SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. ____)
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Filed by a party other than the Registrant [ ]
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[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
-------------------------------
APPLIED BIOMETRICS, INC.
(Name of Registrant as Specified In Its Charter)
-------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
-------------------------------
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[LOGO] APPLIED BIOMETRICS
Dear Shareholder,
On behalf of the Board of Directors of Applied Biometrics, Inc., I am pleased to
provide you with our 2000 proxy materials and Notice of Annual Meeting of
Shareholders.
The Annual Meeting will be held on May 9, 2000 at 3:30 PM at the Marquette
Hotel, 701 Marquette Avenue in Minneapolis, Minnesota. For those of you who plan
to attend, I look forward to seeing you there, giving you an update on our
Company, and answering any questions you may have.
Regarding the enclosed proxy materials, I encourage all shareholders to review
the Proxy Statement, fill out the proxy card and return it in the enclosed
envelope - even if you plan to attend the Annual Meeting - to ensure that you
are represented. Shareholders who attend the Annual Meeting may revoke their
proxies in the manner described in the Proxy Statement and vote in person if
they so desire.
A couple of words about the proposals that will be presented at the Annual
Meeting. The first proposals relate to election of directors and ratification of
our public accountants. I encourage you to look at these proposals and vote
positively on both of them. The third proposal involves consolidation and
extension of our stock option plans. Our primary objective in this proposal is
to consolidate the authorized stock options into our most up-to-date stock
option plan, the 1998 Stock Plan, and to authorize an additional 750,000 shares
for issuance under that plan. This move is critical to our ability to hire and
retain the talent we need to meet our business objectives in today's competitive
labor markets. I encourage you to vote positively on this proposal as well.
Once again, I encourage all shareholders to be represented at the Annual
Meeting, in person or by proxy. Please take a few minutes to the review these
proxy materials, fill out the card and send it in. Thank you.
Very truly yours,
/s/ Andrew M. Weiss
Andrew M. Weiss
President & Chief Executive Officer
APPLIED BIOMETRICS, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 9, 2000
----------------------------
Notice is hereby given that the Annual Meeting of Shareholders of
Applied Biometrics, Inc. (the "Company") will be held on May 9, 2000 at the
Marquette Hotel, 701 Marquette Avenue, Minneapolis, Minnesota 55402. The meeting
will convene at 3:30 p.m. for the following purposes:
1. To elect four (4) directors to hold office until the next
Annual Meeting of Shareholders or until their successors are
elected and qualified;
2. To consider and act upon a proposal to amend the Company's
1998 Stock Plan (the "1998 Plan") to (i) increase the number
of shares of the Company's common stock, $.01 par value per
share ("Common Stock"), specifically reserved for issuance
under the 1998 Plan by 750,000 shares, (ii) to additionally
increase the number of shares of the Company's Common Stock
available for issuance under the 1998 Plan to include the
number of shares remaining available under the Company's 1994
and 1996 Stock Plans or later becoming available under the
1994 or 1996 Plans as a result of forfeiture or cancellation,
(iii) to include non-employee directors as eligible
participants under the 1998 Plan and, (iv) to increase the
number of options that may be granted in any one year to any
one person under the 1998 Plan from 150,000 to 200,000;
3. To consider and act upon a proposal to ratify the appointment
of Ernst & Young LLP as independent public accountants for the
Company for the current fiscal year; and
4. To transact such other business as may properly come before
the meeting or any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on March 17,
2000 as the record date for the determination of shareholders entitled to notice
of and to vote at the meeting.
For the Board of Directors,
/s/ Camille M. Meyer
Camille M. Meyer
Vice-President, Finance, Chief Financial Officer
and Corporate Secretary
Burnsville, Minnesota 55337
March 29, 2000
TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE SIGN, DATE, AND RETURN THE
ENCLOSED PROXY CARD. A POSTAGE-PAID ENVELOPE IS ALSO ENCLOSED FOR THIS PURPOSE.
THE PROXY IS SOLICITED BY THE COMPANY'S BOARD OF DIRECTORS AND MAY BE REVOKED OR
WITHDRAWN BY YOU AT ANY TIME BEFORE IT IS VOTED, AS DESCRIBED IN THE
ACCOMPANYING PROXY STATEMENT.
APPLIED BIOMETRICS, INC.
501 East Highway13, Suite 108
Burnsville, MN 55337
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
MAY 9, 2000
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INTRODUCTION
This Proxy Statement is furnished to shareholders of Applied
Biometrics, Inc. (the "Company") in connection with the solicitation of proxies
by the Company's Board of Directors (the "Board") to be voted at the Company's
2000 Annual Meeting of Shareholders on May 9, 2000 or any adjournment thereof
(the "Annual Meeting").
A proxy card is enclosed for your use. You are solicited on behalf of
the Board of Directors to SIGN THE PROXY CARD AND RETURN IT IN THE ACCOMPANYING
ENVELOPE. No postage is required if mailed within the United States. The cost of
soliciting proxies, including the preparation, assembly and mailing of the
proxies and soliciting material, as well as the cost of forwarding such material
to the beneficial owners of the Company's common stock, par value $.01 per share
(the "Common Stock"), will be borne by the Company. In addition to solicitation
by mail, officers, directors and employees of the Company may, without
compensation other than their regular compensation, solicit proxies by
telephone, facsimile or other electronic communication or in person. The Company
may reimburse brokerage firms and others for expenses incurred in forwarding
proxy materials to beneficial owners of Common Stock.
Any proxy may be revoked by request in person at the Annual Meeting or
by written notice mailed or delivered to the Secretary of the Company at any
time before the shares represented by the proxy are voted. If not revoked,
proxies will be voted as specified by the shareholders. The shares represented
by proxies that are signed, but which lack any such specification will be voted
in favor of the election as directors of each of the nominees listed in this
Proxy Statement and in favor of the proposals set forth in the accompanying
Notice of Annual Meeting of Shareholders and described herein.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR EACH OF THE
DIRECTOR NOMINEES NAMED HEREIN AND FOR EACH OF THE OTHER PROPOSALS
SET FORTH IN THE NOTICE OF MEETING AND DESCRIBED HEREIN.
The Company expects that this Proxy Statement, the Proxy and Notice of
Meeting will first be mailed to shareholders on or about March 29, 2000.
VOTING OF SHARES
The close of business on March 17, 2000 has been fixed by the Board of
Directors as the record date for determining shareholders entitled to notice of
and to vote at the Annual Meeting. The Company's Common Stock constitutes its
only outstanding class of stock. On March 17, 2000 there were 5,354,004 shares
of Common Stock issued and outstanding. Each such share is entitled to one vote
in person or by proxy on all matters presented to the shareholders at the Annual
Meeting, voting together as a single class. Cumulative voting in the election of
directors is not permitted.
The presence at the Annual Meeting, in person or by proxy, of the
holders of a majority of the outstanding shares of Common Stock entitled to vote
at the meeting is required for a quorum for the transaction of business. In
general, shares of Common Stock represented by a properly signed and returned
proxy card will be counted as shares present and entitled to vote at the meeting
for purposes of determining a quorum, without regard to whether the card
reflects abstentions (or is left blank) or reflects a "broker non-vote" on a
matter (i.e., a card returned by a broker on behalf of its beneficial owner
customer that is not voted on a particular matter because voting instructions
have not been received and the broker has no discretionary authority to vote).
The election of a nominee for director and the approval of each of the
other proposals described in this Proxy Statement require the approval of a
majority of the shares present and entitled to vote in person or by proxy on
that matter (and at least a majority of the minimum number of votes necessary
for a quorum to transact business at the Annual Meeting). Shares represented by
a proxy card voted as abstaining on any of the proposals will be treated as
shares present and entitled to vote that were not cast in favor of a particular
matter, and thus will be counted as votes against that matter. Shares
represented by a proxy card including any broker non-vote on a matter will be
treated as shares not entitled to vote on that matter, and thus will not be
counted in determining whether that matter has been approved.
2
SECURITY OWNERSHIP OF
PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth as of February 22, 2000 the number and
percentage of outstanding shares of Common Stock beneficially owned by each
person who is known to the Company to beneficially own more than five percent
(5%) of the Common Stock, by each director and nominee of the Company, by each
executive officer named in the Summary Compensation Table below, and by all
directors and executive officers of the Company as a group:
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NUMBER OF SHARES PERCENTAGE
BENEFICIAL OWNER BENEFICIALLY OWNED(1) OWNERSHIP(2)
- --------------------------------------------------------------------------------
David B. Johnson(3)
c/o Miller, Johnson & Kuehn, Incorporated
Suite 800 - Eighth Floor
5500 Wayzata Boulevard
Minneapolis, MN 55416 420,533 7.9%
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Aaron Boxer Revocable Trust(4)
c/o Miller, Johnson & Kuehn, Incorporated
Suite 800 - Eighth Floor
5500 Wayzata Boulevard
Minneapolis, MN 55416 463,333 8.7%
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Andrew M. Weiss(5) 338,668 6.0%
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Demetre Nicoloff, M.D., Ph.D. 62,500 1.2%
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Jeffrey W. Green(6) 60,000 1.1%
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Norman Dann(7) 25,000 *
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All directors, nominees and executive
officers as a group (9 persons)(8) 715,808 12.1%
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* Less than 1%.
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(1) Unless otherwise indicated, each person has sole voting and dispositive
power over such shares. Shares not outstanding but deemed beneficially owned by
virtue of the right of a person or member of a group to acquire them within 60
days are treated as outstanding only when determining the amount and percent
owned by such person or group.
(2) As of February 22, 2000, there were 5,354,004 shares of Common Stock
outstanding.
(3) Based on a Schedule 13G dated February 22, 2000 filed with the Securities
and Exchange Commission. Of the 420,533 shares reported, Mr. Johnson has sole
voting and dispositive power with respect to 121,633 shares and shares voting
and dispositive power with respect to 298,900 shares.
(4) Based on a Schedule 13G dated February 22, 2000 filed with the Securities
and Exchange Commission. Of the 463,333 shares reported, the Aaron Boxer
Revocable Trust has sole voting and dispositive power with respect to 373,333
shares and shares voting and dispositive power with respect to 90,000 shares.
(5) Includes 336,168 shares issuable under stock options exercisable within
sixty (60) days of February 22, 2000.
(6) Includes 40,000 shares held by the Exingent Investments, Limited
Partnership, of which Mr. Green is a 90% owner. Mr. Green shares voting and
dispositive power with respect to all such shares.
(7) Includes 10,000 shares issuable under stock options exercisable within sixty
(60) days of February 22, 2000.
(8) Includes 568,308 shares issuable under stock options exercisable within
sixty (60) days of February 22, 2000.
3
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
The Company's bylaws provide that the Board of Directors shall consist
of five or more directors and such number may changed from time to time by the
Board. There are currently four persons serving as directors of the Company.
The Board of Directors has nominated for election the four persons
named below to serve as directors until the next Annual Meeting of Shareholders
or until their successors are elected and qualified. All nominees are currently
directors of the Company and each has consented to being named as a nominee. It
is intended that proxies will be voted for such nominees. Each of the nominees
was elected at last year's Annual Meeting of Shareholders, except Mr. Dann, who
was elected to the Board by the directors in June 1999. The names of the
nominees, their principal occupations for at least the past five years, and
other information is set forth in the following table:
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DIRECTOR
NAME AND AGE PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS SINCE
- ---------------------- ------------------------------------------------------------------------------------ ---------
Andrew M. Weiss Chief Executive Officer and President of the Company since March 1, 1999. 1999
(43) President of INTELLX of Boulder, Colorado in 1998. From 1995 to 1998, Chief
Executive Officer and President of Vital Images, Inc., a provider of diagnostic
and surgical visualization systems. In 1994 and 1995, Vice-President of Global
Sales and Marketing of Marquette Medical Systems, a Wisconsin-based manufacturer
of patient monitoring systems.
- ---------------------- ------------------------------------------------------------------------------------ ---------
Demetre Nicoloff, Dr. Nicoloff has been a cardiac surgeon for more than 15 years, and is presently a 1997
M.D., Ph.D. Senior Partner of Cardiac Surgical Associates with practices at the Minneapolis
(66) Heart Institute and the Saint Paul Heart and Lung Institute. Dr. Nicoloff also
serves as a director of Optical Sensors, Inc. and Jundt Associates Funds.
- ---------------------- ------------------------------------------------------------------------------------ ---------
Jeffrey W. Green Co-founder and Chairman of the Board of Hutchinson Technology, Inc., a 1998
(59) manufacturer of disk drive components. Mr. Green has been Chairman of the Board
of Hutchinson Technology, Inc. since 1983 and served as its Chief Executive
Officer from January 1983 to May 1996.
- ---------------------- ------------------------------------------------------------------------------------ ---------
Norman Dann Mr. Dann has extensive experience in the medical device industry. Since 1992, Mr. 1999
(72) Dann has been a business consultant concentrating in the areas of venture capital,
strategic planning, marketing, and product development. From 1980 to 1992, Mr.
Dann served as an executive officer of and consultant to Pathfinder Ventures,
Inc., a venture capital firm ("Pathfinder"), and served as a general partner of
three of Pathfinder's funds and partnerships. From 1971 to 1977, Mr. Dann served
as Vice President of Sales and Marketing and Senior Vice President of Development
with Medtronic, Inc., a leading manufacturer of cardiac pacemakers and other
medical products. In 1960, Mr. Dann founded The Dann Company, an independent
representative and service organization for medical products, which was acquired
by Medtronic, Inc. in 1971. Mr. Dann also serves as a director of MinnTech
Corporation, Medwave, Inc., and several private companies.
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The election of each nominee requires the affirmative vote of majority
of the shares of the Common Stock present and entitled to vote in person or by
proxy for the election of directors at the Annual Meeting, and at least a
majority of the minimum number of votes necessary for a quorum to transact
business. The Board recommends a vote FOR the election of each of the nominees
listed above. In the absence of other instructions, the proxies will be voted
FOR the election of the nominees named above. If prior to the Annual Meeting the
Board should learn that any nominee will be unable to serve by reason of death,
incapacity or other unexpected occurrence, the proxies that otherwise would have
been voted for such nominee will be voted for such substitute nominee as
selected by the Board. Alternatively, the proxies, at the Board's discretion,
may be voted for such fewer number of nominees as results from such death,
incapacity other unexpected occurrence. The Board has no reason to believe that
any of the nominees will be unable to serve.
4
OTHER INFORMATION REGARDING THE BOARD
BOARD MEETINGS
The Board of Directors met, either in person or by telephonic
conference, five times during 1999 and took action in writing in lieu of a
meeting six times. Each of the directors attended at least 75% of the aggregate
of the total number of Board meetings and meetings of Committees on which he
served during 1999.
BOARD COMMITTEES
The Board of Directors has established an Audit Committee and a
Compensation Committee.
The Audit Committee of the Board of Directors, which is currently
composed of Messrs. Green and Dann, met once during 1999. Among other duties,
the Audit Committee reviews and evaluates significant matters relating to the
audit and internal controls of the Company, reviews the scope and results of the
audits by, and the recommendations of, the Company's independent auditors and
approves services provided by the auditors. The Audit Committee also reviews the
audited financial statements of the Company.
The Compensation Committee of the Board of Directors, which currently
consists of Dr. Nicoloff and Messrs. Green and Dann, did not meet separately
during 1999, but rather took action on compensatory matters as part of regular
Board meetings. The Compensation Committee makes recommendations regarding the
employment practices and policies of the Company and the compensation paid to
Company officers, and administers the Company's stock plans.
The Company does not have a Nominating Committee.
DIRECTOR COMPENSATION
Non-employee directors did not receive cash compensation from the
Company for their services as members of the Board of Directors or its
Committees during 1999. The Company, in the past, has granted options to
non-employee directors that become exercisable in installments over several
years. On June 22, 1999, the Company granted options to purchase 30,000 shares
to Mr. Dann upon his election to the Board. The options were granted at a price
of $4.50, which was equal to fair market value on the date of grant. The options
vested as to 10,000 shares on the date of grant and will vest with respect to
10,000 additional shares on the date of the annual shareholders meetings during
the two succeeding years at which Mr. Dann is re-elected to the Board of
Directors. Non-employee directors are reimbursed for all out-of-pocket expenses
that they incur traveling to and from Board meetings.
In September of 1999, all outstanding options previously awarded to Mr.
Green and Dr. Nicoloff were canceled with their approval. The canceled options
were at exercise prices deemed to not provide the intended equity participation
and compensatory opportunity. In consideration for their prior service on the
Board, the Company has subsequently granted to Mr. Green and Dr. Nicoloff stock
options under the 1998 Plan in March 2000, subject to shareholder approval of
the proposed amendment to that plan at the Annual Meeting. See "New Plan
Benefits" below.
5
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows, for the fiscal years ending December 31,
1999, 1998 and 1997, the cash compensation paid by the Company, as well as
certain other compensation paid or accrued for those years, to each person
serving as the Company's President and Chief Executive Officer during 1999. None
of the Company's other executive officers received more than $100,000 in cash
compensation during 1999.
SUMMARY COMPENSATION TABLE
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LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------- ------------
SECURITIES
NAME AND PRINCIPAL SALARY BONUS OTHER ANNUAL UNDERLYING
POSITION YEAR ($) ($) COMPENSATION OPTIONS(#)
- ---------------------------------------------------------------------------------------
Andrew M. Weiss(1) 1999 $145,833 $30,000 -- 325,000
PRESIDENT AND CHIEF ----------------------------------------------------------
EXECUTIVE OFFICER 1998 -- -- -- --
----------------------------------------------------------
1997 -- -- -- --
- ---------------------------------------------------------------------------------------
Joseph A. Marino(2) 1999 39,231 -- $14,827(3) --
FORMER PRESIDENT AND CHIEF ----------------------------------------------------------
EXECUTIVE OFFICER 1998 170,000 -- -- 150,000
----------------------------------------------------------
1997 170,000 -- -- --
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- ----------------------
(1) Mr. Weiss was named President and Chief Executive Officer of the Company in
March 1999.
(2) Mr. Marino began serving as Chief Executive Officer of the Company on
January 1, 1994. Mr. Marino resigned from the Company effective March 1, 1999
following the Company's spin-off of Cardia, Inc. in February 1999.
(3) "Other Annual Compensation" paid to Mr. Marino consists of $8,668 primarily
related to a Company-provided vehicle and $6,159 paid by the Company on behalf
of Mr. Marino for payroll taxes owed by Mr. Marino in connection with an
exercise of stock appreciation rights.
6
OPTION GRANTS AND EXERCISES
The following tables summarize individual grants and aggregate
exercises of options to purchase shares of Common Stock during fiscal 1999 by
each of the executive officers named in the Summary Compensation Table above and
the value of the options held by such persons at December 31, 1999.
OPTIONS GRANTED IN LAST FISCAL YEAR
- ------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
------------------------------------------------------- AT ASSUMED ANNUAL RATES
% OF TOTAL OF STOCK PRICE
NUMBER OF OPTION APPRECIATION FOR OPTION
SECURITIES GRANTED TO EXERCISE TERM(1)
UNDERLYING EMPLOYEES OR BASE -----------------------------
OPTIONS IN FISCAL PRICE EXPIRATION
NAME GRANTED YEAR ($/SH) DATE 5% 10%
- ------------------------------------------------------------------------------------------------------------
Andrew M. Weiss 250,000(2) 34.3% $8.000 03/01/09 $1,257,789 $3,187,485
75,000(3) 10.3% $2.656 12/31/04 55,035 121,614
- ------------------------------------------------------------------------------------------------------------
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUES
- ---------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS/SARs AT IN-THE-MONEY OPTIONS/SARs AT
ACQUIRED VALUE 12/31/99 12/31/99(6)
ON EXERCISE REALIZED ------------------------------- -------------------------------
NAME (#)(4) ($)(5) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------------------------------------------------------------
Andrew M. Weiss -- -- 158,334 166,666 -- --
- ---------------------------------------------------------------------------------------------------------------
Joseph A. Marino 119,762 $958,096 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------
- ----------------------
(1) Potential realizable value is calculated based on an assumption that the
price of the Company's Common Stock will appreciate at the assumed annual rates
shown (5% and 10%), compounded annually from the date of grant of the option
until the end of the option term. These assumed rates are applied pursuant to
the Securities and Exchange Commission rules and therefore are not intended to
forecast possible future appreciation, if any, of the Common Stock. Actual
gains, if any, on stock option exercises are dependent upon the future
performance of the Common Stock, overall market conditions and continued
employment of the named executive by the Company. There can be no assurance that
the amounts reflected in this table will be realized.
(2) In conjunction with Mr. Weiss' employment, the Company granted to Mr. Weiss
an option to purchase 250,000 shares of the Company's Common Stock at the
closing market price on the day of grant of $8.00 per share. This option vested
as to 1/3 of the shares on the date of grant and will vest in increments of 1/3
of the shares on each of the first two anniversaries of the date of grant.
(3) In December 1999, the Company granted to Mr. Weiss an option to purchase
75,000 shares of the Company's Common Stock at the closing market price on the
date of grant at $2.656 per share. This grant was part of a broader grant to all
Company employees rewarding the product development progress made during 1999.
This option was exercisable in full on the date of grant.
(4) The Company's option plans generally provide that the exercise price of
options must be paid in cash, except that the Compensation Committee, in its
sole discretion, may allow payment by delivery of shares of Common Stock having
an aggregate fair market value equal to the exercise price or may allow the
exercise price to be financed by the Company upon such terms and conditions as
the Compensation Committee may determine.
(5) Based upon the difference between the fair market value of one share of
Common Stock on the date exercised and the exercise price of the options
exercised.
(6) Based on the closing market price of $2.656 per share for the Company's
common stock on December 31, 1999 on the Nasdaq SmallCap Market, none of the
indicated options had value as of December 31, 1999, as the exercise price
exceeded the fair market value on that date.
7
MANAGEMENT AGREEMENTS
The Company's 1994, 1996 and 1998 Stock Plans, under which Mr. Weiss'
option awards have been granted, contain change in control provisions which
provide that all outstanding non-exercisable options become exercisable in full,
regardless of any remaining vesting provisions associated with such options, for
a period specified by the Company, (but not to exceed sixty days) prior to or
subsequent to a change in control. As defined in the Stock Plans, a "change in
control" means: (i) dissolution or liquidation of the Company other than in
conjunction with a bankruptcy of the Company or any similar occurrence, (ii) any
merger, consolidation, acquisition, separation, reorganization, or similar
occurrence, where the Company will not be the surviving entity, or (iii) the
transfer of substantially all of the assets of the Company or acquisition of
beneficial ownership of more than 50% of any class of equity security of the
Company. Additionally, the terms of the employment agreement between Mr. Weiss
and the Company provide for six months of severance pay to be paid to him in the
event the Board of Directors terminates his employment for reasons other than
cause or lack of performance.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is currently composed of all three of the
Company's outside directors. The Compensation Committee's responsibilities are
to review compensation policies and compensation for the Company's executive
officers, review plans to provide management continuity, and administer the
Company's stock-based compensation plans.
COMPENSATION PHILOSOPHY
The philosophy of the Company is to attract and retain qualified
executive officers, to align the interests of those executive officers with
those of the Company's shareholders, and to encourage the development of a
cohesive management team. The Compensation Committee believes that the Company
should provide competitive base salaries to attract and retain qualified
executive officers, that executive officers be provided with stock ownership
opportunities that provide both a performance incentive and align their
interests with the Company's shareholders, and that provide incentive
compensation, both cash and stock-based, that recognizes individual initiative
and achievements and rewards overall Company performance.
BASE SALARY
The Compensation Committee's review of the base salary of each of the
Company's executive officers is based on a number of factors, including the
executive officer's experience and performance, the level of skill and
responsibility required, and the relative competitive market value for an
individual with similar skills, experience and position responsibility. The
Compensation Committee may adjust the base salaries based on company performance
and the executive officer's impact thereon, promotion or market factors.
The Board determined Mr. Weiss's 1999 base salary of $175,000 in
conjunction with his acceptance of the position of President and Chief Executive
Officer in March 1999. Upon review of the above factors, the Compensation
Committee has determined that Mr. Weiss's base salary for 2000 will remain
$175,000.
ANNUAL CASH INCENTIVE BONUS
Cash incentive bonuses are designed to provide a direct financial
incentive to the Company's executive officers for the achievement of Company and
individual goals. The Compensation Committee awarded Mr. Weiss a cash incentive
bonus of $30,000 for 1999 primarily based on the progress made during the year
to complete development of the Company's sole product, the Basis Output
Monitoring System, and achievement of other goals including financial,
manufacturing capacity, and marketing readiness.
8
STOCK-BASED AWARDS
All of the Company's Stock Plans include the Company's executive
officers as eligible participants. The Compensation Committee has adopted the
position that stock ownership by management and stock-based performance
compensation arrangements are beneficial in aligning management and shareholder
interests. Stock options are generally granted to executive officers at the time
they are elected or hired, to reward specific performance, or as an incentive to
meet specific Company performance goals. Mr. Weiss received two awards of stock
options during 1999. In conjunction with Mr. Weiss's employment with the
Company, he was granted an option to purchase 250,000 shares of the company's
Common Stock at the closing market price on the date of grant of $8.00 per
share, which was vested as to 1/3 of the shares on the date of grant and will
vest in increments of 1/3 of the shares on each of the first two anniversaries
of the date of grant. This grant was intended to provide Mr. Weiss with a
significant equity participation opportunity and compensatory incentive. In
December of 1999, the Company granted Mr. Weiss an option to purchase 75,000
shares of the Company's Common Stock at the closing market price on the date of
grant of $2.656 as part of a broader grant to all Company employees rewarding
the product development progress made during 1999. The options were exercisable
in full on the date of grant.
BOARD ACTION
All recommendations of the Compensation Committee have been, or are
subject to, Board of Director approval.
SECTION 162(m)
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), limits the deductibility of certain compensation paid to each of the
executive officer and four other most highly compensated executives of a
publicly held corporation to $1,000,000. In fiscal 1999, the Company did not pay
"compensation" within the meaning of Section 162(m) to such executive officers
in excess of $1,000,000 and does not believe it will do so in the near future.
Therefore, the Company does not have a policy at this time regarding qualifying
compensation paid to its executive officers for deductibility under Section
162(m), but will formulate such a policy if compensation levels ever approach $1
million.
SUBMITTED BY THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
NORMAN DANN
JEFFREY GREEN
DEMETRE NICOLOFF, M.D., Ph.D.
CERTAIN TRANSACTIONS
David B. Johnson, a beneficial owner of more than 5% of the Company's
Common Stock, is a principal shareholder in the firm of Miller, Johnson & Kuehn,
Incorporated ("MJK"). MJK acts as the principal market maker for the Common
Stock and the Company maintains an investment banking relationship with such
firm. During 1999, the Company engaged MJK as its sales agent in connection with
a private placement of 815,000 shares of Common Stock. In consideration of MJK's
services, the Company paid MJK selling commissions of $122,250, equal to 10% of
the aggregate price of the shares of Common Stock sold by MJK in the private
placement, and issued MJK ten-year warrants to purchase 40,750 shares of Common
Stock at an exercise price of $3.00 per share. Subsequent to the closing of the
placement, MJK transferred 1,750 of these warrants to Mr. Johnson. The Company
also provided MJK with a non-accountable expense allowance equal to 1% of the
aggregate price of the shares sold by MJK, and reimbursed MJK for its legal fees
in connection with the placement. From
9
time to time the Company may enter into similar arrangements with MJK regarding
private placements, securities offerings or other investment banking activities.
PERFORMANCE GRAPH
The Securities and Exchange Commission (the "SEC") requires that the
Company include a line graph presentation comparing cumulative, five-year
returns on its Common Stock on an indexed basis with a broad market index and
either a published industry or line-of-business index or an index of peer
companies selected by the Company. The Company has chosen to use of the Nasdaq
Stock Market (U.S. Companies) index as its broad market index and has created a
peer index of Nasdaq Surgical, Medical and Dental Instruments and Suppliers
stocks which is composed of Nasdaq issuers (U.S. Companies) with a SIC code
beginning with the digits 384. The Company has presented a table below that
compares the cumulative total return as of the end of each of the Company's last
five fiscal years on $100 invested in Common Stock on December 31, 1994, with an
identical investment in the Nasdaq Stock Market Index and the Surgical, Medical
and Dental Instruments and Suppliers Index for the same period, assuming the
reinvestment of all dividends.
DATE COMPANY NASDAQ STOCK MARKET SIC INDEX
12/30/94 100.000 100.000 100.000
12/29/95 178.947 141.335 152.481
12/31/96 273.684 173.892 142.880
12/31/97 142.105 213.073 163.047
12/31/98 173.684 300.248 182.487
12/31/99 55.921 542.430 220.440
10
PROPOSAL TO AMEND THE COMPANY'S 1998 STOCK OPTION PLAN
(PROPOSAL NO. 2)
INTRODUCTION
The Company's 1998 Stock Plan (the "1998 Plan") was first approved by
the Board of Directors of the Company in March 1998 and adopted by the Company's
shareholders in June 1998. The 1998 Plan was intended to provide a continuing,
long-term incentive to selected eligible officers and key employees of the
Company and of any subsidiary corporation of the Company, to provide a means of
rewarding outstanding performance, and to enable the Company to maintain a
competitive position to attract and retain key personnel necessary for continued
growth and profitability.
The 1998 Plan currently provides for awards to eligible participants
of: (i) options to purchase Common Stock that qualify as "incentive stock
options" ("Incentive Options") within the meaning of Section 422 of the Internal
Revenue Code of 1986 (the "Code"); (ii) options to purchase Common Stock that do
not qualify as Incentive Options ("Non-Statutory Options"); (iii) stock
appreciation rights ("Stock Appreciation Rights"); (iv) restricted stock awards
("Restricted Stock Awards"); (v) deferred stock awards ("Deferred Stock
Awards"); and (vi) other stock-based awards ("Other Awards"). Incentive Options
and Non-Statutory Options are referred to as "Options," and Options, Stock
Appreciation Rights, Restricted Stock Awards, Deferred Stock Awards and Other
Awards are collectively referred to as "Incentive Awards."
On February 7, 2000, the Board amended the 1998 Plan, subject to
shareholder approval, to (1) increase the number of shares of Common Stock
specifically reserved for issuance under the 1998 Plan by 750,000, from 500,000
shares to 1,250,000 shares; (2) to increase the number of shares of Common Stock
available for issuance under the 1998 Plan to include the number of shares
remaining available under the Company's 1994 and 1996 Stock Plans or which later
become available under the 1994 and 1996 Plans as a result of forfeiture or
cancellation; (3) to include non-employee directors as eligible participants in
the 1998 Plan and, (4) to amend the 1998 Plan's provision designed to comply
with Section 162(m) of the Internal Revenue Code to increase the number of
options that may be granted to any one person in any one year from 150,000 to
200,000. The Company's shareholders are being asked to approve these amendments
at the Annual Meeting.
REASONS FOR AMENDMENTS
The increase in the number of shares of Common Stock available for
issuance under the 1998 Plan from 500,000 shares to 1,250,000 shares is
necessary to permit the Company to continue the operation of the 1998 Plan for
the benefit of new participants, as well as to allow additional awards to
current participants in the 1998 Plan. Increasing the number of shares of Common
Stock available for issuance under the 1998 Plan to include the number of shares
remaining or later becoming available under the 1994 and 1996 Plans is intended
to simplify the administration of the Company's Stock Plans.
The Board of Directors initially specifically reserved 500,000 shares
of Common Stock for issuance under the 1998 Plan. As of December 31, 1999,
500,000 shares have been issued or are subject to Incentive Awards currently
outstanding under the 1998 Plan. Since January 1, 2000, the Compensation
Committee granted additional Incentive Awards with respect to 457,500 shares of
Common Stock under the 1998 Plan, that are subject to shareholder approval of
this proposal. See "Awards Under the 1998 Plan" and "New Plan Benefits," below.
If this proposal is approved, 292,500 shares of Common Stock will be available
for future grants under the 1998 Plan, not including shares later becoming
available as a result of cancellations or forfeitures under the 1994 and 1996
Plans.
The 1994 and 1996 Stock Plans both included non-employee directors as
eligible participants, whereas the 1998 Plan does not. The Company desires to
issue all future awards pursuant to a single plan, and therefore requires the
inclusion of non-employee directors as eligible participants in the 1998 Plan.
11
The 1998 Plan was originally structured with a provision designed to
comply with Section 162(m) of the Internal Revenue Code, which limited the
number of options that could be granted in any one year to any one person to
150,000. The Company desires to increase this limit to 200,000 to allow greater
flexibility in the granting of options to key executives.
SUMMARY OF THE 1998 STOCK PLAN, AS AMENDED
The major features of the 1998 Plan, as amended, are included in the
following summary that is qualified in its entirety by reference to the actual
text of the 1998 Plan. The Company will furnish without charge a copy of the
amended 1998 Plan to any shareholder of the Company as of March 17, 2000, upon
receipt from any such person of an oral, written or electronic mail request for
the 1998 Plan. Such request should be sent to the Company at Applied Biometrics,
Inc., 501 East Highway 13, Suite 108, Burnsville, Minnesota 55337, Attn:
Shareholder Relations, telephone at (612) 890-1123, or by electronic mail at
contact@abi-med.com.
GENERAL
The purpose of the 1998 Plan is to advance the interests of the Company
and its shareholders by enabling the Company and its subsidiaries to attract and
retain persons of ability to perform services for the Company and its
subsidiaries by providing an incentive to such individuals through equity
participation in the Company and by rewarding such individuals who contribute to
the achievement by the Company of its economic objectives.
The 1998 Plan is administered by the Board of Directors or by a
Committee appointed by the Board, consisting of at least two directors, all of
who are "Outside Directors" and "Non-Employee Directors" as defined in the 1998
Plan. The Committee has the power to determine when and to whom options will be
granted, the term of each option, the number of shares covered by it and other
terms and conditions of each option, construe and interpret the 1998 Plan, and
establish and amend any rules and regulations it deems necessary or desirable
for the proper administration of the 1998 Plan.
Eligible recipients of Incentive Awards under the 1998 Plan, as
amended, include all officers and employees of the Company or any subsidiary,
any non-employee directors, and consultants of the Company or any subsidiary. As
of December 31, 1999, approximately 25 persons were eligible to participate in
the 1998 Plan. The Company intends that Incentive Awards be granted under the
1998 Plan to those eligible persons who are performing vital service in the
management, operations and development of the Company or a subsidiary and
significantly contribute to the achievement of long-term, corporate economic
objectives.
There is no express limitation on the duration of the 1998 Plan, except
for the requirement of the Internal Revenue Code of 1986, as amended, that all
incentive stock options must be granted within ten years from the date the Plan
is approved by the shareholders.
The 1998 Plan may be amended without the approval of the Company's
shareholders unless such approval is otherwise required by Rule 16b-3 under the
Securities Exchange Act of 1934, Section 422 of the Code or other regulatory
requirements.
OPTIONS
The Committee may grant stock options that qualify as "incentive stock
options" under the Internal Revenue Code or as "non-statutory options" in such
form and upon such terms as the Committee may approve from time to time. Options
will become exercisable at such times and in such installments as determined by
the Committee and may be exercised in whole or in part from time to time
thereafter, subject to the terms and conditions set forth in the 1998 Plan.
Stock options granted under the 1998 Plan may be exercised during their
respective terms as determined by the Committee. Both Incentive Options and
Non-Statutory Options must be granted with an exercise price equal to at least
the fair market value of the Common Stock on the date
12
of grant (or, in the case of a recipient of an Incentive Stock Option owning
more than 10% of the total combined voting power of all classes of stock of the
Company, at least equal to 110% of the fair market value on the date of grant).
For Incentive Stock Options, the aggregate fair market value
(determined at the time the Incentive Stock Options are granted) of shares of
Common Stock with respect to which incentive stock options become exercisable
for the first time by a participant during any calendar year may not exceed
$100,000. On March 10, 2000, the closing price of a share of Company Common
Stock as reported by the Nasdaq SmallCap Market was $3.688. Incentive Stock
Options have a maximum term fixed by the Committee, not to exceed 10 years from
the date of grant (five years in the case of Incentive Stock Options granted to
participants owning more than 10% of the total combined voting power of all
classes of stock of the Company). Non-statutory options have a maximum term
fixed by the Committee, not to exceed 10 years from the date of grant.
Payment of an Option exercise price will be made entirely in cash;
provided however, that the Committee, in its sole discretion and upon terms and
conditions established by the Committee, may allow such payments to be made, in
whole or in part, by tender of a broker exercise notice, a promissory note,
previously acquired shares of Common Stock having an aggregate fair market value
on the date of exercise equal to the payment required, or by a combination of
such methods. Under the terms of the 1998 Plan, payment of the exercise price of
an Incentive Stock Option using previously owned shares may only be authorized
at the time of grant. The Committee may also, in its sole discretion and upon
terms and conditions established by the Committee, permit or require a
participant to satisfy, in whole or in part, any withholding or
employment-related tax obligation by tender of a broker exercise notice, a
promissory note, previously acquired shares of Common Stock having an aggregate
fair market value on the date of exercise equal to the payment required, or by a
combination of such methods.
Options may not be transferred other than by will or the laws of
descent and distribution or to a beneficiary designated by the participant or as
otherwise expressly permitted with respect to transfer to Immediate Family
Members as provided in the 1998 Plan, and during the lifetime of a participant
may be exercised only by the participant. To the extent that any Incentive
Option granted under the 1998 Plan ceases for any reason to qualify as an
"incentive stock option" for purposes of the federal tax laws, such option will
continue to be outstanding for purposes of the 1998 Plan as a Non-Statutory
Option.
STOCK APPRECIATION RIGHTS
Stock Appreciation Rights may be granted in conjunction with all or
part of any Option granted. Under the 1998 Plan, in the case of a Non-Qualified
Option, such rights may be granted at or after the time of grant of the Option.
In the case of an Incentive Option, such rights may be granted only at the time
of the grant of the Option. Stock Appreciation Rights entitle an optionee to
surrender all or a portion of the underlying Option in exchange for an amount in
cash or shares of Common Stock equal in value to the excess of the Fair Market
Value of one share of Common Stock over the option price per share specified in
the related Option. A Stock Appreciation Right granted with respect to a given
Option shall terminate and no longer be exercisable upon the termination or
exercise of the related Option, except that a Stock Appreciation Right granted
with respect to less than the full number of shares covered by a related Option
shall not be reduced until the exercise or termination of the related Option
exceeds the number of shares not covered by the Stock Appreciation Right.
RESTRICTED STOCK AWARDS
Restricted Stock Awards are grants to participants of shares of Common
Stock that are subject to restrictions on transferability and subject to the
possibility of forfeiture under terms and conditions set by the Committee. The
Committee may impose such restrictions or conditions, not inconsistent with the
1998 Plan, as the Committee may deem appropriate, including, without limitation,
that the participant remain continuously employed by the Company for a period of
time or that the participant or the Company satisfy
13
certain performance goals or criteria. Unless otherwise provided by the
Committee in the exercise of its sole discretion, participants holding
Restricted Stock Awards will have voting and liquidation rights with respect to
the number of shares of Common Stock underlying the Restricted Stock Awards as
if the participant were the holder of such number of shares of Common Stock, but
any dividends and distributions with respect to such shares of unvested Common
Stock will be subject to the same restrictions as the shares.
DEFERRED STOCK AWARDS AND OTHER STOCK AWARDS
The Committee may also grant Common Stock, other stock-based, and non
stock-based awards under the 1998 Plan including, without limitation, Deferred
Stock Awards providing for the issuance of Common Stock on conditions set by the
Committee at the end of a specified deferral period.
EFFECT OF TERMINATION OF EMPLOYMENT
If a participant ceases to be employed by or render services to the
Company and all subsidiaries due to death, Disability (as defined below) or
Retirement (as defined below), (i) all exercisable Options will remain
exercisable for a period of three years (or such shorter period as the Committee
shall specify at grant) from the date of such death, Disability or Retirement or
until the expiration of the stated term of the option, whichever period is
shorter, and (ii) any Restricted Stock Awards or Deferred Awards then subject to
restrictions will be forfeited, except that such restrictions may be waived, in
whole or in part, in the Committee's sole discretion. For purposes of the 1998
Plan, "Disability" means permanent and total disability as determined by the
Committee and "Retirement" means retirement from active employment with the
Company and any subsidiary or parent corporation of the Company on or after age
55.
If a participant's employment is terminated, all rights of the
participant under the 1998 Plan and any Incentive Awards will immediately
terminate without notice of any kind, and no Options then held by the
participant will thereafter be exercisable and all outstanding Restricted Stock
Awards and Deferred Stock Awards that have not vested as of such termination
will generally be terminated and forfeited. However, if a participant's
termination is due to any reason other than termination by the Company or any
subsidiary for "cause," all outstanding Options then held by the participant
will remain exercisable to the extent exercisable as of such termination for a
period of three months thereafter (but in no event after the expiration date of
any such Option). "Cause" means a felony conviction of a participant or the
failure of a participant to contest prosecution for a felony, or a participant's
willful misconduct or dishonesty, any of which is directly and materially
harmful to the business or reputation the Company. In its discretion, the
Committee may also waive restrictions remaining on Restricted Stock Awards or
Deferred Stock Awards upon termination where it finds it to be in the best
interests of the Company to do so.
CHANGE IN CONTROL OF THE COMPANY
Unless otherwise provided in an agreement evidencing an Incentive
Award, in the event of a "Change in Control" of the Company (as defined below),
(i) all outstanding Options will become immediately exercisable in full and
remain exercisable for a period specified by the Company, and (ii) all
restrictions with respect to Restricted Stock Awards will lapse on the date
determined by the Committee, in each case not to exceed sixty (60) days prior to
or subsequent to the occurrence of a Change in Control.
For purposes of the 1998 Plan, a "Change in Control" of the Company
will be deemed to have occurred, among other things, upon (1) dissolution or
liquidation of the Company other than in conjunction with a bankruptcy of the
Company or any similar occurrence, (2) any merger, consolidation, acquisition,
separation, reorganization, or similar occurrence, where the Company will not be
the surviving entity, or (3) the transfer of substantially all of the assets of
the Company or the acquisition of beneficial ownership of more than 50% of any
class of equity security of the Company.
14
FEDERAL INCOME TAX CONSEQUENCES
The following description of federal income tax consequences is based
on current statutes, regulations, and interpretations. The description does not
include foreign, state, or local income tax consequences. In addition, the
description is not intended to address specific tax consequences applicable to
directors, officers, greater than 10% shareholders of the Company, or to any
individual participant who receives an Incentive Award.
INCENTIVE OPTIONS
There will not be any federal income tax consequences to either the
participant or the Company as a result of the grant to an employee of an
Incentive Option under the 1998 Plan. The exercise by a participant of an
Incentive Option also will not result in any federal income tax consequences to
the Company or the participant, except that (i) an amount equal to the excess of
the fair market value of the shares acquired upon exercise of the Incentive
Option, determined at the time of exercise, over the amount paid for the shares
by the participant will be includable in the participant's alternative minimum
taxable income for purposes of the alternative minimum tax, and (ii) the
participant may be subject to an additional excise tax if any amounts are
treated as excess parachute payments (see explanation below). Special rules will
apply if previously acquired shares of Common Stock are permitted to be tendered
in payment of an Option exercise price. If the participant disposes of the
Incentive Option shares acquired upon exercise of the Incentive Option, the
federal income tax consequences will depend upon how long the participant has
held the shares. If the participant does not dispose of the shares within two
years after the Incentive Option was granted, nor within one year after the
participant exercised the Incentive Option and the shares were transferred to
the participant, then the participant will recognize a long-term capital gain or
loss. The amount of the long-term capital gain or loss will be equal to the
difference between (i) the amount the participant realized on disposition of the
shares, and (ii) the option price at which the participant acquired the shares.
The Company is not entitled to any compensation expense deduction under these
circumstances.
If the participant does not satisfy both of the above holding period
requirements (a "disqualifying disposition"), then the participant will be
required to report as ordinary income, in the year the participant disposes of
the shares, the amount by which the lesser of (i) the fair market value of the
shares at the time of exercise of the Incentive Option, or (ii) the amount
realized on the disposition of the shares, exceeds the option price for the
shares. The Company will be entitled to a compensation expense deduction in an
amount equal to the ordinary income includable in the taxable income of the
participant. This compensation income may be subject to withholding. The
remainder of the gain recognized on the disposition, if any, or any loss
recognized on the disposition, will be treated as a long-term or short-term
capital gain or loss, depending on the holding period.
NON-STATUTORY OPTIONS
Neither the participant nor the Company incurs any federal income tax
consequences as a result of the grant of a Non-Statutory Option. Upon exercise
of a Non-Statutory Option, a participant will recognize ordinary income, subject
to withholding, on the date of exercise in an amount equal to the difference
between (i) the fair market value of the shares purchased, determined on the
date of exercise, and (ii) the consideration paid for the shares. The
participant may be subject to an additional excise tax if any amounts are
treated as excess parachute payments (see explanation below). Special rules will
apply if previously acquired shares of Common Stock are permitted to be tendered
in payment of an Option exercise price.
At the time of a subsequent sale or disposition of any shares of Common
Stock obtained upon exercise of a Non-Statutory Option, any gain or loss will be
a capital gain or loss. Whether such capital gain or loss will be long-term or
short-term capital gain or loss depends on the holding period. In general, the
Company will be entitled to a compensation expense deduction in connection with
the exercise of a Non-Statutory Option for any amounts includable in the taxable
income of the participant as ordinary income, provided the Company complies with
any applicable withholding requirements.
15
RESTRICTED STOCK AWARDS
With respect to shares issued pursuant to a Restricted Stock Award that
are not subject to a substantial risk of forfeiture, a participant will include
as ordinary income in the year of transfer an amount equal to the fair market
value of the shares received on the date of transfer. With respect to shares
that are subject to a substantial risk of forfeiture, a participant may file an
election under Section 83(b) of the Code within 30 days after the shares are
transferred to such participant to include as ordinary income in the year of
transfer an amount equal to the fair market value of the shares received on the
date of transfer (determined as if the shares were not subject to any risk of
forfeiture). The Company will receive a corresponding tax deduction, provided
that proper withholding is made. If a Section 83(b) election is made, the
participant will not recognize any additional income when the restrictions on
the shares issued in connection with the stock award lapse. At the time any such
shares are sold or disposed of, any gain or loss will be treated as long-term or
short-term capital gain or loss, depending on the holding period from the date
of transfer of the Restricted Stock Award.
A participant who does not make a Section 83(b) election within 30 days
of the transfer of a Restricted Stock Award that is subject to a substantial
risk of forfeiture will recognize ordinary income at the time of the lapse of
the restrictions in an amount equal to the then fair market value of the shares.
The Company will receive a corresponding tax deduction, provided that proper
withholding is made. At the time of a subsequent sale or disposition of any
shares of Common Stock issued in connection with a Restricted Stock Award as to
which the restrictions have lapsed, any gain or loss will be treated as
long-term or short-term capital gain or loss, depending on the holding period
from the date the restrictions lapse.
EXCISE TAX ON PARACHUTE PAYMENTS
The Code also imposes a 20% excise tax on the recipient of "excess
parachute payments," as defined in the Code and denies tax deductibility to the
Company on excess parachute payments. Generally, parachute payments are payments
in the nature of compensation to employees of a company who are officers,
stockholders, or highly compensated individuals, which payments are contingent
upon a change in ownership or effective control of the Company, or in the
ownership of a substantial portion of the assets of the Company. For example,
acceleration of the exercisability of Options or the vesting of Restricted Stock
Awards upon a change in control of the Company may constitute parachute
payments, and in certain cases, "excess parachute payments."
SECTION 162(m)
Under Section 162(m) of the Code, the deductibility of certain
compensation paid to the chief executive officer and each of the four other most
highly compensated executives of publicly held companies is limited to
$1,000,000. Compensation for this purpose generally includes any items of
compensation expense described above in connection with Incentive Awards under
the 1998 Plan. However, certain types of compensation are exempt from this
limit, including compensation that qualifies as "performance-based
compensation." Under Section 162(m), any compensation expense resulting from the
exercise of Options under the 1998 Plan with exercise prices equal to (or
greater than) the fair market value of the Common Stock on the date of grant
should qualify as "performance-based compensation" excepted from the limit of
Section 162(m). However, compensation expense in connection with any other
Incentive Awards under the 1998 Plan will be subject to this limit.
AWARDS UNDER THE 1998 PLAN
As of December 31, 1999, the Company has granted Options under the 1998
Plan as follows: Mr. Weiss, 144,372 shares; Mr. Marino, 150,000 shares, all
executive officers of the Company as a group, 366,372 shares; and non-executive
employees of the Company as a group, 110,478 shares. None of the other nominees
for director have received Options under the 1998 Plan, except as disclosed
below. As disclosed below under "New Plan Benefits," the Board of Directors
granted Mr. Weiss Options covering 175,000 shares of Common
16
Stock, all executive officers of the Company as a group Options covering 345,000
shares of Common Stock, and non-executive directors of the Company as a group
Options covering 90,000 shares of Common Stock subject to shareholder approval
of the proposal. See "Executive Compensation - Compensation Committee Report on
Executive Compensation." As a result of these grants, Mr. Weiss, the other
executive officers and the non-executive directors may benefit from the approval
of the above proposal to amend the 1998 Plan.
NEW PLAN BENEFITS
The following table sets forth, to the extent determinable, the
benefits under the 1998 Plan described in the above proposal which may be
received by each of the following upon shareholder approval of such proposal:
(a) each of the executive officers of the Company named in the Summary
Compensation Table above; (b) executive officers of the Company as a group; (c)
directors of the Company who are not executive officers as a group; and (d)
Company employees who are not executive officers as a group.
Underlying Shares
-----------------
Options
-------
Mr. Weiss
PRESIDENT AND CHIEF EXECUTIVE OFFICER 175,000
Executive Officers as a Group 345,000
Non-Executive Directors as a Group 90,000
Non-Executive Employees as a Group 22,500
As he is no longer an officer or employee of the Company, Mr. Marino
will not receive further Incentive Awards under the 1998 Plan. Neither the
number nor types of any future Incentive Awards to be received by or allocated
to any other participants under the 1998 Plan is presently determinable.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
ADOPTION OF PROPOSAL 2.
17
APPROVAL OF AUDITORS
(PROPOSAL NO. 3)
CHANGE IN ACCOUNTANTS
Effective October 18, 1999, the Company dismissed
PricewaterhouseCoopers LLP and engaged Ernst & Young LLP as the principal
accountant to audit the Company's financial statements, beginning with its
financial statements for the year ending December 31, 1999. The Company did not
consult with Ernst & Young LLP during fiscal 1997 or 1998 or any subsequent
interim period prior to October 18, 1999 with respect to the application of
accounting principles to a specific transaction, the type of audit opinion that
might be rendered on the Company's financial statements or any "disagreement" or
"reportable event" as described in Item 304(a)(2)(ii) of Regulation S-K under
the Securities Exchange Act. The decision to change accountants was approved by
the Company's Board of Directors.
Neither of the reports of PricewaterhouseCoopers LLP on the financial
statements of the Company for fiscal 1997 and 1998 contained an adverse opinion
or disclaimer of opinion, nor was either qualified or modified as to
uncertainty, audit scope or accounting principles. There were no disagreements
with PricewaterhouseCoopers LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
during the Company's fiscal years ending December 31, 1997 and 1998, and each
subsequent interim period preceding October 18, 1999 which, if not resolved to
PricewaterhouseCoopers LLP's satisfaction, would have caused
PricewaterhouseCoopers LLP to make reference to the subject matter of the
disagreement(s) in connection with their reports. No "reportable events," as
identified in Regulation S-K, Item 304(a)(1)(v) under the Securities Exchange
Act, occurred during fiscal 1997 or 1998 or any subsequent interim period
preceding October 18, 1999.
The Company has provided a copy of this disclosure to
PricewaterhouseCoopers LLP and to Ernst & Young LLP, and has received
confirmation of each such firms' agreement with the statements made above.
RATIFICATION OF ERNST & YOUNG LLP
The Board of Directors has reappointed Ernst & Young LLP as the
Company's auditors for the current fiscal year and shareholder approval of the
appointment, although not required, is requested. In the event the shareholders
should not approve the appointment of Ernst & Young LLP, the Board of Directors
will consider an alternative appointment to be effective at the earliest
feasible time.
A representative of Ernst & Young LLP is expected to be present at the
Annual Meeting of Shareholders, will have an opportunity to make a statement if
he or she desires to do so, and will be available to respond to appropriate
questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
APPROVAL OF THE APPOINTMENT OF ERNST & YOUNG LLP.
18
PROPOSALS FOR THE NEXT ANNUAL MEETING
Shareholder proposals intended to be presented in the proxy materials
relating to the next Annual Meeting of Shareholders must be received by the
Company on or before January 10, 2001 and must satisfy the requirements of the
proxy rules promulgated by the Securities and Exchange Commission.
A shareholder who wishes to make a proposal at the next Annual Meeting
without including the proposal in the Company's Proxy Statement must notify the
Company by March 25, 2001. If a shareholder fails to give notice by this date,
then the persons named as proxies in the proxies solicited by the Company for
the next Annual Meeting will have discretionary authority to vote on the
proposal.
19
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers and directors, and persons who own
more than 10% of the Company's Common Stock, 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.
Executive officers, directors and greater than 10% shareholders are required by
SEC regulations to furnish the Company with copies of all Section 16(a) reports
they file.
To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company during, or with respect to, the period
ended December 31, 1999: (1) Mr. Steve Wedan, Vice President, Engineering of the
Company, failed to file on a timely basis a report on Form 3 required by Section
16 of the Exchange Act, reporting his appointment as an executive officer of the
Company. Mr. Wedan also failed to file on a timely basis a report on Form 4
required by Section 16 of the Exchange Act, relating to his purchase of 3,000
shares of Common Stock; (2) Mr. Joshua Baltzell, Vice President, Sales and
Marketing, failed to file on a timely basis a report on Form 3 reporting his
appointment as an executive officer of the Company and the grant of stock
options to Mr. Baltzell in connection with his employment. Mr. Baltzell also
failed to file on a timely basis a report on Form 4 relating to his purchase of
2,500 shares of Common Stock; (3) Ms. Camille Meyer, Vice President, Finance and
Chief Financial Officer, failed to file on a timely basis a report on Form 4
relating to her purchase of 1,000 shares of Common Stock; (4) Ms. Elizabeth
Kempen, Vice President, Quality Assurance, Regulatory and Clinical Affairs,
failed to file on a timely basis a report on Form 4 relating to her purchase of
500 shares of Common Stock; (5) Mr. Vic Fabano, Vice President, Operations,
failed to file on a timely basis a report on Form 4 relating to his purchase of
500 shares of Common Stock; (6) Mr. Andrew Weiss, President and Chief Executive
Officer, failed to file on a timely basis a report on Form 4 relating to his
purchase of 2,500 shares of Common Stock; (7) Mr. Norman Dann, director, failed
to file on a timely basis a report on Form 4 relating to his purchase of 5,000
shares of Common Stock; (8) Mr. Jeffrey Green, director, failed to file on a
timely basis a report on Form 4 relating to his purchase of 5,000 shares of
Common Stock; and (9) Dr. Demetre Nicoloff, M.D., Ph.D., director, failed to
file on a timely basis a report on Form 4, relating to his purchase of 5,000
shares of Common Stock.
OTHER BUSINESS
The management of the Company knows of no matters other than the
foregoing to be brought before the Annual Meeting. However, it is intended that
the discretionary authority given in the enclosed proxy will be exercised in the
event that any additional matters should be presented.
The Company's Annual Report on Form 10-K to the Securities and Exchange
Commission for the fiscal year ended December 31, 1999 is enclosed herewith.
By Order of the Board of Directors,
/s/ Andrew M. Weiss
Andrew M. Weiss
CHIEF EXECUTIVE OFFICER AND PRESIDENT
20
APPLIED BIOMETRICS, INC.
1998 STOCK PLAN
as amended through January 1, 2000
TABLE OF CONTENTS
SECTION 1. General Purpose of Plan; Definitions...............................3
SECTION 2. Administration.....................................................5
SECTION 3. Stock Subject to Plan..............................................6
SECTION 4. Eligibility........................................................7
SECTION 5. Stock Options......................................................7
SECTION 6. Stock Appreciation Rights.........................................10
SECTION 7. Restricted Stock..................................................11
SECTION 8. Deferred Stock Awards.............................................13
SECTION 9. Other Awards......................................................14
SECTION 10. Transfer, Leave of Absence, etc..................................14
SECTION 11. Amendments and Termination.......................................14
SECTION 12. Unfunded Status of Plan..........................................15
SECTION 13. General Provisions...............................................15
2
APPLIED BIOMETRICS, INC.
1998 STOCK PLAN
SECTION 1. General Purpose of Plan; Definitions
The name of this plan is the Applied Biometrics, Inc. 1998 Stock Plan (the
"Plan"). The purpose of the Plan is to enable Applied Biometrics, Inc. (the
"Company") and its Subsidiaries to retain and attract executives and other key
employees, non-employee directors and consultants who contribute to the
Company's success by their ability, ingenuity and industry, and to enable such
individuals to participate in the long-term success and growth of the Company by
giving them a proprietary interest in the Company.
For purposes of the Plan, the following terms shall be defined as set
forth below:
a. "Agreement" means an agreement by and between the Company and
an optionee or recipient of an award under the Plan setting
forth the terms and conditions of the option or award.
b. "Board" means the Board of Directors of the Company.
c. "Cause" means a felony conviction of a participant or the
failure of a participant to contest prosecution for a felony,
or a participant's willful misconduct or dishonesty, any of
which is directly and materially harmful to the business or
reputation of the Company.
d. "Code" means the Internal Revenue Code of 1986, as amended.
e. "Committee" means the Committee referred to in Section 2 of
the Plan. If at any time no Committee shall be in office, then
the functions of the Committee specified in the Plan shall be
exercised by the Board, unless the Plan specifically states
otherwise.
f. "Company" means Applied Biometrics, Inc., a corporation
organized under the laws of the State of Minnesota (or any
successor corporation).
g. "Consultant" means any person, including an advisor, engaged
by the Company or a Parent Corporation of Subsidiary of the
Company to render services, who is compensated for such
services and who is not an employee of the Company or any
Parent Corporation or Subsidiary of the Company.
3
h. "Deferred Stock" means an award made pursuant to Section 8
below of the right to receive Stock at the end of a specified
deferral period.
i. "Disability" means permanent and total disability as
determined by the Committee.
j. "Fair Market Value" means the value of Stock on any given date
which shall be determined by the Committee as follows: (a) if
the Stock is listed for trading on one or more national
securities exchanges, or is traded on the Nasdaq Stock Market
or the Nasdaq Small Cap Market, the last reported sales price
on the principal such exchange, the Nasdaq Stock Market or the
Nasdaq Small Cap Market on the date in question, or if such
Stock shall not have been traded on any principal exchange or
market on such date, the last reported sales price on such
principal exchange, the Nasdaq Stock Market or the Nasdaq
Small Cap Market, on the first day prior thereto on which such
Stock was so traded; or (b) if the Stock is not listed for
trading on a national securities exchange, the Nasdaq Stock
Market or the Nasdaq Small Cap Market, but is traded in the
over-the-counter market, the closing bid price for such Stock
on the day prior to the date in question, or if there is no
closing bid price for such Stock on such day, the closing bid
price on the first day prior thereto on which such price
existed; or (c) if neither (a) nor (b) is applicable, by any
means fair and reasonable by the Committee, which
determination shall be final and binding on all parties."
k. "Incentive Stock Option" means any Stock Option intended to be
and designated as an "Incentive Stock Option" within the
meaning of Section 422 of the Code.
l. "Non-Employee Director" means a "Non-Employee Director" within
the meaning of Rule 16b-3(b)(3) under the Securities Exchange
Act of 1934.
m. "Non-Qualified Stock Option" means any Stock Option that is
not an Incentive Stock Option, and is intended to be and is
designated as a "Non-Qualified Stock Option."
n. "Other Awards" means those awards granted pursuant to Section
9 hereof.
o. "Outside Director" means a Director who: (a) is not a current
employee of the Company or any member of an affiliated group
which includes the Company; (b) is not a former employee of
the Company who receives compensation for prior services
(other than benefits under a tax-qualified retirement plan)
during the taxable year; (c) has not been an officer of the
Company; (d) does not receive remuneration from the Company,
either directly or indirectly, in any capacity other than as a
director, except as otherwise permitted under Code Section
162(m) and regulations thereunder. For this purpose,
remuneration includes any payment in exchange for good or
services. This definition shall be further governed by the
provisions of Code Section 162(m) and regulations promulgated
thereunder.
p. "Parent Corporation" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the
Company if each of the corporations (other than
4
the Company) owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the
other corporations in the chain.
q. "Restricted Stock" means an award of shares of Stock that are
subject to restrictions under Section 7 below.
r. "Retirement" means retirement from active employment or
engagement with the Company and any Subsidiary or Parent
Corporation of the Company on or after age 55.
s. "Stock" means the Common Stock, $.01 par value per share, of
the Company.
t. "Stock Appreciation Right" means the right pursuant to an
award granted under Section 6 below to surrender to the
Company all or a portion of a Stock Option in exchange for an
amount equal to the difference between (i) the Fair Market
Value, as of the date such Stock Option or such portion
thereof is surrendered, of the shares of Stock covered by such
Stock Option or such portion thereof, and (ii) the aggregate
exercise price of such Stock Option or such portion thereof.
u. "Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 5 below.
v. "Subsidiary" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company
if each of the corporations (other than the last corporation
in the unbroken chain) owns stock possessing 50% or more of
the total combined voting power of all classes of stock in one
of the other corporations in the chain.
SECTION 2. Administration.
The Plan shall be administered by the Board of Directors or by a
Committee appointed by the Board of Directors of the Company consisting of at
least two Directors, all of whom shall be Non-Employee Directors and Outside
Directors, who shall serve at the pleasure of the Board.
The Committee shall have the power and authority to grant to eligible
optionees and participants, pursuant to the terms of the Plan: (i) Stock
Options, (ii) Stock Appreciation Rights, (iii) Restricted Stock, (iv) Deferred
Stock awards, or (v) Other Awards.
In particular, the Committee shall have the authority:
(i) to select the optionees and participants to whom Stock
Options, Stock Appreciation Rights, Restricted Stock, Deferred
Stock awards and/or Other Awards may from time to time be
granted hereunder;
(ii) to determine whether and to what extent Incentive Stock
Options, Non-Qualified Stock Options, Stock Appreciation
Rights, Restricted Stock, Deferred Stock awards and/or Other
Awards, or a combination of the foregoing, are to be granted
hereunder;
5
(iii) to determine the number of shares to be covered by each such
award granted hereunder;
(iv) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder
(including, but not limited to, any restriction on any Stock
Option or other award and/or the shares of Stock relating
thereto), provided, however, that in the event of a merger or
asset sale, the applicable provisions of Section 5(c) of the
Plan shall govern the acceleration of the vesting of any Stock
Option; and
(v) to determine whether, to what extent and under what
circumstances Stock and other amounts payable with respect to
an award under this Plan shall be deferred either
automatically or at the election of the participant.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of the
Plan and any award issued under the Plan (and any agreements relating thereto);
and to otherwise supervise the administration of the Plan. The Committee may
delegate to officers of the Company the authority to exercise the powers
specified in (i), (ii), (iii), (iv) and (v) above with respect to persons who
are not either the chief executive officer of the Company or the four highest
paid officers of the Company other than the chief executive officer.
All decisions made by the Committee pursuant to the provisions of the
Plan shall be final and binding on all persons, including the Company and Plan
participants.
SECTION 3. Stock Subject to Plan.
The total number of shares of Stock reserved and available for
distribution under the Plan shall be 1,250,000 shares, plus any shares of Common
Stock which, as of the date that this Plan (as amended through January 1, 2000)
is approved by the Company's shareholders, are reserved for issuance under the
Company's 1994 Amended Stock Plan and 1996 Stock Plan and which are not
thereafter issued or which have been issued but are subsequently forfeited or
cancelled and which would otherwise have been available for further issuance
under such plans. Such shares may consist, in whole or in part, of authorized
and unissued shares.
Subject to paragraph (b)(iv) of Section 6 below, if any shares that
have been optioned ceased to be subject to Options, or if any shares subject to
any Restricted Stock or Deferred Stock award or Other Award granted hereunder
are forfeited or such award otherwise terminates without a payment being made to
the participant, such shares shall again be available for distribution in
connection with future awards under the Plan. Upon a Stock-for-Stock exercise of
a Stock Option or upon the withholding of Stock for the payment of the option
price or taxes, only the net number of shares issued to the optionee shall be
used to calculate the number of shares remaining available for distribution
under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, other change in corporate
structure affecting the Stock, or spin-off or other distribution of
6
assets to shareholders, such substitution or adjustment shall be made in the
aggregate number of shares reserved for issuance under the Plan, in the number
and option price of shares subject to outstanding options granted under the
Plan, and in the number of shares subject to Restricted Stock or Deferred Stock
awards granted under the Plan as may be determined to be appropriate by the
Committee, in its sole discretion, provided that the number of shares subject to
any award shall always be a whole number. Such adjusted option price shall also
be used to determine the amount payable by the Company upon the exercise of any
Stock Appreciation Right associated with any Option.
SECTION 4. Eligibility.
Officers, other key employees of the Company and Subsidiaries,
non-employee directors and Consultants who are responsible for or contribute to
the management, growth and/or profitability of the business of the Company and
its Subsidiaries are eligible to be granted Stock Options, Stock Appreciation
Rights, Restricted Stock or Deferred Stock awards or Other Awards under the
Plan. The optionees and participants under the Plan shall be selected from time
to time by the Committee, in its sole discretion, from among those eligible, and
the Committee shall determine, in its sole discretion, the number of shares
covered by each award.
Notwithstanding the foregoing, no person shall receive grants of Stock
Options, Restricted and Deferred Stock under this Plan which exceed 200,000
shares during any fiscal year of the Company.
SECTION 5. Stock Options.
Any Stock Option granted under the Plan shall be in such form as the
Committee may from time to time approve.
The Stock Options granted under the Plan may be of two types: (i)
Incentive Stock Options and (ii) Non-Qualified Stock Options. No Incentive Stock
Options shall be granted under the Plan after June 1, 2008.
The Committee shall have the authority to grant any optionee Incentive
Stock Options, Non-Qualified Stock Options, or both types of options (in each
case with or without Stock Appreciation Rights). To the extent that any option
does not qualify as an Incentive Stock Option, it shall constitute a separate
Non-Qualified Stock Option.
Anything in the Plan to the contrary notwithstanding, no term of this
Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be so
exercised, so as to disqualify either the Plan or any Incentive Stock Option
under Section 422 of the Code. The preceding sentence shall not preclude any
modification or amendment to an outstanding Incentive Stock Option, whether or
not such modification or amendment results in disqualification of such Option as
an Incentive Stock Option, provided the optionee consents in writing to the
modification or amendment.
Options granted under the Plan shall be subject to the following terms
and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable.
7
(a) Option Price. The option price per share of Stock purchasable under
a Stock Option shall be determined by the Committee at the time of grant. In no
event shall the option price per share of Stock purchasable under an Incentive
Stock Option or a Non-Qualified Stock Option be less than 100% of the Fair
Market Value of the Stock on the date of the grant of the option. If an employee
owns or is deemed to own (by reason of the attribution rules applicable under
Section 424(d) of the Code) more than 10% of the combined voting power of all
classes of stock of the Company or any Parent Corporation or Subsidiary and an
Incentive Stock Option is granted to such employee, the option price shall be no
less than 110% of the Fair Market Value of the Stock on the date the option is
granted.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than ten
years after the date the option is granted. If an employee owns or is deemed to
own (by reason of the attribution rules of Section 424(d) of the Code) more than
10% of the combined voting power of all classes of stock of the Company or any
Parent Corporation or Subsidiary and an Incentive Stock Option is granted to
such employee, the term of such option shall be no more than five years from the
date of grant.
(c) Exercisability. Stock Options shall be exercisable at such time or
times as determined by the Committee at or after grant. If the Committee
provides, in its discretion, that any option is exercisable only in
installments, the Committee may waive such installment exercise provisions at
any time. Notwithstanding the foregoing, unless the Stock Option Agreement
provides otherwise, any Stock Option granted under this Plan shall be
exercisable in full, without regard to any installment exercise provisions, for
a period specified by the Company, but not to exceed sixty (60) days prior to or
subsequent to the occurrence of any of the following events: (i) dissolution or
liquidation of the Company other than in conjunction with a bankruptcy of the
Company or any similar occurrence, (ii) any merger, consolidation, acquisition,
separation, reorganization, or similar occurrence, where the Company will not be
the surviving entity or (iii) the transfer of substantially all of the assets of
the Company or the acquisition of beneficial ownership of more than 50% of any
class of equity security of the Company.
(d) Method of Exercise. Stock Options may be exercised in whole or in
part at any time during the option period by giving written notice of exercise
to the Company specifying the number of shares to be purchased. Such notice
shall be accompanied by payment in full of the purchase price, either by
certified or bank check, or by any other form of legal consideration deemed
sufficient by the Committee and consistent with the Plan's purpose and
applicable law, including promissory notes or a properly executed exercise
notice together with irrevocable instructions to a broker acceptable to the
Company to promptly deliver to the Company the amount of sale or loan proceeds
to pay the exercise price. As determined by the Committee at the time of grant
or exercise, in its sole discretion, payment in full or in part may also be made
in the form of unrestricted Stock already owned by the optionee (which in the
case of Stock acquired upon exercise of an option have been owned for more than
six months on the date of surrender)(based on the Fair Market Value of the Stock
on the date immediately preceding the date the option is exercised, as
determined by the Committee), provided, however, that, in the case of an
Incentive Stock Option, the right to make a payment in the form of already owned
shares may be authorized only at the time the option is granted. No shares of
Stock shall be issued until full payment therefor has been made. An optionee
shall generally have the rights to dividends and other rights of a shareholder
with respect to shares subject to the option when the optionee has
8
given written notice of exercise, has paid in full for such shares and, if
requested, has given the representation described in paragraph (a) of Section
13.
(e) Non-transferability of Options.
(i) Subject to Section 5(e)(ii) below, no Stock Option shall
be transferable by the optionee otherwise than by will or by the laws
of descent and distribution, and all Stock Options shall be
exercisable, during the optionee's lifetime, only by the optionee.
(ii) The Committee may, in its discretion, authorize all or a
portion of the options to be granted to an optionee to be on terms
which permit transfer by such optionee to (A) the spouse, children or
grandchildren of the optionees ("Immediate Family Members"), (B) a
trust or trusts for the exclusive benefit of such Immediate Family
Members, or (C) a partnership or partnerships in which such Immediate
Family Members are the only partners, provided that (1) there may be no
consideration for any such transfer, (2) the stock option agreement
pursuant to which such options are granted must be approved by the
Committee, and must expressly provide for transferability in a manner
consistent with this Section 5(e)(ii), and (3) subsequent transfers of
transferred options shall be prohibited except those in accordance with
Section 5(e)(i). Following transfer, any such options shall continue to
be subject to the same terms and conditions as were applicable
immediately prior to transfer, provided that the term "optionee" herein
shall in such event be deemed to refer to the transferee, except that
the events of termination of employment of Sections 5(f), 5(g), 5(h)
and 5(i) hereof shall continue to be applied with respect to the
original optionee, following which the options shall be exercisable by
the transferee only to the extent, and for the periods specified in
such Sections.
(f) Termination by Death. If an optionee's employment by the Company
and any Subsidiary or Parent Corporation terminates by reason of death, the
Stock Option may thereafter be immediately exercised, to the extent then
exercisable (or on such accelerated basis as the Committee shall determine at or
after grant), by the legal representative of the estate or by the legatee of the
optionee under the will of the optionee, for a period of three years (or such
shorter period as the Committee shall specify at grant) from the date of such
death or until the expiration of the stated term of the option, whichever period
is shorter. In the event of termination of employment by reason of death, if an
Incentive Stock Option is exercised after the expiration of the exercise periods
that apply for purposes of Section 422 of the Code, the option will thereafter
be treated as a Non-Qualified Stock Option.
(g) Termination by Reason of Disability. If an optionee's employment by
the Company and any Subsidiary or Parent Corporation terminates by reason of
Disability, any Stock Option held by such optionee may thereafter be exercised,
to the extent it was exercisable at the time of termination due to Disability
(or on such accelerated basis as the Committee shall determine at or after
grant), but may not be exercised after three years (or such shorter period as
the Committee shall specify at grant) from the date of such termination of
employment or the expiration of the stated term of the option, whichever period
is the shorter. In the event of termination of employment by reason of
Disability, if an Incentive Stock Option is exercised after the expiration of
the exercise periods that apply for purposes of Section 422 of the Code, the
option will thereafter be treated as a Non-Qualified Stock Option.
9
(h) Termination by Reason of Retirement. If an optionee's employment by
the Company and any Subsidiary or Parent Corporation terminates by reason of
Retirement, any Stock Option held by such optionee may thereafter be exercised
to the extent it was exercisable at the time of such Retirement, but may not be
exercised after three years (or such shorter period as Committee shall specify
at grant) from the date of such termination of employment or the expiration of
the stated term of the option, whichever period is the shorter. In the event of
termination of employment by reason of Retirement, if an Incentive Stock Option
is exercised after the expiration of the exercise periods that apply for
purposes of Section 422 of the Code, the option will thereafter be treated as a
Non-Qualified Stock Option.
(i) Other Termination. Unless otherwise determined by the Committee, if
an optionee's employment by the Company and any Subsidiary or Parent Corporation
terminates for any reason other than death, Disability or Retirement, the Stock
Option may be exercised to the extent it was exercisable at such termination for
the lesser of three months or the balance of the option's term. In the event of
a termination of employment other than for death, Disability or Retirement and
if pursuant to its terms any Incentive Stock Option is exercised after the
expiration of the exercise periods that apply for purposes of Section 422 of the
Code, the option will thereafter be treated as a Non-Qualified Stock Option. In
the event the optionee is terminated for Cause by the Company or any Subsidiary
or Parent Corporation, the Stock Option shall thereupon terminate.
(j) Annual Limit on Incentive Stock Options. The aggregate Fair Market
Value (determined as of the time the Option is granted) of the Common Stock with
respect to which an Incentive Stock Option under this Plan or any other plan of
the Company and any Subsidiary or Parent Corporation is exercisable for the
first time by an optionee during any calendar year shall not exceed $100,000.
SECTION 6. Stock Appreciation Rights.
(a) Grant and Exercise. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under the Plan. In the
case of a Non-Qualified Stock Option, such rights may be granted either at or
after the time of the grant of such Option. In the case of an Incentive Stock
Option, such rights may be granted only at the time of the grant of the option.
A Stock Appreciation Right or applicable portion thereof granted with
respect to a given Stock Option shall terminate and no longer be exercisable
upon the termination or exercise of the related Stock Option, except that a
Stock Appreciation Right granted with respect to less than the full number of
shares covered by a related Stock Option shall not be reduced until the exercise
or termination of the related Stock Option exceeds the number of shares not
covered by the Stock Appreciation Right.
A Stock Appreciation Right may be exercised by an optionee, in
accordance with paragraph (b) of this Section 6, by surrendering the applicable
portion of the related Stock Option. Upon such exercise and surrender, the
optionee shall be entitled to receive an amount determined in the manner
prescribed in paragraph (b) of this Section 6. Stock Options which have been so
surrendered, in whole or in part, shall no longer be exercisable to the extent
the related Stock Appreciation Rights have been exercised.
10
(b) Terms and Conditions. Stock Appreciation Rights shall be subject to
such terms and conditions, not inconsistent with the provisions of the Plan, as
shall be determined from time to time by the Committee, including the following:
(i) Stock Appreciation Rights shall be exercisable only at
such time or times and to the extent that the Stock Options to which
they relate shall be exercisable in accordance with the provisions of
Section 5 and this Section 6 of the Plan.
(ii) Upon the exercise of a Stock Appreciation Right, an
optionee shall be entitled to receive up to, but not more than, an
amount in cash or shares of Stock equal in value to the excess of the
Fair Market Value of one share of Stock over the option price per share
specified in the related option multiplied by the number of shares in
respect of which the Stock Appreciation Right shall have been
exercised, with the Committee having the right to determine the form of
payment; provided the Committee may not require the optionee to receive
more than 50% of the aggregate value of such Stock Appreciation Rights
in shares of Stock.
(iii) Stock Appreciation Rights shall be transferable only
when and to the extent that the underlying Stock Option would be
transferable under Section 5 of the Plan.
(iv) Upon the exercise of a Stock Appreciation Right, the
Stock Option or part thereof to which such Stock Appreciation Right is
related shall be deemed to have been exercised for the purpose of the
limitation set forth in Section 3 of the Plan on the number of shares
of Stock to be issued under the Plan, but only to the extent of the
number of shares issued or issuable under the Stock Appreciation Right
at the time of exercise based on the value of the Stock Appreciation
Right at such time.
(v) A Stock Appreciation Right granted in connection with an
Incentive Stock Option may be exercised only if and when the market
price of the Stock subject to the Incentive Stock Option exceeds the
exercise price of such Option.
(vi) Each award shall be confirmed by, and subject to the
terms of, a Stock Appreciation Rights Agreement executed by the Company
and the participant.
SECTION 7. Restricted Stock.
(a) Administration. Shares of Restricted Stock may be issued either
alone or in addition to other awards granted under the Plan. The Committee shall
determine the officers and key employees of the Company and Subsidiaries to
whom, and the time or times at which, grants of Restricted Stock will be made,
the number of shares to be awarded, the time or times within which such awards
may be subject to forfeiture, and all other conditions of the awards. The
Committee may also condition the grant of Restricted Stock upon the attainment
of specified performance goals. The provisions of Restricted Stock awards need
not be the same with respect to each recipient.
(b) Awards and Certificates. The prospective recipient of an award of
shares of Restricted Stock shall not have any rights with respect to such award,
unless and until such recipient has
11
executed an Agreement evidencing the award and has delivered a fully executed
copy thereof to the Company, and has otherwise complied with the then applicable
terms and conditions.
(i) Each participant shall be issued a stock certificate in
respect of shares of Restricted Stock awarded under the Plan. Such
certificate shall be registered in the name of the participant, and
shall bear an appropriate legend referring to the terms, conditions,
and restrictions applicable to such award, substantially in the
following form:
"The transferability of this certificate and the
shares of stock represented hereby are subject to
the terms and conditions (including forfeiture) of
the Applied Biometrics, Inc. 1998 Stock Plan and an
Agreement entered into between the registered owner
and Applied Biometrics, Inc. Copies of such Plan and
Agreement are on file in the offices of Applied
Biometrics, Inc., 501 East Highway 13, Suite 108,
Burnsville, MN 55337.
(ii) The Committee shall require that the stock certificates
evidencing such shares be held in custody by the Company until the
restrictions thereon shall have lapsed, and that, as a condition of any
Restricted Stock award, the participant shall have delivered a stock
power, endorsed in blank, relating to the Stock covered by such award.
(c) Restrictions and Conditions. The shares of Restricted Stock awarded
pursuant to the Plan shall be subject to the following restrictions and
conditions:
(i) Subject to the provisions of this Plan and the award
Agreement, during a period set by the Committee commencing with the
date of such award (the "Restriction Period"), the participant shall
not be permitted to sell, transfer, pledge or assign shares of
Restricted Stock awarded under the Plan. In no event shall the
Restriction Period be less than one (1) year. Within these limits, the
Committee may provide for the lapse of such restrictions in
installments where deemed appropriate.
(ii) Except as provided in paragraph (c)(i) of this Section 7,
the participant shall have, with respect to the shares of Restricted
Stock, all of the rights of a shareholder of the Company, including the
right to vote the shares and the right to receive any cash dividends.
The Committee, in its sole discretion, may permit or require the
payment of cash dividends to be deferred and, if the Committee so
determines, reinvested in additional shares of Restricted Stock (to the
extent shares are available under Section 3 and subject to paragraph
(g) of Section 13). Certificates for shares of unrestricted Stock shall
be delivered to the grantee promptly after, and only after, the period
of forfeiture shall have expired without forfeiture in respect of such
shares of Restricted Stock.
(iii) Subject to the provisions of the award Agreement and
paragraph (c)(iv) of this Section 7, upon termination of employment for
any reason during the Restriction Period, all shares still subject to
restriction shall be forfeited by the participant.
(iv) In the event of special hardship circumstances of a
participant whose employment is terminated (other than for Cause),
including death, Disability or Retirement, or
12
in the event of an unforeseeable emergency of a participant still in
service, the Committee may, in its sole discretion, when it finds that
a waiver would be in the best interest of the Company, waive in whole
or in part any or all remaining restrictions with respect to such
participant's shares of Restricted Stock.
(v) Notwithstanding the foregoing, all restrictions with
respect to any participant's shares of Restricted Stock shall lapse on
the date determined by the Committee, but in no event more than sixty
(60) days prior to or subsequent to the occurrence of any of the
following events: (i) dissolution or liquidation of the Company other
than in conjunction with a bankruptcy of the Company or any similar
occurrence, (ii) any merger, consolidation, acquisition, separation,
reorganization, or similar occurrence, where the Company will not be
the surviving entity or (iii) the transfer of substantially all of the
assets of the Company or the acquisition of beneficial ownership of
more than 50% of any class of equity security of the Company.
SECTION 8. Deferred Stock Awards.
(a) Administration. Deferred Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the officers and key employees of the Company and Subsidiaries to whom and the
time or times at which Deferred Stock shall be awarded, the number of Shares of
Deferred Stock to be awarded to any participant or group of participants, the
duration of the period (the "Deferral Period") during which, and the conditions
under which, receipt of the Stock will be deferred, and the terms and conditions
of the award in addition to those contained in paragraph (b) of this Section 8.
The Committee may also condition the grant of Deferred Stock upon the attainment
of specified performance goals. The provisions of Deferred Stock awards need not
be the same with respect to each recipient.
(b) Terms and Conditions.
(i) Subject to the provisions of this Plan and the award
agreement, Deferred Stock awards may not be sold, assigned,
transferred, pledged or otherwise encumbered during the Deferral
Period. In no event shall the Deferral Period be less than one (1)
year. At the expiration of the Deferral Period (or Elective Deferral
Period, where applicable), share certificates shall be delivered to the
participant, or his legal representative, in a number equal to the
shares covered by the Deferred Stock award.
(ii) Amounts equal to any dividends declared during the
Deferral Period with respect to the number of shares covered by a
Deferred Stock award will be paid to the participant currently or
deferred and deemed to be reinvested in additional Deferred Stock or
otherwise reinvested, all as determined at the time of the award by the
Committee, in its sole discretion.
(iii) Subject to the provisions of the award Agreement and
paragraph (b)(iv) of this Section 8, upon termination of employment for
any reason during the Deferral Period for a given award, the Deferred
Stock in question shall be forfeited by the participant.
13
(iv) In the event of special hardship circumstances of a
participant whose employment is terminated (other than for Cause)
including death, Disability or Retirement, or in the event of an
unforeseeable emergency of a participant still in service, the
Committee may, in its sole discretion, when it finds that a waiver
would be in the best interest of the Company, waive in whole or in part
any or all of the remaining deferral limitations imposed hereunder with
respect to any or all of the participant's Deferred Stock.
(v) A participant may elect to further defer receipt of the
award for a specified period or until a specified event (the "Elective
Deferral Period"), subject in each case to the Committee's approval and
to such terms as are determined by the Committee, all in its sole
discretion. Subject to any exceptions adopted by the Committee, such
election must generally be made prior to completion of one half of the
Deferral Period for a Deferred Stock award (or for an installment of
such an award).
(vi) Each award shall be confirmed by, and subject to the
terms of, a Deferred Stock Agreement executed by the Company and the
participant.
SECTION 9. Other Awards.
The Committee may from time to time grant Stock, other Stock based and
non-Stock based awards under this Plan including without limitations those
awards pursuant to which shares of Stock are or in the future may be acquired,
awards denominated in Stock units, securities convertible into Stock, phantom
securities and dividend equivalents. The Committee shall determine the terms and
conditions of such Stock, Stock based and non-Stock based awards provided that
such awards shall not be inconsistent with the terms of this Plan.
SECTION 10. Transfer, Leave of Absence, etc
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer of an employee from the Company to a Parent Corporation
or Subsidiary, or from a Parent Corporation or Subsidiary to the Company, or
from one Subsidiary to another;
(b) a leave of absence, approved in writing by the Committee, for
military service or sickness, or for any other purpose approved by the Company
if the period of such leave does not exceed ninety (90) days (or such longer
period as the Committee may approve, in its sole discretion); and
(c) a leave of absence in excess of ninety (90) days, approved in
writing by the Committee, but only if the employee's right to reemployment is
guaranteed either by a statute or by contract, and provided that, in the case of
any leave of absence, the employee returns to work within 30 days after the end
of such leave.
SECTION 11. Amendments and Termination
14
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made (i) which would impair the rights
of an optionee or participant under a Stock Option, Stock Appreciation Right,
Restricted Stock, Deferred Stock or other Stock-based award theretofore granted,
without the optionee's or participant's consent, or (ii) which without the
approval of the stockholders of the Company would cause the Plan to no longer
comply with Section 422 of the Code or any other regulatory requirements.
The Committee may amend the terms of any award or option theretofore
granted, prospectively or retroactively, but, subject to Section 3 above, no
such amendment shall impair the rights of any holder without his consent. The
Committee may also substitute new Stock Options for previously granted options,
including previously granted options having higher option prices.
SECTION 12. Unfunded Status of Plan.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing contained herein shall give any
such participant or optionee any rights that are greater than those of a general
creditor of the Company. In its sole discretion, the Committee may authorize the
creation of trusts or other arrangements to meet the obligations created under
the Plan to deliver Stock or payments in lieu of or with respect to awards
hereunder, provided, however, that the existence of such trusts or other
arrangements is consistent with the unfunded status of the Plan.
SECTION 13. General Provisions.
(a) All certificates for shares of Stock delivered under the Plan
pursuant to any Restricted Stock, Deferred Stock or other Stock-based awards
shall be subject to such stock-transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Stock is then listed, and any applicable Federal or state securities
laws, and the Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions. The Committee
may require each person purchasing shares pursuant to a Stock Option under the
Plan to represent to and agree with the Company in writing that the optionee is
acquiring the shares without a view to distribution thereof. The certificates
for such shares may include any legend which the Committee deems appropriate to
reflect any restrictions on transfer.
(b) Subject to paragraph (d) below, recipients of Restricted Stock,
Deferred Stock and other Stock-based awards under the Plan (other than Stock
Options) are not required to make any payment or provide consideration other
than the rendering of services.
(c) Nothing contained in this Plan shall prevent the Board of Directors
from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases. The adoption
of the Plan shall not confer upon any employee of the Company or any Subsidiary
any right to continued employment with the Company or a Subsidiary, as the case
may be, nor shall it interfere in any way with the right of the Company or a
Subsidiary to terminate the employment of any of its employees at any time.
15
(d) Each participant shall, no later than the date as of which any part
of the value of an award first becomes includible as compensation in the gross
income of the participant for Federal income tax purposes, pay to the Company,
or make arrangements satisfactory to the Committee regarding payment of, any
Federal, state, or local taxes of any kind required by law to be withheld with
respect to the award. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements and the Company and Subsidiaries
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the participant. With respect to
any award under the Plan, if the terms of such award so permit, a participant
may elect by written notice to the Company to satisfy part or all of the
withholding tax requirements associated with the award by (i) authorizing the
Company to retain from the number of shares of Stock that would otherwise be
deliverable to the participant, or (ii) delivering to the Company from shares of
Stock already owned by the participant, that number of shares having an
aggregate Fair Market Value equal to part or all of the tax payable by the
participant under this Section 13(d). Any such election shall be in accordance
with, and subject to, applicable tax and securities laws, regulations and
rulings and in the event shares are withheld, the amount withheld may not exceed
the minimum required federal, state and FICA withholding amount.
(e) At the time of grant, the Committee may provide in connection with
any grant made under this Plan that the shares of Stock received as a result of
such grant shall be subject to a repurchase right in favor of the Company
pursuant to which any participant who, at any time within a specified period
after termination of employment with the Company, directly or indirectly
competes with, or is employed by a competitor of, the Company, shall be required
to offer to the Company any shares that the participant acquired under the Plan,
with the price being the then Fair Market Value of the Stock, subject to such
other terms and conditions as the Committee may specify at the time of grant.
(f) The Committee may, at the time of the grant of an award under the
Plan, provide the Company with the right to repurchase, or require the
forfeiture of, shares of Stock acquired pursuant to the Plan by any participant
who, at any time within two years after termination of employment with the
Company or any Subsidiary or Parent Corporation, directly or indirectly competes
with, or is employed by a competitor of, the Company or any Subsidiary or Parent
Corporation.
(g) The reinvestment of dividends in additional Restricted Stock (or in
Deferred Stock or other types of Plan awards) at the time of any dividend
payment shall only be permissible if the Committee (or the Company's chief
financial officer) certifies in writing that under Section 3 sufficient shares
are available for such reinvestment (taking into account then outstanding Stock
Options and other Plan awards).
SECTION 14. Effective Date of Plan.
The Plan shall be effective on the date it is adopted by the Board of
Directors.
----------------------
Adopted by the Board of Directors -- June 1, 1998.
Approved by the Shareholders -- June 12, 1998.
Amended by the Board of Directors January 1, 2000.
16
PROXY
APPLIED BIOMETRICS, INC.
ANNUAL MEETING OF SHAREHOLDERS - MAY 9, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE COMPANY'S BOARD OF DIRECTORS
The undersigned hereby appoints Andrew M. Weiss, Chief Executive Officer
and Camille M. Meyer, Vice-President, Finance, Chief Financial Officer and
Secretary of the Company (the "Proxies"), each with the power to appoint their
substitute, and hereby authorizes each of them to represent and to vote, as
designated below, all the shares of common stock of Applied Biometrics, Inc.,
held of record by the undersigned on March 17, 2000, at the Annual Meeting Of
Shareholders to be held on May 9, 2000, or any adjournment thereof.
(1) ELECTION OF |_| FOR all nominees listed below |_| AGAINST all
DIRECTORS: (except as marked below) nominees listed
below
Andrew M. Weiss, Demetre Nicoloff, M.D., Ph.D., Jeffrey W. Green
and Norman Dann
(INSTRUCTION: TO VOTE AGAINST ANY INDIVIDUAL NOMINEE, WRITE THAT
NOMINEE'S NAME ON THE SPACE PROVIDED BELOW.)
-----------------------------------------------------------------------------
(2) PROPOSAL TO AMEND THE COMPANY'S 1998 STOCK OPTION PLAN:
|_| FOR |_| AGAINST |_| ABSTAIN
(3) PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE CURRENT FISCAL YEAR:
|_| FOR |_| AGAINST |_| ABSTAIN
(4) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
(continued, and to be completed and signed on the reverse side)
(continued from the other side)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH PROPOSAL.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THE PROXY WILL
BE VOTED IN FAVOR OF PROPOSALS 2 AND 3 AND FOR EACH OF THE NOMINEES IN PROPOSAL
1.
Dated: ____________________________, 2000
Signed:____________________________
Signature of Shareholder
Signed:____________________________
Signature of Shareholder
Please vote, date and sign this proxy as your name is printed above and
return it promptly using the enclosed envelope. When signing as attorney,
executory administrator, trustee, guardian, etc. give full title as such. If the
stock is held jointly, each owner should sign. 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.