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MDL INFORMATION SYSTEMS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 7, 1996
To Our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders of
MDL INFORMATION SYSTEMS, INC. (the "Company") which will be held at the
Company's principal executive offices, 14600 Catalina Street, San Leandro,
California, at 12:00 p.m. on Wednesday, August 7, 1996 for the following
purposes:
1. To elect six members of the Board of Directors to serve until the
next Annual Meeting or until their successors have been duly elected
and qualified;
2. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending March 31, 1997;
3. To approve an amendment to the Company's 1993 Stock Option and
Restricted Stock Plan to increase the number of shares of Common
Stock reserved for issuance thereunder by 850,000 shares, to increase
to 5,000 from 2,000 the annual grant to be made to non-employee
directors under the Automatic Grant Program and to approve a shorter
vesting schedule, and to limit the maximum number of shares for which
any one individual participant may be granted stock options each year
under the 1993 Plan to a maximum of 500,000 shares;
4. To act upon such other business as may properly come before the
meeting or at any adjournments or postponements thereof.
Only stockholders of record at the close of business on June 7, 1996 are
entitled to notice of, and to vote at, the Annual Meeting and at any
adjournments or postponements thereof. A list of such stockholders will be
available at the Company's principal executive offices located at 14600 Catalina
Street, San Leandro, California, during ordinary business hours for the ten day
period prior to the Annual Meeting.
Representation of at least a majority of all outstanding shares of Common
Stock of MDL Information Systems, Inc. is required to constitute a quorum.
Accordingly, it is important that your shares be represented at the meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY CARD AND PROMPTLY RETURN IT IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. You may revoke your proxy at any time prior to the time it is voted.
If you attend the Annual Meeting and vote by ballot, your proxy will be revoked
automatically and only your vote at the Annual Meeting will be counted.
On behalf of the Board of Directors, I would like to express our
appreciation for your continued interest in the affairs of the Company. We look
forward to seeing you at the Annual Meeting.
Sincerely,
Steven D. Goldby
Chairman and Chief Executive Officer
San Leandro, California
July 8, 1996
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STOCKHOLDERS SHOULD READ THE ENTIRE PROXY STATEMENT
CAREFULLY PRIOR TO RETURNING THEIR PROXIES
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS OF
MDL INFORMATION SYSTEMS, INC.
TO BE HELD AUGUST 7, 1996
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of MDL INFORMATION SYSTEMS, INC., a Delaware corporation,
("MDL" or the "Company") of proxies to be voted at the Annual Meeting of
Stockholders which will be held at 12:00 p.m. on August 7, 1996 at the Company's
principal executive offices, 14600 Catalina Street, San Leandro, California
94577, or at any adjournments or postponements thereof, for the purposes set
forth in the accompanying Notice of Annual Meeting of Stockholders. This Proxy
Statement and the proxy card were first mailed to stockholders on or about JULY
8, 1996 to all stockholders entitled to vote at the Annual Meeting.
VOTING RIGHTS AND SOLICITATION
The close of business on June 7, 1996 was the record date for stockholders
entitled to notice of and to vote at the Annual Meeting. As of that date, MDL
had 8,645,189 shares of common stock, $.01 par value per share (the "Common
Stock"), issued and outstanding, exclusive of treasury stock. All of the shares
of the Company's Common Stock outstanding on the record date are entitled to
vote at the Annual Meeting, and stockholders of record entitled to vote at the
meeting will have one (1) vote for each share so held on the matters to be voted
upon. The affirmative vote of a majority of the outstanding shares of the
Company present or represented and entitled to vote at the 1996 Annual Meeting
is required for the election of the nominees to the Board of Directors.
Shares of the Company's Common Stock represented by proxies in the
accompanying form that are properly executed and returned to MDL will be voted
at the Annual Meeting of Stockholders in accordance with the stockholders'
instructions contained therein. In the absence of contrary instructions, shares
represented by such proxies will be voted FOR the election of each of the
directors as described herein under "Proposal 1--Election of Directors," FOR
ratification of the selection of auditors as described herein under "Proposal
2--Ratification of Selection of Independent Public Auditors," and FOR
ratification to amend Company's 1993 Stock Option and Restricted Stock Plan as
described herein under "Proposals 3 and 4-- Approval of Amendment to Company's
1993 Stock Option and Restricted Stock Plan." Management does not know of any
matters to be presented at this Annual Meeting other than those set forth in
this Proxy Statement and in the Notice accompanying this Proxy Statement. If
other matters should properly come before the meeting, the proxy holders will
vote on such matters in accordance with their best judgment. Any stockholder has
the right to revoke his or her proxy at any time before it is voted. Abstentions
and broker non-votes are each included in the determination of the number of
shares present for quorum purposes. Abstentions are counted in tabulations of
the votes cast on proposals presented to stockholders, whereas broker non-votes
are not counted for purposes of determining whether a proposal has been
approved. All votes will be tabulated by the inspector of election appointed for
the meeting who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes.
The entire cost of soliciting proxies will be borne by MDL including the
preparation, assembly, printing and mailing of this Proxy Statement, the proxy
and any additional soliciting material furnished to stockholders. Proxies will
be solicited principally through the use of the mails, but, if deemed desirable,
may be solicited personally or by telephone, telegraph or special letter by
officers and regular MDL employees for no additional compensation. The Company
has engaged The First National Bank of Boston ("Bank of Boston") to provide
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routine advice and services for proxy solicitation. Arrangements may be made
with brokerage houses and other custodians, nominees and fiduciaries to send
proxies and proxy material to the beneficial owners of the Company's Common
Stock and such persons may be reimbursed for their expenses.
VOTES REQUIRED
PROPOSAL 1. Directors are elected by a plurality of the affirmative votes
cast by those shares present in person, or represented by proxy, and entitled to
vote at the Annual Meeting. The six nominees for director receiving the highest
number of affirmative votes will be elected. Abstentions and broker non-votes
will not be counted toward a nominee's total. Stockholders may not cumulate
votes in the election of directors.
PROPOSAL 2. Ratification of the appointment of Ernst & Young LLP as the
Company's independent auditors for the fiscal year ending March 31, 1997
requires the affirmative vote of a majority of those shares present in person,
or represented by proxy, and cast either affirmatively or negatively at the
Annual Meeting. Abstentions and broker non-votes will not be counted as having
been voted on the proposal.
PROPOSALS 3 AND 4. Approval of the adoption of the amendment to the
Company's 1993 Stock Option and Restricted Stock Plan requires the affirmative
vote of a majority of those shares present in person, or represented by proxy,
and entitled to vote at the Annual Meeting. Abstentions will be treated as votes
against the proposal. Broker non-votes will be treated as not entitled to vote
on this matter and thus will have no effect on the outcome of the vote.
PURPOSE OF MEETING
The specific proposals to be considered and voted upon at the Annual
Meeting are summarized in the accompanying Notice of Annual Meeting of
Stockholders. Each proposal is described in more detail in this Proxy Statement.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be considered at the 1997 Annual Meeting
of Stockholders must be received by the Company no later than February 28, 1997.
The proposal must be mailed to the Company's principal executive offices, 14600
Catalina Street, San Leandro, California 94577, Attention: Corporate Secretary.
Such proposals may be included in next year's proxy statement if they comply
with certain rules and regulations promulgated by the Securities and Exchange
Commission.
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MATTERS TO BE CONSIDERED AT ANNUAL MEETING
PROPOSAL 1:
ELECTION OF DIRECTORS
The nominees for the Board of Directors, their ages as of June 7, 1996,
their positions and offices held with the Company and certain biographical
information are set forth below. The proxy holders intend to vote all proxies
received by them in the accompanying form for the nominees for directors listed
below. In the event any nominee is unable or declines to serve as a director at
the time of the Annual Meeting, the proxies will be voted for any nominee who
shall be designated by the present Board of Directors to fill the vacancy unless
otherwise instructed. In the event that additional persons are nominated for
election as directors, the proxy holders intend to vote all proxies received by
them for the nominees listed below unless otherwise instructed. As of the date
of this Proxy Statement, the Board of Directors is not aware of any nominee who
is unable or will decline to serve as a director.
NOMINEES TO BOARD OF DIRECTORS
<TABLE>
<CAPTION>
NAME DIRECTOR SINCE AGE POSITIONS AND OFFICES HELD WITH THE COMPANY
- ------------------------------ -------------- --- -----------------------------------------------
<S> <C> <C> <C>
Steven D. Goldby.............. 1993 56 Chief Executive Officer and Chairman of the
Board of Directors
Thomas D. Jones............... 1993 47 President, Chief Operating Officer and Director
Peter W. Booth (1)(2)......... 1993 56 Director
Donald E. O'Neill (1)(2)...... 1993 70 Director
David N. Strohm (1)(2)........ 1993 48 Director
Pedro M. Cuatrecasas.......... 1996 59 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Steven D. Goldby joined the Company in January 1982 and currently serves as
Chairman of the Board of Directors and Chief Executive Officer. Mr. Goldby held
various management positions prior to joining the Company, including Senior Vice
President at ALZA Corporation, a therapeutic systems company, from 1968 to 1973
and President of Dynapol, a specialty chemical company, from 1973 to 1981. He
currently serves as Director of Aspect Development, Inc., a publicly held
company. Mr. Goldby holds an A.B. in chemistry from the University of North
Carolina and a J.D. from Georgetown University Law Center.
Thomas D. Jones joined the Company in March 1986 and currently serves as
President and Chief Operating Officer and is also a Director of the Company.
From 1983 to 1986, Mr. Jones was Western Regional Manager for Sydis, Inc., a
computer hardware company that developed integrated communications and software
systems. From 1979 to 1983, he held various sales management positions for Prime
Computer Corporation, a computer hardware supplier. Mr. Jones holds a B.S. in
analytical management from the United States Naval Academy and an M.S. in
systems management from the University of Southern California.
Peter W. Booth has been a Director of the Company since September 1993.
Since 1991, Mr. Booth has been Senior Vice President, Strategy and Development
at Corning Incorporated, an international diversified company. From 1986 to
1991, Mr. Booth served as President of Corning Japan. He also currently serves
as a director of Molecular Simulations, Inc., Corning Asahi Video Products
Company, and Samsung-Corning Co. Ltd. Mr. Booth received B.A. and J.D. degrees
from Harvard University.
Donald E. O'Neill has been a Director of the Company since September 1993.
From 1971 to 1991, Mr. O'Neill held various positions at Warner Lambert Co., an
international pharmaceutical company, including Executive Vice President and
Chairman of International Operations, Board of Directors, Office of the
Chairman. Mr. O'Neill currently serves as a director of a number of
pharmaceutical and life sciences related companies including Alliance
Pharmaceutical Corp., Targeted Genetics Corp., ImmunoGen Inc.,
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Fujisawa U.S.A., New Jersey Resources, Cytogen, and Fuisz Technologies. Mr.
O'Neill received a B.S. from the University of Washington.
David N. Strohm has been a Director of the Company since September 1993.
Since 1983, Mr. Strohm has been a general partner of Greylock Management
Corporation, a private venture capital management corporation. Mr. Strohm served
as a vice president of Greylock from 1980 to 1983. He currently serves on the
Board of Directors of Banyan Systems, Legato Systems and Forte Software, all
publicly held companies. Mr. Strohm received a B.A. degree from Dartmouth
College and an MBA from Harvard University.
Dr. Pedro M. Cuatrecasas has been a Director of the Company since January
1996. Since 1989, Dr. Cuatrecasas has served as president, Pharmaceutical
Research Division, at Warner Lambert Co., an international pharmaceutical
company. In 1986, he became Senior Vice President, research and development,
Glaxo, Inc., and in 1988 he was named director, Glaxo International Research,
Ltd. In 1975, he joined Burroughs Wellcome Company as vice president of research
and development. He currently serves on the Board of Directors of Pioneer
Hi-Bred International, Inc., a public company that develops, produces and
markets various types of seeds. Dr. Cuatrecasas received a B.A. degree and an
M.D. from Washington University in St. Louis.
There are no family relationships among executive officers or directors of
the Company.
BOARD MEETINGS AND COMMITTEES
During the fiscal year ended March 31, 1996, the Board of Directors of the
Company held a total of four (4) meetings. During this period, each director
attended or participated in all of (i) the meetings of the Board that were held
while they were members and (ii) the meetings held by all committees of the
Board on which they were members. Dr. Cuatrecasas became a Board member on
January 1, 1996 and did not attend any meetings during fiscal year 1996.
The Company has an Audit Committee and a Compensation Committee of the
Board of Directors. There is no nominating committee or committee performing the
functions of such committee.
The Audit Committee meets with the Company's financial management and its
independent auditors at various times during each year and reviews internal
control conditions, audit plans and results and financial reporting procedures.
This Committee, consisting of Peter W. Booth, Donald E. O'Neill and David N.
Strohm, held two (2) meetings during fiscal year 1996.
The Compensation Committee reviews and approves the Company's compensation
arrangements for management and administers the Company's 1993 Stock Option and
Restricted Stock Plan. This Committee, consisting of Peter W. Booth, Donald E.
O'Neill and David N. Strohm, held four (4) meetings during fiscal year 1996.
DIRECTOR REMUNERATION
Non-employee members of the Board are each paid fees of $1,250 per month
and $1,000 for each meeting attended and are reimbursed for all out-of-pocket
costs incurred in connection with their attendance at such meetings. All fees
payable to Mr. Booth are paid to The Corning Foundation.
Under the Automatic Grant Program in effect under the Company's 1993 Stock
Option and Restricted Stock Plan, an individual who first becomes a non-employee
member of the Board will receive an automatic option grant to purchase 15,000
shares of the Company's Common Stock upon commencement of Board service. In
addition, from 1993 to the Annual Stockholders Meeting in 1995, each individual
with six or more months of Board service received an automatic option grant to
purchase an additional 2,000 shares at each Annual Meeting at which he was
elected, re-elected or continued to serve as a non-employee Board member.
Subject to stockholder approval at this Annual Meeting, commencing with this
Annual Meeting, each individual with six or more months of Board service will
receive an automatic option grant to purchase 5,000 shares at each Annual
Meeting at which he is elected, re-elected or continues to serve as a non-
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employee Board member. Pursuant to the Automatic Grant Program, Messrs. O'Neill
and Strohm were each granted an option to purchase 15,000 shares of Common Stock
on September 17, 1993 at an exercise price of $8.37 per share, 2,000 shares of
Common Stock on August 10, 1994 at an exercise price of $6.50 per share, and
2,000 shares on August 9, 1995 at an exercise price of $15.37 per share. Mr.
Cuatrecasas was granted an option to purchase 15,000 shares of Common Stock on
January 5, 1996 at an exercise price of $20.00 per share. Mr. Booth declined
automatic option grants for which he was eligible in fiscal years 1994, 1995 and
1996. At the Annual Meeting on August 7, 1996, Messrs. O'Neill, Strohm and
Cuatrecasas will each be granted an option to purchase 5,000 shares of Common
Stock at an exercise price equal to the fair market value of such shares on the
grant date, subject to stockholder approval at this Annual Meeting.
No other compensation is paid to the non-employee members of the Board with
respect to their service on the Board.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR the
election of each of the above nominees.
PROPOSAL 2:
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The firm of Ernst & Young LLP has served as independent auditors for the
Company since the fiscal year ended March 31, 1994. The Board of Directors
desires Ernst & Young LLP to continue in this capacity for the current fiscal
year. Accordingly, a resolution will be presented at the Annual Meeting to
ratify the selection of Ernst & Young LLP by the Board of Directors as
independent auditors to audit the accounts and records of the Company for the
fiscal year ending March 31, 1997 and to perform other appropriate services. In
the event that stockholders fail to ratify the selection of Ernst & Young LLP,
the Board of Directors would reconsider such selection. Even if the selection is
ratified, the Board of Directors, in its discretion, may direct the appointment
of a different independent auditing firm at any time during the year if the
Board of Directors believes such a change would be in the best interests of the
Company.
A representative of Ernst & Young LLP will be present at the Annual Meeting
to respond to appropriate questions and to make a statement if such
representative desires to do so.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR the
ratification of the selection of Ernst & Young LLP to serve as the Company's
independent auditors for the fiscal year ending March 31, 1997.
PROPOSALS 3 AND 4:
APPROVAL OF AMENDMENT TO COMPANY'S 1993 STOCK OPTION AND
RESTRICTED STOCK PLAN
The Board of Directors adopted the 1993 Stock Option and Restricted Stock
Plan (the "1993 Plan") effective July 21, 1993. The 1993 Plan was amended (i) on
February 9, 1994 to increase the number of shares of Common Stock reserved for
issuance under the 1993 Plan by 174,000 shares, (ii) on November 15, 1995 to
increase the number of shares of Common Stock available for issuance under the
1993 Plan by 150,000 shares, (iii) on January 1, 1996 to change the annual
automatic grant for non-employee Board members from an option grant to purchase
2,000 shares to an option grant to purchase 5,000 shares and to change the
vesting applicable to such grants, and (iv) on May 29, 1996 to increase the
number of shares available for issuance under the 1993 Plan by 700,000 shares to
an aggregate of 2,764,000 shares and to limit the maximum number of shares for
which any one individual participant may be granted stock options each year
under the 1993 Plan
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to a maximum of 500,000 shares. The Board believes that option grants and stock
issuances under the 1993 Plan play an important role in the Company's efforts to
attract, employ, and retain employees, directors, and consultants of outstanding
ability.
The principal terms and provisions of the 1993 Plan are summarized below.
The summary, however, is not intended to be a complete description of all the
terms of the 1993 Plan. A copy of the 1993 Plan will be furnished by the Company
to any stockholder upon written request to the Corporate Secretary at the
principal executive offices in San Leandro, California.
STRUCTURE AND ELIGIBILITY
The 1993 Plan is divided into three components: the discretionary option
grant program, the automatic option grant program, and the stock issuance
program. The discretionary option grant program provides for the grant of
options to purchase shares of Common Stock to key employees (including officers
and directors) and consultants of the Company or its parent or subsidiary
corporations. The stock issuance program allows these individuals to make
immediate purchases of Common Stock. The automatic option grant program provides
for the automatic grant of options to non-employee Board members.
Options granted under the discretionary option 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 meet those
requirements. All grants under the automatic option grant program will be non-
statutory options.
As of June 7, 1996 it was estimated that nine (9) executive officers and
two-hundred and seventy (270) other key employees were eligible to participate
in the 1993 Plan and four (4) non-employee Board members were eligible to
participate in the automatic option grant program.
ADMINISTRATION
The 1993 Plan (other than the automatic option grant program) is currently
administered by a committee (the "Committee") comprised of 2 or more
non-employee Board members appointed by the Board. The Committee has discretion
(subject to the provisions of the 1993 Plan) to authorize stock option grants
and direct stock issuances. All grants under the automatic option grant program
will be made in compliance with the provisions of the program and no
administrative discretion will be exercised by the Committee with respect to the
automatic grants.
SHARE RESERVE
The maximum number of shares of Common Stock which may be issued over the
term of the 1993 Plan shall not exceed 2,764,000 shares, assuming approval of
this Proposal 3. Shares of Common Stock available for issuance under the 1993
Plan will be drawn from either the Company's authorized but unissued shares of
Common Stock or from reacquired shares of Common Stock, including shares
repurchased by the Company on the open market. Should an option expire or
terminate for any reason (including pursuant to the cancellation-regrant
provisions of the 1993 Plan) prior to exercise in full, the shares subject to
the portion of the option not so exercised will be available for subsequent
issuance under the 1993 Plan. Shares subject to any option surrendered in
accordance with the stock appreciation right provisions of the 1993 Plan and all
share issuances under the 1993 Plan, whether or not the shares are subsequently
reacquired by the Company pursuant to its repurchase rights under the 1993 Plan,
will reduce on a share-for-share basis the number of shares of Common Stock
available for subsequent issuance.
No individual participating in the 1993 Plan may be granted stock options,
separately exercisable stock appreciation rights or direct stock issuances for
more than 500,000 shares of Common Stock in the aggregate each year over the
remaining term of the 1993 Plan, exclusive of option grants and stock awards
made prior to June 1, 1996, subject to stockholder approval of this Proposal 3.
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VALUATION
The fair market value per share of Common Stock on any relevant date under
the 1993 Plan will be the closing price per share on that date as listed on the
Nasdaq National Market. If there is no reported closing price for that date,
then the closing price for the last previous date for which a quotation exists
will be determinative of fair market value. The fair market value of Common
Stock on June 7, 1996, as reported on the Nasdaq National Market, was $30.25 per
share.
DISCRETIONARY OPTION GRANT PROGRAM
PRICE AND EXERCISABILITY
The exercise price of options granted under the discretionary option grant
program may not be less than 100% of the fair market value of the Common Stock
on the grant date and no option may be outstanding for more than a 10-year term.
Options granted under the discretionary option grant program may be immediately
exercisable for vested shares, immediately exercisable for unvested shares
subject to the Company's repurchase rights, or exercisable in installments for
vested shares over the optionee's period of service. The aggregate fair market
value (as of the date or dates of grant) of shares of Common Stock for which
options granted to any employee under the 1993 Plan may initially become
exercisable as incentive stock options under the Federal tax laws may not exceed
$100,000 per optionee in a single year.
The exercise price may be paid in cash or in shares of Common Stock valued
at fair market value on the exercise date. The option may also be exercised for
vested shares through a same-day sale program pursuant to which the purchased
shares are to be sold immediately and a portion of the sale proceeds to be
applied to the payment of the exercise price for those shares on the settlement
date. The Committee may also assist any optionee (including an officer or
director) in the exercise of his or her outstanding options by (i) authorizing a
Company loan to the optionee, or (ii) permitting the optionee to pay the
exercise price in installments over a period of years. The terms and conditions
of any such loan or installment payment will be established by the Committee in
its sole discretion.
The Committee may cancel outstanding options under the discretionary option
grant program that have exercise prices equal to the then current market price
of the Common Stock and issue replacement options covering the same or different
numbers of shares of Common Stock with an exercise price based on the market
price of Common Stock at the time of the new grant.
TERMINATION OF SERVICE
Any option held by the optionee at the time of cessation of service will
not remain exercisable beyond the designated post-service exercise period. Under
no circumstances, however, may any option be exercised after the specified
expiration date of the option term. Each such option will normally, during such
limited period, be exercisable only to the extent of the number of shares of
Common Stock in which the optionee is vested at the time of cessation of
service. The 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, independent contractor, consultant or
Board member.
The Committee has complete discretion to extend the period following the
optionee's cessation of service during which his or her outstanding options may
be exercised and/or to accelerate the exercisability of such options in whole or
in part. Such discretion may be exercised at any time while the options remain
outstanding, whether before or after the optionee's actual cessation of service.
The shares of Common Stock acquired upon the exercise of one or more
options may 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 Committee has complete discretion in establishing the
vesting schedule to be in effect for any such unvested shares and may cancel the
Company's outstanding repurchase rights with respect to those shares at any
time, thereby accelerating the vesting of the shares subject to the canceled
rights.
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STOCKHOLDER RIGHTS
The optionee is not to have any stockholder rights with respect to the
option shares until the option is exercised, the exercise price is paid and a
stock certificate is issued for the purchased shares. Options are not assignable
or transferable other than by will or by the laws of inheritance following the
optionee's death and the option may, during the optionee's lifetime, be
exercised only by the optionee.
STOCK APPRECIATION RIGHTS
The Committee may grant options with tandem or limited stock appreciation
rights. Tandem stock appreciation rights provide the holders with the right,
subject to approval by the Committee, to surrender their options for an
appreciation distribution from the Company equal in amount to the excess of (i)
the fair market value of the vested shares of Common Stock subject to the
surrendered option over (ii) the aggregate exercise price payable for those
vested shares. An appreciation distribution may, in the discretion of the
Committee, be made in cash or in shares of Common Stock.
Officers of the Company subject to the short-swing profit restrictions of
the Federal securities laws may also be granted limited stock appreciation
rights in connection with their option grants. Any option with such a limited
stock appreciation right in effect for at least 6 months will be automatically
canceled upon the successful completion of a Hostile Takeover. Hostile Takeover
means the acquisition by any person or related group of persons (other than the
Company or its affiliates) of securities possessing more than 50% of the
combined voting power of the Company's outstanding securities pursuant to a
tender or exchange offer that the Board does not recommend the Company's
stockholders accept, provided at more than 50% of the securities so acquired in
the tender or exchange offer are obtained from holders other than the officers
and directors of the Company subject to the short-swing trading restrictions of
Federal securities laws. In return for the surrendered option, the officer will
be entitled to a cash distribution from the Company in an amount per share of
Common Stock subject to the surrendered option (whether or not the option is
otherwise at the time exercisable for such shares) based on the difference
between the tender offer price (or, if greater, the fair market value of the
shares on the date of cancellation) and the option exercise price.
AUTOMATIC OPTION GRANT PROGRAM
A. Each individual who first becomes a non-employee Board member at any
time after the July 21, 1993 effective date of the 1993 Plan and who was not
previously granted an option under the 1993 Plan will automatically be granted
at the time of such initial election or appointment a non-statutory stock option
to purchase 15,000 shares of Common Stock.
B. Each year, on the date of the 1994 and 1995 Annual Stockholders Meeting,
each continuing non-employee Board member received an additional grant of a
non-statutory option under the 1993 Plan to purchase 2,000 shares of Common
Stock, provided that individual had served as a non-employee Board member for at
least 6 months.
C. Each year, commencing with the 1996 Annual Meeting and subject to
stockholder approval at the 1996 Annual Meeting, each continuing non-employee
Board member will receive an additional grant of a non-statutory option to
purchase 5,000 shares of Common Stock, provided that individual has served as a
non-employee Board member for at least 6 months.
D. Each automatic option grant will be subject to the following term and
conditions:
1. The option price per share will be equal to 100% of the fair market
value per share of Common Stock on the automatic grant date and each
option will have a maximum term of 10 years measured from the grant
date.
2. Initial automatic option grants and annual automatic grants to
purchase 2,000 shares of Common Stock will be exercisable in a series of
equal annual installments over a 4-year period measured from the grant
date, provided the optionee continues as a member of the Board. Annual
automatic grants to purchase 5,000 shares, subject to stockholder
approval, will be exercisable in a series of
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equal annual installments over a 2-year period measured from the grant
date. In the event of a Corporate Transaction or a Change in Control
(defined below) exercisability will automatically accelerate and, upon
consummation of a Corporate Transaction, the options will terminate.
3. Should the optionee cease to be a Board member, the option may be
exercised, within the term of the option, for a period of 3 months (12
months in the case of disability or retirement at or after age 65 or if
the optionee dies while a Board member or within 3 months following
cessation of service as a Board member). If cessation of service is due
to disability, retirement at or after age 65, or death while a Board
member, the option will become exercisable for all shares subject to the
option at the time of the optionee's cessation of Board service.
4. Each automatic option in effect for at least 6 months will
automatically be canceled upon the occurrence of a Hostile Take-Over (as
defined above), and the optionee will in return be entitled to a cash
distribution from the Company for each share of option stock (whether or
not the option is otherwise at the time exercisable for such shares)
based on the difference between the tender offer price and the exercise
price.
5. The remaining terms and conditions of the options will conform to the
non-discretionary terms described above and below for option grants
under the discretionary option grant program.
STOCK ISSUANCE PROGRAM
Shares may be sold under the stock issuance program at a price per share
not less than 85% of fair market value, payable in cash or through a promissory
note payable to the Company, or as a bonus for past services. Shares reacquired
by the Company and held as treasury shares may be issued for any consideration
that the Committee deems appropriate. Shares issued under the stock issuance
program may either be vested upon issuance or subject to a vesting schedule tied
to the participant's period of service or to performance goals. Unvested shares
will be subject to certain transfer restrictions and to repurchase or
cancellation by the Company upon either the participant's cessation of service
prior to vesting in those shares or the non-attainment of the performance goals.
The Committee has discretion to accelerate the vesting of any issued shares in
whole or in part at any time. Individuals holding shares under the stock
issuance program will have full stockholder rights with respect to those shares,
whether the shares are vested or unvested.
GENERAL PROVISIONS
OPTION/VESTING ACCELERATION
Outstanding options under the discretionary grant program may become
immediately exercisable in full, and unvested shares issued under the 1993 Plan
will become fully vested, in the event of certain changes in the ownership or
control of the Company.
Corporate Transaction. Each outstanding option under the discretionary
grant program will become fully vested and immediately exercisable in the event
of a Corporate Transaction (defined below), unless (i) the option is assumed by
the successor or replaced with a comparable option, (ii) the option is replaced
by a comparable cash incentive program based on the option spread at that time,
or (iii) the acceleration of the option is precluded by other limitations
imposed by the Committee at the time of grant. A Corporate Transaction includes
one or more of the following stockholder-approved transactions:
-- a merger or consolidation in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to
change the state in which the Company is incorporated.
-- the sale, transfer or other disposition of all or substantially all of
the Company's assets in liquidation or dissolution of the Company, or
-- any reverse merger in which the Company is the surviving entity, but in
which securities possessing more than 50% of the total combined voting
power of the Company's outstanding securities are transferred to holders
different from those who held the securities immediately before the
merger.
10
<PAGE> 11
Upon consummation of the Corporate Transaction, all outstanding options under
the 1993 Plan will, to the extent not previously exercised or assumed by the
successor, terminate and cease to be exercisable.
Change in Control. In the event of a Change in Control (defined below) the
exercisability of each option outstanding under the discretionary grant program
will automatically accelerate and remain fully exercisable until the expiration
or sooner termination of the option term. A Change in Control includes a change
in ownership or control of the Company as described below.
-- any person or related group of persons (other than the Company or a
person that directly or indirectly controls, is controlled by, or is
under common control with, the Company) directly or indirectly acquires
beneficial ownership (within the meaning of Rule 13d-3 of the Securities
and Exchange Act of 1934, as amended) of securities possessing more than
50% of the total combined voting power of the Company's outstanding
securities pursuant to a tender or exchange offer made directly to the
Company's stockholders that the Board does not recommend the stockholders
accept; or
-- a change in the composition of the Board over a period of 24 consecutive
months or less such that a majority of the Board members (rounded up to
the next whole number) ceases, by reason of one or more contested
elections for Board membership, to be comprised of individuals who either
(i) have been Board members continuously since the beginning of that
period or (ii) have been elected or nominated for election as Board
members during that period by at least a majority of the Board members
described in clause (i) who were still in office at the time the election
or nomination was approved by the Board.
The acceleration of options or vesting of shares in the event of a
Corporate Transaction or Change in Control may be seen as an anti-takeover
provision and may have the effect of discouraging a merger proposal, a takeover
attempt or other efforts to gain control of the Company.
CHANGES IN CAPITALIZATION
If a change is made to the outstanding shares of Common Stock by reason of
a recapitalization, stock dividend, stock split, combination of shares, exchange
of shares or other change in corporate structure without the Company's receipt
of consideration, appropriate adjustments will be made to (i) the maximum number
and/or class of securities issuable under the 1993 Plan, (ii) the number and/or
class of securities and price per share in effect under each outstanding option,
and (iii) the number and/or class of securities for which automatic option
grants will subsequently be made under the automatic option grant program per
non-employee Board member.
SUBSTITUTION OF OPTIONS
In connection with a merger or other business consolidation with, or an
acquisition of the stock or assets of, another company the Committee may issue
options under the 1993 Plan in substitution for outstanding options of the other
company subject to the following conditions:
A. On a share-by-share basis, the ratio of the option price to the
fair market value of the Common Stock covered by the substituted option
immediately after the substitution will not be greater than the ratio of
the option price to the fair market value of the equity securities covered
by the replaced option immediately before the substitution.
B. The excess of the aggregate fair market value of the shares of
Common Stock subject to the substituted option immediately after the
substitution over the aggregate option price payable for those shares will
not be more than the excess of the aggregate fair market value of the
equity securities subject to the replaced options immediately before the
substitution over the aggregate option price payable for the securities.
C. The substituted options will not give the option holder any
benefits not otherwise provided under the replaced options.
11
<PAGE> 12
FINANCIAL ASSISTANCE
The Committee may assist one or more optionees in financing their exercise
of outstanding options under the discretionary option grant program or the
purchase of shares under the stock issuance program. The form in which this
assistance is made available (including loans or installment payments) and the
terms of this assistance will be determined by the Committee. The maximum amount
of financing provided any participant may not exceed the amount of cash
consideration payable for the issued shares plus all applicable Federal, state
and local income and employment taxes incurred in connection with the
acquisition of the shares. Any such financing may be subject to forgiveness in
whole or in part, at the discretion of the Committee, over the participant's
period of service.
SPECIAL TAX ELECTION
The Committee may permit one or more holders of options under the
discretionary option grant program to have the Company withhold a portion of the
shares of Common Stock otherwise issuable to those individuals in satisfaction
of the Federal, state and local income and employment tax liability incurred by
the individuals in connection with the exercise of those options. Alternatively,
the Committee may allow these individuals to deliver previously acquired shares
of Common Stock in payment of such tax liability.
EXCESS GRANTS
Grants covering shares of Common Stock in excess of the number of shares
then available for issuance under the 1993 Plan may be made provided any excess
shares actually issued are held in escrow until shareholder approval is obtained
for a sufficient increase in the number of shares available for issuance under
the 1993 Plan. If this approval is not obtained within 12 months of the date of
the first such excess grant then any unexercised excess options will terminate
and the Company will refund the purchase price paid for any excess shares
actually issued and held in escrow together with interest at the applicable
short-term federal rate for the period the shares were held in escrow.
AMENDMENT AND TERMINATION
The Board may amend or modify the 1993 Plan and any award made under the
1993 Plan at any time. No such amendment may, however, adversely affect the
rights of existing optionees or holders of unvested shares without their consent
and amendments to the automatic option grant program may not be made more
frequently than once every 6 months unless otherwise necessary to comply with
applicable tax and securities laws and regulations. In addition, the Board may
not, without the approval of the Company's stockholders, (i) materially increase
the maximum number of shares issuable under the 1993 Plan, except to reflect
certain changes in the Company's capital structure, (ii) materially modify the
eligibility requirements for option grants or share issuances, or (iii)
otherwise materially increase the benefits accruing to participants under the
1993 Plan.
The Board may terminate the 1993 Plan at any time. The 1993 Plan will in
all events terminate on July 20, 2003. Each stock option or unvested share
issuance outstanding at the time of such termination will remain in force in
accordance with the provisions of the instruments evidencing the grant or
issuance.
As of June 7, 1996 options covering 1,558,758 shares were outstanding under
the 1993 Plan, 759,050 shares remain available for future option grant and
451,785 shares have been issued under the 1993 Plan. The expiration dates for
all such options range from February 9, 2004 to May 29, 2006.
12
<PAGE> 13
NEW PLAN BENEFITS AND OPTION GRANT TABLE
The table below shows, as to each of the executive officers named in the
Summary Compensation Table and the various indicated groups, (i) the number of
shares of Common Stock for which options have been granted for the one (1)-year
period ending March 31, 1996 plus the period through June 7, 1996 and (ii) the
weighted average exercise price per share. In addition, each of Messrs. Booth,
O'Neill, Strohm and Cuatrecasas will receive an option grant to purchase 5,000
shares under the Automatic Option Grant Program on the date of the Annual
Meeting. Each of the options will have an exercise price per share equal to the
closing price per share of Common Stock on the date of that Annual Meeting, as
quoted on the Nasdaq National Market.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE PRICE
OPTION OF GRANTED
NAME AND POSITION SHARES OPTIONS
- ---------------------------------------------------------------------- --------- --------------
<S> <C> <C>
Steven D. Goldby
Chief Executive Officer and Chairman of the Board................... 0 $ 0
Thomas D. Jones
President, Chief Operating Officer and Director..................... 42,000 $19.25
John J. Hanlon
Senior Vice President, Chief Financial Officer, Secretary and
Treasurer........................................................... 10,000 $15.375
Dennis H. Smith
Senior Vice President and Chief Scientist........................... 0 $ 0
Robert E. Dunkle
Vice President and General Manager, ISIS Business Unit.............. 0 $ 0
All current executive officers as a group
(9 persons)......................................................... 52,000 $18.50
All current directors (other than executive officers) as a group
(4 persons)......................................................... 19,000 $19.03
All employees, including current officers who are not executive
officers,
as a group (270 persons)............................................ 302,484 $16.18
</TABLE>
13
<PAGE> 14
FEDERAL INCOME TAX CONSEQUENCES
OPTION GRANTS
Options granted under the 1993 Plan may be either incentive stock options
that satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options that are not intended to satisfy those requirements. The
Federal income tax treatment for the two types of options differs as described
below:
Incentive Stock 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. However, the difference between the fair
market value of the purchased shares and the exercise price is generally
included as alternative minimum taxable income for purposes of the alternative
minimum tax. The optionee will 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: (i)
qualifying and (ii) disqualifying. The optionee will make a qualifying
disposition of the purchased shares if the sale or other disposition of such
shares is made after the optionee has held the shares for more than 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 minimum holding
periods prior to the sale or other disposition of the purchased shares, then a
disqualifying disposition will result.
Upon a qualifying disposition of the shares, 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 such shares. If there is a disqualifying disposition
of the shares, then the excess of (i) the fair market value of those shares on
the exercise date over (ii) the exercise price paid for the shares will be
taxable as ordinary income. Any additional gain recognized upon the disposition
will be a capital gain.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which that disposition occurs, equal to the excess of (i) the fair
market value of those shares on the option exercise date over (ii) the exercise
price paid for the shares. In no other instance will the Company be entitled to
a deduction with respect to the optionee's disposition of the purchased shares.
The Company anticipates any compensation deemed paid by the Company upon one or
more disqualifying dispositions of incentive stock option shares under currently
outstanding options under the 1993 Plan will be deductible by the Company and
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.
Non-Statutory Options. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over 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
unvested shares of Common Stock under a non-statutory option. These special
provisions may be notarized as follows:
-- If the shares acquired upon exercise of the non-statutory option are
subject to repurchase by the Company at the original exercise price in
the event of the optionee's termination of service prior to vesting in
those shares, then 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 Company's repurchase right lapses, an amount equal to the excess
of (i) the fair market value of the shares on the date the repurchase
right lapses with respect to those shares over (ii) the exercise price
paid for the shares.
-- The optionee may, however, elect under Section 83(b) of the Internal
Revenue Code to include as ordinary income in the year of exercise of the
non-statutory option an amount equal to the excess of (i) the fair market
value of the purchased shares on the exercise date over (ii) the exercise
price paid
14
<PAGE> 15
for such shares. If the Section 83(b) election is made, the optionee will
not recognize any additional income as and when the repurchase right
lapses.
The Company will be entitled to a business expense deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed for the
taxable year of the Company in which such ordinary income is recognized by the
optionee. The Company anticipates that the compensation deemed paid by the
Company upon the exercise of non-statutory options under the 1993 Plan will be
deductible by the Company and 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. An optionee who is granted a stock appreciation
right will recognize ordinary income in the year of exercise equal to the amount
of the appreciation distribution. The Company will be entitled to a business
expense deduction equal to the appreciation distribution for the taxable year in
which the ordinary income is recognized by the optionee.
Direct Stock Issuances. The tax principles applicable to direct stock
issuances under the 1993 Plan will be substantially the same as those summarized
above for the exercise of non-statutory option grants.
Parachute Payments. If the exercisability of an option or stock
appreciation right is accelerated as a result of a change of control, all or a
portion of the value of the option or stock appreciation right at that time may
be a parachute payment for purposes of the excess parachute provisions of the
Internal Revenue Code. Those provisions generally provide that if parachute
payments exceed 3 times an employee's average compensation for the 5 tax years
preceding the change of control, the company loses its deduction and the
recipient is subject to a 20% excise tax for the amount of the parachute
payments in excess of one times such average compensation.
Note Forgiveness. If any promissory note delivered in payment of shares
acquired under the 1993 Plan is forgiven in whole or in part, the amount of the
forgiveness will be reportable by the participant as ordinary compensation
income. The Company will be entitled to a business expense deduction equal to
the amount of ordinary income recognized by the participant in connection with
the acquisition of the shares and any note forgiveness. The deduction will be
allowed for the taxable year of the Company in which the ordinary income is
recognized by the participant.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR the
approval of the amendment to the Company's 1993 Stock Option and Restricted
Stock Plan.
15
<PAGE> 16
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of June 7, 1996 certain information with
respect to shares of Common Stock beneficially owned by (i) each person who is
known by the Company to be the beneficial owner of more than five percent of the
Company's outstanding shares of Common Stock, (ii) each of the Company's
directors and the executive officers named in the Summary Compensation Table,
and (iii) all current directors and executive officers as a group. Beneficial
ownership has been determined in accordance with Rule 13d-3 under the Exchange
Act. Under this rule, certain shares may be deemed to be beneficially owned by
more than one person (if, for example, persons share the power to vote or the
power to dispose of the shares). In addition, shares are deemed to be
beneficially owned by a person if the person has the right to acquire shares
(for example, upon exercise of an option) within 60 days of the date as of which
the information is provided; in computing the percentage ownership of any
person, the amount of shares is deemed to include the amount of shares
beneficially owned by such person (and only such person) by reason of these
acquisition rights. As a result, the percentage of outstanding shares of any
person as shown in the following table does not necessarily reflect the person's
actual voting power at any particular date.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY APPROXIMATE PERCENT
NAME OWNED(#) BENEFICIALLY OWNED(1)
- ---------------------------------------------------------- --------------------- ---------------------
<S> <C> <C>
Wellington Management Company............................. 767,400 8.9%
Charter Oaks Partners..................................... 725,000 8.4%
Corning Incorporated...................................... 488,000 5.6%
Trust Company of the West................................. 440,400 5.1%
Steven D. Goldby(2)....................................... 115,617 1.3%
Thomas D. Jones(3)........................................ 87,667 *
John J. Hanlon(4)......................................... 16,133 *
Dennis H. Smith(5)........................................ 32,617 *
Robert E. Dunkle(6)....................................... 10,405 *
Peter W. Booth(7)......................................... -0- *
Donald E. O'Neill(8)...................................... 10,500 *
David N. Strohm(9)........................................ 13,000 *
Pedro Cuatrecasas......................................... -0- *
All current directors and named executive officers as a
group (9 persons)....................................... 285,939 3.3%
</TABLE>
- ---------------
*Less than one percent of the outstanding Common Stock.
(1) Percentage of beneficial ownership is calculated assuming 8,645,189 shares
of Common Stock were outstanding on June 7, 1996. This percentage also
includes Common Stock of which such individual or entity has the right to
acquire beneficial ownership within sixty days of June 7, 1996, including
but not limited to the exercise of an option; however, such Common Stock
shall not be deemed outstanding for the purpose of computing the percentage
owned by any other individual or entity. Such calculation is required by
General Rule 13d-3(1)(i) under the Securities Exchange Act of 1934.
(2) Includes 107,417 shares purchasable under stock options that are currently
exercisable or that will become exercisable within sixty days of June 7,
1996.
(3) Includes 84,667 shares purchasable under stock options that are currently
exercisable or that will become exercisable within sixty days of June 7,
1996.
(4) Includes 15,133 shares purchasable under stock options that are currently
exercisable or that will become exercisable within sixty days of June 7,
1996.
(5) Includes 32,617 shares purchasable under stock options that are currently
exercisable or that will become exercisable within sixty days of June 7,
1996.
16
<PAGE> 17
(6) Includes 10,405 shares purchasable under stock options that are currently
exercisable or that will become exercisable within sixty days of June 7,
1996.
(7) Mr. Booth is an officer of Corning Incorporated which owns 488,000 shares of
Common Stock.
(8) Includes 8,000 shares purchasable under stock options that are currently
exercisable or that will become exercisable within sixty days of June 7,
1996.
(9) Includes 8,000 shares purchasable under stock options that are currently
exercisable or that will become exercisable within sixty days of June 7,
1996.
17
<PAGE> 18
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, 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 beneficial owners are required
by SEC regulation to furnish the Company with copies of all Section 16(a)
reports they file.
Based solely upon review of the copies of such reports furnished to the
Company and written representations that no other reports were required, the
Company believes that there was compliance for the fiscal year ended March 31,
1996 with all Section 16(a) filing requirements applicable to the Company's
officers, directors and greater than ten percent beneficial owners.
18
<PAGE> 19
EXECUTIVE COMPENSATION AND RELATED INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and each of the Company's four other highest-paid
executive officers, as determined as of the end of the last fiscal year, ("Named
Executives") for services rendered in all capacities to the Company and its
subsidiaries for the fiscal years ended March 31, 1996, March 31, 1995 and March
31, 1994, respectively. No executive officer who would have otherwise been
included in such table on the basis of salary and bonus earned for the 1996
fiscal year has resigned or terminated employment during the fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------------- AWARDS
OTHER ------------
ANNUAL SECURITIES ALL OTHER
FISCAL COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($)(2) (3) OPTIONS(#) ($)(5)
- -------------------------------------- ------ ------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Steven D. Goldby...................... 1996 330,000 184,800 10,815 0 4,676
Chief Executive Officer and 1995 321,058 0 10,815 0 4,816
Chairman of the Board of Directors 1994 299,800 0 10,815 602,700(4) 6,070
Thomas D. Jones....................... 1996 228,922 154,009 8,400 42,000 3,568
President, Chief Operating 1995 208,943 0 8,400 0 4,731
Officer and Director 1994 204,885 0 8,400 344,400(4) 5,841
John J. Hanlon........................ 1996 145,833 63,000 4,500 10,000 3,250
Senior Vice President, 1995 117,212 0 0 0 2,941
Chief Financial Officer, 1994 114,919 0 0 68,880(4) 4,195
Secretary and Treasurer 0
Dennis H. Smith....................... 1996 155,000 38,192 0 0 4,650
Senior Vice President and 1995 152,885 0 0 0 4,587
Chief Scientist 1994 149,896 0 0 189,420(4) 5,473
Robert E. Dunkle...................... 1996 129,583 52,920 4,500 0 3,888
Vice President and 1995 99,654 0 0 12,620 2,989
General Manager, ISIS Business Unit 1994 92,000 0 0 15,498(4) 2,382
</TABLE>
- ---------------
(1) Includes salary deferred under the Company's 401(k) Plan.
(2) Bonuses for fiscal year 1996 were earned under the Company's Bonus Plan.
Bonuses were paid in May 1996.
(3) "Other Annual Compensation" represents car allowance.
(4) The number of shares underlying option grants include options canceled and
regranted during the fiscal year 1994.
(5) "All Other Compensation" represents a matching contribution to the Company's
401(k) Plan.
19
<PAGE> 20
STOCK OPTIONS
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information concerning the grant of stock
options made under the Company's 1993 Stock Option and Restricted Stock Plan for
the 1996 fiscal year to the Named Executives. No stock appreciation rights were
granted to these individuals during such year.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------ VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF
OPTIONS STOCK PRICE
NUMBER OF GRANTED TO APPRECIATION FOR
SECURITIES EMPLOYEES EXERCISE OPTION TERM
UNDERLYING IN FISCAL PRICE PER EXPIRATION --------------------
NAME OPTIONS GRANTED YEAR(3) SHARE($)(4) DATE 5%(5) 10%
- ---------------------------------------- --------------- ------------ ----------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Steven D. Goldby........................ -- -- -- -- -- --
Thomas D. Jones......................... 42,000(1) 12.1% 19.25 2/5/06 $508,461 $1,288,541
John J. Hanlon.......................... 10,000(2) 2.9% 15.38 8/9/05 $ 96,693 $ 245,038
Dennis H. Smith......................... -- -- -- -- -- --
Robert E. Dunkle........................ -- -- -- -- -- --
</TABLE>
- ---------------
(1) The options become exercisable in a series of 36 equal monthly installments,
commencing on the first month following the grant date.
(2) The options become exercisable as to 5,000 of the option shares on the first
year anniversary following the grant date and then the remaining 5,000
option shares become exercisable on the second year anniversary following
the date of grant.
(3) The total number of grants to employee in the fiscal year was 346,484.
(4) The exercise price of each option may be paid in cash, in shares of Common
Stock valued at fair market value on the exercise date or through a
cashless exercise procedure involving same-day sale of the purchased
shares. The Company may also finance the option exercise by loaning the
optionee sufficient funds to pay the exercise price for the purchased
shares and the federal and state tax liability incurred in connection with
such exercise. The optionee may be permitted, subject to the approval of
the plan administrator, to apply a portion of the shares purchased under
the option (or to deliver existing shares of Common Stock) in satisfaction
of such tax liability. The plan administrator has the discretionary
authority to reprice outstanding options under the 1993 Stock Option and
Restricted Stock Plan through the cancellation of those options and the
grant of replacement options with an exercise price equal to the fair
market value of the option shares on the regrant date.
(5) The five percent (5%) and ten percent (10%) assumed annual rates of
compounded stock price appreciation are mandated by the 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.
20
<PAGE> 21
OPTION EXERCISES AND HOLDINGS
The following table shows, for each of the Named Executives, certain
information concerning stock options exercised during fiscal year 1996 and the
number of shares subject to both exercisable and unexercisable stock options as
of March 31, 1996. Also reported are values for "in-the-money" options that
represent the positive spread between the respective exercise prices of
outstanding stock options and the fair market value of the Company's Common
Stock as of March 31, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES ACQUIRED VALUE OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END ($)(3)
ON EXERCISE REALIZED --------------------------- ---------------------------
NAME (#)(1) ($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Steven D. Goldby....................... 60,000 $855,290 88,283 167,417 $1,164,907 $2,270,593
Thomas D. Jones........................ 18,000 225,625 67,900 136,500 888,650 1,371,493
John J. Hanlon......................... 4,000 55,125 12,947 29,133 171,887 316,366
Dennis H. Smith........................ 20,000 286,682 26,603 52,617 360,803 713,618
Robert Dunkle.......................... 0 0 9,071 11,667 124,137 160,958
</TABLE>
- ---------------
(1) All options were exercised as same-day sales of the purchased shares.
Therefore, no shares were held after the exercise of options.
(2) Market value of underlying securities based on the closing price of the
Company's Common Stock on the date of exercise minus the exercise price.
(3) Based on the fair market value of the shares on the last day of the fiscal
year ($21.0625 per share) less the exercise price payable for such shares.
REPORT OF THE COMPENSATION COMMITTEE
The following is the Report of the Compensation Committee of the Board of
Directors, describing the compensation policies and rationale applicable to the
Company's executive officers with respect to the compensation paid to such
executive officers for the year ended March 31, 1996. The Compensation Committee
of the Board of Directors is responsible for setting base salaries of the
executive officers of the Company, determining award levels for the Performance
Incentive Plan and administering the 1993 Stock Option and Restricted Stock
Plan. These programs and our compensation philosophy are designed to attract and
retain key executives by providing appropriate incentives linked to Company
performance.
COMPENSATION PHILOSOPHY
The Compensation Committee evaluates the performance of the Chief Executive
Officer and other officers of the Company annually based upon financial and
non-financial performance goals which contribute to the profitability of the
Company. The Compensation Committee has approved compensation policies that seek
to enhance the linkage of compensation to Company and individual performance.
The Compensation Committee seeks to provide executives with a total compensation
package, both fixed and variable, that has potential for executives to earn
above market compensation when individual and company performance is superior.
The executive officers' compensation package is comprised of (i) base
salary, (ii) annual incentive opportunity tied to achievement of net income and
other goals, and (iii) long-term incentives established to align management with
stockholders, in the form of stock options. No executives received promotional
salary increases for fiscal year 1995 as the Company implemented a company-wide
salary freeze. However, in light of improved individual performance, significant
growth in both revenues and in net income, and based on industry wide survey
data, which indicated that executive salaries were no longer competitive, the
Compensation Committee approved increases to executive officers' salaries for
fiscal years 1996 and 1997.
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<PAGE> 22
Base Salaries -- In concept, salary ranges are initially targeted at
between the 50th and 75th percentile of independently surveyed software
companies to attract executive talent required. Thereafter, individual salary
increases are likely to be based on a variety of factors including, but not
limited to: individual job responsibilities, results versus target objectives,
and Company or Business Unit financial performance.
Annual Incentives -- Compensation Committee approved a new annual incentive
plan for executive officers called the MDL Performance Incentive Plan to take
effect for fiscal year 1996. Under this plan annual incentive targets are set as
a percent of salary for each officer based on attainment of specified financial
goals including net income and individual or group goals. Weighting of goals
varies by participant. A threshold payment is earned if the Company achieves 80%
of its net income goal with a maximum payment earned at 120% of the net income
goal. Below 80% of the net income goal, no award is earned. For fiscal year
1996, the Company exceeded its net income plan and bonus payments were earned at
116% of the net income goal. Amounts earned by the Named Executives can be found
in the Summary Compensation Table. This Plan is also in effect for fiscal year
1997.
Long-term Incentives -- The Company has adopted the 1993 Stock Option and
Restricted Stock Plan to provide executive officers and other key employees with
incentives to maximize long-term stockholder values. Awards under the 1993 Stock
Option and Restricted Stock Plan can take the form of stock options, stock
appreciation rights, and restricted stock, all of which are designed to give the
recipient a significant equity stake in the Company and thereby closely align
their interests with those of the Company's stockholders. In addition to linking
executive compensation directly to stockholder value, the Compensation Committee
believes that stock options and restricted stock awards, through staged vesting
provisions, perform an important role in motivating and retaining key
executives. The Committee has established certain general guidelines in making
option grants to executive officers in an attempt to target a fixed number of
unvested option shares based upon the individual's position with the Company and
his or her existing holdings of unvested options. In 1996, Messrs. Jones and
Hanlon were granted additional options. See "Option Grants in Last Fiscal Year"
for information on the options granted to these Named Executives.
CHIEF EXECUTIVE OFFICER COMPENSATION
The base salary of the Chief Executive Officer, Mr. Steven D. Goldby, was
established by the Compensation Committee. The Chairman and other members of the
Compensation Committee meet semi-annually with Mr. Goldby to discuss Company
performance during the fiscal year. Mr. Goldby's target objectives, and
therefore any increase in his compensation, are tied directly to the overall
financial performance of the Company. The Committee's objective is to have Mr.
Goldby's base salary keep pace with salaries being paid to similarly situated
CEO's in the software and high technology industries. Mr. Goldby's base salary
is reviewed annually by the Compensation Committee based on these discussions
and the Company financial performance. Due to significantly improved financial
performance for fiscal year 1996, Mr. Goldby's base salary has been increased
for fiscal year 1997.
Mr. Goldby earned a $184,800 bonus for fiscal year 1996 performance because
the Company exceeded its net income goal. This bonus was paid in May 1996.
There were no additional option grants awarded to Mr. Goldby during fiscal
year 1996.
As a result of federal tax legislation enacted in 1993, a publicly-held
company such as the Company will not be allowed a federal income tax deduction
for compensation paid to certain executive officers to the extent that
compensation exceeds $1 million per officer in any year. This limitation will be
in effect for all fiscal years of the Company after the Company's initial public
offering. The stockholders are being asked to approve a limit to the number of
shares any individual may receive under the Company's 1993 Stock Option and
Restricted Stock Plan under Proposal 3. Accordingly, compensation deemed paid to
an executive officer when he exercises an outstanding option under the 1993
Stock Option and Restricted Stock Plan with an exercise price equal to the fair
market value of the option shares on the grant date will generally qualify as
performance-based compensation that will not be subject to the $1 million
limitation. Since it is not expected that the cash compensation to be paid to
the Company's executive officers for the fiscal 1996 year will exceed
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<PAGE> 23
the $1 million limit per officer, the Committee will defer any decision on
whether to limit the dollar amount of all cash compensation payable to the
Company's executive officers to the $1 million cap.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933 or the Securities Exchange Act
of 1934 that might incorporate future filings, including this Proxy Statement,
in whole or in part, the foregoing report and the Performance Graph which
follows shall not be deemed to be incorporated by reference into any such
filings.
Compensation Committee
Mr. David N. Strohm, Chairman
Mr. Donald E. O'Neill
Mr. Peter W. Booth
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Commencing in November 1993, the Company established the Compensation
Committee of the Board of Directors which consists of Messrs. Strohm, O'Neill
and Booth. No member of the Compensation Committee was at any time an officer or
employee of the Company. No executive officer of the Company serves as a member
of the board of directors or compensation committee of any entity that has one
or more executive officers serving as a member of the Company's Board of
Directors or Compensation Committee.
EMPLOYMENT ARRANGEMENTS, TERMINATION OF EMPLOYMENT
AND CHANGE OF CONTROL ARRANGEMENTS
The Company has entered into severance agreements with Messrs. Goldby,
Jones and Hanlon that provide each Named Executive certain rights in the event
that his employment with the Company is involuntarily terminated within eighteen
months following a "Change of Control" (other than termination for cause). A
Change in Control is a merger, sale of all or substantially all of the Company's
assets or an acquisition of the Company by tender or exchange offer made
directly to the Company's stockholders of beneficial ownership of securities
with more than twenty-five percent of the voting power of the Company's
outstanding securities. Upon a Named Executive's involuntary termination within
eighteen months of a Change in Control, all options held by such Named Executive
will automatically accelerate and become fully vested and such Named Executive's
salary will continue to be paid for eighteen months in semi-monthly installments
following his involuntary termination plus he will receive a lump sum payment
equal to one and one-half times his bonus paid in the fiscal year prior to the
year of his involuntary termination. Insurance benefits will cease should the
Named Executive solicit the Company's employee or customers or engage in
competitive activities.
23
<PAGE> 24
COMPARISON OF STOCKHOLDER RETURN
Indexed Comparison of Total Return since IPO
CRSP Total Return Index for the Nasdaq Stock Market and
CRSP Total Return Index for Nasdaq Computer and Data Processing Companies
<TABLE>
<CAPTION>
Nasdaq
Measurement Period Computer and
(Fiscal Year Covered) MDLI Nasdaq Data Processing
<S> <C> <C> <C>
7/29/93 100.00 100.00 100.00
9/30/93 69.36 108.15 107.90
12/31/93 80.68 110.02 107.27
3/31/94 65.91 105.41 108.79
6/30/94 70.45 100.51 106.47
9/30/94 60.23 108.83 118.78
12/31/94 76.14 107.57 130.69
3/31/95 106.82 117.19 146.99
6/30/95 135.23 134.10 173.70
9/30/95 169.32 150.50 189.79
12/31/95 209.09 152.00 198.56
3/31/96 191.48 159.19 207.98
</TABLE>
The graph covers the period from July 29, 1993, the date the Company's
initial public offering commenced, through the fiscal year ended March 31, 1996.
The graph assumes that $100 was invested on July 29, 1993 in the Company's
Common Stock and in each index and that all dividends were reinvested. No cash
dividends have been declared on the Company's Common Stock. Stockholder returns
over the indicated period should not be considered indicative of future
stockholder returns.
CERTAIN TRANSACTIONS
Since January 1, 1994 the Company has not engaged in any transaction or had
any relationship with any executive officer or director that is required to be
disclosed pursuant to Item 404 of Regulation S-K.
ANNUAL REPORT
A copy of the Annual Report of the Company for the fiscal year ended March
31, 1996 has been mailed concurrently with this Proxy Statement to all
stockholders entitled to notice of and to vote at the Annual Meeting. Except for
"Executive Officers and Key Employees" from Part I of the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1996, the Annual Report
is not incorporated into this Proxy Statement and is not considered proxy
solicitation material.
FORM 10-K
The Company filed an Annual Report on Form 10-K for the fiscal year 1996
with the SEC. Stockholders may obtain a copy of this report, without charge, by
writing to Mr. John J. Hanlon, Senior Vice President, at the Company's executive
offices at 14600 Catalina Street, San Leandro, California 94577.
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<PAGE> 25
OTHER MATTERS
Management does not know of any matters to be presented at this Annual
Meeting other than those set forth herein and in the Notice accompanying this
Proxy Statement. However, if other matters do properly come before the Annual
Meeting or any adjournment, or postponements thereof, the Management intends
that the persons named in the proxies will vote upon such matters in accordance
with their best judgment.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE,
SIGN, DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE ANNUAL
MEETING. IF YOU DECIDE TO ATTEND THE ANNUAL MEETING AND WISH TO CHANGE YOUR
PROXY VOTE, YOU MAY DO SO AUTOMATICALLY BY VOTING IN PERSON AT THE MEETING.
THANK YOU FOR YOUR ATTENTION TO THIS MATTER. YOUR PROMPT RESPONSE WILL
GREATLY FACILITATE ARRANGEMENTS FOR THE ANNUAL MEETING.
THE BOARD OF DIRECTORS
OF MDL INFORMATION SYSTEMS, INC.
July 8, 1996
San Leandro, California
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<PAGE> 26
MDL INFORMATION SYSTEMS, INC.
1993 STOCK OPTION AND RESTRICTED STOCK PLAN
(AS AMENDED MAY 29, 1996)
ARTICLE ONE
GENERAL
I. PURPOSE OF THE PLAN
A. This 1993 Stock Option and Restricted Stock Plan ("Plan") is intended to
promote the interests of MDL Information Systems, Inc., a Delaware corporation
(the "Corporation"), by providing eligible individuals with the opportunity to
acquire a proprietary interest, or otherwise increase their proprietary
interest, in the Corporation as an incentive for them to remain in the service
of the Corporation (or its parent or subsidiary corporations).
B. The Plan shall become effective on July 21, 1993. Such date is hereby
designated as the Effective Date of the Plan.
C. For purposes of the Plan, the following provisions shall be applicable
in determining the parent and subsidiary corporations of the Corporation:
Any corporation (other than the Corporation) in an unbroken chain of
corporations ending with the Corporation shall be considered to be a PARENT
of the Corporation, provided each such corporation in the unbroken chain
(other than the Corporation) owns, at the time of the determination, stock
possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.
Each corporation (other than the Corporation) in an unbroken chain of
corporations beginning with the Corporation shall be considered to be a
SUBSIDIARY of the Corporation, provided each such corporation (other than
the last corporation) in the unbroken chain owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into three separate components: the
Discretionary Option Grant Program specified in Article Two, the Automatic
Option Grant Program specified in Article Three and the Stock Issuance Program
specified in Article Four. Under the Discretionary Option Grant Program,
eligible individuals may be granted options to purchase shares of the
Corporation's common stock at not less than one hundred percent (100%) of the
fair market value of such shares on the grant date. Under the Automatic Option
Grant Program, each eligible member of the Corporation's Board of Directors (the
"Board") will automatically receive an option grant to purchase shares of the
Corporation's common stock at one hundred percent (100%) of the fair market
value of such shares. The Stock Issuance Program shall allow eligible
individuals to purchase shares of the Corporation's common stock at discounts
from the fair market value of such shares of up to 15%. Such shares may be
issued as fully-vested shares or as shares to vest over time.
B. The provisions of Articles One and Five of the Plan shall apply to the
Discretionary Option Grant Program, the Automatic Option Grant Program and the
Stock Issuance Program and shall accordingly govern the interests of all
individuals in the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Board shall appoint a committee (the "Committee") of two (2) or more
non-employee Board members to assume full responsibility for the administration
of the Discretionary Option Grant Program and the Stock Issuance Program. No
Board member shall be eligible to serve on the Committee if such individual has,
within the relevant period designated below, received an option grant or stock
issuance under this Plan or
26
<PAGE> 27
any other stock plan of the Corporation (or any parent or subsidiary
corporation), other than pursuant to the Automatic Option Grant Program:
(i) for each of the initial members of the Committee, the period
commencing with the Effective Date of the Plan and ending with the date of
his or her appointment to the Committee, or
(ii) for any successor or substitute member, the twelve (12)-month
period immediately preceding the date of his or her appointment to the
Committee.
Members of the Committee shall serve for such period of time as the Board
may determine and shall be subject to removal by the Board at any time.
B. The Committee as Plan Administrator shall have full power and authority
(subject to the express provisions of the Plan) to establish such rules and
regulations as it may deem appropriate for the proper administration of the
Discretionary Option Grant Program and the Stock Issuance Program and to make
such determinations under, and issue such interpretations of, such programs and
any outstanding option grants or stock issuances as it may deem necessary or
advisable. Decisions of the Plan Administrator shall be final and binding on all
parties who have an interest in the Plan or any outstanding option or stock
issuance.
C. Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the express terms and conditions of Article
Four.
IV. OPTION GRANTS AND STOCK ISSUANCES
A. The persons eligible to receive stock issuances under the Stock Issuance
Program ("Participant") and/or option grants pursuant to the Discretionary
Option Grant Program ("Optionee") are as follows:
(i) officers and other key employees of the Corporation (or its parent
or subsidiary corporations) who render services which contribute to the
management, growth and financial success of the Corporation (or its parent
or subsidiary corporations); and
(ii) those consultants or other independent contractors who provide
valuable services to the Corporation (or its parent or subsidiary
corporations).
B. Non-employee members of the Board shall not be eligible to participate
in the Stock Issuance or Discretionary Option Grant Program or in any other
stock option, stock purchase, stock bonus or other stock plan of the Corporation
(or its parent or subsidiary corporations). However, non-employee members of the
Board shall be eligible to receive automatic option grants pursuant to the
provisions of Article Three (such individuals shall, for purposes of Articles
Three and Five, be referred to as "Eligible Directors").
C. The Plan Administrator shall have full authority to determine (I) with
respect to the option grants made under the Plan, which eligible individuals are
to receive discretionary option grants, the number of shares to be covered by
each such grant, whether the granted option is to be an incentive stock option
("Incentive Option") which satisfies the requirements of Section 422 of the
Internal Revenue Code or a non-statutory option not intended to meet such
requirements, the time or times at which each granted option is to become
exercisable and the maximum term for which the option may remain outstanding and
(II) with respect to stock issuances under the Stock Issuance Program, the
number of shares to be issued to each Participant, the vesting schedule (if any)
to be applicable to the issued shares, and the consideration to be paid by the
individual for such shares.
D. The Plan Administrator shall have the absolute discretion either to
grant options in accordance with Article Two of the Plan or to effect stock
issuances in accordance with Article Four of the Plan.
V. STOCK SUBJECT TO THE PLAN
A. Shares of the Corporation's common stock (the "Common Stock") shall be
available for issuance under the Plan and shall be drawn from either the
Corporation's authorized but unissued shares of Common Stock or from reacquired
shares of Common Stock, including shares repurchased by the Corporation on the
open market. The maximum number of shares of Common Stock which may be issued
over the term of the
27
<PAGE> 28
Plan shall not exceed 2,764,000 shares, subject to adjustment from time to time
in accordance with the provisions of this Section V.(1)
B. No one person participating in the Plan may receive options and
separately exercisable stock appreciation rights for more than 500,000 shares of
Common Stock over the term of the Plan, exclusive of options and separately
exercisable stock appreciation rights granted prior to January 1, 1994.
C. Should one or more outstanding options under this Plan expire or
terminate for any reason prior to exercise in full (including any option
cancelled in accordance with the cancellation-regrant provisions of Section V of
Article Two of the Plan), then the shares subject to the portion of each option
not so exercised shall be available for subsequent option grant or share
issuance under the Plan. Shares subject to any option or portion thereof
surrendered or cancelled in accordance with Section VI of Article Two and shares
repurchased by the Corporation pursuant to its repurchase rights under the Plan
or otherwise surrendered for cancellation under Section I.B.3 of Article Four
shall not be available for subsequent option grant or stock issuance under the
Plan. Shares subject to stock appreciation rights exercised in accordance with
the Stock Appreciation Rights provisions of Section VI of Article Two and all
stock issuances under the Plan, whether or not the shares are subsequently
repurchased by the Corporation pursuant to its repurchase rights under the Plan,
shall reduce on a share-for-share basis the number of shares of Common Stock
available for subsequent issuance under this Plan. Should the exercise price of
an outstanding option under the Plan be paid with shares of Common Stock, then
the number of shares available for issuance under the Plan shall be reduced by
the gross number of shares for which the option is exercised, and not by the net
number of shares of Common Stock issued to the option holder.
D. In the event any change is made to the Common Stock issuable under the
Plan by reason of any stock split, stock dividend, recapitalization, combination
of shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without receipt of consideration, then appropriate adjustments
shall be made to (i) the number and/or class of shares issuable under the Plan,
(ii) the number and/or class of shares and price per share in effect under each
outstanding option under the Plan and (iii) the number of shares of Common Stock
to be made the subject of each subsequent automatic option grant. Such
adjustments to the outstanding options are to be effected in a manner which
shall preclude the enlargement or dilution of rights and benefits under such
options. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.
E. Common Stock issuable under the Plan may be subject to such restrictions
on transfer, repurchase rights or other restrictions determined by the Plan
Administrator.
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to this Article Two shall be authorized by action
of the Plan Administrator and may, at the Plan Administrator's discretion, be
either Incentive Options or nonstatutory options. Individuals who are not
Employees may only be granted non-statutory options. Each granted option shall
be evidenced by one or more instruments in the form approved by the Plan
Administrator; provided, however, that each such instrument shall comply with
the terms and conditions specified below. Each instrument evidencing an
Incentive Option shall, in addition, be subject to the applicable provisions of
Section II of this Article Two.
- ---------------
(1) Reflects the additional 174,000-share increase authorized by the Board on
February 9, 1994, the 150,000-share increase authorized by the Board on
November 15, 1995 and the 700,000 share increase authorized by the Board on
May 29, 1996. The share increases authorized by the Board on November 15,
1995 and May 29, 1996 are subject to stockholder approval at the 1996 Annual
Stockholders Meeting.
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<PAGE> 29
A. OPTION PRICE.
1. The option price per share shall be fixed by the Plan Administrator.
Except as specifically authorized under Section IV of this Article Two, the
option price shall not be less than one hundred percent (100%) of the fair
market value per share of Common Stock on the date of the option grant.
2. The option price shall become immediately due upon exercise of the
option and, subject to the provisions of Article Five, Section I and the
instrument evidencing the grant, shall be payable in one of the following
alternative forms specified below:
-- cash or check made payable to the Corporation's order; or
-- shares of Common Stock held by the Optionee for the requisite period
necessary to avoid a charge to the Corporation's reported earnings and
valued at Fair Market Value on the Exercise Date (as such term is defined
below); or
-- through a broker-dealer sale and remittance procedure pursuant to which
the Optionee shall provide irrevocable written instructions (I) to a
designated brokerage firm to effect the immediate sale of the purchased
shares and remit to the Corporation, out of the sale proceeds available
on the settlement date, sufficient funds to cover the aggregate option
price payable for the purchased shares plus all applicable Federal and
State income and employment taxes required to be withheld by the
Corporation by reason of such purchase and (II) to the Corporation to
deliver the certificates for the purchased shares directly to such
brokerage firm.
For purposes of this subparagraph 2, the Exercise Date shall be the date on
which written notice of the option exercise is delivered to the Corporation.
Except to the extent the sale and remittance procedure is used in connection
with the exercise of the option, payment of the option price for the purchased
shares must accompany such notice.
3. The Fair Market Value per share of Common Stock shall be determined in
accordance with the following provisions:
-- If the Common Stock is not at the time listed or admitted to trading on
any stock exchange but is traded on the Nasdaq National Market System,
the Fair Market Value shall be the closing price of one share of Common
Stock on the date in question, as such price is reported by the National
Association of Securities Dealers through its Nasdaq system or any
successor system. If there is no closing price for the Common Stock on
the date in question, then the closing price on the last preceding date
for which such quotation exists shall be determinative of Fair Market
Value.
-- If the Common Stock is at the time listed or admitted to trading on any
national stock exchange, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question on the
stock exchange determined by the Plan Administrator to be the primary
market for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no reported
sale of Common Stock on such exchange on the date in question, then the
Fair Market Value shall be the closing selling price on the exchange on
the last preceding date for which such quotation exists.
B. TERM AND EXERCISE OF OPTIONS.
Each option granted under this Article Two shall be exercisable at such
time or times and during such period as is determined by the Plan Administrator
and set forth in the stock option agreement evidencing the grant. No such
option, however, shall have a maximum term in excess of ten (10) years from the
grant date. During the lifetime of the Optionee, the option, and any stock
appreciation right attaching thereto, shall be exercisable only by the Optionee
and shall not be assignable or transferable by the Optionee otherwise than by a
transfer effected by the Optionee by will or by the laws of descent and
distribution following the Optionee's death.
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<PAGE> 30
C. TERMINATION OF SERVICE.
1. Except to the extent otherwise provided pursuant to Section VII of this
Article Two, the following provisions shall govern the exercise period
applicable to any outstanding options under the Plan which are held by the
Optionee at the time of his or her cessation of Service or death.
-- Each such option shall, to the extent it is not otherwise at the time
exercisable for vested shares of Common Stock, immediately terminate and
cease to be outstanding upon the Optionee's cessation of Service.
-- Should the Optionee cease to remain in Service for any reason other than
death, permanent disability, or retirement at or after age 65, then the
period for which each outstanding option held by such Optionee is to
remain exercisable shall be limited to the three (3)-month period
following the date of such cessation of Service.
-- In the event such Service terminates by reason of permanent disability
(as defined in Section 22(e)(3) of the Internal Revenue Code) or
retirement at or after age 65, then each outstanding option held by such
Optionee shall accelerate in full, and the Optionee shall have a twelve
(12)-month period following the date of the Optionee's cessation of
Service in which to exercise such options for any or all of the shares of
Common Stock subject to that option at the time of such cessation of
Service.
-- Should the Optionee die while in Service, then each outstanding option
held by such Optionee shall accelerate in full and shall be exercisable
for any or all of the shares of Common Stock subject to that option at
the time of such cessation of Service. In the event the Optionee dies
while in Service or during the three (3)-month period following his or
her cessation of Service, then the option may subsequently be exercised,
for any or all of the shares of Common Stock for which the option is
exercisable on the date of the Optionee's cessation of Service (less any
option shares subsequently purchased by the Optionee prior to death), by
the personal representative of the Optionee's estate or the person or
persons to whom the option is transferred upon the Optionee's death. Any
such exercise must occur within the twelve (12)-month period following
the date of the Optionee's death.
-- Under no circumstances, however, shall any such option be exercisable
after the specified expiration date of the option term.
-- Each such option shall, during such limited exercise period, be
exercisable for any or all of the shares for which the option is
exercisable on the date of the Optionee's cessation of Service. Upon the
expiration of such limited exercise period or (if earlier) upon the
expiration of the option term, the option shall terminate and cease to be
exercisable.
2. The Plan Administrator shall have complete discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to permit one or more options held by the Optionee under this
Article Two to be exercised, during the limited period of exercisability
provided under subparagraph 1 above, not only with respect to the number of
shares for which each such option is exercisable at the time of the Optionee's
cessation of Service but also with respect to one or more subsequent
installments of purchasable shares for which the option would otherwise have
become exercisable had such cessation of Service not occurred.
3. For purposes of the foregoing provisions of this Section I.C (and for
all other purposes under the Plan):
-- The Optionee shall (except to the extent otherwise specifically provided
in the applicable option or issuance agreement) be deemed to remain in
Service for so long as such individual renders services on a periodic
basis to the Corporation or any parent or subsidiary corporation in the
capacity of an Employee, a nonemployee member of the Board or an
independent consultant or advisor.
-- The Optionee shall be considered to be an Employee for so long as he or
she remains in the employ of the Corporation or one or more parent or
subsidiary corporation, subject to the control and direction
30
<PAGE> 31
of the employer entity as to the work to be performed and as to the
manner and method of performance.
D. STOCKHOLDER RIGHTS.
An Optionee shall have no stockholder rights with respect to any shares
covered by the option until such individual shall have exercised the option,
paid the option price for the purchased shares and been issued a stock
certificate for such shares.
II. INCENTIVE OPTIONS
The terms and conditions specified below shall be applicable to all
Incentive Options granted under this Article Two. Incentive Options may only be
granted to individuals who are Employees. Options which are specifically
designated as "nonstatutory" options when issued under the Plan shall not be
subject to such terms and conditions.
A. Dollar Limitation. The aggregate Fair Market Value (determined as
of the respective date or dates of grant) of the Common Stock for which one
or more options granted to any Employee under this Plan (or any other
option plan of the Corporation or its parent or subsidiary corporations)
may for the first time become exercisable as incentive stock options under
the Federal tax laws during any one calendar year shall not exceed the sum
of One Hundred Thousand Dollars ($100,000). To the extent the Employee
holds two (2) or more such options which become exercisable for the first
time in the same calendar year, the foregoing limitation on the
exercisability of such options as incentive stock options under the Federal
tax laws shall be applied on the basis of the order in which such options
are granted.
B. 10% Stockholder. If any individual to whom an Incentive Option is
granted is the owner of stock (as determined under Section 424(d) of the
Internal Revenue Code) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation or any one
of its parent or subsidiary corporations ("10% Stockholder"), then the
option price per share shall not be less than one hundred and ten percent
(110%) of the Fair Market Value per share of Common Stock on the grant date
and the option term shall not exceed five (5) years measured from the grant
date.
Except as modified by the preceding provisions of this Section II, the
provisions of Articles One, Two and Five of the Plan shall apply to all
Incentive Options granted hereunder.
III. CORPORATE TRANSACTIONS/CHANGES IN CONTROL
A. In the event of any of the following stockholder approved transactions
to which the Corporation is a party (a "Corporate Transaction"):
(i) a merger or consolidation in which the Corporation is not the
surviving entity, except for a transaction the principal purpose of which
is to change the State of the Corporation's incorporation,
(ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Corporation in liquidation or dissolution of the
Corporation, or
(iii) any reverse merger in which the Corporation is the surviving
entity but in which securities possessing more than fifty percent (50%) of
the total combined voting power of the Corporation's outstanding securities
are transferred to holders different from those who held such securities
immediately prior to such merger,
then the exercisability of each option outstanding under this Article Two shall
automatically accelerate so that each such option shall, immediately prior to
the specified effective date for the Corporate Transaction, become fully
exercisable with respect to the total number of shares of Common Stock at the
time subject to such option and may be exercised for all or any portion of such
shares. However, an outstanding option under this Article Two shall not so
accelerate if and to the extent: (i) such option is, in connection with the
Corporate Transaction, to be assumed by the successor corporation or parent
thereof or replaced with a comparable option to purchase shares of the capital
stock of the successor corporation or parent thereof, (ii) such option is
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to be replaced by a comparable cash incentive program of the successor
corporation based on the option spread at the time of the Corporate Transaction,
or (iii) the acceleration of such option is subject to other limitations imposed
by the Plan Administrator at the time of the option grant. The determination of
comparability under clause (i) or (ii) above shall be made by the Plan
Administrator, and its determination shall be final, binding and conclusive.
B. Upon the consummation of the Corporate Transaction, all outstanding
options under this Article Two shall terminate and cease to be outstanding,
except to the extent assumed by the successor corporation or its parent company.
C. Each outstanding option under this Article Two which is assumed in
connection with the Corporate Transaction or is otherwise to continue in effect
shall be appropriately adjusted, immediately after such Corporate Transaction,
to apply and pertain to the number and class of securities which would have been
issued to the option holder, in consummation of such Corporate Transaction, had
such person exercised the option immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to the option price
payable per share, provided the aggregate option price payable for such
securities shall remain the same. In addition, the class and number of
securities available for issuance under the Plan following the consummation of
the Corporate Transaction shall be appropriately adjusted.
D. The grant of options under this Article Two shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
E. In the event of a Change in Control (as defined below), the
exercisability of each option outstanding under this Article Two shall
automatically accelerate so that each such option shall, as of such Change in
Control, become fully exercisable with respect to the total number of shares of
Common Stock at the time subject to such option and may be exercised for all or
any portion of such shares.
F. For all purposes under the Plan, a Change in Control shall be deemed to
occur in the event:
(i) any person or related group of persons (other than the Corporation
or a person that directly or indirectly controls, is controlled by, or is
under common control with, the Corporation) directly or indirectly acquires
beneficial ownership (within the meaning of Rule 13d-3 of the Securities
Exchange Act of 1934, as amended (the "1934 Act")) of securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange offer
made directly to the Corporation's stockholders which the Board does not
recommend such stockholders to accept; or
(ii) there is a change in the composition of the Board over a period
of twenty-four (24) consecutive months or less such that a majority of the
Board members (rounded up to the next whole number) ceases, by reason of
one or more proxy contests for the election of Board members, to be
comprised of individuals who either (A) have been Board members
continuously since the beginning of such period or (B) have been elected or
nominated for election as Board members during such period by at least a
majority of the Board members described in clause (A) who were still in
office at the time such election or nomination was approved by the Board.
G. Any options accelerated in connection with the Change in Control shall
remain fully exercisable until the expiration or sooner termination of the
option term.
H. The exercisability as incentive stock options under the Federal tax laws
of any options accelerated under this Section III in connection with a Corporate
Transaction or Change in Control shall remain subject to the dollar limitation
of Section II.B of this Article Two.
IV. SUBSTITUTION OF OPTIONS
A. Should the Corporation, in connection with any merger or other business
consolidation with, or any purchase or acquisition of the stock or assets of
another corporation, enter into an agreement with such other corporation which
provides for the grant of options to purchase shares of Common Stock under this
Plan (the
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"Substituted Options") in substitution and replacement for one or more
outstanding options to purchase equity securities of such other corporation (the
"Replaced Options") upon the consummation of the transaction, then the Plan
Administrator shall have full power and authority to issue such Substituted
Options under this Plan in substitution and replacement for one or more
outstanding options of the other corporation, subject, however, to the following
special terms and conditions:
(i) On a share-by-share basis, the ratio of the option price to the
fair market value of the Common Stock covered by the Substituted Option
immediately after the substitution shall not be greater than the ratio of
the option price to the fair market value of the equity securities covered
by the Replaced Option immediately prior to the substitution.
(ii) The excess of the aggregate fair market value of the shares of
Common Stock subject to the Substituted Option immediately after the
substitution over the aggregate option price payable for such shares shall
not be more than the excess of the aggregate fair market value of the
equity securities subject to the Replaced Option immediately before such
substitution over the aggregate option price payable for such securities.
(iii) The Substituted Option shall not give the option holder any
additional benefits not otherwise provided under the Replaced Option.
B. In connection with the Corporation's acquisition, on July 29, 1993 (the
"Closing"), of substantially all of the assets of Molecular Design Limited
("Molecular Design") and assumption of substantially all of the liabilities of
Molecular Design pursuant to that certain Asset Purchase Agreement by and among
the Corporation, Macmillan, Inc. and Molecular Design Limited (the "Purchase
Agreement"), there shall be issued under this Plan, in compliance with the
requirements of subsection IV.A above, Substituted Options to purchase shares of
Common Stock (the "MDL Substituted Options") in full substitution and
replacement for the stock options to purchase shares of Molecular Design common
stock outstanding under the Molecular Design 1993 Stock Option and Restricted
Stock Plan (the "Replaced Molecular Design Options") immediately prior to the
Closing. The MDL Substituted Options shall be issued in substitution for the
Replaced Molecular Design Options on the basis of a one-to-one conversion ratio,
as contemplated pursuant to the provisions of the Purchase Agreement.
Accordingly, the number of shares of Common Stock subject to each MDL
Substituted Option immediately after the substitution shall be equal to the
number of shares of Molecular Design common stock subject to the Replaced
Molecular Design Option immediately prior to the Closing. The exercise price per
share in effect under each MDL Substituted Option shall be equal to the exercise
price per share in effect under the Replaced Molecular Design Option immediately
prior to the Closing. All of the remaining terms of the MDL Substituted Option
(including, without limitation, the exercise schedule and the maximum option
term) shall be substantially the same as those in effect under the Replaced
Molecular Design Option immediately prior to the Closing.
V. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time and
from time to time, with the consent of the affected Optionees, the cancellation
of any or all outstanding options under this Article Two and to grant in
substitution new options under the Plan covering the same or different numbers
of shares of Common Stock but having an option price per share not less than the
Fair Market Value of the Common Stock on the new grant date (or one hundred ten
percent (110%) of such Fair Market Value in the case of an Incentive Option
granted to a 10% Stockholder).
VI. STOCK APPRECIATION RIGHTS
A. Provided and only if the Plan Administrator determines in its discretion
to implement the stock appreciation right provisions of this Section V, one or
more Optionees may be granted the right, exercisable upon such terms and
conditions as the Plan Administrator may establish, to surrender all or part of
an unexercised option under this Article Two in exchange for a distribution from
the Corporation in an amount equal to the excess of (i) the Fair Market Value
(on the option surrender date) of the number of shares in
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which the Optionee is at the time vested under the surrendered option (or
surrendered portion thereof) over (ii) the aggregate option price payable for
such vested shares.
B. No surrender of an option shall be effective hereunder unless it is
approved by the Plan Administrator. If the surrender is so approved, then the
distribution to which the Optionee shall accordingly become entitled under this
Section V may be made in shares of Common Stock valued at Fair Market Value on
the option surrender date, in cash, or partly in shares and partly in cash, as
the Plan Administrator shall in its sole discretion deem appropriate.
C. If the surrender of an option is rejected by the Plan Administrator,
then the Optionee shall retain whatever rights the Optionee had under the
surrendered option (or surrendered portion thereof) on the option surrender date
and may exercise such rights at any time prior to the later of (i) five (5)
business days after the receipt of the rejection notice or (ii) the last day on
which the option is otherwise exercisable in accordance with the terms of the
instrument evidencing such option, but in no event may such rights be exercised
more than ten (10) years after the date of the option grant.
D. One or more officers of the Corporation subject to the short-swing
profit restrictions of the Federal securities laws may, in the Plan
Administrator's sole discretion, be granted limited stock appreciation rights in
tandem with their outstanding options under the Plan. Upon the occurrence of a
Hostile Take-Over, each outstanding option with such a limited stock
appreciation right in effect for at least six (6) months shall automatically be
canceled. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the vested shares of Common Stock at the time subject to the cancelled option
(whether or not the option is otherwise at the time exercisable for such shares)
over (ii) the aggregate exercise price payable for such shares. The cash
distribution payable upon such cancellation shall be made within five (5) days
following the consummation of the Hostile Take-Over. Neither the approval of the
Plan Administrator nor the consent of the Board shall be required in connection
with such option cancellation and cash distribution.
E. For purposes of Section V.D, the following definitions shall be in
effect:
A Hostile Take-Over shall be deemed to occur in the event (i) any
person or related group of persons (other than the Corporation or a person
that directly or indirectly controls, is controlled by, or is under common
control with, the Corporation) directly or indirectly acquires beneficial
ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total combined voting power
of the Corporation's outstanding securities pursuant to a tender or
exchange offer made directly to the Corporation's stockholders which the
Board does not recommend such stockholders to accept and (ii) more than
fifty percent (50%) of the securities so acquired in such tender or
exchange offer are accepted from holders other than Corporation officers
and directors who are subject to the short-swing profit restrictions of the
Federal securities laws.
The Take-Over Price per share shall be deemed to be equal to the
greater of (a) the Fair Market Value per share on the date of cancellation,
as determined pursuant to the valuation provisions of Section I.A.3 of this
Article Two, or (b) the highest reported price per share paid in effecting
such Hostile Take-Over. However, if the cancelled option is an Incentive
Option, the Take-Over Price shall not exceed the clause (a) price per
share.
F. The shares of Common Stock subject to any option surrendered or
cancelled for an appreciation distribution pursuant to this Section VI shall not
be available for subsequent option grant under the Plan.
VII. EXTENSION OF EXERCISE PERIOD
The Plan Administrator shall have full power and authority to extend the
period of time for which any option granted under this Article Two is to remain
exercisable following the Optionee's cessation of Service or death from the
limited period in effect under Section I.C.1 of this Article Two to such greater
period of time as the Plan Administrator shall deem appropriate; provided,
however, that in no event shall such option be exercisable after the specified
expiration date of the option term.
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ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
I. ELIGIBILITY
The individuals eligible to receive automatic option grants pursuant to the
provisions of this Article Three ("Eligible Directors") shall be limited to the
following:
(i) each individual who is serving as a nonemployee member of the
Board on the Effective Date; and
(ii) each individual who is first appointed or elected as a
non-employee Board member at any time after the Effective Date.
II. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
A. Grant Dates. Option grants will be made under this Article Three on the
dates specified below:
(i) Each individual who first becomes a non-employee Board member at
any time after the Effective Date of this Plan, whether through election at
an Annual Stockholders Meeting or through appointment by the Board, and who
has not previously been granted an option under this Plan, shall
automatically be granted, at the time of such initial election or
appointment, a non-statutory stock option to purchase 15,000 shares of
Common Stock upon the terms and conditions of this Article Three.
(ii) At the 1994 and 1995 Annual Stockholders Meeting, each individual
who is at the time elected or reelected as a non-employee member of the
Board or each individual who is then serving as a non-employee member of
the Board, whether or not standing for reelection at that particular
meeting, shall receive a grant of a non-statutory option under the Plan to
purchase 2,000 shares of Common Stock, provided such individual has been a
member of the Board for at least six (6) months.
(iii) Commencing with the 1996 Annual Stockholders Meeting and each
subsequent Annual Stockholders Meeting, each individual who is at the time
elected or reelected as a non-employee member of the Board or each
individual who is then serving as a non-employee member of the Board,
whether or not standing for reelection at that particular meeting, shall
receive a grant of a non-statutory option to purchase 5,000 shares of
Common Stock.
The 15,000-share limitation on the initial automatic option grants and
2,000-share limitation or 5,000-share limitation (commencing on the date of the
1996 Annual Stockholders Meeting) on the subsequent automatic option grants to
be made to each Eligible Director shall be subject to periodic adjustment
pursuant to the applicable provisions of paragraph V.D of Article One.
B. Exercise Price. The exercise price per share shall be equal to one
hundred percent (100%) of the Fair Market Value per share of Common Stock on the
automatic grant date.
C. Payment. The exercise price shall be payable in one of the alternative
forms specified below:
(i) cash or check made payable to the Corporation's order;
(ii) shares of Common Stock held by the Optionee for the requisite
period necessary to avoid a charge to the Corporation's reported earnings
and valued at Fair Market Value on the Exercise Date (as such terms are
defined in Section I.A of Article Two); or
(iii) through a broker-dealer sale and remittance procedure pursuant
to which the Eligible Director shall provide irrevocable written
instructions (I) to a designated brokerage firm to effect the immediate
sale of the purchased shares and remit to the Corporation, out of the sale
proceeds available on the settlement date sufficient funds to cover the
aggregate option price payable for the purchased shares plus all applicable
Federal and State income and employment taxes required to be withheld by
the Corporation by reason of such purchase and (II) to the Corporation to
deliver the certificates for the purchased shares directly to such
brokerage firm.
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Except to the extent the sale and remittance procedure specified above is
utilized for the exercise of the option, payment of the exercise price for the
purchased shares must accompany such notice.
D. Option Term. Each automatic grant under this Article Three shall have a
maximum term of ten (10) years measured from the automatic grant date.
E. Exercisability. Each initial automatic option and each annual automatic
option granted prior to the 1996 Annual Stockholders Meeting shall become
exercisable for the option shares in a series of annual installments. The first
installment for twenty-five percent (25%) of the option shares shall become
exercisable on the first anniversary of the grant date and the option shall
become exercisable for the balance of the option shares in a series of
successive, equal annual installments over the three (3)-year period thereafter,
provided the Eligible Director remains a member of the Board through each such
date. Each annual automatic option granted at the 1996 Annual Stockholders
Meeting and thereafter, subject to stockholder approval, shall become
exercisable in a series of equal annual installments over a two-year period
measured from the grant date. As the option becomes exercisable for one or more
installments, the installments shall accumulate, and the option shall remain
exercisable for the accumulated installments until the expiration or sooner
termination of the option term. The option, however, shall not become
exercisable for any additional option shares following the Eligible Director's
cessation of Board service, except to the extent the option is otherwise to
become exercisable in accordance with the provisions of paragraph III of this
Article Three.
F. Non-Transferability. During the lifetime of the Eligible Director, the
option shall be exercisable only by the Eligible Director and shall not be
assignable or transferable by the Eligible Director otherwise than by a transfer
effected by the Optionee by will or by the laws of descent and distribution
following his or her death.
G. Effect of Termination of Board Membership. Should the Eligible Director
cease to be a Board member for any reason other than death, permanent disability
or retirement at or after age 65 while holding an automatic option grant under
this Article Three, then he or she shall have a three (3)-month period following
the date of such cessation of Board membership in which to exercise such option
for any or all of the shares of Common Stock for which the option is exercisable
at the time the Eligible Director ceases service as a Board member.
1. Should the Eligible Director cease to be a Board Member by reason
of permanent disability (as defined in Section 22(e)(3) of the Internal
Revenue Code) or retirement at or after age 65, then any automatic option
grant held by such Eligible Director under this Article Three shall
accelerate in full, and the Eligible Director shall have a twelve
(12)-month period following the date of the Eligible Director's cessation
of Board membership in which to exercise such option for any or all of the
shares of Common Stock subject to that option at the time of such cessation
of Board service.
2. Should the Eligible Director die while serving as a Board Member,
then any automatic option grant held by such Eligible Director shall
accelerate in full and shall be exercisable for any or all of the shares of
Common Stock subject to that option at the time of such cessation of Board
service. Should the Eligible Director die while serving as a Board member
or during the three (3)-month period following his or her cessation of
Board service, then the option may subsequently be exercised, for any or
all of the shares of Common Stock for which the option is exercisable at
the time of the Eligible Director's cessation of Board membership (less any
option shares subsequently purchased by the Eligible Director prior to
death), by the personal representative of his or her estate or by the
person or persons to whom the option is transferred pursuant to the
Eligible Director's will or in accordance with the laws of descent and
distribution. Any such exercise must, however, occur within twelve (12)
months after the date of the Eligible Director's death.
3. In no event shall any automatic grant under this Article Three
remain exercisable after the specified expiration date of the ten (10)-year
option term. Upon the expiration of the applicable exercise period in
accordance with subparagraphs 1 through 3 above or (if earlier) upon the
expiration of the ten (10)-year option term, the automatic grant shall
terminate and cease to be exercisable.
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H. Stockholder Rights. The holder of an automatic option grant under this
Article Three shall have no stockholder rights with respect to any shares
covered by such option until such individual shall have exercised the option,
paid the exercise price for the purchased shares and been issued a stock
certificate for such shares.
I. Remaining Terms. The remaining terms and conditions of each automatic
option grant shall be as set forth in the prototype Director Automatic Grant
Agreement attached as Exhibit A to the Plan.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of a Corporate Transaction (as such term is defined in
Section III.A of Article Two), then the exercisability of each automatic option
grant outstanding under this Article Three shall automatically accelerate so
that each such option shall, immediately prior to the specified effective date
for the Corporate Transaction, become fully exercisable with respect to the
total number of shares of Common Stock at the time subject to such option and
may be exercised for all or any portion of such shares. Upon the consummation of
the Corporate Transaction, all automatic option grants under this Article Three
shall terminate and cease to be outstanding.
B. In connection with any Change in Control (as such term is defined in
Paragraph F of Section III of Article Two above), the exercisability of each
automatic option grant at the time outstanding under this Article Three shall
automatically accelerate so that each such option shall, immediately prior to
the specified effective date for the Change in Control, become fully exercisable
with respect to the total number of shares of Common Stock at the time subject
to such option and may be exercised for all or any portion of such shares.
C. Upon the occurrence of a Hostile Take-Over, each automatic option grant
which has been outstanding under this Article Three for a period of at least six
(6) months shall automatically be cancelled in return for a cash distribution
from the Corporation in an amount equal to the excess of (i) the Take-Over Price
of the shares of Common Stock at the time subject to the cancelled option
(whether or not the option is otherwise at the time exercisable for such shares)
over (ii) the aggregate exercise price payable for such shares. The cash
distribution payable upon such cancellation shall be made within five (5) days
following the consummation of the Hostile Take-Over. Neither the approval of the
Plan Administrator nor the consent of the Board shall be required in connection
with such option cancellation and cash distribution.
D. For purposes of this Article Three, Hostile Take-Over shall have the
meaning assigned to such term in paragraph VI.E of Section III of Article Two.
The Take-Over Price per share shall be deemed to be equal to the greater of (a)
the Fair Market Value per share on the date of cancellation, as determined
pursuant to the valuation provisions of paragraph I.A.3 of Article Two, or (b)
the highest reported price per share paid in effecting such Hostile Take-Over.
E. The shares of Common Stock subject to each option cancelled in
connection with the Hostile Take-Over shall not be available for subsequent
issuance under this Plan.
F. The automatic option grants outstanding under this Article Three shall
in no way affect the right of the Corporation to adjust, reclassify, reorganize
or otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
IV. AMENDMENT OF THE AUTOMATIC GRANT PROVISIONS
The provisions of this Automatic Option Grant Program, including any
automatic option grants outstanding under this Article Three, may not be amended
at intervals more frequently than once every six (6) months, other than to the
extent necessary to comply with applicable Federal income tax laws and
regulations.
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ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. TERMS AND CONDITIONS OF STOCK ISSUANCES
Shares may be issued under the Stock Issuance Program through direct and
immediate purchases without any intervening stock option grants. The issued
shares shall be evidenced by a Stock Issuance Agreement ("Issuance Agreement")
that complies with the terms and conditions of this Article Four.
A. CONSIDERATION.
1. Shares of Common Stock drawn from the Corporation's authorized but
unissued shares of Common Stock ("Newly Issued Shares") shall, subject to the
provisions of Section I of Article Five, be issued under the Plan for one or
more of the following forms of consideration which the Plan Administrator may
deem appropriate:
(i) cash or check payable to the Corporation; and
(ii) past services rendered to the Corporation or any parent or
subsidiary corporation.
2. Newly Issued Shares may, in the absolute discretion of the Plan
Administrator, be issued for consideration with a value less than one-hundred
percent (100%) of the Fair Market Value of the issued shares, but in no event
less than eighty-five percent (85%) of such Fair Market Value.
3. Shares of Common Stock reacquired by the Corporation and held as
treasury shares ("Treasury Shares") may be issued under the Plan for such
consideration (in whatever form) as the Plan Administrator may deem appropriate.
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Plan may, in the absolute
discretion of the Plan Administrator, be fully and immediately vested upon
issuance or may vest in one or more installments over the Participant's period
of Service (as such term is defined in Section I.C.3 of Article Two). The
elements of the vesting schedule applicable to any unvested shares of Common
Stock issued under the Plan, namely:
(i) the Service period to be completed by the Participant or the
performance objectives to be achieved by the Corporation,
(ii) the number of installments in which the shares are to vest,
(iii) the interval or intervals (if any) which are to lapse between
installments, and
(iv) the effect that death, disability or any other event designated
by the Plan Administrator is to have upon the vesting schedule,
shall be determined by the Plan Administrator and incorporated into the Issuance
Agreement executed by the Corporation and the Participant at the time such
unvested shares are issued.
2. The Participant shall have full stockholder rights with respect to any
shares of Common Stock issued to him or her under the Plan, whether or not his
or her interest in those shares is vested. Accordingly, the Participant shall
have the right to vote such shares and to receive any regular cash dividends
paid on such shares. Any new, additional or different shares of stock or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to his or her unvested
shares by reason of any stock dividend, stock split, reclassification of Common
Stock or other similar change in the Corporation's capital structure or by
reason of any Corporate Transaction under Section II of this Article Four shall
be issued, subject to (i) the same vesting requirements applicable to his or her
unvested shares and (ii) such escrow arrangements as the Plan Administrator
shall deem appropriate.
3. Should the Participant cease to remain in Service while holding one or
more unvested shares of Common Stock under the Plan, then those shares shall be
immediately surrendered to the Corporation for
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cancellation, and the Participant shall have no further stockholder rights with
respect to those shares. To the extent the surrendered shares were previously
issued to the Participant for consideration paid in cash or cash equivalent
(including the Participant's purchase-money promissory note), the Corporation
shall repay to the Participant the cash consideration paid for the surrendered
shares and shall cancel the principal balance of any outstanding purchase-money
note of the Participant to the extent attributable to such surrendered shares.
The surrendered shares may, at the Plan Administrator's discretion, be retained
by the Corporation as Treasury Shares or may be retired to authorized but
unissued share status.
4. The Plan Administrator may in its discretion elect to waive the
surrender and cancellation of one or more unvested shares of Common Stock (or
other assets attributable thereto) which would otherwise occur upon the
non-completion of the vesting schedule applicable to such shares. Such waiver
may be effected at any time and shall result in the immediate vesting of the
Participant's interest in the shares of Common Stock as to which the waiver
applies.
II. CORPORATE TRANSACTIONS/CHANGES IN CONTROL
A. In the event of a Corporate Transaction, then all unvested shares of
Common Stock shall immediately vest in full, except to the extent the Plan
Administrator imposes limitations in the Issuance Agreement which preclude such
accelerated vesting in whole or in part.
B. In the event of a Change in Control, then all unvested shares of Common
Stock shall immediately vest in full, except to the extent the Plan
Administrator imposes limitations in the Issuance Agreement which preclude such
accelerated vesting in whole or in part. The Plan Administrator shall also have
full power and authority to condition any such accelerated vesting upon the
subsequent termination of the Participant's Service within a specified period
following the Change in Control.
III. TRANSFER RESTRICTIONS/SHARE ESCROW
A. Unvested shares may, in the Plan Administrator's discretion, be held in
escrow by the Corporation until the Participant's interest in such shares vests
or may be issued directly to the Participant with restrictive legends on the
certificates evidencing such unvested shares. To the extent an escrow
arrangement is used, the unvested shares and any securities or other assets
issued with respect to such shares (other than regular cash dividends) shall be
delivered in escrow to the Corporation to be held until the Participant's
interest in such shares (or other securities or assets) vests.
B. The Participant shall have no right to transfer any unvested shares of
Common Stock issued to him or her under the Plan. For purposes of this
restriction, the term "transfer" shall include (without limitation) any sale,
pledge, assignment, encumbrance, gift, or other disposition of such shares,
whether voluntary or involuntary. Upon any such attempted transfer, the unvested
shares shall immediately be cancelled, and neither the Participant nor the
proposed transferee shall have any rights with respect to those shares. However,
the Participant shall have the right to make a gift of unvested shares acquired
under the Plan to his or her spouse or issue, including adopted children, or to
a trust established for such spouse or issue, provided the donee of such shares
delivers to the Corporation a written agreement to be bound by all the
provisions of the Plan and the Issuance Agreement applicable to the gifted
shares.
ARTICLE FIVE
MISCELLANEOUS
I. LOANS OR INSTALLMENT PAYMENTS
A. The Plan Administrator may, in its discretion, assist any Optionee or
Participant (including an Optionee or Participant who is an officer or director
of the Corporation) in the exercise of one or more options granted to such
Optionee under the Article Two Discretionary Option Grant Program or the
purchase of one or more shares issued to such Participant under the Article Four
Stock Issuance Program, including the satisfaction of any Federal and State
income and employment tax obligations arising therefrom by
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(i) authorizing the extension of a loan from the Corporation to such Optionee or
Participant or (ii) permitting the Optionee or Participant to pay the option
price or purchase price for the purchased Common Stock in installments over a
period of years. The terms of any loan or installment method of payment
(including the interest rate and terms of repayment) shall be established by the
Plan Administrator. Loans and installment payments may be granted with or
without security or collateral (other than to individuals who are consultants or
independent contractors, in which event the loan must be adequately secured by
collateral other than the purchased shares). However, the maximum credit
available to the Optionee or Participant may not exceed the option or purchase
price of the acquired shares (less the par value of such shares) plus any
Federal and State income and employment tax liability incurred by the Optionee
or Participant in connection with the acquisition of such shares.
B. The Plan Administrator may, in its absolute discretion, determine that
one or more loans extended under this financial assistance program shall be
subject to forgiveness by the Corporation in whole or in part upon such terms
and conditions as the Plan Administrator may deem appropriate.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares or cash upon the exercise
of stock options, stock appreciation rights or stock issuance awards granted
under the Plan shall be subject to the satisfaction of all applicable Federal,
state and local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion and upon such terms and
conditions as it may deem appropriate (including the applicable safe-harbor
provisions of Rule 16b-3 of the Securities and Exchange Commission ("SEC"))
provide one or more holders of outstanding option grants under Article Two of
the Plan with the election to have the Corporation withhold, from the shares of
Common Stock otherwise issuable upon the exercise of such options, one or more
of such shares with an aggregate Fair Market Value equal to the designated
percentage (any multiple of five percent (5%) specified by the option holder) of
the Federal and State income and employment taxes incurred in connection with
the acquisition of such shares. In lieu of such direct withholding, one or more
option holders may also be granted the right to deliver shares of Common Stock
to the Corporation in satisfaction of such taxes. The withheld or delivered
shares shall be valued at Fair Market Value on the applicable determination date
for such taxes or such other date required by the applicable safe-harbor
provisions of SEC Rule 16b-3.
III. AMENDMENT OF THE PLAN AND AWARDS
A. The Board has complete and exclusive power and authority to amend or
modify the Plan (or any component thereof) in any or all respects whatsoever,
subject to Section IV of Article Three. However, no such amendment or
modification may adversely affect the rights and obligations of an Optionee or
an Eligible Director with respect to options at the time outstanding under the
Plan, nor adversely affect the rights of any Participant with respect to Common
Stock issued under the Plan prior to such action, unless the Optionee, Eligible
Director or Participant consents to such amendment. In addition, the Board may
not, without the approval of the Corporation's stockholders, amend the Plan to
(i) materially increase the maximum number of shares issuable under the Plan
(except for permissible adjustments under Article One, Section V.D) or (ii)
materially modify the eligibility requirements for participation in the Plan or
the benefits accruing to Optionees or Participants under the Plan.
B. (i) Options to purchase shares of Common Stock may be granted under the
Discretionary Option Grant Program and the Automatic Option Grant Program and
(ii) shares of Common Stock may be issued under the Stock Issuance Program,
which are in each instance in excess of the number of shares then available for
issuance under the Plan, provided any excess shares actually issued are held in
escrow until stockholder approval is obtained for a sufficient increase in the
number of shares available for issuance under the Plan. If such stockholder
approval is not obtained within twelve (12) months after the date the first such
excess option grants or excess share issuances are made, then (I) any
unexercised excess options shall terminate and cease to be exercisable and (II)
the Corporation shall promptly refund the purchase price paid for any excess
shares
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<PAGE> 41
actually issued under the Plan and held in escrow, together with interest (at
the applicable Short-Term Federal Rate) for the period the shares were held in
escrow.
IV. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan became effective on the Effective Date, and the Corporation's
stockholders approved of the Plan on July 29, 1993. The Plan was amended on
February 9, 1994 to increase the number of shares issuable thereunder by 150,000
shares.
B. On November 15, 1995 and May 29, 1996, the Board amended the Plan to
increase the number of shares issuable under the Plan by 150,000 and 700,000
shares, respectively, and further amended the Plan on January 1, 1996 to
increase the size of the annual grant under the Automatic Option Grant Program
from 2,000 shares to 5,000 shares and shortened the exercise schedule of such
annual grants. The amendment to the Automatic Option Grant Program is subject to
approval by the Corporation's stockholders at the 1996 Annual Stockholders
Meeting. The 850,000-share increase became effective when adopted by the Board.
Any option granted on the basis of such 850,000-share increase shall become
exercisable in accordance with its terms. However, any option exercised prior to
obtaining stockholder approval of the 850,000-share increase shall be a
non-statutory option. Except as so limited, the Plan Administrator may grant
options at any time before expiration of the Plan.
C. The Plan shall terminate upon the earlier of (i) July 20, 2003 or (ii)
the date on which all shares available for issuance under the Plan shall have
been issued or cancelled pursuant to the exercise, surrender or cash-out of the
options granted under the Discretionary Option Grant Program or the Automatic
Option Grant Program or the issuance of shares (whether vested or unvested)
under the Stock Issuance Program. If the date of termination is determined under
clause (i) above, then all option grants and unvested stock issuances
outstanding on such date shall thereafter continue to have force and effect in
accordance with the provisions of the instruments evidencing such grants or
issuances.
V. USE OF PROCEEDS
Cash proceeds received by the Corporation from the sale of shares under the
Plan shall be used for general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option under the
Discretionary Option Grant Program or the Automatic Option Grant Program, the
issuance of any shares under the Stock Issuance Program, and the issuance of
Common Stock upon the exercise or surrender of the option grants made hereunder
shall be subject to the Corporation's procurement of all approvals and permits
required by regulatory authorities having jurisdiction over the Plan, the
options granted under it, and the Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or delivered
under the Plan unless and until there shall have been compliance with all
applicable requirements of Federal and state securities laws, including the
filing and effectiveness of a Form S-8 registration statement for the shares of
Common Stock issuable under the Plan, and all applicable listing requirements of
any securities exchange on which stock of the same class is then listed.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Neither the action of the Corporation in establishing the Plan, nor any
action taken by the Plan Administrator hereunder, nor any provision of the Plan
shall be construed so as to grant any individual the right to remain in the
employ or Service of the Corporation (or any parent or subsidiary corporation)
for any period of specific duration, and the Corporation (or any parent or
subsidiary corporation retaining the Services of such individual) may terminate
such individual's employment or Service at any time and for any reason, with or
without cause.
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<PAGE> 42
VIII. MISCELLANEOUS PROVISIONS
A. The right to acquire Common Stock or other assets under the Plan may not
be assigned, encumbered or otherwise transferred by any Optionee, Eligible
Director or Participant.
B. The provisions of the Plan shall be governed by the laws of the State of
California, as such laws are applied to contracts entered into and performed in
such State.
C. The provisions of the Plan shall inure to the benefit of, and be binding
upon, the Corporation and its successors or assigns, whether by Corporate
Transaction or otherwise, and the Optionees, Eligible Directors and
Participants, the legal representatives of their respective estates, their
respective heirs or legatees and their permitted assignees.
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<PAGE> 43
DETACH HERE MDL F
PROXY
MDL INFORMATION SYSTEMS, INC.
ANNUAL MEETING OF STOCKHOLDERS
AUGUST 7, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Steven D. Goldby and John J. Hanlon and
each or either of them as Proxies of the undersigned, with full power of
substitution, and hereby authorizes them to represent and to vote, as
designated below, all of the shares of Common Stock of MDL Information
Systems, Inc., held of record by the undersigned on June 7, 1996, at the
Annual Meeting of Stockholders of MDL Information Systems, Inc. to be held
August 7, 1996, or at any adjournments or postponements thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL NOS. 1, 2, 3, 4
AND 5. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED ON THE
REVERSE SIDE. THIS PROXY WILL BE VOTED FOR PROPOSAL NOS. 1, 2, 3, 4 AND 5 IF NO
SPECIFICATION IS MADE.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE
<PAGE> 44
DETACH HERE MDL 2F
/X/ Please mark
votes as in
this example.
1. To elect the following directors to serve for a term
ending upon the 1997 Annual Meeting and until their
successors are elected and qualified.
NOMINEES: Steven D. Goldby, Thomas D. Jones, Peter W.
Booth, Donald E. O'Neill, David N. Strohm, Pedro M.
Cuatracasas FOR WITHHELD
/ / / /
MARK HERE
FOR ADDRESS / /
CHANGE AND
/ /___________________________ NOTE BELOW
For all nominees except as
noted above
FOR AGAINST ABSTAIN
2. To ratify the selection of Ernst & / / / / / /
Young LLP as independent auditors
of the Company.
FOR AGAINST ABSTAIN
3. To approve an amendment to the / / / / / /
Company's 1993 Stock Option and
Restricted Stock Plan to increase
by 850,000 the number of shares of
Common Stock reserved for issuance,
and to limit to 500,000 the
maximum number of shares for which
any one individual participant may
be granted stock options each year
under the 1993 Plan.
4. To approve an amendment to the
Company's 1993 Stock Option and FOR AGAINST ABSTAIN
Restricted Stock Plan to increase to / / / / / /
6,000 the annual grant to be made
to non-employee directors under the
Automatic Grant Program and to
approve a shorter vesting schedule
for such annual director grants.
5. In their discretion, the Proxies are authorized to vote upon
such other matters as may properly come before the meeting.
PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.
Please sign exactly as your name(s) is (are) shown on the share certificate to
which the Proxy applies. When shares are held by joint tenants, both should
sign. When signing as an attorney, executor, administrator, trustee or
guardian, please give full title as such. If a corporation, please sign in full
corporate name by President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
Signature:_________________________ Date:______
Signature:_________________________ Date:______
