
</TABLE>
The information contained in the Stock Performance Graph shall not be
deemed to be "soliciting material" or to be filed with the SEC, nor shall such
information be incorporated by reference into any future filing under the
Securities Act or the Exchange Act, except to the extent the Company
specifically incorporates it by reference into such filing.
-18-
<PAGE> 21
CERTAIN TRANSACTIONS
In April and May 1996, the Company sold an aggregate of 646,664 shares of
Common Stock to Jack Schuler, the Company's Chairman, John Patience, a director
of the Company, and venture capital funds affiliated with Marquette Venture
Partners ("Marquette"), a principal stockholder of the Company, at a purchase
price of $1.62 per share. Messrs. Schuler and Patience paid the purchase price
for their shares 10% in cash and 90% through a full recourse promissory note
secured by the underlying shares of Common Stock. Marquette paid the purchase
price for their shares in cash. These stock purchases were approved by the
Company's Board of Directors in principle in January 1996 and the specific terms
of the stock purchases were approved by the Board of Directors on February 23,
1996. The purchase price of $1.62 per share was determined by the Board of
Directors of the Company in January 1996 and equals the fair market value of
Company's Common Stock as of such date, as determined by the board. Messrs.
Schuler and Patience were provided with the opportunity to purchase these shares
in connection with (i) their efforts and assistance in completing the
acquisition of BioTek Solutions, Inc. and assisting management with the
integration of the companies, (ii) Mr. Schuler's decision to serve as Chairman
of the Board of Directors and (iii) Mr. Schuler's and Mr. Patience's devotion of
a significant portion of their work time to the Company's business. In February
1998, Messrs. Schuler and Patience each fully paid the promissory notes issued
in connection with their purchase of the shares.
On November 13, 1997, the Company's Board of Directors unanimously
approved, with Messrs. Patience and Schuler abstaining, a renewal of the
foregoing arrangement. Under this arrangement, Messrs. Schuler and Patience each
received options for 150,000 shares of Company Common Stock. These options were
issued on the basis that Messrs. Patience and Schuler would devote a significant
percentage of their work time to the Company's business and that Mr. Schuler
would serve as Chairman of the Company's Board of Directors. The options vest on
a cumulative monthly basis over 24 months commencing February 26, 1998 and have
an exercise price of $12.625 per share, which is equal to the fair market value
of the Company's Common Stock on the date of grant.
On January 26, 1999, the Company's Board of Directors unanimously
approved, with Messrs. Patience and Schuler abstaining, a further change to the
foregoing arrangement. Messrs. Patience and Schuler became employees of the
Corporation effective January 1, 1999. For their services, they are each to
receive $2,000 per month and stock options in the amount of 45,000 shares
vesting in on a monthly basis over 12 months commencing February 26, 1999. The
options carry an exercise price of $17.875 per share, which was equal to the
fair market value of the Company's Common Stock on the date of grant. In
addition, Mr. Patience, in connection with his election to Vice Chairman of the
Board of Directors, was awarded an option to purchase 50,000 shares which vest
in equal amounts over 48 months starting January 26, 1999 at an exercise price
of $17.875 per share.
-19-
<PAGE> 22
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If
any other matters properly come before the meeting, it is the intention of the
persons named in the accompanying form of proxy to vote the shares they
represent as the Board of Directors may recommend.
THE COMPANY WILL MAIL WITHOUT CHARGE TO ANY STOCKHOLDER UPON WRITTEN
REQUEST A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K, INCLUDING THE
FINANCIAL STATEMENTS, SCHEDULES AND A LIST OF EXHIBITS. REQUESTS SHOULD BE SENT
TO INVESTOR RELATIONS, VENTANA MEDICAL SYSTEMS, INC., 3865 NORTH BUSINESS CENTER
DRIVE, TUCSON, ARIZONA 85705.
THE BOARD OF DIRECTORS
Dated: April 5, 1999
<PAGE> 23
VENTANA MEDICAL SYSTEMS, INC.
ANNUAL MEETING OF STOCKHOLDERS
MAY 6, 1999
10:00 A.M.
ARIZONA INN
AFRICAN-SAFARI ROOM
2200 EAST ELM STREET
TUCSON, ARIZONA 85719
- --------------------------------------------------------------------------------
VENTANA MEDICAL SYSTEMS, INC.
1999 ANNUAL MEETING OF STOCKHOLDERS PROXY
- --------------------------------------------------------------------------------
The undersigned stockholder of VENTANA MEDICAL SYSTEMS, INC., a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, each dated April 5, 1999, and hereby appoints
Henry T. Pietraszek; Pierre H. Sice, or either of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in the
name of the undersigned, to represent the undersigned at the 1999 Annual Meeting
of Stockholders of VENTANA MEDICAL SYSTEMS, INC. to be held on May 6, 1999 at
10:00 a.m., local time, at the Arizona Inn, African-Safari Room, 2200 East Elm
Street, Tucson, Arizona 85719, and at any adjournment or adjournments thereof,
and to vote all shares of Common Stock which the undersigned would be entitled
to vote if then and there personally present, on the matters set forth below.
See reverse for voting instructions.
<PAGE> 24
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope
we've provided or return it to Ventana Medical Systems, Inc., c/o Shareowner
Services(TM), P.O. Box 64873, St. Paul, MN 55164-0873.
Please detach here
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2 AND 3.
1. Election of directors: 01 Thomas M. Grogan, M.D. 03 Jack W. Schuler
(Class III) 02 John Patienca
[ ] Vote FOR [ ] Vote WITHHELD
all nominees from all nominees
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO ---------------------------------------
VOTE FOR ANY INDICATED NOMINEE, WRITE
THE NUMBER(S) OF THE NOMINEE(S) IN THE
BOX PROVIDED TO THE RIGHT.) ---------------------------------------
2. To approve an amendment to the Company's 1996 Stock Option Plan to increase
the number of shares of Common Stock reserved for issuance thereunder by
725,000 shares to a new total of 2,475,000 shares.
[ ] For [ ] Against [ ] Abstain
3. To ratify the appointment of Ernst & Young LLP as the independent auditors
of the Company for the fiscal year ending December 31, 1999.
[ ] For [ ] Against [ ] Abstain
4. To transact such other business as may properly come before the meeting or
any adjournment thereof.
[ ] For [ ] Against [ ] Abstain
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.
Address Change? Mark Box [ ] Date:
Indicate changes below: ----------------------------------------
---------------------------------------------
---------------------------------------------
Signature(s) in Box
(This Proxy should be marked, dated and
signed by the stockholder(s) exactly as his,
her or its name appears hereon, and returned
promptly in the enclosed envelope. Persons
signing in a fiduciary capacity should so
indicate. If shares are held by joint tenants
or as community property, both should sign.)
