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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
SYNBIOTICS CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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SYNBIOTICS CORPORATION
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held June 9, 1999
The Annual Meeting of Shareholders of Synbiotics Corporation will be held at
the Radisson Suite Hotel (Rancho Bernardo), 11520 West Bernardo Court, San
Diego, California 92127, on June 9, 1999 at 10:00 a.m. for the following
purposes:
1. To elect seven directors;
2. To consider a proposal to amend the 1995 Stock Option/Stock Issuance
Plan;
and to transact such other business as may properly come before the meeting
and any postponement or adjournment thereof.
The Board of Directors has fixed April 16, 1999, as the record date for
determining the shareholders entitled to notice of and to vote at the Annual
Meeting and any postponement or adjournment thereof.
WE WOULD BE GRATEFUL IF YOU WOULD PROMPTLY SIGN AND RETURN THE ENCLOSED
PROXY CARD.
Michael K. Green
Secretary
May 3, 1999
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Synbiotics Corporation, a California corporation (the
"Company"), 11011 Via Frontera, San Diego, California 92127, of proxies in the
accompanying form to be used at the Annual Meeting of Shareholders to be held
at the Radisson Suite Hotel (Rancho Bernardo), 11520 West Bernardo Court, San
Diego, California 92127, at 10:00 a.m. on June 9, 1999, and any postponement
or adjournment thereof.
A proxy may be revoked at any time before it is exercised. Any shareholder
giving a proxy may revoke it prior to its use at the Annual Meeting (1) by
delivering a written notice expressly revoking the proxy to the Company's
Secretary at the Company's offices, (2) by signing and delivering to the
Company at its offices, or to the place of the Annual Meeting, a later dated
proxy or (3) by attending the Annual Meeting and casting his or her votes
personally. A proxy is not revoked by the death or incapacity of the maker
unless, before the vote is counted, written notice of such death or incapacity
is received by the Company.
On the matters coming before the Annual Meeting as to which a choice has
been specified by the shareholder on the proxy, the shares will be voted
accordingly. If the proxy is returned and no choice is so specified, the
shares will be voted FOR the election of the seven nominees for director
listed in this Proxy Statement, FOR the approval of proposal 2 described in
the Notice of Meeting and this Proxy Statement, and in the discretion of the
proxyholders as to any other business which may properly come before the
Annual Meeting.
April 16, 1999, has been fixed as the record date for determining the
shareholders entitled to notice of and to vote at the Annual Meeting. As of
the close of business on such date, the Company had 8,973,238 shares of common
stock outstanding and entitled to vote. Outstanding shares of common stock are
entitled to one vote each on all matters. Under California law, shareholders
are permitted to cumulate votes for the election of directors whose names have
been placed in nomination. Therefore, in voting for directors, each
outstanding share of common stock would be entitled to seven votes which may
be cast for one candidate or distributed in any manner among the nominees for
director. However, the right to cumulate votes in favor of one or more
candidates may not be exercised until the candidate or candidates have been
nominated and any shareholder has given notice at the Annual Meeting of the
intention to cumulate votes.
The proxyholders (if authority to vote for one or more nominees is not
withheld) will have full discretion and authority to vote cumulatively and to
allocate votes among any or all of the Board of Directors nominees as they may
determine or, if authority to vote for a specified candidate or candidates has
been withheld, among those candidates for whom authority to vote has not been
withheld.
The expense of printing and mailing proxy material will be borne by the
Company. The approximate date these proxy solicitation materials will be first
sent to shareholders is May 3, 1999.
ELECTION OF DIRECTORS
(Item 1 on the Proxy Card)
Seven directors are to be elected at the Annual Meeting to serve until the
next Annual Meeting and until their respective successors are elected or
appointed. Unless authority to vote for one or more nominees is withheld, it
is intended that the proxyholders will vote for the election of the nominees
named below. In the event any of them shall become unable or unwilling to
accept nomination or election, the shares represented by the enclosed proxy
will be voted for the election of such other person as the Board of Directors
may recommend in his or her place. Each of the nominees named is currently a
member of the Board of Directors of the Company.
The following information is furnished regarding the nominees of the
Company.
Name; Positions; Business Experience During the Director
Past Five Years; Directorships in Reporting Companies Since Age
----------------------------------------------------- -------- ---
Patrick Owen Burns................................................. 1997 61
Senior Consultant of Early Stage Enterprises, L.L.C. since October
1997; Vice President of R&D Funding Corp, an affiliate of
Prudential Securities Inc., and Senior Vice President of
Prudential Securities Inc. from 1986 to February, 1997; Director
of Progen Industries, Ltd.
Kenneth M. Cohen................................................... 1996 44
President and Chief Executive Officer of the Company since May
1996; Executive Vice President and Chief Operating Officer of
Canji, Inc. from March 1995 to February 1996; Vice President of
Argus Pharmaceuticals, Inc. from May 1990 to March 1995.
James C. DeCesare.................................................. 1993 68
Consultant to the animal health and pharmaceutical industries
since 1992.
Brenda D. Gavin, DVM............................................... 1996 50
Becomes President of S. R. One, Limited, a venture capital firm,
in May 1999; Vice President of S. R. One, Limited from 1989 to
April 1999; Director of Oxis International, Inc.
M. Blake Ingle, Ph.D. ............................................. 1994 57
Private investor; President and Chief Executive Officer of Canji,
Inc. March 1993 to February 1996; Acting President of Telios
Pharmaceuticals, Inc. from December 1994 to June 1995; Director of
Corvas International, Inc. and Vical, Inc.
Joseph Klein III................................................... 1998 38
Healthcare Analyst for The Kaufmann Fund since June 1998;
Portfolio Manager and Chairman of Investment Advisory Committee of
T. Rowe Price Health Sciences Fund from December 1995 to February
1998; Vice President and Healthcare Analyst of T. Rowe Price
Associates, Inc. from April 1990 to February 1998; Director of
Guilford Pharmaceuticals, Inc. and NPS Pharmaceuticals, Inc.
Donald E. Phillips................................................. 1987 66
Private investor; Chairman of the Board of Directors of the
Company since August 1994; Vice Chairman of the Board of Directors
of the Company from 1993 to August 1994; Director of Great Lakes
REIT, Inc. and Potash Corporation of Saskatchewan (Canada).
The Board of Directors of the Company held a total of eleven meetings during
the year ended December 31, 1998. Each director attended more than seventy-
five percent (75%) of the meetings of the Board of Directors (and the Board
committees of which he or she was a member) held during the time he or she was
a member of the Board.
2
The Company currently has Compensation and Audit Committees of the Board of
Directors. The Company does not have a Nominating Committee of the Board of
Directors. The current membership of each committee is as follows:
Compensation Committee Audit Committee
M. Blake Ingle, Ph.D., Chairman Patrick Owen Burns
Joseph Klein III James C. DeCesare, Chairman
Donald E. Phillips Brenda D. Gavin, DVM
The function of the Compensation Committee is to review the Company's
compensation policies and advise as to executive compensation and stock option
matters. The Audit Committee oversees the Company's accounting and financial
reporting policies, reviews with the independent accountants the accounting
principles and practices followed, reviews the annual audit and financial
results and makes recommendations to the Board regarding any of the preceding.
The Audit Committee met three times and the Compensation Committee met four
times during the year ended December 31, 1998.
Dr. Ingle became an executive officer of Telios Pharmaceuticals, Inc. in
December 1994, shortly after that company's primary product failed a clinical
trial. In January 1995, Telios filed a voluntary bankruptcy petition. Telios
subsequently emerged from bankruptcy via the sale of the company to Integra
Life Sciences. The Company believes these facts do not impugn Dr. Ingle's
ability or integrity in any way.
For their services as directors, each of the outside directors of the
Company receives fees of $1,000, plus $500 for travel, for each Board of
Directors meeting attended, except for Dr. Gavin. Dr. Gavin does not receive a
fee as S. R. One, Limited does not allow its representatives to accept
director fees from the companies for which they serve as directors. Outside
directors also receive $500 for each telephonic Board of Directors meeting,
and receive $500 for each committee meeting they attend as committee members
which are held on a different day than a Board of Directors meeting. Employee
directors do not receive any fees for attendance at meetings of the Board of
Directors or committee meetings. In addition, Mr. Phillips was paid fees of
$24,996 during the year ended December 31, 1998 pursuant to a consulting
agreement with the Company. On July 30, 1998, pursuant to the Automatic Grant
Program under the 1995 Stock Option/Stock Issuance Plan (the "1995 Plan"), Mr.
Burns, Mr. DeCesare, Dr. Gavin, Dr. Ingle and Mr. Phillips were each granted
options to purchase 7,000 shares of common stock at $3.063 per share. The
options, which expire on July 30, 2008, vest ratably over a one-year period
following the grant date. On September 4, 1998, pursuant to the Automatic
Grant Program under the 1995 Plan, Mr. Klein was granted an option to purchase
7,000 shares of common stock at $2.500 per share. The option, which expires on
September 24, 2008, vests ratably over a one-year period following the grant
date.
3
Executive Officers and Significant Employees
Executive Officers
Name, Age, and Other Business Experience
Position During the Past Five Years
-------- ---------------------------------------------
President and Chief Executive Officer - since Kenneth M. Cohen (44)
May 1996 Formerly, Executive Vice President and Chief
Operating Officer of Canji, Inc., March
1995 -February 1996; Vice President of Argus
Pharmaceuticals, Inc., May 1990 - March 1995
Vice President - Finance, Chief Financial Michael K. Green (43)
Officer and Secretary - since May 1991
Vice President - since February 1998; Francois Guillemin (48)
President Formerly, Director of the Diagnostics
and Director General of Synbiotics Europe, Division of Rhone-Merieux, S.A., 1991 - June
SAS - since July 1997 1997
Vice President - Research and Development Serge Leterme (39)
since October 1998; Director of Product Formerly, Director of Research and
Development - August 1997 - September 1998 Development of the Diagnostics Division of
Rhone-Merieux, S.A., 1993 - June 1997
Vice President and General Manager, Animal Paul A. Rosinack (52)
Health - since October 1996 Formerly, President and Chief Executive
Officer of International Canine Genetics,
Inc., December
1992 - October 1996
Significant Employees
Name, Age, and Other Business Experience
Position During the Past Five Years
-------- ---------------------------------------------
Corporate Controller - since March 1991 Keith A. Butler (37)
Director of Operations - since September 1992 Clifford Frank (49)
Director of Marketing - since October 1996 Stephen T. Peterson, DVM (48)
Formerly, Director of Marketing of
International Canine Genetics, Inc.,
December 1993 - October 1996
Director of Business Development - since 1992 Gregory A. Soulds (52)
(with the Company since 1983)
4
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
common stock as of April 16, 1999, of each of the Company's directors,
director nominees, 5% shareholders and the Named Executive Officers, and of
the directors and executive officers of the Company as a group. Except as
noted, each person has sole investment and voting power over the shares shown.
Percentages are calculated in accordance with the method set forth in the
Securities and Exchange Commission's rules.
Amount and
Nature of Percent
Name and Address of Beneficial Owner Beneficial Owner of Class
------------------------------------ ---------------- --------
Patrick Owen Burns(/1/)............................... 34,850 *
22 Sidney Place
Brooklyn, NY 11201
Kenneth M. Cohen(/1/)................................. 222,281 2.3%
c/o Synbiotics Corporation
11011 Via Frontera
San Diego, CA 92127
James C. DeCesare(/1/)................................ 50,125 *
5260 S. Landings Drive, #200
Ft. Myers, FL 33919
Brenda D. Gavin, DVM(/3/)............................. 974,902 10.2%
c/o S. R. One, Limited
Bay Colony Executive Park
565 Swedesford Road
Suite 315
Wayne, PA 19087
Michael K. Green(/1/)................................. 96,655 1.0%
c/o Synbiotics Corporation
11011 Via Frontera
San Diego, CA 92127
Francois Guillemin(/1/)............................... 48,512 *
c/o Synbiotics Europe, SAS
2 rue Alexander Fleming
69367 Lyons, Cedex 07, France
M. Blake Ingle, Ph.D.(/1/)............................ 55,750 *
Plaza Del Mar 300-6
12526 High Bluff Drive
San Diego, CA 92130
Joseph Klein III(/1/)................................. 25,250 *
1724 Hillside Road
Stevenson, MD 21153
Serge Leterme, Ph.D.(/1/)............................. 18,375 *
c/o Synbiotics Corporation
11011 Via Frontera
San Diego, CA 92127
Donald E. Phillips(/1/)............................... 69,750 *
372 Fannin Landing Circle
Brandon, MS 39042
5
Amount and
Nature of Percent
Name and Address of Beneficial Owner Beneficial Owner of Class
------------------------------------ ---------------- --------
Paul A. Rosinack(/1/)............................... 72,961 *
c/o Synbiotics Corporation
11011 Via Frontera
San Diego, CA 92127
Gregory A. Soulds(/1/)(/4/)......................... 27,781 *
c/o Synbiotics Corporation
11011 Via Frontera
San Diego, CA 92127
Gruber & McBaine Capital Management(/2/)............ 1,100,100 11.6%
c/o John P. Broadhurst, Esq.
Shartsis, Friese & Ginsburg
One Maritime Plaza
18th Floor
San Francisco, CA 94111
Merial SAS.......................................... 621,378 6.5%
29 Avenue Tony Garnier
69007 Lyons
France
S. R. One, Limited(/3/)............................. 962,652 10.1%
Bay Colony Executive Park
565 Swedesford Road
Suite 315
Wayne, PA 19087
All executive officers and directors as a
group(/1/)(/3/) (11 persons)....................... 1,697,202 17.8%
- --------
* Less than one percent.
(1) Includes options to purchase shares of common stock, which are exercisable
on or before June 15, 1999, as follows: Mr. Burns - 33,250 shares; Mr.
Cohen - 155,312 shares; Mr. DeCesare - 40,250 shares; Dr. Gavin - 12,250
shares; Mr. Green - 88,124 shares; Mr. Guillemin - 26,562; Dr. Ingle -
31,250 shares; Mr. Klein - 5,250; Dr. Leterme - 15,000; Mr. Phillips -
59,750 shares; Mr. Rosinack - 60,827 shares; Mr. Soulds - 20,187 shares.
(2) 485,400 shares are owned by a group of managed investment accounts who
have granted their respective powers of attorney to Gruber & McBaine
Capital Management LLC ("GMCM") to handle any and all necessary filings
with respect to voting and dispositive power of these securities. The
remaining 614,700 shares are owned by a group of four persons who granted
their respective powers of attorney to GMCM to handle any and all
necessary filings with respect to voting and dispositive power of these
securities. The direct ownership of these 614,700 shares is as follows:
Jon D. Gruber ("Gruber") - 91,900 shares; J. Patterson McBaine
("McBaine") - 99,200 shares; Lagunitas Partners, a California Limited
Partnership ("Lagunitas") - 232,500 shares; Proactive Partners, a
California Limited Partnership ("Proactive") - 191,100 shares. Gruber and
McBaine are the member managers of GMCM. GMCM is the general partner of
Lagunitas. Gruber and McBaine are general partners in the entity which is
the general partner of Proactive. Gruber and McBaine disclaim beneficial
ownership of the shares held by Lagunitas and Proactive except to the
extent of their respective pecuniary interests. GMCM disclaims beneficial
ownership of the shares held by Gruber, McBaine, Lagunitas and the group
of managed investment accounts.
(3) Includes 962,652 shares owned by S. R. One, Limited, of which Dr. Gavin is
a Vice President. Dr. Gavin disclaims any beneficial ownership of these
shares.
(4) Mr. Soulds' information is included in the interest of full disclosure.
6
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table provides certain summary information concerning the
compensation earned by the Company's President and Chief Executive Officer and
the other executive officers whose total 1998 salary and bonus exceeded
$100,000 (the "Named Executive Officers"), and the only other person, although
not an executive officer, whose total 1998 salary and bonus exceeded $100,000
for services rendered in all capacities to the Company for the fiscal years
ended December 31, 1998, 1997 and 1996:
Summary Compensation Table
Long-Term
Annual Compensation Compensations
----------------------------------------------- -------------
Awards
-------------
Other Securities
Annual Underlying All Other
Name and Principal Fiscal Compen- Options/ Compen-
Position Year Salary ($)(/1/) Bonus ($) sation ($) SARS (#) sation ($)(/2/)
------------------ ------ --------------- --------- ---------- ------------- ---------------
Kenneth M. Cohen........ 1998 $242,156 $31,008(/3/) -- 50,000 $4,115
President and Chief
Executive Officer 1997 $230,625 $14,175(/4/) -- 25,000 $3,165
1996 $141,490 $42,188 $38,750(/5/) 225,000 --
Michael K. Green........ 1998 $143,500 $18,375(/3/) -- 25,000 $3,875
Vice President 1997 $130,000 $ 8,400(/4/) -- 25,000 $3,120
1996 $115,326 $24,000 -- 30,000 $2,768
Francois Guillemin...... 1998 $146,846 $ 7,385(/3/) -- 25,000 --
Vice President 1997 $ 77,744 -- -- 50,000 --
Serge Leterme........... 1998 $100,489 $15,000(/3/) $ 4,687(/6/) 25,000 --
Vice President 1997 $ 36,357 -- -- 20,000 --
Paul A. Rosinack........ 1998 $168,373 $21,560(/3/) $12,504(/7/) 25,000 $2,552
Vice President 1997 $162,129 $ 9,856(/4/) $12,504(/7/) 50,000 --
1996 $ 29,743 -- $ 2,084(/7/) 25,000 --
Gregory A. Soulds....... 1998 $112,349 $14,387(/3/) -- -- $3,033
Director - Business 1997 $106,999 $ 6,576(/4/) -- -- $2,568
Development 1996 $104,389 -- -- 5,000 $2,505
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(1) Includes amounts deferred under the 401(k) Compensation Deferral Savings
Plan pursuant to Section 401(k) of the Internal Revenue Code of 1986, as
amended.
(2) Consists of matching contributions made by the Company to Mr. Cohen's
401(k) account, Mr. Green's 401(k) account, Mr. Rosinack's 401(k) account
and Mr. Soulds' 401(k) account.
(3) Includes grants of restricted Synbiotics common stock during 1998 with a
fair market value of $4.00 per share as follows: Mr. Cohen - 6,977 shares;
Mr. Green - 4,134 shares; Mr. Guillemin - 1,662 shares; Dr. Leterme -
3,375; Mr. Rosinack - 4,851 shares; Mr. Soulds - 3,237 shares.
(4) Includes grants of restricted Synbiotics common stock during 1997 with a
fair market value of $3.19 per share as follows: Mr. Cohen - 4,002 shares;
Mr. Green - 2,372 shares; Mr. Rosinack - 2,783 shares; Mr. Soulds - 1,857
shares.
(5) Consists of a direct grant of 10,000 shares of Synbiotics common stock
with a fair market value of $3.875 per share.
(6) Forgiveness of a loan made to Dr. Leterme to defray relocation expenses at
the rate of $18,750 per year. As of December 31, 1998, the balance due was
$70,313.
(7) Forgiveness of a loan made to Mr. Rosinack to defray relocation expenses
at the rate of $12,504 per year. As of December 31, 1998, the balance due
was $21,871.
7
The following table contains information concerning the grant of stock
options to the Named Executive Officers:
Option/SAR Grants in Last Fiscal Year
Individual Grants
- --------------------------------------------------------------------------
Number of
Securities % of Total
Underlying Options/SARs
Options/SARs Granted to
Granted Employees in Exercise
Name (#)(/1/) Fiscal Year Price ($/Sh) Expiration Date
---- ------------ ------------ ------------ ---------------
Kenneth M. Cohen 50,000 16.71% $3.06 7/30/08
Michael K. Green 25,000 8.35% $3.06 7/30/08
Francois Guillemin 25,000 8.35% $3.06 7/30/08
Serge Leterme 25,000 8.35% $3.06 5/20/08
Paul A. Rosinack 25,000 8.35% $3.06 7/30/08
- --------
(1) The options become exercisable ratably over a four-year period following
the date of grant, which was July 30, 1998, except for Dr. Leterme whose
date of grant was May 20, 1998. Each option has a maximum term of 10
years, subject to earlier termination in the event of the optionee's
cessation of service with the Company.
The following table provides information, with respect to the Named
Executive Officers and Mr. Soulds, concerning the exercise of options during
the last fiscal year and unexercised options held as of the end of the fiscal
year:
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values
Number of Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARS at Options/SARS at
Shares December 31, 1998 December 31, 1998
Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized Unexercisable Unexercisable(/1/)
---- -------------- -------- -------------------- ------------------
Kenneth M. Cohen........ -- -- 100,937 $ --
199,063 $ --
Michael K. Green........ -- -- 78,124 $ --
51,876 $ --
Francois Guillemin...... -- -- 17,187 $ --
57,813 $ --
Serge Leterme........... -- -- 9,375 $ --
35,625 $ --
Paul A. Rosinack........ -- -- 44,600 $ --
85,227 $ --
Gregory A. Soulds....... 2,500 $188 20,375 $ --
1,875 $ --
- --------
(1) Value is defined as market price of the Company's common stock at fiscal
year end less exercise price. The closing sale price of the Company's
common stock at December 31, 1998 was $2.56.
The Company has not granted any stock appreciation rights ("SARs").
8
Employment Contracts and Change-in-Control Arrangements
Synbiotics entered into an Employment Agreement dated May 7, 1996 with
Kenneth M. Cohen, its Chief Executive Officer and President. The Employment
Agreement provides for salary at an initial rate of $225,000 per annum,
options to purchase 225,000 shares of Synbiotics common stock (at $3.875 per
share) and a direct grant of 10,000 shares of unregistered Synbiotics common
stock. In addition, he is eligible for a cash bonus of up to 30% of his annual
salary. If Mr. Cohen is terminated without cause, he will receive six months'
salary at his then base salary rate. If Mr. Cohen is terminated in connection
with an acquisition of the Company, he will receive an additional six months'
salary and all unvested stock options will immediately vest.
Synbiotics entered into an Employment Agreement dated June 23, 1997 with
Michael K. Green, its Chief Financial Officer and Vice President - Finance.
The Employment Agreement provides for salary at an initial rate of $140,000.
If Mr. Green is terminated without cause, he will receive six months' salary
at his then base salary rate. If Mr. Green is terminated in connection with an
acquisition of the Company, he will receive an additional six months' salary
and all unvested stock options will immediately vest.
Synbiotics entered into an Employment Agreement dated July 9, 1997 with
Francois Guillemin, its Vice President and President and Director General of
Synbiotics Europe, SAS. The Employment Agreement provides for salary at an
initial rate of $140,000 per annum and options to purchase 50,000 shares of
Synbiotics common stock (at $3.6875 per share). In addition, the Company has
provided Mr. Guillemin with a company car, and is bearing the leasing costs,
and reasonable expenses incurred by Mr. Guillemin for business activities, of
the company car in an annual amount up to $11,500 per year. If Mr. Guillemin
is terminated without cause, he will receive six months' salary at his then
base salary rate plus the amount of legal severance in France; provided,
however, that the total amount to be received will be equal to the greater of
12 months' salary or the total amount of legal severance in France. If Mr.
Guillemin is terminated in connection with an acquisition of the Company, he
will receive an additional six months' salary and all unvested stock options
will immediately vest.
Synbiotics entered into an Employment Agreement dated September 1, 1998 with
Serge Leterme, its Vice President of Research and Development. The Employment
Agreement provides for salary at an initial rate of $120,000. If Dr. Leterme
is terminated without cause, he will receive six months' salary at his then
base salary rate. If Dr. Leterme is terminated in connection with an
acquisition of the Company, he will receive an additional six months' salary
and all unvested stock options will immediately vest.
Synbiotics entered into an Employment Agreement dated October 25, 1996 with
Paul A. Rosinack, its Vice President and General Manager, Animal Health. The
Employment Agreement provides for salary at an initial rate of $160,000 per
annum and options to purchase 25,000 shares of Synbiotics common stock (at
$4.125 per share). If Mr. Rosinack is terminated without cause, he will
receive six months' salary at his then base salary rate. If Mr. Rosinack is
terminated in connection with an acquisition of the Company, he will receive
an additional six months' salary and all unvested stock options will
immediately vest.
THE BOARD OF DIRECTORS RECOMMENDS THE ELECTION OF ALL SEVEN NOMINEES, SET
FORTH IN ITEM 1 ON THE PROXY CARD. The six persons receiving the highest
number of votes will be elected as directors. Abstentions and broker non-votes
will have no influence in the election of directors.
9
AMENDMENT OF 1995 STOCK OPTION/STOCK ISSUANCE PLAN
(Item 2 on the Proxy Card)
On April 27, 1995, the Board of Directors adopted the Company's 1995 Stock
Option/Stock Issuance Plan (the "1995 Plan"). The 1995 Plan is intended to
unify the Company's stock option program; upon shareholder approval of the
1995 Plan all outstanding options under the Company's 1983, 1984, 1986, 1987,
1988, 1991 and 1994 Stock Option Plans (the "Prior Plans") were incorporated
into the 1995 Plan and the Prior Plans were terminated as to any future
grants. (The 1983, 1984, 1986, 1987 and 1988 Stock Option Plans have already
expired by their own terms.) The 1,300,000 shares of Company common stock
authorized for issuance under the 1995 Plan were 282,055 more than the sum of
the 711,862 shares currently the subject of options outstanding as of April
27, 1995 under the Prior Plans and 306,083 shares reserved and available for
issuance under, but not as of April 27, 1995 the subject of any grants under,
the Prior Plans.
The 1995 Plan also differed from the Prior Plans in that it (a) allows the
grant of both incentive stock options and non-qualified stock options, (b)
provides for automatic stock option grants to Directors, (c) allows direct
stock issuances, and (d) provides for acceleration of vesting upon a hostile
takeover of the Company. The 1995 Plan also differed from one or more of the
Prior Plans in several other ways, many of which involve providing flexibility
to the Company in areas where the Prior Plans did not allow flexibility.
On April 25, 1997, the Board of Directors approved amendments to the 1995
Plan to incorporate the 1996 Stock Option Plan into the 1995 Plan, add an
additional 450,000 shares to the maximum authorized for issuance under the
1995 Plan (making a total, together with the previous authorization and the
250,000 shares authorized under the 1996 Stock Option Plan, of 2,000,000
shares), provide for additional flexibility as permitted under recent changes
to Rule 16b-3 under the Securities Exchange Act of 1934, and make certain non-
material changes in other areas.
The 1996 Stock Option Plan authorized only the grant of nonstatutory
options, and only to persons who are not directors or officers. Otherwise, the
1996 Stock Option Plan is essentially similar to the 1995 Plan's Discretionary
Grant Program.
On March 29, 1999, the Board of Directors approved an amendment (the
"Amendment") to the 1995 Plan to incorporate the 1998 Stock Option Plan into
the 1995 Plan and add an additional 600,000 shares to the maximum authorized
for issuance under the 1995 Plan (making a total, together with the previous
amended authorization and including the 152,565 shares authorized under the
1998 Stock Option Plan, of 2,752,565 shares).
The 1998 Stock Option Plan authorizes only the grant of nonstatutory
options, and only to persons who are not directors or officers. In addition,
the 1998 Stock Option Plan gives the Plan Administrator complete discretion in
establishing the options' exercise price per share. Otherwise, the 1998 Stock
Option Plan is essentially similar to the 1995 Plan's Discretionary Grant
Program. Options to purchase all 152,565 of the 1998 Stock Option Plan's
authorized shares were granted to former optionholders of Prisma Acquisition
Corp. ("Prisma") in exchange for their Prisma Options, pursuant to the terms
of Synbiotics' March 1998 acquisition of Prisma. As of April 16, 1999, options
to purchase 10,613 shares under the 1998 Stock Option Plan have been
exercised, and the remaining options to purchase 141,952 are still
outstanding.
Synbiotics currently has available under the 1995 Plan only 49,516 shares
which have not already been issued and are not subject to currently
outstanding options. Of those shares, 42,000 will be subjected to options to
non-employee directors on June 9, 1999. Therefore, unless the Amendment is
approved Synbiotics will essentially have run out of shares for option grants
and direct issuances.
There are currently outstanding under the 1995 Plan and the 1998 Stock
Option Plan options to purchase a total of 1,956,737 shares, and with the
additional 600,000 shares requested by the Amendment, a total of 2,556,737
will be potentially exercisable.
Under the 1995 Plan, the Amendment requires shareholder approval to become
effective.
10
Plan Structure
The 1995 Plan is divided into three separate parts:
. The "Discretionary Grant Program" under which directors, employees and
consultants may, at the discretion of the Plan Administrator, be granted
options to purchase shares of the Common Stock at an exercise price not less
than 85% of the fair market value of each such share on the grant date;
provided, that the exercise price may be below 85% of fair market value if
the optionee makes a payment to the Company (including payment made by means
of a salary reduction agreement) of no less than the excess (above 15%) of
the discount from fair market value exercise price. The granted options may
be either incentive stock options which are designed to meet the
requirements of Section 422 of the Internal Revenue Code or nonstatutory
options not intended to satisfy such requirements.
. The "Stock Issuance Program" under which eligible individuals will be
allowed to effect immediate purchases of Common Stock at the fair market
value of each such share, or at discounts of up to 15% (or, under certain
conditions, more) from the fair market value of any such share, including
shares which may be issued in consideration for past services without any
cash payment required of the participant.
. The "Automatic Grant Program," under which an option grant will be made to
each individual upon first joining the Board of Directors as a nonemployee
member and subsequent annual automatic option grants will be made to each
individual who is re-elected as a nonemployee director of Synbiotics.
As of March 31, 1999, approximately 135 officers and employees were eligible
to participate in the Discretionary Grant Program and the Stock Issuance
Program. There are currently six nonemployee directors standing for re-election
who will be eligible to receive automatic grants under the Automatic Grant
Program.
Plan Administration
Option grants under the Discretionary Grant Program and stock issuances under
the Stock Issuance Program are to be made by the Board or by a committee of two
or more nonemployee Board members or, as to discretionary option grants to any
person other than directors, officers or 10% stockholders, by a committee of
any two or more directors (the "Plan Administrator"). The selected committee
members serve for such period of time as the Board may determine and will be
subject to removal by the Board at any time.
The Plan Administrator has the sole and exclusive authority, subject to the
provisions of the 1995 Plan, to determine the eligible individuals who are to
receive options under the Discretionary Grant Program or the Stock Issuance
Program, the number of shares to be covered by each granted option or issuance,
the date or dates on which the option is to become exercisable and the maximum
term for which the option is to remain outstanding. The Plan Administrator has
the authority to determine whether the granted option is to be an incentive
stock option ("Incentive Option") under the Federal tax laws and to establish
rules and regulations for proper plan administration. Options grants under the
Automatic Grant Program are made in strict compliance with the express
provisions of that program, and the Plan Administrator does not have any
discretionary authority with respect to those option grants.
Effect on Prior Plans
The 1995 Plan replaced and serves as the successor to the Prior Plans and the
1996 Stock Option Plan (the "Expanded Prior Plans"). No further option grants
will be made under the Expanded Prior Plans and all options outstanding under
the Expanded Prior Plans have been incorporated into the 1995 Plan and treated
as outstanding options under the 1995 Plan. However, each outstanding option so
incorporated shall continue to be governed solely by the terms of the documents
evidencing such option. No provision of the 1995 Plan adversely affects or
diminishes the rights or obligations of the optionees of the incorporated
options. Subject to the rights of the optionee under the incorporated option
documents, the Plan Administrator's discretion under the 1995 Plan may be
exercised with respect to incorporated options to the same extent as it is
exercisable with respect to options originally granted under the 1995 Plan.
11
The Amendment would make the 1998 Stock Option Plan an Expanded Prior Plan.
Issuable Shares
The maximum number of shares of Common Stock reserved for issuance over the
10 year term of the 1995 Plan, measured from the Effective Date of the 1995
Plan can not exceed 2,000,000 shares. The Amendment would increase that maximum
number to 2,752,565. Such authorized share reserve is comprised of (i) the
number of shares that remained available for issuance under the Expanded Prior
Plans, including the shares subject to the outstanding options incorporated
into the 1995 Plan and any other shares that would have been available for
future option grant or share issuance under the Expanded Prior Plans, and (ii)
an additional 600,000 shares (which would become a total of 1,332,055 shares if
the Amendment is approved). The share reserve available for issuance under the
1995 Plan will be subject to periodic adjustment for changes in Synbiotics'
Common Stock occasioned by stock splits, stock dividends, recapitalizations,
conversions or other changes affecting the outstanding Common Stock as a class
without Synbiotics' receipt of consideration. To the extent any of the
incorporated options are subsequently exercised, the number of shares issued
under those options will reduce, on a share-for-share basis, the number of
shares available for issuance under the 1995 Plan.
Should an option expire or terminate for any reason prior to exercise in full
(including options canceled in accordance with the cancellation-regrant
provisions described below), the shares subject to the portion of the option
not so exercised will be available for subsequent option grants or share
issuances under the 1995 Plan. All shares issued under the 1995 Plan, whether
or not such shares are subsequently reacquired by Synbiotics pursuant to its
repurchase rights under the 1995 Plan, will reduce on a share-for-share basis
the number of shares of Common Stock available for subsequent grants.
No more than 800,000 shares may be granted to any one optionee over the
lifetime of the 1995 Plan.
Terms of Discretionary Grant Program
Option Price and Term. No option will have a term in excess of 10 years
measured from the grant date. The option price per share for incentive stock
options will not be less than 100% of the fair market value of each share of
Synbiotics Common Stock issuable under the option on the grant date of such
option. The option price per share for nonstatutory stock options may not be
less than 85% of the fair market value per share of each share of Synbiotics
Common Stock issuable under the option on the grant date of such option;
provided, that nonstatutory options may be granted having an exercise price
below 85% of fair market value if the optionee makes a payment to the Company
(including payment made by means of a salary reduction agreement) of no less
than the excess (above 15%) of the discount from fair market value exercise
price.
Valuation. For purposes of establishing the option exercise price for
Synbiotics Common Stock, the "Fair Market Value" per share of the stock on any
relevant date will be the closing selling price per share on such date, as
quoted on the Nasdaq National Market. If there is no reported selling price for
such date, then the closing selling price for the last previous date for which
such quotation exists will be determinative of Fair Market Value.
Vesting of Options. The vesting schedule for each granted option will be
determined by the Plan Administrator and will be set forth in the instrument
evidencing such grant. The granted option may be (i) immediately exercisable
for vested shares, (ii) immediately exercisable for unvested shares subject to
Synbiotics' repurchase rights or (iii) exercisable in installments for vested
shares over the optionee's period of service.
Payment. Upon exercise of the option, the option price for the purchased
shares will become immediately payable in cash or in shares of common stock
valued at fair market value on the date of exercise. The option my also be
exercised through a cashless exercise procedure pursuant to which the optionee
provides irrevocable written instructions to a designated brokerage firm to
effect the immediate sale of the purchased shares and remit to Synbiotics, out
of the said proceeds, an amount equal to the aggregate option price payable for
the purchased
12
shares plus all applicable withholding taxes. The Plan Administrator may assist
any optionee (including a director or an officer) in the exercise of one or
more outstanding options under the 1995 Plan by (i) authorizing a loan from
Synbiotics or (ii) permitting the optionee to pay the option price in
installments over a period of years. The term and conditions of any such loan
or installment payment will be established by the Plan Administrator in its
sole discretion, but in no event will the maximum credit extended to the
optionee exceed the aggregate option price for the purchased shares plus any
Federal or State tax liability incurred in connection with the option exercise.
Termination of Service. Should the optionee cease to remain in Synbiotics'
service while holding one or more options under the 1995 Plan, then those
options will not remain exercisable beyond the limited post-service period
designated by the Plan Administrator at the time of the option grant (subject
to certain minimum post-service periods). Under no circumstances, however, may
any option be exercised after the specified expiration date of the option term.
Each such option will, during the period it remains exercisable, be exercisable
for the number of shares for which the option was exercisable on the date of
the optionee's cessation of service.
Should the optionee die while holding one or more outstanding options, then
the personal representative of the optionee's estate or the person or persons
to whom each such option is transferred pursuant to the optionee's will or in
accordance with the laws of inheritance will have the right to exercise such
option for any or all of the shares for which the option is exercisable on the
date of the optionee's cessation of service, less any option shares
subsequently purchased by the optionee prior to death. Such right will lapse,
and the option will terminate, upon the earlier of (i) the end of the limited
post-service period designated by the Plan Administrator at the time of the
option grant or (ii) the specified expiration date of the option term.
The Plan Administrator will have complete discretion to extend the period
following the optionee's termination of service during which his or her
outstanding options may be exercised and/or to accelerate the exercisability of
such options in whole or in part. Such discretion may be exercised at any time
while the options remain outstanding, whether before or after the optionee's
actual cessation of service.
Corporate Transaction. Except to the extent otherwise provided in the option
documents, each option share will become fully vested in the event of certain
Corporate Transactions unless the option is assumed or is replaced with a cash
incentive program which preserves the material benefits of the options. Upon
consummation of the Corporate Transaction all options which are not assumed
will be canceled and cease to exist. The options or cash incentive programs
which replace any options which do not accelerate will provide for full vesting
in the event of involuntary termination of employment within 18 months
following the Corporate Transaction.
For purposes of the above, a Corporate Transaction includes (i) a merger or
consolidation in which Synbiotics is not the surviving entity (except for a
transaction the principal purpose of which is to change the State of
incorporation), (ii) the sale, transfer or other disposition of all or
substantially all of the assets of Synbiotics, or (iii) any reverse merger in
which Synbiotics is the surviving entity but in which securities possessing
more than fifty percent (50%) of the total combined voting power of Synbiotics
are transferred to holders different from those who held Synbiotics' securities
immediately prior to such merger.
Shareholder Rights and Option Assignability. No optionee is to have any
shareholder rights with respect to the option shares until such optionee has
exercised the option, paid the option price for the purchased shares and been
issued a stock certificate for such shares. Unless the Plan Administrator
expressly approves in writing, options are not assignable or transferable other
than by will or by the laws of inheritance following the optionee's death, and
the option may, during the optionee's lifetime, be exercised only by the
optionee.
Cancellation/Regrant. The Plan Administrator has the authority to effect, on
one or more separate occasions, the cancellation of outstanding options under
the Discretionary Grant Program which have exercise prices in excess of the
then current market price of the Common Stock and to issue replacement options
with an exercise price based on the lower market price of the Common Stock at
the time of grant.
13
Terms of Stock Issuance Program
Issue Price. The purchase price per share will not be less than 85% of the
fair market value of a share of Synbiotics Common Stock on the date the Plan
Administrator authorizes the issuance.
Vesting of shares. The vesting schedule for each share issued will be
determined by the Plan Administrator and set forth in the issuance agreement.
The shares may be fully and immediately vested upon issuance or may vest in one
or more installments, subject to Synbiotics' repurchase right, over the
participant's period of service.
Shareholder Rights. The recipient of the share issuance will have full
shareholder rights, including voting and dividend rights, with respect to the
issued shares, whether or not the shares are vested. However, the recipient may
not sell, transfer or assign any unvested shares issued under the 1995 Plan
except for certain limited family transfers.
Repurchase Rights. Should the recipient of unvested shares cease to remain in
Synbiotics' service before vesting in such shares, then those unvested shares
are to be immediately surrendered to Synbiotics for cancellation, and the
recipient will have no further stockholder rights with respect to those shares.
To the extent the surrendered shares were previously issued to the recipient
for consideration paid in cash or promissory note, Synbiotics will refund the
cash consideration paid for the surrendered shares and cancel the principal
balance of the note to the extent attributable to such surrendered shares.
Payment. Upon issuance of the shares, the issue price for the purchased
shares will become immediately payable in cash or (upon Plan Administrator
approval) by promissory note payable to Synbiotics' order. The promissory note
may, at the discretion of the Plan Administrator, be subject to cancellation
over the participant's period of service. Shares may also be issued for past
services, without any cash or other payment required of the participant.
Corporate Transaction. Except to the extent otherwise provided in the stock
issuance documents, all repurchase rights will terminate and each share will
become fully vested in the event of a Corporate Transaction (as defined above)
unless the repurchase rights are assigned to the successor corporation.
Following consummation of the Corporate Transaction, all repurchase rights
which are not assigned to the successor will terminate and cease to exist. The
assigned purchase rights will terminate and cease to exist in the event of
involuntary termination of employment within 18 months following the Corporate
Transaction.
Terms of Automatic Grant Program
Each individual who first becomes a nonemployee Board member, whether through
election by the stockholders or appointment by the Synbiotics Board, and who
was not otherwise in the prior employ of Synbiotics is automatically granted,
at the time of such initial election or appointment, a non-statutory stock
option to purchase 7,000 shares of Synbiotics Common Stock. Further, at each
annual Stockholders Meeting, each individual who is at that time reelected as a
nonemployee Board member is automatically granted a nonstatutory stock option
under the Automatic Grant Program to purchase an additional 7,000 shares of
Synbiotics Common Stock. There is no limit on the number of such 7,000-share
option grants the nonemployee Synbiotics Board member may receive over his or
her period of Board service.
Each such option grant is subject to the following terms and conditions:
(i) The option price per share is equal to 100% of the Fair Market Value per
share of Common Stock on the grant date.
(ii) Each option has a term of 10 years measured from the grant date.
(iii) Each automatic grant is immediately exercisable in full, provided that
any shares issued upon the exercise of an automatic option grant shall
be subject to repurchase at the option exercise price if the Board
member ceases to be in service prior to the vesting of such shares.
14
(iv) The shares vest in four equal quarterly installments over the optionee's
period of service following the automatic option grant.
(v) The options remain exercisable during the remainder of their term
following the optionee's cessation of Synbiotics Board membership for any
reason, provided that the option shall be exercisable following the
termination of service only with respect to the shares which were vested
as of such termination of service date. Should the optionee die while any
option is still exercisable, then such option may be exercised by the
personal representative of the optionee's estate or the person to whom
the grant is transferred by the optionee's will or the laws of
inheritance.
(vi) The remaining terms and conditions of the option in general conform to
the terms described above for option grants made under the Discretionary
Grant Program and are incorporated into the option agreement evidencing
the automatic grant.
Each option share will become fully vested in the event of a Corporate
Transaction (as defined above). Upon consummation of the Corporate Transaction,
all options will be canceled and cease to exist.
Changes in Capitalization
In the event any change is made to the Common Stock issuable under the 1995
Plan by reason of any recapitalization, stock dividend, stock split,
combination of shares, exchange of shares, or other change in corporate
structure effected without Synbiotics' receipt of consideration, appropriate
adjustments will be made to (i) the maximum number and/or class of securities
issuable under the 1995 Plan, (ii) the number and/or class of securities and
price per share in effect under each outstanding option (including all
discretionary and automatic option grants under the 1995 Plan and all option
grants incorporated from the Expanded Prior Plans), and (iii) the number and/or
class of securities per nonemployee member of the Board for which option grants
will subsequently be made under the Automatic Grant Program.
Each outstanding option which is assumed or is otherwise to continue in
effect after a Corporate Transaction win be appropriately adjusted to apply and
pertain to the number and class of securities which would have been issuable,
in connection with such Corporate Transaction, to an actual holder of the same
number of shares of Synbiotics Common Stock as are subject to such option
immediately prior to such Corporate Transaction. Appropriate adjustments will
also be made to the option price payable per share and to the number and class
of securities available for issuance under the 1995 Plan.
Option grants under the 1995 Plan will not affect the right of Synbiotics to
adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.
Special Tax Withholding Election
The Plan Administrator may provide one or more participants in the 1995 Plan
with the election to have Synbiotics withhold, from the shares of Common Stock
otherwise issuable upon the exercise of non-qualified options or the vesting of
unvested shares, a portion of those shares in satisfaction of the tax liability
incurred in connection with their acquisition or vesting. Any election so made
will be subject to the approval of the Plan Administrator, and no shares will
be accepted in satisfaction of such tax liability except to the extent the Plan
Administrator approves the election. Alternatively, one or more participants
may be granted the right, subject to Plan Administrator approval, to deliver
existing shares of Common Stock in satisfaction of such tax liability. The
withheld or delivered shares will be valued at their then current fair market
value.
Amendment and Termination
The Board of Directors may amend or modify the 1995 Plan in any or all
respects whatsoever. However, no such amendment may adversely affect the rights
of existing optionees without their consent and unless
15
otherwise necessary to comply with applicable tax laws and regulations. In
addition, shareholder approval of and amendment or modification of the 1995
Plan must be obtained if it is required by law or regulation or, in a
particular instance, by a Board of Directors decision that shareholder approval
should be required.
The Board may terminate the 1995 Plan at any time, and the 1995 Plan will in
all events terminate on April 25, 2005. Each stock option outstanding at the
time of such termination will remain in force in accordance with the provisions
of the instruments evidencing such grant.
Federal Tax Consequences
Options granted under the 1995 Plan may be either incentive stock options
which satisfy the requirements of Section 422 of the Internal Revenue Code or
non-qualified options which are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as described
below:
Incentive Options. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. The optionee will, however, recognize income for
alternative minimum tax purposes in the year the option is exercised and
regular taxable income in the year in which the purchased shares are sold or
otherwise made the subject of disposition.
For Federal tax purposes, dispositions are divided into two categories: (i)
qualifying and (ii) disqualifying. The optionee will make a qualifying
disposition of the purchased shares if the sale or other disposition of such
shares is made after the optionee has held the shares for more than two years
after the grant date of the option and more than one year after the exercise
date. If the optionee fails to satisfy either of these two holding periods
prior to the sale or other disposition of the purchased shares, then a
disqualifying disposition will result.
Upon a qualifying disposition of the shares, the optionee will recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over
(ii) the exercise price paid for such shares. If there is a disqualifying
disposition of the shares, then the excess of (i) the fair market value of
those shares on the date the option was exercised over (ii) the exercise price
paid for the shares will be taxable as ordinary income. Any additional gain
recognized upon the disposition will be a capital gain.
If the optionee makes a disqualifying disposition of the purchased shares,
then Synbiotics will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the date the option was exercised over (ii) the
exercise price paid for the shares. In no other instance will Synbiotics be
allowed a deduction with respect to the optionee's disposition of the purchased
shares.
Non-qualified Options. No taxable income is recognized by an optionee upon
the grant of a non-qualified option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the date of exercise
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
Special provisions of the Internal Revenue Code apply to the acquisition of
Common Stock under a non-qualified option, if the purchased shares are subject
to repurchase by Synbiotics. These special provisions may be summarized as
follows:
A. If the shares acquired upon exercise of the non-qualified option are subject
to repurchase by Synbiotics at the original exercise price in the event of
the optionee's termination of service prior to vesting in such shares, the
optionee will not recognize any taxable income at the time of exercise but
will have to report as ordinary income, as and when Synbiotics' repurchase
right lapses, an amount equal to the excess of (i) the fair market value of
the shares on the date Synbiotics' repurchase right lapses with respect to
such shares over (ii) the exercise price paid for the shares.
16
B. The optionee may, however, elect under Section 83(b) of the Internal Revenue
Code to include as ordinary income in the year of exercise of the non-
qualified option an amount equal to the excess of (i) the fair market value
of the purchased shares on the date of exercise (determined as if the shares
were not subject to Synbiotics' repurchase right) over (ii) the exercise
price paid for such shares. If the Section 83(b) election is made, the
optionee will not recognize any additional income as and when the
Synbiotics' repurchase right lapses.
Synbiotics will be entitled to a business expense deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised non-qualified option. The deduction will in general be allowed for
the taxable year of Synbiotics in which such ordinary income is recognized by
the optionee.
Direct Stock Issuances. The tax consequences of individuals who receive
direct stock issuances under the 1995 Plan will be substantially the same as
the treatment described above for the exercise of non-qualified stock options.
Accounting Treatment
Option grants with exercise prices less than the fair market value of the
option shares on the grant date and direct stock issuances at purchase prices
less than the fair market value of the issued shares will result in a
compensation expense charge to Synbiotics' earnings equal to the difference
between such exercise or purchase prices and the fair market value of the
shares on the option grant date or (for direct stock issuances) the fair market
value on the issue date. Such expense will be accrued by Synbiotics over the
period the optionee or share recipient vests in the option shares or directly-
issued shares. Option grants and direct stock issuances at 100% of fair market
value will not result in any charge to Synbiotics' earnings. Whether or not
granted at a discount, the number of outstanding options may be a factor in
determining Synbiotics' earnings per share.
THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE AMENDMENT TO THE 1995 STOCK
OPTION/STOCK ISSUANCE PLAN (ITEM 2 ON THE PROXY CARD). Approval will require
the affirmative vote of a majority of those shares which are present or
represented at the Meeting. Abstentions will have the same effect as votes
against approval of the Amendment of the 1995 Plan. Broker non-votes will,
assuming the shares are represented at the Meeting for any purpose, have the
same effect as votes against approval of the Amendment of the 1995 Plan; but if
the shares are entirely not represented at the Meeting the broker non-votes
will have no effect on the proposal to approve the Amendment of the 1995 Plan.
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities, to file reports of ownership and changes in
ownership of the Company's equity securities with the Securities and Exchange
Commission. Officers, directors and greater than 10% shareholders are required
by SEC regulations to furnish the Company with copies of all Section 16(a)
forms they file.
Based solely on its review of the copies of such forms furnished to the
Company, or written representations that no Forms 5 were required, the Company
believes that during the fiscal year ended December 31, 1998, all Section 16(a)
filing requirements applicable to its officers, directors and greater than 10%
beneficial owners were complied with.
17
SHAREHOLDER PROPOSALS
To be included in the Company's proxy materials for the Annual Meeting of
Shareholders to be held in 1999, a shareholder proposal must be received at the
offices of the Company, 11011 Via Frontera, San Diego, CA 92127, not later than
January 7, 2000.
OTHER MATTERS
PricewaterhouseCoopers LLP has served as the independent accountants of the
Company for a number of years. Although management anticipates that this
relationship will continue to be maintained during fiscal 1999, as in previous
years, it is not proposed that any formal action be taken at the Annual Meeting
with respect to the continued employment of PricewaterhouseCoopers LLP.
Representatives of PricewaterhouseCoopers LLP are expected to be present at the
Company's Annual Meeting with the opportunity to make a statement if they
desire to do so and they are expected to be available to respond to appropriate
questions.
The Board of Directors, at this time, knows of no other business which will
be presented to the meeting. If any other business is properly brought before
the meeting, it is intended that the proxies in the enclosed form will be voted
in respect thereof in accordance with the judgment of the persons voting the
proxies.
The Company's Annual Report, including the Company's audited financial
statements for the fiscal year ended December 31, 1998, is being mailed
herewith to all shareholders of record. THE COMPANY WILL PROVIDE WITHOUT CHARGE
TO ANY BENEFICIAL OWNER OF COMMON STOCK ON APRIL 16, 1999, UPON THE WRITTEN
REQUEST OF ANY SUCH PERSON, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-
KSB FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION. SUCH REQUESTS SHOULD BE DIRECTED TO MICHAEL K. GREEN, VICE
PRESIDENT - FINANCE OF THE COMPANY, AT 11011 VIA FRONTERA, SAN DIEGO, CA 92127.
Whether you intend to be present at this meeting or not, you are urged to
return your proxy promptly.
By order of the Board of Directors
Michael K. Green
Secretary
18
COMMON STOCK PROXY SYNBIOTICS CORPORATION COMMON STOCK PROXY
11011 VIA FRONTERA, SAN DIEGO, CALIFORNIA 92127
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Kenneth M. Cohen and Michael K. Green, jointly
and severally, as proxyholders, each with full power to appoint his substitute,
and hereby authorizes them to vote as designated below, all the shares of Common
Stock of Synbiotics Corporation held of record by the undersigned at the close
of business on April 16, 1999, at the Annual Meeting of Shareholders to be held
on June 9, 1999, or any postponement or adjournment thereof, and to vote in
their discretion on such other business as may come before the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
1. ELECTION OF DIRECTORS.
[_] FOR all nominees listed below (except as marked to the contrary below)
[_] WITHHOLD AUTHORITY to vote for all nominees listed below
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
CHECK THE BOX "FOR" AND STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST
BELOW.)
Nominees: Patrick Owen Burns, Kenneth M. Cohen, James C. DeCesare, Brenda
D. Gavin, M. Blake Ingle, Joseph Klein III, Donald E. Phillips
2. APPROVAL OF THE AMENDMENT OF THE 1995 STOCK OPTION/STOCK ISSUANCE PLAN.
[_] FOR [_] AGAINST [_] ABSTAIN
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER AND WILL BE VOTED BY THE PROXYHOLDERS AT THEIR
DISCRETION AS TO ANY OTHER MATTERS PROPERLY TRANSACTED AT THE ANNUAL MEETING.
IF THIS PROXY IS PROPERLY EXECUTED AND NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 AND 2.
Dated: ______________ , 1999
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(Shareholder's Signature)
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(Shareholder's Signature)
Please sign exactly as your name appears on this Proxy. If signing for trusts,
estates, partnerships, or corporations, title or capacity should be stated. If
shares are held jointly, each holder should sign.
PLEASE CHECK HERE IF YOU PLAN TO ATTEND THE ANNUAL MEETING. [_]