SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
DIANON Systems, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
DIANON Systems, Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] $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:
2) Aggregate number of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11:
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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.
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DIANON SYSTEMS, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OCTOBER 21, 1999
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 21, 1999, at 10:00 A.M.,
for the following purposes:
(1) To elect directors for the ensuing year;
(2) To approve the adoption of the Employee Stock Purchase Plan;
(3) To approve the adoption of the 1999 Stock Incentive Plan;
(4) To ratify the appointment of Arthur Andersen, LLP as the
independent public accountants of the Company for the calendar
year ended December 31, 1999; and
(5) 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 8, 1999
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 11, 1999 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
/s/ David R. Schreiber
----------------------
David R. Schreiber
Corporate Secretary
200 Watson Boulevard
Stratford, Connecticut 06615
September 20, 1999
IT IS IMPORTANT THAT THE ENCLOSED PROXY CARD BE COMPLETED
AND RETURNED PROMPTLY
DIANON SYSTEMS, INC.
PROXY STATEMENT
September 20, 1999
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 21, 1999, 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 20, 1999.
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 8,
1999, 6,814,967 shares of Common Stock were outstanding. At the Annual Meeting,
each shareholder of record at the close of business on September 8, 1999, 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.
Kevin C. Johnson, age 44, 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 57, a Director since 1984, has served as a consultant
to the Company since October 1998. Mr. Davis 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.
Bruce K. Crowther, age 47, 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 47, 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. Mr. Geary is currently a consultant to HealthSouth
Corporation. Prior to founding National Surgery Centers in 1987, Mr. Geary
served as a Vice President with Medical Care International. Mr. Geary holds an
MBA and AB from the University of Chicago.
G. S. Beckwith Gilbert, age 57, 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, President and Chief Executive Officer of Megadata
Corporation as well as a Director of Davidson Hubeny Brands, 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 51, 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.
David R. Schreiber, age 39, 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.
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. Gilbert and Mr. Crowther
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. Crowther, 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, 1996 and 1999 (if
approved) 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 1998 fiscal year the Board of Directors held seven regular
meetings. In addition, the Audit Committee, the Compensation Committee and the
Executive Committee each met two times. During such fiscal year each director
attended at least 75% of the aggregate of (i) the regular 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.
In addition to his aforementioned duties, commencing October 1, 1998 Mr.
Davis began serving as a consultant to the Company, providing approximately two
days per week of consulting services and maintaining an office at the Company.
He works closely with the sales and marketing functions of the Company, and is
involved in the planning and development of sales training programs, recruiting,
compensation planning, market segmentation, pricing, and national and managed
care marketing programs. As compensation for these services, Mr. Davis receives
$50,000 annually (payable monthly at $4,166), in addition to his director
compensation and in addition to the $50,000 he receives in his capacity as
non-Executive Chairman of the Board. In connection with his consulting
arrangement, Mr. Davis was also paid a relocation reimbursement of $123,667 in
February 1999, and will receive in 2000 a reimbursement for the tax effect of
the relocation payment.
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, who is an employee of the Company, receives no additional
compensation for his services as Director of the Company. Mr. Schreiber will
receive no additional compensation if elected as Director 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, who is also a Director, and
Mr. Schreiber, who is a nominee for Director, see "Election of Directors -
Information Concerning Directors and Nominees."
James B. Amberson, age 48, 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.
Steven T. Clayton, age 33, 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.
Martin J. Stefanelli, age 38, has served as Senior Vice President,
Operations since October 1998. He previously served as Vice President,
Laboratory Operations. 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.
Valerie B. Palmieri, age 38, has served as Vice President, Service
Operations since November 1998. Ms. Palmieri joined the Company in December 1987
as a Medical Technologist and subsequently served as Laboratory Supervisor,
Operations Laboratory Manager, Director of Operations - Clinical Pathology, and
Director of Service Operations. Prior to joining the Company, Ms. Palmieri was
with Park City and Bridgeport Hospital as a Medical Technologist. Ms. Palmieri
holds a BS from Western Connecticut State University.
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 1998 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. In
1998, Company performance goals were not achieved. Therefore, management
incentive bonuses were not awarded.
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 1998 COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
The Committee meets with the Chief Executive Officer to evaluate his
performance. For 1998, 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. While no incentive compensation was
awarded to Mr. Johnson in 1998, during the year 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:
Bruce K. Crowther
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: (i) the person who served as Chief Executive Officer
("CEO") during 1998 and (ii) the four most highly compensated executive officers
other than the CEO serving at December 31, 1998 whose total salary and bonus for
1998 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 1998 $295,773 $ -- $ -- 40,000 $184,599 (1)
President, Chief Executive 1997 281,939 82,378 -- -- 158,360
Officer and Director 1996 174,520 94,000 -- 200,000 1,507
James B. Amberson, M.D. 1998 239,200 -- -- 12,000 10,568 (2)
Senior Vice President, 1997 238,790 35,451 -- 20,000 2,630
Chief Medical Officer 1996 200,013 47,869 -- 15,000 2,530
and Director
David R. Schreiber 1998 195,582 -- -- 20,000 6,124 (3)
Senior Vice President Finance, 1997 191,170 65,702 -- 20,000 149,167
Chief Financial Officer and 1996 29,231 80,000 -- 50,000 1,742
Corporate Secretary
Steven T. Clayton 1998 127,211 -- -- 5,000 43,613 (4)
Vice President, Information 1997 120,000 35,568 -- 15,000 73,073
Services 1996 6,923 14,000 -- 15,000 --
John S. Fanuko (5) 1998 120,046 20,000 (6) -- 30,000 77 (7)
Vice President, Finance 1997 -- -- -- -- --
and Corporate Controller 1996 -- -- -- -- --
(1) The $184,599 indicated for Mr. Johnson represents: (i) a stock grant of
15,000 shares of Common Stock on January 2, 1998 at a market value
totaling $146,250; (ii) a loan forgiveness aggregating $30,000 pursuant to
Mr. Johnson's employment agreement; (iii) an auto allowance of $5,214;
(iv) contributions of $1,600 paid by the Company pursuant to the Company's
401(K) Retirement Plan; and (v) term life insurance premiums of $1,535
paid by the Company.
(2) The $10,568 indicated for Dr. Amberson represents an auto allowance of
$8,028, contributions of $1,600 paid by the Company pursuant to the
Company's 401(K) Retirement Plan, and term life insurance premiums of $940
paid by the Company.
(3) The $6,124 indicated for Mr. Schreiber represents an auto allowance of
$4,440, contributions of $1,600 paid by the Company pursuant to the
Company's 401(K) Retirement Plan and term life insurance premiums of $84
paid by the Company.
(4) The $43,613 indicated for Mr. Clayton represents relocation costs of
$12,267, a tax reimbursement of $31,262 related to relocation costs and
term life insurance premiums of $84 paid by the Company.
(5) Mr. Fanuko joined the Company in January 1998 as Vice President-Finance
and Corporate Controller and resigned from the Company in March 1999.
(6) The $20,000 indicated for Mr. Fanuko represents a sign-on bonus.
(7) The $77 indicated for Mr. Fanuko represents term life insurance premiums
paid by the Company.
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, 1993 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
HAMBRECHT & QUIST INDEX PRODUCTS AND SERVICES:
1999 PROXY PERFORMANCE GRAPH DATA
SCALED PRICES: Stock and index prices scaled to 100 at 12/31/93
Nasdaq Stock H&Q Healthcare Excl.
DATES DIANON Systems Market -U.S. Biotech
----- -------------- ------------ -------
Dec-93 100.00 100.00 100.00
Dec-94 66.67 106.25 97.75
Dec-95 70.83 176.91 138.26
Dec-96 143.75 196.41 170.11
Dec-97 156.25 234.07 208.44
Dec-98 150.00 284.41 293.72
ACTUAL PRICES
Nasdaq Stock H&Q Healthcare Excl.
DATES DIANON Systems Market -U.S. Biotech
----- -------------- ------------ -------
Dec-93 6.00 250.008 352.259
Dec-94 4.00 244.582 374.288
Dec-95 4.25 345.901 623.196
Dec-96 8.625 425.440 691.892
Dec-97 9.375 521.129 824.541
Dec-98 9.00 734.325 1001.88
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.
The Company entered into an employment agreement with Steven T. Clayton
on November 18, 1996 as Vice President, Information Services of the Company. The
agreement provides for an initial base salary of $120,000 per annum, a signing
bonus of $14,000 and the grant of options to purchase 15,000 shares of Common
Stock with a 10-year term and an exercise price of $7.875.
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.
The 1991 Stock Incentive Plan and the proposed 1999 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.
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, 1998, 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 8, 1999, has not granted any Stock Appreciation Rights to
officers.
INDIVIDUAL GRANTS
- ------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM
OPTIONS EMPLOYEES BASE PRICE EXPIRATION ---------------------
NAME GRANTED(#) IN 1998 ($/SHARE) DATE 5%($) 10%($)
---- ---------- ------- --------- ---- ----- ------
James B. Amberson, M.D. 12,000 (2) 5% $6.875 10/28/2008 $51,884 $131,484
Steven T. Clayton 5,000 (2) 2% 6.875 10/28/2008 21,618 54,785
John S. Fanuko 15,000 (1) 6% 8.750 01/09/2008 82,542 209,179
John S. Fanuko 15,000 (2) 6% 6.875 10/28/2008 64,855 164,355
Kevin C. Johnson 40,000 (2) 16% 6.875 10/28/2008 172,946 438,279
David R. Schreiber 20,000 (2) 8% 6.875 10/28/2008 86,473 219,140
(1) In January 1998, the Company granted Mr. John S. Fanuko options to
purchase 15,000 shares of Common Stock at $8.75 per share when he joined
the Company. These options vest 40% in January 2000 and 20% during each
year thereafter. Upon termination, all unvested options are cancelled and
all vested options expire 90 days after termination of employment.
(2) In October 1998, the Company granted certain employees and officers
options to purchase 217,000 shares of Common Stock at $6.875 per share.
These options vest 40% in October 2000 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 8, 1999, has not granted any Stock Appreciation Rights
to officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
VALUE
REALIZED
(MARKET VALUE OF UNEXERCISED
PRICE AT NUMBER OF SECURITIES IN-THE-MONEY OPTIONS AT FY-END
EXERCISE UNDERLYING UNEXERCISED OPTIONS (BASED ON FY-END PRICE OF
SHARES LESS AT FY-END(#) $9.00/SHARE) ($) (1)
ACQUIRED ON EXERCISE ------------ --------------------
NAME EXERCISE(#) PRICE)($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- --------- ----------- ------------- ----------- -------------
James B. Amberson, M.D. -- $ -- 46,300 57,200 $189,777 $113,708
Steven T. Clayton -- -- 6,000 29,000 6,750 24,500
John S. Fanuko -- -- 0 30,000 0 35,625
Kevin C. Johnson -- -- 80,000 160,000 265,000 482,500
David R. Schreiber -- -- 20,000 70,000 47,500 118,750
(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 1999 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 the research in the areas of cancer detection and diagnosis. The research was
to be conducted by Dr. Sklar. The Company paid $8,000, $60,000, $120,000 and
$60,000 under this agreement in 1998, 1997, 1996 and 1995, respectively. The
Company terminated this agreement effective as of June 30, 1997 and has made all
required payments. In addition, the Company made payments to Brigham & Women's
Hospital, Inc. of $30,000 in 1996 for consulting services.
OWNERSHIP OF VOTING STOCK BY MANAGEMENT
The following table gives information concerning the beneficial ownership
of the Company's Common Stock as of September 8, 1999 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 8, 1999) 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. 113,336 31,402 59,000 1.7%
Steven T. Clayton 6,000 -- 6,000 -- (5)
Bruce K. Crowther 3,629 1,610 2,019 -- (5)
John P. Davis 244,245 118,739 125,506 3.5%
John S. Fanuko -- -- -- -- (5)
E. Timothy Geary 5,101 2,056 3,045 -- (5)
G. S. Beckwith Gilbert 1,811,022 1,802,519 8,503 26.5% (6)
Kevin C. Johnson 173,677 30,743 120,000 2.5%
David R. Schreiber 61,117 8,183 30,000 -- (5)
Jeffrey L. Sklar, M.D., Ph.D. 21,941 2,519 19,422 -- (5)
All current directors and executive officers
as a group (11 persons) 2,410,699 1,997,822 389,943 33.5%
(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 22,934 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 743
shares in Mr. Johnson's account and 683 shares in Mr. Schreiber'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 8, 1999 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)
6,814,967 shares of Common Stock issued and outstanding on September 8,
1999 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 8, 1999, held by that individual, and which percent is
rounded to the nearest tenth.
(5) Owns less than 1% of the outstanding Common Stock.
(6) As of September 8, 1999, 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 1,362,993
votes as of September 8, 1999. 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 8, 1999. 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 1,811,022 (2) (3) 26.5% (3)
104 Field Point Road
Greenwich, CT 06830
Common Stock Oracle Management Partners, Inc. 728,300 10.7%
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) 6,814,967
shares of Common Stock issued and outstanding on September 8, 1999 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 8, 1999, held by that person, and which percent is rounded
to the nearest tenth.
(2) Mr. Gilbert has shared voting and investment power with respect to 121,951
shares included in the table above.
(3) As of September 8, 1999, 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 1,362,993
votes as of September 8, 1999. 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.
ADOPTION OF THE EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors has adopted, subject to approval at the Annual
Meeting, the Dianon Systems, Inc. Employee Stock Purchase Plan (the "Plan"). The
purpose of the Plan is to encourage employees to acquire an ownership interest
in the Company in order to further link the interests of the Company's employees
with those of its shareholders.
PRINCIPAL PROVISIONS OF THE PLAN
The following summary of the Plan, as adopted by the Board of Directors
subject to shareholder approval, is qualified by reference to the full text of
the Plan, which is attached as Exhibit A to this Proxy Statement.
GENERAL PROVISIONS OF THE PLAN
The Company has reserved a maximum of 300,000 shares of Common Stock to be
sold to employees under the Employee Stock Purchase Plan. No more than 100,000
shares of Common Stock will be available for purchase under the Plan in any
calendar year and no participating employee may purchase more than 500 shares of
Common Stock in any calendar quarter, which is referred to in the Plan as an
"Offering Period." Subject to the approval of the Plan by the Company's
shareholders, the first Offering Period will commence on January 1, 2000. The
shares to be offered for sale to participating employees under the Plan may be
authorized but previously unissued shares, shares held in or acquired for the
Company's treasury or shares reacquired by the Company in open market purchases.
The Plan will be administered by a committee of the Board of Directors,
consisting of at least two outside directors serving on the Board. The Committee
will have the general authority to interpret the provisions of the Plan and to
adopt such rules as it deems necessary or desirable for the administration of
the Plan. It is anticipated that the Committee will appoint a senior executive
officer of the Company to handle the day-to-day administration of the Plan and
to serve as the "Plan Administrator."
ELIGIBILITY AND PARTICIPATION IN THE PLAN
All employees of the Company (other than 5% shareholders) are eligible to
participate in the Plan if they customarily work a minimum of 20 hours per week,
at least five months each year. Outside directors of the Company are not
eligible to participate in the Plan. In addition, any employee holding an option
under the Plan (and any other employee stock purchase plan of the Company or its
affiliates) which provides for him to purchase more than $25,000 worth of Common
Stock in any calendar year will not be eligible to participate in the Plan.
An eligible employee may elect to participate in the Plan by filing a
payroll deduction authorization election, together with all other appropriate
enrollment forms, with the Plan Administrator prior to the first day an Offering
Period commences. An employee may authorize the Company to make payroll
deductions in whole percentages of his annual compensation on an after-tax basis
(excluding bonuses and incentive pay) not to exceed the lesser of 10% of his
base pay or $5,000 annually. The Company will establish a separate memorandum
account for each employee for purposes of recording the payroll deductions made
by the employee during an Offering Period. These accounts will not bear
interest. Payroll deductions made by an employee in excess of $5,000 will be
refunded to the participant, without interest, at the end of the Offering
Period.
On the last day of each Offering Period, referred to in the Plan as the
"Exercise Date," the payroll deductions that have accumulated in a participating
employee's memorandum account will automatically be used to purchase shares of
Common Stock up to the 500 share maximum established under the Plan. The
purchase price for these shares will be 85% of the fair market value of a share
of Common Stock on the Exercise Date. Any surplus funds remaining in the
participant's memorandum account after the shares are purchased will be returned
to the participant, without interest. The Company will arrange for the delivery
of shares purchased by an employee under the Plan.
An employee may withdraw from participation in the Plan prior to the
Exercise Date. If an employee withdraws from the Plan, his accumulated payroll
deductions will be returned to him, without interest. If the employee wishes to
resume participation in the Plan, he will be required to complete and file the
appropriate payroll deduction and enrollment forms with the Plan Administrator
prior to the first day of the next Offering Period.
In the event a participating employee dies prior to the Exercise Date for
an Offering Period, all funds credited to the deceased employee's memorandum
account will be returned, without interest, to the deceased employee's
designated beneficiary or his estate, as applicable.
AMENDMENT, TERMINATION AND SUSPENSION OF THE PLAN
The Board may amend, suspend or discontinue the Plan at any time; however,
the Board may not take any action which would cause the Plan not to comply with
Section 423 of the Code, or any successor rules, or that would change the number
of shares reserved for purchase under the Plan (other than due to stock splits,
stock dividends or other such events). The Plan will automatically terminate
upon the adoption by the Board of a resolution terminating the Plan or upon the
sale of the maximum number of shares of Common Stock available for purchase
under the Plan.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain federal income tax consequences
triggered upon the purchase of Common Stock under the Plan, based upon the laws
in effect on the date hereof. All references to the "Code" are references to
provisions of the Internal Revenue Code of 1986, now in effect.
The Employee Stock Purchase Plan is intended to qualify as an "employee
stock purchase plan" within the meaning of Section 423 of the Code. As a result,
an employee will not realize income for federal income tax purposes on the
applicable Exercise Date when shares of Common Stock are purchased under the
Plan. Instead, assuming the 2-year holding period requirement (described below)
is satisfied, the gain recognized by the employee on the sale or other
disposition of the Common Stock will be taxed as long-term capital gain. Any
loss on the sale or other disposition of the Common Stock will be treated as
long-term capital loss. To meet the holding period requirement under the Code,
an employee must not sell or otherwise dispose of the shares of the Common Stock
acquired under the Plan until at least two years after the date of purchase.
If an employee sells or otherwise disposes of the Common Stock within two
years after the date of purchase, the employee will recognize as compensation
income the full amount of the excess of the fair market value of the Common
Stock on the date of purchase over the amount paid by the employee for the
Common Stock. Any additional gain realized on the sale or other disposition of
the Common Stock will be taxed as capital gain, which will be long-term if the
employee has held the Common Stock for more than one year, and any loss will be
a capital loss.
The Company will be entitled to a deduction for the amount of compensation
income recognized by an employee who sells or otherwise disposes of the Common
Stock within two years after the date of purchase. The Company will not be
entitled to a deduction for any capital gain recognized by an employee who holds
the Common Stock for at least two years after the date of purchase.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
APPROVAL OF THE EMPLOYEE STOCK PURCHASE PLAN. Approval of the Plan requires that
the votes cast in favor of approval of the Plan exceed the votes cast against
such approval. Pursuant to the Company's Bylaws, abstentions and broker
"non-votes" (shares not voted because a nominee holding shares for a beneficial
owner neither receives voting instructions from the beneficial owner nor has
discretionary voting power with respect thereto) will have no effect on the
vote.
ADOPTION OF THE 1999 STOCK INCENTIVE PLAN
The Board of Directors has adopted, subject to approval at the Annual
Meeting, the Dianon Systems, Inc. 1999 Stock Incentive Plan (the "Plan"). The
purposes of the Plan are to enable the Company to attract, retain and reward key
employees and outside directors by providing such individuals with equity and
equity-based long-term incentive compensation awards.
PRINCIPAL PROVISIONS OF THE PLAN
The following summary of the Plan, as adopted by the Board of Directors
subject to shareholder approval, is qualified by reference to the full text of
the Plan, which is attached as Exhibit B to this Proxy Statement.
GENERAL PROVISIONS
The Plan authorizes the granting of awards in the form of any combination
(independent or in tandem) of (1) options to purchase shares of Common Stock,
(2) stock appreciation rights ("SARs"), (3) shares of restricted Common Stock
("restricted stock"), (4) shares of deferred Common Stock ("deferred stock"),
(5) bonus stock, (6) loans, and (7) tax-offset payments with respect to any of
such awards. Awards may be granted (i) to key employees (including officers) of
the Company and certain related companies by the Plan Committee (as defined
below), and (ii) to directors who are not employees or officers of the Company
or certain related companies ("Outside Directors") by the Board of Directors.
The Plan also provides for the automatic grant to Outside Directors of (1)
options to purchase shares of Common Stock and related limited SARs and (2)
stock grants.
Administration. The Plan is administered by the Board of Directors with
respect to awards to Outside Directors, and by a committee of the Company's
Board of Directors, which consists of at least two Outside Directors (the "Plan
Committee"), with respect to awards to employees. (The Board of Directors and
the Plan Committee, in their respective roles, are referred to as the "Granting
Authority.") With respect to awards within its jurisdiction, the Granting
Authority designates the persons to be granted awards from among those eligible
and the type and amount of awards to be granted and has authority to interpret
the Plan, adopt, alter and repeal administrative regulations, and determine and
amend the terms of awards. The Plan Committee may delegate to officers of the
Company any of its authority under the Plan (other than with respect to awards
to persons subject to Section 16 of the Securities Exchange Act of 1934, as
amended, and Performance Awards (as defined below)).
Eligibility. The Plan Committee may make awards under the Plan to key
employees (including officers) of the Company or of any entity in which the
Company owns at least a 20% interest. The Plan Committee, in its sole
discretion, will select the key employees eligible to participate in the Plan.
Outside Directors are automatically granted stock options and related limited
SARs and stock grants having the terms specified in the Plan, and may be granted
discretionary awards by the Board of Directors. All key employees (currently
numbering approximately 30) and Outside Directors (currently numbering 5) are
eligible to receive awards under the Plan.
Limitations on Awards. The aggregate number of shares of Common Stock
which may be issued under the Plan is 300,000, of which 270,000 may be issued to
key employees and 30,000 may be issued to Outside Directors. Such shares may
consist of authorized but unissued shares or treasury shares. The exercise of a
SAR for cash or the settlement of any other award in cash will not count against
this share limit. Shares subject to lapsed, forfeited or canceled awards,
including options canceled upon the exercise of tandem SARs for cash, will not
count against this limit and can be regranted under the Plan. If the exercise
price of an option is paid in Common Stock or if shares are withheld from
payment of an award to satisfy tax obligations with respect to the award, such
shares also will not count against the above limit.
No key employee may be granted stock options, SARs, restricted stock,
deferred stock, or bonus stock under the Plan with respect to more than 40,000
shares of Common Stock in any fiscal year. The Plan does not limit awards which
may be made under other plans of the Company.
DISCRETIONARY AWARDS
The Plan authorizes the Granting Authority to grant, within its
jurisdiction, the following types of awards in its discretion:
1. Stock Options. The Granting Authority is authorized to grant incentive
stock options ("ISOs") and non-qualified stock options to purchase such number
of shares of Common Stock as the Granting Authority determines. An option will
be exercisable at such times, over such term and subject to such terms and
conditions as the Granting Authority determines, and at an exercise price
determined by the Granting Authority, which may be less than the fair market
value of the Common Stock at the date of grant of the option. ISOs may be
granted only to key employees and are subject to additional restrictions as to
exercise period and exercise price as required by the Internal Revenue Code of
1986, as amended (the "Code"). Payment of the exercise price of an option may be
made in such manner as the Granting Authority may provide, including cash,
delivery of shares of Common Stock already owned for six months or subject to an
award under the Plan, "cashless exercise" (an arrangement with a brokerage firm
whereby shares issuable upon exercise of an option would be sold by the broker
and the proceeds used to pay the exercise price), or in any other manner
specified by the Granting Authority. Under this provision, the Granting
Authority could permit payment to be made by way of successive, automatic
applications of shares received upon exercise of a portion of the option to
satisfy the exercise price for additional portions of the option, a payment
method known as "pyramiding".
The Granting Authority is authorized to specify the period, if any, over
which options become exercisable, and to accelerate the exercisability of
options on a case by case basis at any time. The Granting Authority is also
authorized to specify the period during which options may be exercised following
an option holder's termination of service with the Company, and to extend such
period on a case by case basis. The Granting Authority may permit an option to
be exercised for an additional period after the option holder's death, even if
such period extends beyond the original option term. Unless otherwise provided
by the Granting Authority, options will not be transferable except by will or by
the laws of descent and distribution.
2. Stock Appreciation Rights. Upon exercise of a SAR the award holder is
entitled to receive, for each share with respect to which the SAR is exercised,
an amount (the "appreciation") equal to the excess of the fair market value of a
share of Common Stock on the exercise date over an "amount" determined by the
Granting Authority. The appreciation is payable in cash, Common Stock, or a
combination of both, as determined by the Granting Authority.
The Granting Authority may also grant limited SARs that will be
exercisable only during the 60-day period following a "Change of Control" (as
defined below) of the Company. The Granting Authority may provide that in the
event of a Change of Control, SARs or limited SARs may be settled on the basis
of the "Change of Control Price" (as defined below).
3. Restricted Stock. The Granting Authority is authorized to award
restricted stock subject to such terms and conditions as the Granting Authority
may determine in its sole discretion. The Granting Authority has authority to
determine the number of shares of restricted stock to be awarded, the price, if
any, to be paid by the recipient of the restricted stock, and the date or dates
on which the restricted stock will vest. The vesting of restricted stock may be
conditioned upon the completion of a specified period of service with the
Company, upon the attainment of specified performance goals, or upon such other
criteria as the Granting Authority may determine. The Plan gives the Granting
Authority discretion to accelerate the vesting of restricted stock on a case by
case basis at any time. The Granting Authority also has authority to determine
whether the award holder will have the right to vote and/or receive dividends on
shares of restricted stock, and whether the certificates for such shares will be
held by the Company or delivered to the award holder bearing legends to restrict
their transfer.
Stock certificates representing the restricted stock granted under the
Plan will be registered in the award holder's name. However, no share of
restricted stock may be sold, transferred, assigned or pledged by the award
holder until such share has vested in accordance with the terms of the
restricted stock award. In the event of an award holder's termination of service
before all of his restricted stock has vested, or in the event other conditions
to the vesting of restricted stock have not been satisfied prior to any deadline
for the satisfaction of such conditions set forth in the award, the shares of
restricted stock which have not vested will be forfeited and any purchase price
paid by the award holder generally will be returned to the award holder. At the
time restricted stock vests, a certificate for such vested shares will be
delivered to the award holder (or the beneficiary designated by the award
holder, in the event of death), free of all restrictions.
4. Deferred Stock. Deferred stock may be conditioned upon the attainment
of specific performance goals or such other criteria as the Granting Authority
may determine. In making an award of deferred stock the Granting Authority will
determine the periods, if any, during which the award is subject to forfeiture,
and may provide for the issuance of stock pursuant to the award without payment
therefor. Upon vesting, the award will be settled in shares of Common Stock,
cash equal to the fair market value of such stock, or a combination thereof, as
provided by the Granting Authority. During the deferral period set by the
Granting Authority, the award holder may not sell, transfer, pledge or assign
the deferred stock award. In the event of termination of service before the
expiration of the deferral period, the deferred stock award will be forfeited,
except as may be provided by the Granting Authority. Deferred stock will carry
no voting rights until such time as the Common Stock is actually issued.
5. Bonus Stock. The Granting Authority may award bonus stock subject to
such terms and conditions as it may determine. Such awards may be conditioned
upon attainment of specific performance goals or such other criteria as the
Granting Authority may determine, and the Granting Authority may waive such
conditions in its discretion. Bonus stock may be issued without payment
therefore or may be sold at a discount from its fair market value.
6. Loans. The Granting Authority may provide that the Company will make,
or arrange for, a loan with respect to the exercise of any stock option granted
under the Plan, with respect to the payment of the purchase price, if any, of
any restricted stock awarded under the Plan, and / or with respect to any taxes
arising from an award under the Plan, provided that the Company will not loan
more than the sum of (i) the excess of the purchase or exercise price of an
award over the par value of any shares awarded, plus (ii) the amount of any
taxes arising from such award. The Granting Authority will determine the terms
of any such loan.
7. Tax-Offset Payments. The Granting Authority is authorized to provide
for a tax-offset payment by the Company to an award holder not in excess of the
amount necessary to pay the federal, state, local, and other taxes payable with
respect to any award and the receipt of the tax-offset payment, assuming the
award holder is taxed at the maximum tax rate applicable to such income. Due to
variations in the actual tax rates applicable to award holders, the benefit of
the tax-offset payment may not correspond to the actual tax liability of the
award holder. Tax-offset payments are payable in cash.
8. Performance Awards. The Plan Committee can designate any awards to
employees under the Plan as "Performance Awards", and the Plan provides that
awards so designated are to be granted and administered so as to qualify as
"performance-based compensation" under Section 162(m) of the Code. The grant or
vesting of a Performance Award will be subject to the achievement of performance
objectives (the "Performance Objectives") established by the Plan Committee
based on one or more of the following criteria, which the Plan Committee may
apply to the Company on a consolidated basis and/or to a business unit, and
which the Plan Committee may use either as an absolute measure or as a measure
of comparative performance relative to a peer group of companies: sales,
operating profits, operating profits before interest expense and taxes, net
earnings, earnings per share, return on equity, return on assets, return on
invested capital, total shareholder return, cash flow, debt to equity ratio,
market share, stock price, economic value added, and market value added.
The Performance Objectives for a particular Performance Award must be
established by the Plan Committee in writing no later than 90 days after the
beginning of the Company's fiscal year to which it relates. The Plan Committee
has authority to determine whether the Performance Objectives and other terms
and conditions of the award are satisfied, but has discretion to modify or waive
the Performance Objectives or conditions to the grant or vesting of a
Performance Award only to the extent that the exercise of such discretion would
not cause the Performance Award to fail to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code.
9. Deferral of Awards. The Granting Authority may permit an award holder
to defer receipt of any award for a specified period or until a specified event.
AUTOMATIC AWARDS TO OUTSIDE DIRECTORS
The Plan provides for the automatic grant of stock options and stock
grants to Outside Directors on the following terms. Each person who was an
Outside Director on August 31, 1999, the date this Plan was adopted by the
Company's Board of Directors, and each person who becomes an Outside Director
after such date will be granted on the date of his or her initial election (or
the first trading day thereafter), an option to purchase the number of whole
shares of Common Stock obtained by dividing $5,000 by the closing price of the
Common Stock on the date of grant. On the first trading day of each calendar
quarter beginning with October 1, 1999, each Outside Director then serving on
the Board of Directors and who has served for all or a portion of the previous
calendar quarter will be granted an option to purchase the number of whole
shares of Common Stock obtained by dividing $5,000 by the closing price of the
Common Stock on the date of grant.
The option price of all options automatically granted to Outside Directors
will be equal to the closing sales price of a share of Common Stock on the date
of option grant, and may be paid using cash or Common Stock owned for at least
six months, or a combination thereof, in the discretion of the option holder.
Each option has a ten-year term, and vests with respect to 10% of the underlying
shares three months after the date of grant, and an additional 10% at the end of
each three-month period thereafter, assuming continued service on the Board of
Directors. The minimum number of shares with respect to which an option may be
exercised at any time is the lesser of 100 shares or the number of shares
subject to the option. Following an Outside Director's termination of service,
the options which have previously become exercisable will remain exercisable for
five years after such termination, but not beyond their 10-year term.
An option shall only be exercisable by the option holder or his or her
guardian or legal representative. No holder of an option shall have any of the
rights of a shareholder.
Each automatic option to Outside Directors is granted in tandem with a
limited SAR which may be exercised only within the 60-day period following a
Change of Control. Upon exercise of the limited SAR, the appreciation will be
paid in cash based on the Change of Control Price.
On the first trading day of each calendar quarter beginning with the first
calendar quarter after the date of shareholder approval of the Plan, each
Outside Director then serving on the Board of Directors and who has served for
all or a portion of the previous calendar quarter will be automatically granted
the number of whole shares of Common Stock obtained by dividing $2,000 by the
closing price of the Common Stock on the date of grant. No cash is payable by
the Outside Director for such shares. Such shares will be fully vested and
non-forfeitable at the time of grant.
PROVISIONS RELATING TO A CHANGE OF CONTROL
As a general matter, upon the occurrence of a Change of Control (1) all
outstanding stock options, SARs, and limited SARs, including those held by
Outside Directors, will become fully exercisable and vested, (2) all
restrictions and deferral limitations applicable to outstanding restricted stock
and deferred stock awards under the Plan will lapse, and such shares and awards
will be deemed 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.
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 a SAR granted in tandem with an ISO, such
price is the highest price paid on the date the SAR is exercised.
OTHER PROVISIONS
Tax Withholding. The Plan permits employees to satisfy all or a portion of
their federal, state, local or other tax liabilities with respect to awards
under the Plan by delivering previously-owned shares (that have been owned by
the optionee for at least six months) or by having the Company withhold from the
shares otherwise deliverable to such employee shares having a value equal to the
tax liability to be so satisfied.
Adjustments. In the event of specified changes in the Company's capital
structure, the Plan Committee will have the power to adjust the number and kind
of shares authorized by the Plan (including any limitations on individual
awards), the number of stock options to be automatically granted to Outside
Directors, and the number, option price and kinds of shares covered by
outstanding awards (including those held by Outside Directors), and to make such
other adjustments in awards under the Plan as it deems appropriate, provided
that no such adjustment may increase the aggregate value of outstanding awards.
Amendments. The Board of Directors may amend the Plan without shareholder
approval, unless such approval is required by law or other regulatory
requirements. Amendment or discontinuation of the Plan cannot adversely affect
any award previously granted without the award holder's written consent.
The Granting Authority may amend any grant under the Plan within its
jurisdiction (including both discretionary and automatic grants to Outside
Directors) to include any provision which, at the time of such amendment, is
authorized under the terms of the Plan, except that no award can be modified in
a manner unfavorable to the award holder without the written consent of the
award holder. In addition, the Granting Authority may, without shareholder
approval, cancel an option or other award granted under the Plan and grant a new
option or award to the award holder at a lower exercise price or otherwise on
more favorable terms and conditions than the canceled award. The Plan shall
continue in effect for an unlimited period, but may be terminated by the Board
of Directors in its discretion at any time. No ISOs may be granted under the
Plan after August 31, 2009.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain federal income tax aspects of awards
made under the Plan, based upon the laws in effect on the date hereof. All
references to the "Code" are references to provisions of the Internal Revenue
Code of 1986, now in effect.
Non-Qualified Stock Options. With respect to non-qualified stock options:
(a) no income is recognized by the participant at the time the option is
granted; (b) upon exercise of the option, the participant recognizes ordinary
income in an amount equal to the difference between the option price and the
fair market value of the shares on the date of exercise; and (c) at disposition,
any appreciation after the date of exercise is treated either as long-term or
short-term capital gain, depending on whether the shares were held for more than
one year by the participant.
Incentive Stock Options. Generally, no taxable income is recognized by the
participant upon the grant of an ISO or upon the exercise of an ISO during the
period of his or her employment with the Company or one of its subsidiaries or
within three months (12 months, in the event of permanent and total disability,
as defined in the Code) after termination. However, the exercise of an ISO may
result in an alternative minimum tax liability to the participant. If the
participant continues to hold the shares acquired upon exercise of an ISO for at
least two years from the date of grant and one year from the date of exercise,
upon the sale of the shares, any amount realized in excess of the option price
will be taxed as long-term capital gain.
If Common Stock acquired upon the exercise of an ISO is disposed of prior
to the expiration of the one-year and two-year holding periods described above,
the participant will generally recognize ordinary income in an amount equal to
the excess, if any, of the fair market value of the shares on the date of
exercise (or, if less, the amount realized on the disposition of the shares)
over the option price. Any further gain recognized by the participant on such
disposition will be taxed as short-term or long-term capital gain, depending on
whether the shares were held for more than one year.
Stock Appreciation Rights. No income will be recognized by a participant
in connection with the grant of a SAR. When the SAR is exercised, the
participant will generally recognize as ordinary income in the year of exercise
an amount equal to the amount of cash received plus the fair market value on the
date of exercise of any shares received. If the participant receives Common
Stock upon exercise of a SAR, rules similar to those described above under
"Non-Qualified Stock Options" will apply with respect to the post-exercise
appreciation.
Restricted Stock A participant receiving restricted stock generally will
recognize ordinary income in the amount of the fair market value of the
restricted stock at the time the restrictions lapse and the stock vests, less
the consideration paid for the restricted stock. However, a participant may
elect, under Section 83(b) of the Code, to recognize ordinary income on the date
of grant in an amount equal to the excess of the fair market value of the shares
on such date (determined without regard to the restrictions) over their purchase
price. The holding period to determine whether the participant has long-term or
short-term capital gain on a subsequent disposition of the shares generally
begins when the restriction period expires, and the tax basis for such shares
will generally be the fair market value of such shares on such date. However, if
the participant has made an election under Section 83(b), the holding period
will commence on the day after the date of grant, and the tax basis will be
equal to the fair market value of the shares on the date of grant (determined
without regard to the restrictions).
Deferred Stock A participant receiving deferred stock generally will
recognize ordinary income equal to the amount of cash received in settlement of
the award or the fair market value of the deferred stock on the date that such
stock is distributed to the participant, and the capital gain holding period for
such stock will also commence on that date.
Dividends and Dividend Equivalents. Dividends paid on restricted stock
prior to the date on which the forfeiture restrictions lapse generally will be
treated as compensation that is taxable as ordinary income to the participant.
If, however, the participant makes a Section 83(b) election with respect to the
restricted stock, the dividends will be taxable as ordinary dividend income to
the participant. If dividend equivalents are credited with respect to deferred
stock or other awards, the participant generally will recognize ordinary income
when the dividend equivalents are paid.
Bonus Stock and Director Stock Grants. A participant receiving bonus stock
or a stock grant generally will recognize ordinary income on the date of grant
equal to the fair market value of such stock on such date.
Tax-Offset Payments. A participant receiving a tax-offset payment will
recognize ordinary income on the date of payment.
Company Deductions. As a general rule, the Company will be entitled to a
deduction for federal income tax purposes at the same time and in the same
amount that an employee or Outside Director recognizes ordinary income from
awards under the Plan, to the extent such income is considered reasonable
compensation under the Code. The Company will not, however, be entitled to a
deduction to the extent compensation in excess of $1 million is paid to an
executive officer named in a proxy statement of the Company who was employed by
the Company at year-end, unless the compensation qualifies as
"performance-based" under Section 162(m) of the Code or certain other exceptions
apply. In addition, the Company will not be entitled to a deduction with respect
to payments to employees which are contingent upon a change of control if such
payments are deemed to constitute "excess parachute payments" under Section 280G
of the Code and do not qualify as reasonable compensation pursuant to that
Section; such payments will subject the recipients to a 20% excise tax.
BENEFITS UNDER THE PLAN
Since the Company does not have any future commitments to grant awards
under the 1999 Stock Incentive Plan, the future awards under this Plan are not
determinable. Therefore, a "New Plan Benefits Table" has not been provided.
ADDITIONAL INFORMATION
The last sale price of Common Stock on the NASDAQ National Market System
on September 8, 1999 as $10 per share.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
APPROVAL OF THE 1999 STOCK INCENTIVE PLAN. Approval of the Plan requires that
the votes cast in favor of approval of the Plan exceed the votes cast against
such approval. Pursuant to the Company's Bylaws, abstentions and broker
"non-votes" (shares not voted because a nominee holding shares for a beneficial
owner neither receives voting instructions from the beneficial owner nor has
discretionary voting power with respect thereto) will have no effect on the
vote.
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, 1999 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 1999. 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 2000 Annual Meeting of
Shareholders must be received by the Company at its principal executive office,
200 Watson Boulevard, Stratford, Connecticut 06615, no later than Thursday, June
1, 2000.
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 2000 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 Wednesday, August 16, 2000 in order to be considered timely for
purposes of the Shareholder Proposal Rules. The persons designated as proxies by
the Company in connection with 2000 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, 1998,
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 1998 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.
DIANON SYSTEMS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
THE UNDERSIGNED HEREBY APPOINTS D.R. SCHREIBER AND C.J. RAUSCH, AND EACH OF
THEM, AS PROXIES, EACH WITH THE POWER TO APPOINT THEIR SUBSTITUTE, AND HEREBY
AUTHORIZES THEM TO REPRESENT AND TO VOTE AS DESIGNATED BELOW ALL THE SHARES OF
COMMON STOCK OF DIANON SYSTEMS, INC. (THE "COMPANY") HELD OF RECORD BY THE
UNDERSIGNED ON SEPTEMBER 8, 1999 AT THE ANNUAL MEETING OF STOCKHOLDERS TO BE
HELD AT THE COMPANY'S CORPORATE HEADQUARTERS AT 200 WATSON BOULEVARD, STRATFORD,
CONNECTICUT, ON OCTOBER 21, 1999 AT 10:00 A.M., AND ANY ADJOURNMENT THEREOF.
PROPOSAL(S): MARK AN X IN THE APPROPRIATE BOX. PLEASE USE EITHER BLUE OR BLACK
INK.
MANAGEMENT/BOARD OF DIRECTORS OF THE REGISTRANT RECOMMENDS A VOTE FOR ALL THE
NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3 AND 4.
1. ELECTION OF THE FOLLOWING NOMINEES FOR DIRECTOR: KEVIN C. JOHNSON, JOHN P.
DAVIS, BRUCE K. CROWTHER, E. TIMOTHY GEARY, G. S. BECKWITH GILBERT, JEFFREY
L. SKLAR AND DAVID R. SCHREIBER.
[ ] FOR ALL NOMINEES LISTED ABOVE [ ] WITHHOLD AUTHORITY
to vote for all
nominees listed above
TO WITHHOLD YOUR VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE THE NAME(S) ON THE LINE
BELOW.
________________________________________________________________________________
2. PROPOSAL TO APPROVE THE ADOPTION OF THE EMPLOYEE STOCK PURCHASE PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
________________________________________________________________________________
3. PROPOSAL TO APPROVE THE ADOPTION OF THE 1999 STOCK INCENTIVE PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
________________________________________________________________________________
4. PROPOSAL TO RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN, LLP AS AUDITORS FOR
THE YEAR ENDING DECEMBER 31, 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
________________________________________________________________________________
[ ] CHECK IF YOU HAVE [ ] CHECK IF YOU [ ] CHECK IF YOU PLAN
MADE ADDITIONAL PLAN TO ATTEND TO ATTEND THE MEETING
COMMENTS THE MEETING AND VOTE YOUR SHARES
(Continued and to be SIGNED on Reverse Side)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED OR IF NO CONTRARY
DIRECTION IS INDICATED WILL BE VOTED AS MANAGEMENT RECOMMENDS ON THESE AND ANY
OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT(S) OR
POSTPONEMENT(S) THEREOF. PLEASE SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE
ENVELOPE PROVIDED.
Signature of stockholder should correspond exactly
with the name shown on the proxy.
Corporate officers, powers of attorney, trustees,
executors, administrators, guardians, and others
signing in a representative capacity should each sign.
DATE ______________________________________________
______________________________________________
(SIGNATURE OF SHAREHOLDER)
______________________________________________
(SIGNATURE IF HELD JOINTLY)
If time warrants, improperly signed cards will
be returned for correction.