SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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DIANON Systems, Inc.
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(Name of Registrant as Specified In Its Charter)
DIANON Systems, Inc.
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(Name of Person(s) Filing Proxy Statement)
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[X] No fee required.
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DIANON SYSTEMS, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OCTOBER 29, 1998
The Annual Meeting of the shareholders of DIANON Systems, Inc. (the
"Company") will be held at the Company's corporate headquarters at 200 Watson
Boulevard, Stratford, Connecticut, on Thursday, October 29, 1998, at 10:00 A.M.,
for the following purposes:
(1) To elect directors for the ensuing year;
(2) To ratify the appointment of Arthur Andersen, LLP as the
independent public accountants of the Company for the calendar
year ended December 31, 1998; and
(3) To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
Only shareholders of record at the close of business on September 18, 1998
will be entitled to vote at the Annual Meeting. A list of shareholders eligible
to vote at the Annual Meeting will be available for inspection at the Annual
Meeting and during business hours from October 19, 1998 to the date of the
Annual Meeting at the Company's corporate headquarters.
Whether you expect to attend the Annual Meeting or not, your proxy vote is
important. To assure your representation at the meeting, please sign and date
the enclosed proxy card and return it promptly in the enclosed envelope, which
requires no additional postage if mailed in the United States or Canada.
By Order of the Board of Directors
David R. Schreiber
Corporate Secretary
200 Watson Boulevard
Stratford, Connecticut 06615
September 30, 1998
IT IS IMPORTANT THAT THE ENCLOSED PROXY CARD BE COMPLETED
AND RETURNED PROMPTLY
DIANON SYSTEMS, INC.
PROXY STATEMENT
September 30, 1998
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of DIANON Systems, Inc. ("DIANON" or the
"Company") for use at the Annual Meeting of its shareholders to be held at the
Company's corporate headquarters at 200 Watson Boulevard, Stratford, Connecticut
on Thursday, October 29, 1998, at 10:00 A.M.
Shares cannot be voted at the Annual Meeting unless the owner thereof is
present in person or by proxy. All properly executed and unrevoked proxies in
the accompanying form that are received in time for the Annual Meeting will be
voted at the Annual Meeting or any adjournment thereof in accordance with any
specification thereon, or if no specification is made, will be voted "FOR" the
election of the named director nominees and approval of the other proposal set
forth in the Notice of Annual Meeting of Shareholders of the Company. The Board
of Directors of the Company knows of no other matters which may be brought
before the Annual Meeting. However, if any other matters are properly presented
for action, it is the intention of the named proxies to vote on them according
to their best judgment. Any person giving a proxy may revoke it by written
notice to the Company at any time prior to exercise of the proxy. In addition,
although mere attendance at the Annual Meeting will not revoke the proxy, a
person present at the Annual Meeting may withdraw his or her proxy and vote in
person. Rights of appraisal or similar rights of dissenters are not available to
shareholders of the Company with respect to any matter to be acted upon at the
Annual Meeting.
The Annual Report on form 10-K of the Company (which does not form a part
of these proxy solicitation materials), as filed with the Securities Exchange
Commission and including the financial statements of the Company, is enclosed
herewith.
The mailing address of the principal executive office of the Company is 200
Watson Boulevard, Stratford, Connecticut 06615. This Proxy Statement and the
accompanying form of proxy are expected to be mailed to the shareholders of the
Company on or about September 30, 1998.
VOTING SECURITIES
The Company has only one class of voting securities outstanding, its Common
Stock, par value $0.01 per share (the "Common Stock"). On September 18, 1998,
6,780,851 shares of Common Stock were outstanding. At the Annual Meeting, each
shareholder of record at the close of business on September 18, 1998, will be
entitled to one vote for each share of Common Stock owned on that date as to
each matter presented at the Annual Meeting.
ELECTION OF DIRECTORS
Unless otherwise directed, the persons named in the accompanying form of
proxy intend to vote at the Annual Meeting "FOR" the election of the nominees
named below as directors of the Company to serve until the next Annual Meeting
and until their successors are duly elected and qualified. The Board of
Directors recommends that shareholders vote "FOR" the election of such nominees.
If any nominee is unable to stand for election when the election takes
place, the shares represented by valid proxies will be voted in favor of the
remaining nominees and for such person, if any, as shall be designated by the
present Board of Directors to replace such nominee. The Board of Directors does
not presently anticipate that any nominee will be unable to stand for election.
Information Concerning Directors and Nominees
The following information with respect to the principal occupation or
employment, other affiliations and business experience of each nominee during
the last five years has been furnished to the Company by such nominee. Except as
indicated, each of the nominees has had the same principal occupation for the
last five years. All of the nominees are currently directors of the Company.
Kevin C. Johnson, age 43, a Director since May 1996, is President and Chief
Executive Officer of the Company. Mr. Johnson joined Dianon as President in May
1996, and was appointed to the additional position of Chief Executive Officer in
February 1997. Formerly, Mr. Johnson was with Corning Inc., a manufacturer of
specialty materials and a provider of laboratory services, for eighteen years,
serving most recently as Vice President and General Manager of Corning Clinical
Laboratories' Eastern region in Teterboro, New Jersey.
John P. Davis, age 56, a Director since 1984, was President and Chief
Executive Officer of Infant Advantage, Inc., a child development company, from
December 1997 through June 1998. From May 1995 through December 1997, Mr. Davis
was President and Chief Executive Officer of Calypte Biomedical Corp., a
diagnostic products company. From 1984 to January 1995, Mr. Davis was an officer
of the Company. Mr. Davis joined the Company in January 1984 as President and
Chief Operating Officer, and subsequently became co-Chief Executive Officer in
1992 and Chief Executive Officer in 1994. In January 1995, Mr. Davis resigned as
Chief Executive Officer of the Company and became Vice Chairman of the Board. In
February 1997, Mr. Davis was elected non-executive Chairman of the Board. Mr.
Davis also serves as Chairman of the Board of CytoLogix, Inc.
James B. Amberson, age 47, a Director since January 1995, is Senior Vice
President and Chief Medical Officer of the Company. Dr. Amberson joined Dianon
in 1989 as Director, Cytometry Business Unit, and has served as Vice President
of Pathology Services, Vice President of Medical Affairs and Senior Vice
President and General Manager of the Anatomic Pathology Unit before his present
position. Prior to joining the Company, Dr. Amberson was Assistant Professor of
Pathology, Cornell University Medical College for six years. Dr. Amberson holds
an MD from Johns Hopkins University and an MBA from Columbia University School
of Business.
Bruce K. Crowther, age 46, a Director since December 1997, is President and
Chief Executive Officer of Northwest Community Healthcare, Northwest Community
Hospital, in Arlington Heights, Illinois and certain of its affiliates. Mr.
Crowther is a Fellow of the American College of Healthcare Executives, Chairman
of the Board of the Illinois Hospital and HealthSystems Association and serves
on the Board of both Chicago Hospital Risk Pooling Program and Barrington Bank
and Trust. Mr. Crowther received an MBA from Virginia Commonwealth University
Medical College in Richmond, VA.
E. Timothy Geary, age 46, a Director since June 1997, had been Chairman,
President and Chief Executive Officer of National Surgery Centers, Inc. of
Chicago, Illinois, the leading independent owner and operator of ambulatory
surgery centers in the country, until its acquisition by HealthSouth Corporation
on July 22, 1998. Prior to founding National Surgery Centers in 1987, Mr. Geary
served as a Vice President with Medical Care International. Mr. Geary is a
member of the Board of Directors of the Federated Ambulatory Surgery
Association. Mr. Geary holds an MBA and BA from the University of Chicago.
G. S. Beckwith Gilbert, age 56, a Director since October 1995, is
President, Chief Executive Officer and a Director of Field Point Capital
Management Company in Greenwich, Connecticut, a merchant banking firm. Mr.
Gilbert is also a partner of Wolsey & Co., a merchant banking firm. In addition,
Mr. Gilbert is Chairman of the Board and a Director of Megadata Corporation as
well as a Director of Davidson Hubeny Brands, Inc., Kionix, Inc. and
Transgenomic, Inc. Mr. Gilbert is a graduate of Princeton University and holds
an MBA from New York University. In February 1997, the Board elected Mr. Gilbert
Chairman of the Executive Committee.
Jeffrey L. Sklar, age 50, a Director since 1994, is Professor of Pathology,
Harvard Medical School, and Director, Divisions of Diagnostic Molecular Biology
and of Molecular Oncology, Department of Pathology, Brigham and Women's
Hospital. Dr. Sklar has served on numerous editorial boards and has consulted
widely to the biotechnology industry. In addition, Dr. Sklar serves on the
Scientific Advisory Committee for Clinical Science, The Fred Hutchinson Cancer
Center, Seattle, Washington; the Scientific Advisory Committee, New England
Primate Research Center, Harvard University; the External Review Committee,
Dana-Farber Cancer Institute, Boston, and the Pathology B Study Section,
National Institutes of Health. Dr. Sklar also serves as a Director of
Transgenomic, Inc. and holds an MD and Ph.D. from Yale University and an MA
(honorary) from Harvard University.
Committees of the Board
The Company's Board of Directors presently has standing Audit,
Compensation, and Executive Committees, the current membership and principal
responsibilities of which are described below. The Board of Directors does not
have a Nominating Committee.
Audit Committee
Members: Mr. Davis and Mr. Gilbert
The Audit Committee's functions include reviewing with the independent
public accountants the plan for and results of their audit, the adequacy of the
Company's systems of internal accounting controls and any material breakdown in
such controls. In addition, the Audit Committee reviews the independence of the
independent public accountants and their fees for services rendered to the
Company.
Compensation Committee
Members: Mr. Davis, Mr. Gilbert and Dr. Sklar
The Compensation Committee's functions include setting compensation of the
directors and the executive officers. In addition, the Compensation Committee
has the authority to grant certain awards under the 1991 and 1996 Stock
Incentive Plans.
Executive Committee
Members: Mr. Gilbert, Mr. Davis and Mr. Johnson
The Executive Committee's primary function is to assist management in
formulating the Company's long-term strategy. Mr. Gilbert serves as Chairman of
the Executive Committee.
Attendance at Board and Committee Meetings
During the 1997 fiscal year the Board of Directors held five regular
meetings and one special meeting. In addition, the Audit Committee met three
times, the Compensation Committee met once and the Executive Committee met five
times. During such fiscal year each director attended at least 75% of the
aggregate of (i) the regular and special meetings of the Board and (ii) the
meetings of the committees of the Board on which such director served.
Compensation of Directors
Directors who are not employees of the Company are paid $1,500 for each
meeting of the Board of Directors attended in person and $500 for each meeting
attended by telephone. In addition, committee members are paid $500 for each
committee meeting attended which does not occur on the same day as a Board
meeting. Directors are also reimbursed for expenses to attend meetings of the
Board and its committees. In addition, the Company has made payments to Brigham
& Women's Hospital, Inc., for which Dr. Sklar is director, Division of
Diagnostic Molecular Biology, Department of Pathology. See "Compensation
Committee Interlocks and Insider Participation."
Commencing January 1, 1998, Mr. Davis and Mr. Gilbert, in connection with
their capacities as non-Executive Chairman of the Board and Chairman of the
Executive Committee, respectively, also receive $50,000 annually (payable
monthly at $4,166) and an annual grant of 3,000 stock options, at a price equal
to the market value on the date of grant, pursuant to the Company's 1996 Stock
Incentive Plan. They each also received a one-time grant of 13,000 stock options
in December 1997 pursuant to this same plan, in connection with their services
in the aforementioned positions during 1997.
Pursuant to the Company's 1996 Stock Incentive Plan, Directors who are not
employees of the Company receive (i) automatic initial and quarterly grants of
stock options with tandem limited stock appreciation rights beginning July 1995,
(ii) automatic quarterly grants of shares of Common Stock beginning January 1997
and (iii) additional stock options or other awards to the extent granted by the
Board of Directors in its discretion.
Each initial and quarterly stock option which is automatically granted
under such plan is exercisable for that number of shares obtained by dividing
$5,000 by the closing price of the Common Stock on the date of grant and is
exercisable at that price. Each such option has a 10-year term and vests with
respect to 10% of the underlying shares on the date which is three months after
the date of grant, and an additional 10% at the end of each three-month period
thereafter. Each such option can be exercised for five years following a
director's termination of service to the extent it had vested prior to
termination. Each automatic quarterly stock grant is for the number of shares
obtained by dividing $2,000 by the closing price of the Common Stock on the date
of grant, and is fully vested at grant.
In November 1996, pursuant to authorization by the Board of Directors, the
Company granted to Dr. Sklar an option to purchase 10,000 shares of Common Stock
at an exercise price of $6.375 to compensate him for his services as a Director.
Such option vests 40% on grant, and an additional 20% on each of August 4, 1997,
August 4, 1998 and August 4, 1999. Such grant is a replacement of an option to
purchase 10,000 shares of Common Stock authorized by the Board in 1994, but not
accepted by Dr. Sklar at that time due to the conditions of his employment by
Brigham & Women's Hospital, Inc.
Mr. Johnson and Dr. Amberson, who are employees of the Company, receive no
additional compensation for their services as Directors of the Company.
Voting for Directors
Abstentions are included in the determination of the existence of a quorum.
Directors are elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote on the
election of directors. An automated system administered by the Company's
transfer agent tabulates the votes. Abstentions are not counted for purposes of
election of directors.
EXECUTIVE OFFICERS
For information with respect to Mr. Johnson and Dr. Amberson, who are also
Directors, see "Election of Directors - Information Concerning Directors and
Nominees."
Steven T. Clayton, age 32, has served as Vice President, Information
Services since he joined the Company in December 1996. Prior to joining the
Company, Mr. Clayton was with Corning Clinical Laboratories for nine years
serving most recently as the Midwest Regional Director of Information Systems.
Mr. Clayton holds an ASM from Thomas Edison State College.
John S. Fanuko, age 39, has served as Vice President, Finance and Corporate
Controller since January 1998 when he joined the Company. Formerly, Mr. Fanuko
was Senior Vice President and Chief Financial Officer of American Vision
Centers, Inc. from June 1994 through January 1998, and prior to that, a Senior
Manager at Ernst & Young LLP. Mr. Fanuko holds an MBA from New York University
and a BS from Manhattan College and is a Certified Public Accountant.
David R. Schreiber, age 38, has served as Senior Vice President, Finance,
Chief Financial Officer and Corporate Secretary since November 1996 when he
joined the Company. Formerly, Mr. Schreiber was with Corning Clinical
Laboratories, a provider of laboratory services, for 10 years, serving most
recently as Vice President and General Manager of the laboratory's Midwest
region. Mr. Schreiber holds an MBA from Northern Illinois University.
Martin J. Stefanelli, age 37, has served as Vice President, Laboratory
Operations since May 1997. Mr. Stefanelli joined the Company in January 1990 as
a Sales Representative and subsequently served as Logistics Manager, Marketing
Manager and Director of Operations, Anatomic Pathology. Before joining the
Company, Mr. Stefanelli was a captain in the U.S. Army. Mr. Stefanelli holds a
BS from the United States Military Academy.
EXECUTIVE COMPENSATION
Compensation Committee Report
The Compensation Committee of the Board of Directors of DIANON Systems,
Inc. (the "Committee") sets forth its report on executive compensation below.
This Committee report documents the components of the Company's executive
officer compensation programs and describes the basis on which 1997 compensation
determinations were made by the Committee with respect to the executive officers
of the Company, including the executive officers that are named in the
compensation tables below.
Compensation Program Components
The Committee is responsible for setting and monitoring the effectiveness
of the compensation provided to the Company's Directors and executive officers.
In its decision-making, the Committee is guided by a compensation philosophy
designed to reward employees for the achievement of business goals and the
maximization of shareholder returns. Specific levels of pay and incentive
opportunity are determined by the competitive market for executive talent and,
where appropriate, the need to invest in the future growth of the business. The
compensation program, which provides incentives for executive officers to
achieve the short-term and long-term goals of the Company, comprises three
components: base salary, incentive compensation and stock option awards.
Base Salary - Base pay levels are largely determined through comparisons
with service companies of similar size. Since the Company's current
strategy places greater reliance on outstanding professional and management
skills than on proprietary technology, the Company believes that base
salaries at the high end of the competitor range may be required in certain
circumstances to maintain the Company's strategic position. Actual salaries
are based on individual performance contributions within a tiered salary
range for each position that is established through job evaluation and
competitive comparisons.
Management Incentive Plan - The Company's Management Incentive Plan
provides cash bonus incentives ("Incentive Payments") for all management
employees. The bonus payment under this plan is based on a fixed percentage
of an employee's annual salary, which increases with the grade of an
employee's position from 10% to a maximum of 40%. This percentage of salary
is then adjusted to reflect the degree to which Company and individual
performance goals are achieved (respectively, the "Company Achievement
Percentage" and the "Individual Achievement Percentage") by multiplying the
employee's fixed bonus percentage by the Company Achievement Percentage and
by the Individual Achievement Percentage. The Company Achievement
Percentage is based on, among other things, sales and earnings per share
growth. The Individual Achievement Percentages for executive officers is
based upon the degree to which each officer met the individual goals set
for him/her, as evaluated by the CEO and Compensation Committee. The
maximum bonus attainable is limited to the prescribed salary percentage,
unless certain special Company sales and income goals are met. Achieving
these special "stretch" goals entitles participants to additional
compensation equal to 50% of the amount otherwise payable under the
Management Incentive Plan ("Extra Incentive Payout"). Actual awards are
subject to decrease or increase at the discretion of the Committee.
Stock Option Program - The Committee strongly believes that by providing
executives an opportunity to own shares of Company stock, the best
interests of shareholders and executives will be closely aligned.
Therefore, all executives are eligible to receive stock options from time
to time giving them the right to purchase shares of Common Stock of the
Company at a specific price in the future. The number of stock options
granted to executive officers is determined at the discretion of the
Committee based on the accomplishments of such executives, their length of
service with the Company, the number of prior awards received by such
officer, the relative value as well as the exercise price of such awards,
and competitive practices.
Discussion of 1997 Compensation for the Chief Executive Officer
The Committee meets with the Chief Executive Officer to evaluate his
performance. For 1997, Mr. Johnson's incentive compensation was based on the
Company Achievement Percentage and the Committee's evaluation regarding his
overall performance based on both quantitative and qualitative objectives, as
set by the Board at the start of the year. Such incentive compensation awarded
to Mr. Johnson represented approximately 29% of his annual base salary for the
year. In addition, during 1997 Mr. Johnson received a stock grant of 15,000
shares in accordance with the terms of his employment agreement.
This report has been provided by the Compensation Committee of the Board of
Directors:
John P. Davis
G. S. Beckwith Gilbert
Jeffrey L. Sklar, MD, Ph.D.
SUMMARY COMPENSATION TABLE
The following table sets forth information with respect to the following
named executive officers: the person who served as Chief Executive Officer
("CEO") during 1997, and the four executive officers other than the CEO serving
at December 31, 1997 whose total salary and bonus for 1997 exceeded $100,000.
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation
-------------------------------- ------------
Other Securities
Name and Annual Underlying All Other
Principal Position Year Salary Bonus Compensation Options Compensation
------------------ ---- ------ ----- ------------ ------- ------------
Kevin C. Johnson (1) 1997 $281,939 $82,378 $127,500 (3) -- $30,860 (4)
President, Chief Executive 1996 174,520 94,000 (2) -- 200,000 1,507
Officer and Director
James B. Amberson, M.D. 1997 238,790 35,451 -- 20,000 2,630 (5)
Senior Vice President, 1996 200,013 47,869 -- 15,000 2,530
Operations and Chief Medical 1995 185,465 36,997 -- 25,000 2,104
Officer and Director
James T. Barry (14) 1997 118,666 20,862 -- 15,000 604 (6)
Vice President, Marketing and 1996 85,000 20,000 -- 20,000 84
Technology 1995 75,000 11,934 -- 5,000 84
Steven T. Clayton (7) 1997 120,000 35,568 -- 15,000 73,073 (9)
Vice President, Information 1996 6,923 14,000 (8) -- 15,000 --
Services
David R. Schreiber (10) 1997 191,170 65,702 $65,625 (12) 20,000 83,542 (13)
Senior Vice President Finance, 1996 29,231 80,000 (11) -- 50,000 1,742
Chief Financial Officer and
Corporate Secretary
(1) Mr. Johnson joined the Company as President in May 1996 and was appointed
to the position of Chief Executive Officer in February 1997.
(2) $50,000 of the $94,000 indicated for Mr. Johnson represents a sign-on bonus
he received when he joined the Company in May 1996.
(3) The $127,500 indicated for Mr. Johnson represents a stock grant of 15,000
shares of Common Stock on January 2, 1997 at a market value of $8.50 per
share.
(4) The $30,860 indicated for Mr. Johnson represents relocation costs,
contributions paid by the Company pursuant to the Company's 401(k)
Retirement Plan and premiums paid by the Company for term life insurance
which for 1997 amounted to $27,725, $1,600 and $1,535, respectively.
(5) The $2,630 indicated for Dr. Amberson represents contributions paid by the
Company pursuant to the Company's 401(k) Retirement Plan and premiums paid
by the Company for term life insurance which for 1997 amounted to $1,600
and $1,030, respectively.
(6) The $604 indicated for Mr. Barry represents contributions paid by the
Company pursuant to the Company's 401(k) Retirement Plan and premiums paid
by the Company for term life insurance which for 1997 amounted to $520 and
$84, respectively.
(7) Mr. Clayton joined the Company as Vice President, Information Systems in
December 1996.
(8) The $14,000 indicated for Mr. Clayton represents a sign-on bonus he
received when he joined the Company in December 1996.
(9) The $73,073 indicated for Mr. Clayton represents relocation costs and
premiums paid by the Company for term life insurance which for 1997
amounted to $72,989 and $84, respectively.
(10) Mr. Schreiber joined the Company as Senior Vice President, Finance, Chief
Financial Officer and Corporate Secretary in November 1996.
(11) The $80,000 indicated for Mr. Schreiber represents a sign-on bonus he
received when he joined the Company in November 1996.
(12) The $65,625 indicated for Mr. Schreiber represents a stock grant of 7,500
shares of Common Stock on April 1, 1997 at a market value of $8.75 per
share.
(13) The $83,542 indicated for Mr. Schreiber represents relocation costs and
premiums paid by the Company for term life insurance which for 1997
amounted to $83,458 and $84, respectively.
(14) Mr. Barry resigned his position with the Company in August 1998.
Employment and Severance Agreements
The Company entered into an employment agreement with Mr. Johnson on May 2,
1996. The agreement provides for Mr. Johnson to serve as President of the
Company at an initial base salary of $275,000 per annum, the grant of options to
purchase 200,000 shares of Common Stock with a 10-year term and an exercise
price of $5.69, stock grants of 15,000 shares of Common Stock on January 2, 1997
and 15,000 additional shares on January 2, 1998 provided Mr. Johnson continues
to be employed with the Company on such date, a signing bonus of $50,000 and a
loan of $150,000. The loan carries an interest rate of 5.9%, payable annually,
and is repayable upon termination of Mr. Johnson's employment with the Company.
If Mr. Johnson continues to be employed with the Company, the loan principal
will be forgiven at the rate of $2,500 per completed month of employment from
January 31, 1998 through December 31, 2002. This agreement provides that in the
event of a termination of Mr. Johnson's employment other than for "Cause," as
defined in the agreement, he is entitled to receive one year's salary and other
benefits. Subject to the foregoing, this agreement is subject to termination at
will by either party.
The Company entered into an employment agreement with David R. Schreiber on
September 30, 1996 as the Chief Financial Officer and Senior Vice President,
Finance. The agreement provides for an initial base salary of $190,000 per
annum, the grant of options to purchase 50,000 shares of Common Stock with a
10-year term and an exercise price of $6.625, a signing bonus of $80,000 and a
stock grant of 7,500 shares of Common Stock on April 1, 1997. This agreement
provides that in the event of a termination of Mr. Schreiber's employment other
than for "Cause," as defined in the agreement, he is entitled to receive one
year's salary (and certain other benefits) if such termination occurs within the
first year of employment or six months after the Company is acquired by another
business entity, or six month's salary (and certain other benefits) if such
termination occurs after such period. Subject to the foregoing, this agreement
is subject to termination at will by either party.
The Company entered into an agreement with Dr. James B. Amberson on
September 1, 1996, which provides that following a "Change in Control" of the
Company, as defined in the agreement, if Dr. Amberson's employment is terminated
other than for "Cause," as defined in the agreement, he is entitled to receive
one year's salary and bonus and all his stock options will vest completely. Dr.
Amberson's agreement expires in September 2001 and is subject to successive
automatic one-year renewals thereafter (unless certain notice is given).
The Company also entered into an employment agreement with Dr. James B.
Amberson on September 1, 1996. Pursuant to such agreement, Dr. Amberson is
entitled to a salary as determined by the Company and other employee benefits
made available by the Company to its employees. This agreement provides that in
the event of a termination of Dr. Amberson's employment for other than "Stated
Cause" (as defined in the agreement), he is entitled to receive six month's
salary and other benefits. Subject to the foregoing, this agreement is subject
to termination at will by either party.
Performance Graph
The Securities and Exchange Commission requires that the Company include in
this Proxy Statement a line-graph presentation comparing cumulative shareholder
return on an indexed basis with a broad equity market index and either a
published industry index or an index of peer companies selected by the Company.
The graph below compares the cumulative total return during such period on $100
invested as of December 31, 1992 in the Common Stock of the Company, the H&Q
Health Care Sub-Sector excluding the Biotechnology Sector of the Hambrecht &
Quist Technology and Growth Indices and the NASDAQ National Market Index,
assuming the reinvestment of all dividends:
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
[GRAPHIC OMITTED]
HAMBRECHT & QUIST INDEX PRODUCTS AND SERVICES:
1998 PROXY PERFORMANCE GRAPH DATA
SCALED PRICES: Stock and index prices scaled to 100 at 12/31/92
DIANON Nasdaq Stock
DATES Systems Market-U.S. H&Q Healthcare Excl. Biotech
----- ------- ------------ ----------------------------
Dec-92 100.00 100.00 100.00
Dec-93 54.55 114.80 71.62
Dec-94 36.36 112.21 76.10
Dec-95 38.64 158.70 126.71
Dec-96 78.41 195.19 140.67
Dec-97 85.23 239.53 167.64
Change of Control Provisions
As a general matter, under the Company's 1996 Stock Incentive Plan, upon
the occurrence of a Change of Control (as defined below), (1) all outstanding
stock options, SARs, and limited SARs, including those held by Outside Directors
(as defined in such plan), will become fully exercisable and vested, (2) all
other awards under the Plan will become fully vested, and (3) to the extent the
cash payment of any award is based on the fair market value of stock, such fair
market value will be the Change of Control Price (as defined below).
A "Change of Control" is deemed to occur on the date (1) any person or
group acquires beneficial ownership of securities representing 25% or more of
the Company's total voting power (with certain exceptions), (2) individuals who
constitute the "Current Directors" (as defined in the Plan) fail to constitute
at least two-thirds of the Board of Directors, (3) the shareholders approve a
merger or consolidation unless following such transaction (a) the beneficial
owners of the Company's Common Stock before the transaction own securities
representing more than 50% of the total voting power of the company resulting
from the transaction, and (b) at least a majority of members of the board of
directors of the company resulting from the transaction were members of the
Company's Board of Directors at the time such Board approved the transaction, or
(4) the shareholders of the Company approve a sale of substantially all of its
assets.
The "Change of Control Price" is the highest price per share of Common
Stock paid in any open market transaction, or paid or offered to be paid in any
transaction related to a Change of Control, during the 90-day period ending with
the Change of Control, except that for an SAR granted in tandem with an ISO,
such price is the highest price paid on the date the SAR is exercised.
Each of the Company's Employee Stock Purchase Plan and the 1991 Stock
Incentive Plan contain change of control provisions generally comparable to the
change of control provisions contained in the Company's 1996 Stock Incentive
Plan, as described above, except that options granted under the Employee Stock
Purchase Plan will become exercisable (if not already exercisable) as of the
first business day that is at least 30 days after the "Change of Control" rather
than immediately.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater than ten percent shareholders are required to furnish the
Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and representations that no other reports were
required during the fiscal year ended December 31, 1997, all Section 16(a)
reporting requirements applicable to its officers, directors and greater than
ten percent beneficial shareholders were complied with except for the following:
Mr. Stefanelli was late in filing his initial Form 3 when becoming subject to
the Section 16 reporting requirements, and Messrs. Verfurth and Sandberg each
filed a late report with respect to one transaction.
Stock Options
The following table shows, as to the named executive officers of the
Company, information about option grants in the last fiscal year. The Company,
as of September 18, 1998, has not granted any Stock Appreciation Rights to
officers.
Individual Grants
- --------------------------------------------------------------------------------
Potential Realizable
Number of % of Total Value at Assumed
Securities Options Annual Rates of
Underlying Granted to Exercise or Stock Price
Options Employees Base Price Expiration Appreciation for
Name Granted(#) in 1997 ($/Share) Date Option Term
---- ---------- ------- --------- ---- ----------------------
5%($) 10%($)
----- ------
James B. Amberson, M.D. 20,000 (1) 7% $8.75 12/11/2007 $110,057 $278,905
James T. Barry 15,000 (1) 5% 8.75 12/11/2007 82,542 209,179
Steven T. Clayton 15,000 (1) 5% 8.75 12/11/2007 82,542 209,179
Kevin C. Johnson -- -- -- -- -- --
David R. Schreiber 20,000 (1) 7% 8.75 12/11/2007 110,057 278,905
(1) In December 1997, the Company granted certain employees and officers
options to purchase 301,000 shares of Common Stock at $8.75 per share.
These options vest 40% in December 1999 and 20% during each year
thereafter. Upon termination, all unvested options are cancelled and all
vested options expire 90 days after termination of employment.
The following table shows aggregate option exercises in the last fiscal year and
fiscal year-end option values for the named executive officers. The Company, as
of September 18, 1998, has not granted any Stock Appreciation Rights to
officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
Value
Realized Value of Unexercised
(Market Number of Securities In-the-Money Options at FY-End
Price at Underlying Unexercised Options (based on FY-End Price of
Exercise at FY-end(#) $9.375/share)($)(1)
Shares less ------------ -------------------
Name Acquired on Exercise Exercisable Unexercisable Exercisable Unexercisable
---- ----------- --------- ----------- ------------- ----------- -------------
James B. Amberson, M.D. -- $ -- 34,140 57,360 $157,484 $154,813
James T. Barry -- -- 3,286 38,000 14,442 81,750
Steven T. Clayton -- -- -- 30,000 -- 31,875
Kevin C. Johnson -- -- -- 200,000 -- 737,500
David R. Schreiber -- -- -- 70,000 -- 150,000
(1) Computed based upon difference between aggregate fair market value and
aggregate exercise price.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Dr. Sklar served as a member of the Compensation Committee of the Company's
Board of Directors during the last completed fiscal year and is continuing to
serve as such in the 1998 fiscal year. In 1995 the Company entered into a
three-year research and development agreement with Brigham & Women's Hospital,
Inc., for which Dr. Sklar is director, Division of Diagnostic Molecular Biology,
Department of Pathology. The agreement required the Company to make quarterly
payments of $30,000 in exchange for an option to obtain rights in certain
existing inventions as well as inventions developed during the course of
research in the areas of cancer detection and diagnosis. The research was to be
conducted by Dr. Sklar. The Company paid $60,000, $120,000 and $60,000 under
this agreement in 1997, 1996 and 1995, respectively. The Company terminated this
agreement effective June 30, 1997 and has made all required payments as of
December 31, 1997. In addition, the Company has made payments to Brigham &
Women's Hospital, Inc. of $30,000 in each of 1996 and 1995 for consulting
services.
In the fourth quarter 1997, the Company entered into a one-year consulting
and proprietary information and inventions agreement with Dr. Sklar. The
agreement requires the Company to make quarterly payments at the beginning of
each quarter for $5,000 in exchange for consultative services for molecular
diagnostics. The Company has made all required payments under this agreement to
Dr. Sklar of $5,000 in 1997 and $15,000 in 1998.
OWNERSHIP OF VOTING STOCK BY MANAGEMENT
The following table gives information concerning the beneficial ownership
of the Company's Common Stock as of September 18, 1998 by each director and each
of the executive officers named in the summary compensation table and all
current directors and executive officers (as of September 18, 1998) as a group.
Total Shares
Beneficially Direct Right to Percent of
Beneficial Owners Owned(1)(2) Ownership Acquire(3) Class(4)
- ----------------- ----------- --------- ---------- --------
James B. Amberson, M.D. 93,335 31,402 46,300 1.3%
James T. Barry 5,295 2,009 3,286 -- (5)
Steven T. Clayton -- -- -- -- (5)
Bruce K. Crowther 1,118 632 486 -- (5)
John P. Davis 240,886 117,761 123,125 3.4%
Timothy E. Geary 2,215 1,078 1,137 -- (5)
G.S. Beckwith Gilbert 1,807,663 1,801,541 6,122 26.6% (6)
Kevin C. Johnson 126,086 30,453 80,000 1.8%
David R. Schreiber 43,133 7,500 20,000 -- (5)
Jeffrey L. Sklar 16,582 1,541 15,041 -- (5)
All current directors and executive
officers as a group (11 persons) 2,303,472 1,991,908 295,931 32.5%
(1) The information as to beneficial ownership is based on statements furnished
to the Company by its executive officers and directors. Each executive
officer and director has sole voting and sole investment power with respect
to his respective shares listed above, except that the shares reported for
Mr. Gilbert include 121,951 shares which are held by a trust of which Mr.
Gilbert is a trustee, as to which Mr. Gilbert shares voting and investment
powers. Amounts shown for each of Messrs. Johnson and Schreiber and Dr.
Amberson include 15,633 shares held in the Company's 401(k) Retirement
Plan, as to which such officers share voting power as trustees of such plan
and each individual plan participant has investment power, subject to the
terms of such plan, of the shares in his account; such amount includes 453
shares in Mr. Johnson's account.
(2) Includes shares listed under the captions "Direct Ownership" and "Right to
Acquire," as well as shares held in the Company's 401(k) Retirement Plan
which are beneficially owned by the named individuals as trustees of such
plan but as to which such trustees have no economic interest.
(3) Individuals have the right to acquire these shares within 60 days of
September 18, 1998 by the exercise of stock options or through purchases
under the Company's Employee Stock Purchase Plan.
(4) For the purposes of this table, "Percent of Class" held by each individual
has been calculated based on a total class equal to the sum of (i)
6,780,851 shares of Common Stock issued and outstanding on September 18,
1998 plus (ii) for such individual the number of shares of Common Stock
subject to stock options presently exercisable, or exercisable within 60
days after September 18, 1998, held by that individual, and which percent
is rounded to the nearest whole number.
(5) Owns less than 1% of the outstanding Common Stock.
(6) Pursuant to an agreement entered into with the Company, Mr. Gilbert cannot
vote, without restriction, any Common Stock or other voting securities of
the Company beneficially owned by him representing greater than 20% of the
total voting power of the Company's voting securities outstanding from time
to time, or 1,356,170 votes as of September 18, 1998. Excess votes above
this amount are required to be voted in proportion to the votes cast by all
other shareholders of the Company.
OWNERSHIP OF VOTING STOCK BY CERTAIN BENEFICIAL OWNERS
The following table sets forth information with respect to the only persons
who, to the best knowledge of the Company as derived from Schedules 13F, 13D and
13G filed by such persons, beneficially owned more than five percent of the
Common Stock of the Company as of September 18, 1998. Unless otherwise indicated
below, each person included in the table has sole voting and investment power
with respect to all shares included therein.
Amount and Nature
Name and Address of of Beneficial Percent
Title of Class Beneficial Owner Ownership of Class(1)
- -------------- ---------------- --------- -----------
Common Stock G. S. Beckwith Gilbert et al 1,807,663 (2)(3) 26.6% (3)
104 Field Point Road
Greenwich, CT 06830
Common Stock Oracle Management Partners, Inc. 532,328 7.8%
and Affiliates
712 E 5th Avenue - 45th Floor
New York, NY 10019
Common Stock John M. Bryan et al 356,412 5.2%
Bryan and Edwards
600 Montgomery Street - 35th Floor
San Francisco, CA 94111
(1) For the purposes of this table, "Percent of Class" held by each person has
been calculated based on a total class equal to the sum of (i) 6,780,851
shares of Common Stock issued and outstanding on September 18, 1998 plus
(ii) for such person the number of shares of Common Stock subject to stock
options or warrants presently exercisable, or exercisable within 60 days
after September 18, 1998, held by that person, and which percent is rounded
to the nearest whole number.
(2) Mr. Gilbert has shared voting and investment power with respect to 121,951
shares included in the table above.
(3) As of September 18, 1998, Mr. Gilbert cannot vote, without restriction, any
Common Stock or other voting securities of the Company beneficially owned
by him representing greater than 20% of the total voting power of the
Company's voting securities outstanding from time to time, or 1,356,170
votes as of September 18, 1998. Excess votes above this amount are required
to be voted in proportion to the votes cast by all other shareholders of
the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Compensation Committee Interlocks and Insider Participation" section.
Pursuant to his employment agreement, the President of the Company received
a loan in 1996 totaling $150,000 which bears interest at 5.9%, payable annually,
and is repayable upon termination of his employment with the Company. In
addition, the loan principal will be forgiven at a rate of $2,500 per month over
the period January 1998 through December 2002 if the President continues to be
employed by the Company.
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS' APPOINTMENT
Arthur Andersen, LLP has been the independent auditors of the Company's
accounts since 1983. Such firm has no financial interest, either direct or
indirect, in the Company. Selection of Arthur Andersen, LLP as the auditors for
the calendar year ending December 31, 1998 was made by the Board of Directors,
subject to shareholder ratification. A representative of Arthur Andersen, LLP is
expected to attend the meeting and have an opportunity to make a statement
and/or respond to appropriate questions from shareholders.
The Company's Board of Directors recommends that shareholders vote "FOR"
ratification of the appointment of Arthur Andersen, LLP as the Company's
independent public accountants for 1998. Approval of the ratification of the
independent public accountants' appointment requires that the number of votes
cast in favor of approval of the ratification of the independent public
accountants' appointment exceed the number of votes cast against such approval.
Abstentions will have no effect on the vote.
SHAREHOLDER PROPOSALS
The eligibility of shareholders to submit proposals, the proper subjects of
shareholder proposals and other issues governing shareholder proposals are
regulated by the rules (the "Shareholder Proposal Rules") adopted under Section
14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Shareholder proposals submitted pursuant to Rule 14a-8 under the Exchange Act
for inclusion in the Company's proxy materials for the 1999 Annual Meeting of
Shareholders must be received by the Company at its principal executive office,
200 Watson Boulevard, Stratford, Connecticut 06615, no later than Tuesday, June
1, 1999.
In addition, in accordance with recent amendments to the Shareholder
Proposal Rules, written notice of shareholder proposals to be submitted outside
of Rule 14a-8 described above for consideration at the 1999 Annual Meeting of
Shareholders but not to be included in the Company's proxy materials must be
received by the Company, at the address set forth in the preceding paragraph, on
or before Friday, August 16, 1999 in order to be considered timely for purposes
of the Shareholder Proposal Rules. The persons designated as proxies by the
Company in connection with 1999 Annual Meeting of Shareholders will have
discretionary voting authority with respect to any shareholder proposal of which
the Company did not receive timely notice.
COSTS OF SOLICITATION
The costs of soliciting proxies will be borne by the Company. The Company
will also reimburse brokerage firms and other custodians, nominees and
fiduciaries, if any, for reasonable out-of-pocket expenses incurred by them in
connection with forwarding solicitation materials to beneficial owners of Common
Stock held of record by such persons. Solicitation by the Company will be
primarily by mail.
AVAILABILITY OF ANNUAL REPORT ON FORM 10-K
A copy of the Company's Form 10-K for the year ended December 31, 1997,
including all statements and schedules (but without exhibits), as filed with the
Securities and Exchange Commission, is included herewith.
------------------------
The information under the headings "Compensation Committee Report,"
"Compensation Program Components," "Discussion of 1997 Compensation for the
Chief Executive Officer" and "Performance Graph" above shall not be deemed to be
"soliciting material" or to be "filed" with the Securities and Exchange
Commission or subject to Regulation 14A or 14C, other than as provided in Item
402 of Regulation S-K, or to the liabilities of Section 18 of the Securities
Exchange Act of 1934, as amended, and, unless specific reference is made therein
to such headings, shall not be incorporated by reference into any filing under
the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934,
as amended.