14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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Check the appropriate box:
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[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
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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PRELIMINARY COPY
DIANON SYSTEMS, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OCTOBER 24, 1996
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 24, 1996, at 10:00 A.M.,
for the following purposes:
(1) To elect directors for the ensuing year;
(2) To approve the Company's agreement with G.S. Beckwith Gilbert and
certain of his affiliates that Mr. Gilbert and such affiliates be
permitted to vote shares of the Company's common stock purchased
by them from the Company in October 1995 representing up to 20%
of the total voting power of the Company's voting securities
outstanding from time to time (the "Voting Rights Proposal") as
more fully discussed under "Approval of the Voting Rights
Proposal";
(3) To approve the adoption of the 1996 Stock Incentive Plan (the
"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, 1996; 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 20, 1996
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 14, 1996 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
Elizabeth Pultz
Assistant Secretary
200 Watson Boulevard
Stratford, Connecticut 06497
September 23, 1996
IT IS IMPORTANT THAT THE ENCLOSED PROXY CARD BE COMPLETED
AND RETURNED PROMPTLY
DIANON SYSTEMS, INC.
PROXY STATEMENT
September 23, 1996
This 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 24, 1996, 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 nominees and approval of the other proposals 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 of the Company (which does not form a part of the proxy
solicitation material), including the financial statements of the Company for
the fiscal year 1995, is enclosed herewith.
The mailing address of the principal executive office of the Company is 200
Watson Boulevard, Stratford, Connecticut 06497. This Proxy Statement and the
accompanying form of proxy are expected to be mailed to the shareholders of the
Company on or about September 23, 1996.
VOTING SECURITIES
The Company has only one class of voting securities outstanding, its Common
Stock, par value $.01 per share (the "Common Stock"). On September 20, 1996,
5,936,298 shares of Common Stock were outstanding. At the Annual Meeting, each
shareholder of record at the close of business on September 20, 1996, 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 in the following table as directors of the Company to serve until the next
Annual Meeting and until their successors are duly elected and qualified.
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.
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.
Information Concerning Directors and Nominees
Set forth below is certain information concerning each nominee for director
of DIANON Systems, Inc. All of the nominees are currently directors of the
Company.
Richard A. Sandberg, age 54, a founder of the Company, served as Chief
Executive Officer and a Director from its inception until May 1992, when he
became co-Chief Executive Officer. He has served as Chairman of the Board since
1989 and presently in such position continues to be an employee of the Company.
Mr. Sandberg served as President and Chief Executive Officer from January 1995
to May 1996. Mr. Sandberg also serves as a director of UroMed Corporation.
Kevin C. Johnson, age 41, a Director since May 1996, has served as
President since May 1996, when he joined the Company. 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 in Teterboro, New Jersey.
John P. Davis, age 54, Vice Chairman of the Board since January 1995, is
President and Chief Executive Officer of Calypte Biomedical Corp., a diagnostic
products company located in Alameda, California. He has been a Director of the
Company since 1984. 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 May
1992 and Chief Executive Officer in 1994. In January 1995, Mr. Davis resigned as
Chief Executive Officer of the Company. Mr. Davis also serves as a director of
Athena Neurosciences, Inc. and PepGen Corporation.
Walter O. Fredericks, age 56, a Director since 1989, is Chairman, President
and Chief Executive Officer of Lifecodes Corporation and Chairman of Cellmark
Diagnostics, Inc., both of which are in the human identity testing and product
supply field. Mr. Fredericks is also President and Chairman of Electronic
Instruments International Corporation, a manufacturer of electronic
instrumentation.
Jeffrey L. Sklar, age 48, a Director of the Company since 1994, is also
director, Division of Diagnostic Molecular Biology, Department of Pathology,
Brigham and Women's Hospital. Dr. Sklar is Professor of Pathology, Harvard
Medical School, and since 1992, Dr. Sklar has also served as Director, Molecular
Diagnostic Laboratory, Dana-Farber Cancer Institute. Dr. Sklar presently serves
on the Editorial Boards of the American Journals of Pathology and Genes,
Chromosomes, and Cancer. In addition, Dr. Sklar serves on the Scientific
Advisory Committee on the Clinical Sciences, Fred Hutchinson Cancer Center,
Seattle, Washington; the Scientific Advisory Committee, New England Primate
Research Center, Harvard University; and the Pathology B Study Section, National
Institutes of Health. Dr. Sklar holds an M.D. and Ph.D. from Yale University and
a M.A. (honorary) from Harvard University.
G. S. Beckwith Gilbert, age 54, 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. Mr. Gilbert
serves as a director of Davidson Hubeny Brands, Inc. and TMS Technologies, Inc.
James B. Amberson, age 45, a Director since January 1995, is Senior Vice
President, Operations 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, he was Assistant Professor
of Pathology, Cornell University Medical College for six years. Dr. Amberson
holds an M.D. from Johns Hopkins University and an M.B.A from Columbia
University School of Business.
Committees of the Board
The Company's Board of Directors presently has standing Audit and
Compensation Committees, the current membership and principal responsibilities
of which are described below:
Audit Committee
Members: Mr. Davis, Mr. Gilbert and Mr. Fredericks
Mr. Davis and Mr. Gilbert were elected to the Audit Committee in February,
1996.
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. de Bruin, Mr. Fredericks, Mr. Gilbert and Dr. Sklar
Mr. Gilbert was elected to the Compensation Committee in April, 1996.
The Compensation Committee's functions include setting compensation of the
Chairman of the Board and the executive staff. In addition, the Compensation
Committee has the authority to grant certain awards under the 1991 and 1996
Stock Incentive Plans.
Attendance at Board and Committee Meetings
During the 1995 fiscal year the Board of Directors held six regular
meetings and five special meetings. In addition, the Audit Committee met once
and the Compensation Committee met four 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 $2,000 per quarter
and $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".
In July 1995, subject to shareholder approval, the Company adopted a stock
compensation plan for outside directors which provides for (i) the automatic
grant (subject to shareholder approval) of initial and quarterly stock options
with tandem limited stock appreciation rights beginning July 1995, and (ii) the
automatic quarterly grant of shares of stock beginning after shareholder
approval of the plan (in replacement of the $2,000 quarterly cash fee). In
September 1996, the plan was amended, effective upon shareholder approval, to
authorize the Board to make discretionary grants of stock options and other
equity awards to outside directors. The plan is part of the 1996 Stock Incentive
Plan which is being submitted for shareholder approval at the Annual Meeting.
See "Approval of the DIANON Systems, Inc. 1996 Stock Incentive Plan".
Each initial and quarterly option which is automatically granted under the
plan is exercisable for that number of shares obtained by dividing $5,000 by the
closing price of 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 Common Stock on the date of grant and is fully vested at
grant.
Mr. Sandberg, 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 and shares held of record by a broker or its nominees on behalf
of a beneficial owner that are not voted because the beneficial owner has failed
to direct a vote ("broker non-votes") are each 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 and broker non-votes
are not counted for purposes of election of directors.
EXECUTIVE OFFICERS
Carl R. Iberger, age 43, has served as Vice President, Finance and
Administration since March, 1996, as Vice President, Administration since
January 1991 and Corporate Secretary since November 1986. Prior to joining the
Company in 1986, Mr. Iberger was Controller for a division of Dataproducts
Corporation, a leading manufacturer of computer printers. Mr. Iberger has
submitted his resignation as Vice President, Finance and Administration and as
Corporate Secretary, which will be effective as of September 30, 1996.
Albert A. Luderer, age 47, has served as Vice President, Technology since
January 1995. Dr. Luderer joined DIANON in November 1993, as Director of
Research and Development. Prior to joining the Company, Dr. Luderer was with
Boehringer Mannheim Corporation, a manufacturer of pharmaceuticals, diagnostic
instruments and medicinal chemicals, for six years, serving most recently as
Vice President, Technology Development & Support. Dr. Luderer holds an M.S. and
Ph.D. from Rutgers University.
Daniel J. Cronin, III, age 38, has served as Vice President, Management
Information Systems since October 1994. Mr. Cronin joined DIANON in November
1990 as Director of Management Information Systems. Prior to joining the
Company, Mr. Cronin served as Applications Development Manager with Ultimate
Corporation, a marketer of mini-computer systems and systems maintenance.
Robert C. Verfurth, age 36, has served as Director of Sales since August
1994. Mr. Verfurth joined DIANON in 1989 as a Sales Representative and
subsequently served as National Accounts Manager. Prior to his present position,
Mr. Verfurth served as Southeast Regional Sales Manager. Before joining the
Company, Mr. Verfurth was a captain in the U.S. Air Force.
For information with respect to Mr. Sandberg, Dr. Amberson and Mr. Johnson,
who are also Directors, see "Election of Directors - Information Concerning
Directors and Nominees".
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 1995 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 officers and senior management
employees. 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 return. 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- 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 competitive
salary range for each position that is established through job evaluation
and market comparisons. For 1995 the competitive information used to assess
appropriate salary levels was derived from a compensation survey for small
to medium-sized businesses, and the base salary of the CEO and other
officers comparable with the survey were between the first and third
quartiles reported in such survey.
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 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.
The Company's goals and the Company Achievement Percentage for 1995 were
based on sales growth and targeted earnings per share levels. The principal
factor in measuring performance against Company goals is actual sales
growth compared to planned sales growth. Failing to achieve targeted
earnings per share goals can limit Incentive Payments but exceeding
earnings per share goals cannot increase Incentive Payments if sales growth
is not also achieved. Special Company goals entitling participants to Extra
Incentive Payouts were not reached. The individual goals for executive
officers were established by the CEO and each executive officer. At the end
of the year, each officer's performance was reviewed and assigned an
Individual Achievement Percentage. Taken together, these Company and
Individual Achievement Percentages generated 1995 bonuses representing
approximately 17 to 26% of annual base salary for such officers.
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, their relative value as well as the exercise price of such awards,
and competitive practices. During 1995 the Committee also offered
short-term stock options to all employees of the Company, in proportion to
their respective salaries, pursuant to the Company's Employee Stock
Purchase Plan which was approved by the Company's shareholders at the 1995
Annual Meeting.
Discussion of 1995 Compensation for the Chairman and Chief Executive Officer
The Committee meets with the CEO to evaluate his performance. For 1995 Mr.
Sandberg'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 and expectations. Based on
these considerations, and in particular the large 1995 non-recurring charges
resulting from prior period investments, the Committee awarded Mr. Sandberg
incentive compensation in 1995 which represented approximately 17% of his annual
base salary for the year.
This report has been provided by the Compensation Committee of the Board of
Directors:
Walter O. Fredericks
Andre de Bruin
Jeffrey L. Sklar, M.D.,Ph.D.
SUMMARY COMPENSATION TABLE
The following table sets forth information with respect to the following
named executive officers: (i) the two persons who served as Chief Executive
Officers ("CEOs") during 1995 and (ii) the four most highly compensated
executive officers (other than the CEOs) serving at December 31, 1995 whose
total salary and bonus for 1995 exceeded $100,000. Long Term Compensation Other
Securities Annual Underlying All Other Salary Bonus Compensation Options (4)
Compensation
Long Term
Compensation
Other Securities
Annual Underlying All Other
Salary Bonus Compensation Options (4) Compensation
Richard A. Sandberg (1) ........ 1995 $212,500 $36,975 $ -- $ -- $3,681 (6)
Chairman of the Board and ...... 1994 203,280 47,902 -- 20,000 3,841
Chief Executive Officer ...... 1993 193,600 42,592 -- -- 2,181
John P. Davis (2) .............. 1995 11,728 7,000 -- 116,084 195,461 (7)
Former Chief Executive Officer . 1994 203,280 52,000 -- 30,000 10,427
1993 193,600 42,592 -- -- 13,220
James B. Amberson, M.D ......... 1995 185,465 36,997 -- 25,000 2,104 (8)
Director, Senior Vice President, 1994 173,764 39,230 -- 31,500 12,889
Operations and Chief Medical . 1993 161,079 33,148 -- 6,000 38,103
Officer ...................... --
Albert A. Luderer, Ph.D ........ 1995 163,369 41,758 4,190 10,000 8,530 (9)
Vice President, Technology ..... 1994 155,048 27,110 2,214 26,000 22,639
1993 28,846 38,000 -- -- 6,536
Carl R. Iberger (12) ........... 1995 108,952 27,788 -- -- 3,144 (10)
Vice President, Finance and .... 1994 103,981 17,847 -- 26,800 3,465
Administration and ........... 1993 99,138 16,632 -- 5,000 3,566
Corporate Secretary
Daniel J. Cronin ............... 1995 91,038 18,995 -- 4,000 3,092 (11)
Vice President, Management ..... 1994 79,615 15,904 -- 15,800 726
Information Systems .......... 1993 72,133 10,066 -- 3,000 2,240
(1) Mr. Sandberg ceased serving as Chief Executive Officer of the Company in
May 1996. He continues to serve as Chairman of the Board and as an employee
of the Company.
(2) Mr. Davis resigned as Chief Executive Officer in January 1995. He continues
to serve as a Director and as Vice Chairman of the Board.
(3) The amounts indicated in 1995 and 1994 for Dr. Luderer are relocation tax
gross-ups.
(4) Does not include options granted under the Company's Employee Stock
Purchase Plan, which were made available to all employees of the Company,
in proportion to their respective salaries, on a nondiscriminatory basis.
(5) In January 1995, Mr. Davis resigned his full time employment and officer
position with the Company. As part of the severance agreement, during 1995
stock options to purchase 69,916 shares of Common Stock at exercise prices
ranging from $4.56 to $10.75 were cancelled and stock options to purchase
116,084 shares of Common Stock with exercise prices ranging from $8.00 to
$10.75 were amended to set their exercise price at $5.25. These amended
options vested 25% in March 1995. The remaining 75% will vest in January
1997 if non-compete and other agreements are not violated prior to January
1997.
(6) The $3,681 indicated for Mr. Sandberg 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 1995 amounted to $1,500
and $2,181, respectively.
(7) The $195,461 indicated for Mr. Davis represents severance payments,
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 1995 amounted to $191,562, $1,848 and $2,051, respectively.
(8) The $2,104 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 1995 amounted to $1,500
and $604, respectively.
(9) The $8,530 indicated for Dr. Luderer includes deferred compensation under
the Company's vacation banking policy accrued during 1995, 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 1995
amounted to $6,392, $920 and $1,218, respectively.
(10) The $3,144 indicated for Mr. Iberger includes deferred compensation under
the Company's vacation banking policy accrued for during 1995,
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 1995 amounted to $2,127, $520 and $497, respectively.
(11) The $3,092 indicated for Mr. Cronin includes deferred compensation under
the Company's vacation banking policy accrued for during 1995,
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 1995 amounted to $1,731, $965 and $396, respectively.
(12) Mr. Iberger has submitted his resignation as Vice President, Finance and
Administration and as Corporate Secretary, which will be effective as of
September 30, 1996.
Employment and Severance Agreements
In January 1995, Mr. Davis resigned his full-time employment and officer
position with the Company. The Company paid approximately $257,000 during 1995
and $21,000 during 1996 for severance benefits to Mr. Davis. As part of the
severance agreement, during 1995 stock options to purchase 69,916 shares of
Common Stock at exercise prices ranging from $4.56 to $10.75 were cancelled and
stock options to purchase 116,084 shares of Common Stock with exercise prices
ranging from $8.00 to $10.75 were amended to set their exercise price at $5.25.
These amended options vested 25% in March 1995. The remaining 75% will vest in
January 1997 if non-compete and other agreements are not violated prior to
January 1997.
The Company has executive severance agreements with Mr. Sandberg and with
Dr. Amberson (the "Employees"). Each such agreement provides that in the event
of a "Change in Control of the Company", as defined in the agreement, if the
Employee's employment is terminated other than for "Cause", as defined in the
agreements, he is entitled to receive one year's salary and bonus and all his
stock options will vest completely. The agreements expire in March 2001 and are
subject to successive automatic one-year renewals thereafter (unless certain
notice is given).
The Company has also entered into an employment agreement with Dr.
Amberson. Pursuant to the agreement, Dr. Amberson is entitled to a salary as
determined by the Company and other benefits of the Company. 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 months salary and other benefits. Subject to the foregoing, this
agreement is subject to termination at will by either party.
The Company has also entered into an employment agreement with Mr. Johnson.
The agreement provides for 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
each of January 2, 1997 and January 2, 1998 provided Mr. Johnson continues to be
employed by the Company, 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 by the Company. If Mr. Johnson continues
to be employed by the Company, the loan principal will be forgiven at the rate
of $2,500 per complete 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.
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 July 31, 1991 (the effective date of the Company's initial public
offering) in the Common Stock of the Company, the H&Q Health Care 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
H&Q Health Care
DIANON Nasdaq Stock Without Biotechnology
DATES Systems Market - U.S. Sub-Sector
July-91 $100.00 $100.00 $100.00
Dec-91 171.88 118.04 145.90
Dec-92 137.50 137.37 123.00
Dec-93 75.00 157.70 88.09
Dec-94 50.00 154.15 93.60
Dec-95 53.13 217.99 155.84
Change of Control Provisions
Each of the Company's Employee Stock Purchase Plan and 1991 Stock Incentive
Plan contains "Change of Control" (as such term is defined in each such plan)
provisions generally comparable to the change of control provisions contained in
the Company's 1996 Stock Incentive Plan described under "Approval of the DIANON
Systems, Inc. 1996 Stock Incentive Plan" which provisions have effects generally
comparable to the effects described for the 1996 Stock Incentive Plan except
that options granted under the Employee Stock Purchase Plan will only be
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.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities to file with the Securities
and Exchange Commission 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, 1995, all Section 16(a)
filing requirements applicable to its officers, directors and ten percent
shareholders were complied with except for the following exceptions: Mr. Cronin,
Mr. Davis, Dr. Foemmel and Mr. Verfurth each reported one transaction late on a
subsequently filed Form 5.
The following table shows, as to the named executive officers of the
Company, information about option grants in the last fiscal year. As of
September 20, 1996, the Company has not granted any Stock Appreciation Rights.
OPTION GRANTS IN LAST FISCAL YEAR
Number of % of Total Potential Realizable Value at
Securities Options Assumed Annual Rates of
Underlying Granted to Exercise or Stock Price Appreciation
Options Employees Base Price Expiration for Option Term
Name Granted (#)(3) in 1995(3) ($/Share) Date 5%($) 10%($)
---- -------------- ---------- --------- ---------- ----- ------
Richard A. Sandberg 0 -- $ -- -- $ -- $ --
John P. Davis 116,084 (1) 36% 5.25 01/20/00 383,274 971,292
James B. Amberson, M.D 25,000 (2) 8% 5.25 08/15/05 82,542 209,179
Albert A. Luderer, Ph.D 10,000 (2) 3% 5.25 08/15/05 33,017 83,671
Daniel J. Cronin 4,000 (2) 1% 5.25 08/15/05 13,207 33,469
(1) In January 1995, Mr. Davis resigned his full time employment and officer
position with the Company. As part of the severance agreement, during 1995
stock options to purchase 69,916 shares of Common Stock at exercise prices
ranging from $4.56 to $10.75 were cancelled and stock options to purchase
116,084 shares of Common Stock with exercise prices ranging from $8.00 to
$10.75 were amended to set their exercise price at $5.25. These amended
options vested 25% in March 1995. The remaining 75% will vest in January
1997 if non-compete and other agreements are not violated prior to January
1997.
(2) In August 1995, the Company granted certain employees and officers options
to purchase 156,000 shares of Common Stock at $5.25 per share under the
1991 Stock Incentive Plan. These options vest 40% in August 1997 and 20%
during each year thereafter.
(3) Does not include options granted under the Company's Employee Stock
Purchase Plan, which were made available to all employees of the Company on
a non-discriminatory basis.
The following table shows aggregate option exercises in the last fiscal
year and fiscal year-end option values for the named executive officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
Value of Unexercised
Number of In-the-Money Options
Shares Value Realized Securities Underlying at FY-End (based on
Acquired (Market Price Unexercised FY-End Price of
on at Exercise less Options at FY-End $4.25/share) (1)
Name Exercise Exercise Price($)) Exercisable Unexercisable Exercisable Unexercisable
---- -------- ----------------- ----------- ------------- ----------- -------------
Richard A. Sandberg -- $ -- 149,024 26,976 $ -- $ --
John P. Davis -- -- 29,021 87,063 -- --
James B. Amberson, M.D. -- -- 17,200 39,300 -- --
Albert A. Luderer, Ph.D. -- -- 10,400 25,600 -- --
Carl R. Iberger -- -- 15,440 11,360 -- --
Daniel J. Cronin 2,080 3,432 6,960 12,840 -- --
(1) Computed based upon difference between aggregate fair market value and
aggregate exercise price.
10 YEAR OPTION REPRICINGS (1)
Number of
Securities Market Price
Underlying of Stock Length of Original Option
Options at Time of Exercise Price at Term Remaining at
Repriced Repricing Time of Repricing New Exercise Date of Repricing
Name Date or Amended or Amendment or Amemdment Price or Amendment
- ---- ---- ---------- ------------ ------------ ----- ------------
Richard S. Foemmel, Ph.D. June 9, 1994 1,040 $4.56 $3.85 $4.56 10 months (2)
3,600 4.56 9.88 4.56 2 years 7 months (3)
3,200 4.56 9.94 4.56 3 years 8 months (4)
4,000 4.56 8.00 4.56 9 years 5 months (5)
James B. Amberson, M.D. June 9, 1994 3,900 4.56 3.85 4.56 10 months (2)
3,600 4.56 9.88 4.56 2 years 7 months (3)
3,200 4.56 9.94 4.56 3 years 8 months (4)
4,800 4.56 8.00 4.56 9 years 5 months (5)
Albert A. Luderer, Ph.D. June 9, 1994 12,000 4.56 8.00 4.56 9 years 5 months (5)
Carl R. Iberger June 9, 1994 5,200 4.56 3.85 4.56 10 months (2)
2,400 4.56 9.88 4.56 2 years 7 months (3)
3,200 4.56 9.94 4.56 3 years 8 months (4)
4,000 4.56 8.00 4.56 9 years 5 months (5)
Daniel J. Cronin June 9, 1994 800 4.56 9.88 4.56 2 years 7 months (3)
1,600 4.56 9.94 4.56 3 years 8 months (4)
2,400 4.56 8.00 4.56 9 years 5 months (5)
John P. Davis March 16, 1995 84,884 5.25 8.00 5.25 6 years, 3 months (6)
31,200 5.25 10.75 5.25 6 years, 3 months (6)
- --------------------
(1) Does not include repricing before July 31, 1991 when the Company became a
reporting company pursuant to section 13(a) or 15(d) of the Securities
Exchange Act of 1934.
(2) The repriced options expire on April 30, 2000.
(3) The repriced options expire on April 30, 2001.
(4) The repriced options expire on April 30, 2002.
(5) The repriced options expire on April 30, 2003.
(6) The repriced options expire on January 20, 2000. These options were
repriced as part of a negotiated severance agreement with Mr. Davis which
included non-compete, non-solicitation and other provisions which inure to
the benefit of the Company.
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 1996 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 requires the Company to make quarterly
payments of $30,000 totaling $360,000 in exchange for option rights to
discoveries and inventions in the areas of cancer detection and diagnosis. The
research is to be conducted by Dr. Sklar, a Director of the Company. The Company
paid $60,000 in 1995 and as of September 20, 1996, has made payments of $90,000
for 1996. In addition, the Company has made payments to Brigham & Women's
Hospital, Inc. of $30,000 in each of 1995 and 1996 for consulting services by
Dr. Sklar.
OWNERSHIP OF VOTING STOCK BY MANAGEMENT
The following table gives information concerning the beneficial ownership
of Common Stock as of September 20, 1996 by all directors and each of the named
executive officers and all directors and executive officers as a group.
Total Shares
Beneficially Right to Percent of
Beneficial Owners Owned (1)(2) Direct Ownership Acquire(3) Class(4)
- ----------------- ------------ ---------------- ---------- --------
Richard A. Sandberg 245,069 96,045 149,024 4%
John P. Davis 143,241 114,220 29,021 2%
Andre de Bruin 10,300 4,300 6,000 -- (5)(6)
Walter O. Fredericks 3,900 -- 3,900 -- (5)
Jeffrey L. Sklar -- -- -- -- (5)
James B. Amberson, M.D. 34,992 15,652 19,340 -- (5)
Albert A. Luderer 12,800 4,800 8,000 -- (5)
Carl R. Iberger (8) 19,310 1,950 17,360 -- (5)
Daniel J. Cronin 9,161 8,201 960 -- (5)
G. S. Beckwith Gilbert 1,800,000 1,000,000 800,000 27% (7)
Kevin C. Johnson 200,000 -- 200,000 3%
All directors and
executive officers 2,481,073 1,246,220 1,234,853 35%
as a group (12 persons)
- ------------------------
(1) The information as to beneficial ownership is based on statements furnished
to the Company by its executive officers and directors. The executive
officers and directors have sole voting and sole investment power with
respect to all shares included in the table above, except for Mr. Gilbert
with respect to 121,951 shares which are held by a trust of which Mr.
Gilbert is a trustee.
(2) Includes shares listed under the captions "Direct Ownership" and "Right to
Acquire".
(3) Individuals currently have the right to acquire these shares within 60 days
after September 20, 1996 by the exercise of stock options or warrants.
(4) For the purposes of this table, "Percent of Class" held by each individual
and by all directors and executive officers as a group has been calculated
based on a total class equal to the sum of (i) 5,936,298 shares of Common
Stock issued and outstanding on September 20, 1996 plus (ii) for such
individual or such group, as the case may be, the number of shares of
Common Stock subject to stock options or warrants presently exercisable, or
exercisable within 60 days after September 20, 1996, held by that
individual, or such group, as the case may be, and which percent is rounded
to the nearest whole number.
(5) Percentage of shares beneficially owned does not exceed 1% of the class.
(6) Mr. de Bruin will not stand for re-election to the Company's Board of
Directors.
(7) As of September 20, 1996, Mr. Gilbert cannot vote, without restriction, any
Common Stock or other voting securities of the Company beneficially owned
by him representing greater than 1,056,978 votes (which would constitute
approximately 18% of the Company's voting securities outstanding as of such
date). Any votes in excess of 1,056,978 represented by Common Stock or
other voting securities of the Company beneficially owned by Mr. Gilbert as
of such date are required to be voted in proportion to the votes cast by
all other shareholders of the Company. See "Approval of the Voting Rights
Proposal".
(8) Mr. Iberger has submitted his resignation as Vice President, Finance and
Administration and as Corporate Secretary, which will be effective as of
September 30, 1996.
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's management as derived from schedules
13D and 13G, beneficially owned more than five percent of the Common Stock as of
September 20, 1996 (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(3)
-------------- ---------------- --------- -----------
DIANON Common Stock G.S. Beckwith Gilbert 1,800,000 (1) 27% (2)
and certain of his affiliates
35 Vista Drive
Greenwich, CT 06830
DIANON Common Stock John M. Bryan and affiliates 711,153 12%
Bryan and Edwards
600 Montgomery Street - 35th Floor
San Francisco, CA 94111
DIANON Common Stock Oracle Management Partners, Inc. 431,328 7%
and Affiliates
712 E 5th Avenue - 45th Floor
New York, NY 10019
(1) Mr. Gilbert has the right to acquire beneficial ownership of 800,000 of
such shares by the exercise of certain warrants. In addition, Mr. Gilbert
has shared voting and investment power with respect to 121,951 shares
included in the table above.
(2) As of September 20, 1996, Mr. Gilbert cannot vote, without restriction, any
Common Stock or other voting securities of the Company beneficially owned
by him representing greater than 1,056,978 votes (which would constitute
approximately 18% of the Company's voting securities outstanding as of such
date). Any votes in excess of 1,056,978 represented by Common Stock or
other voting securities of the Company beneficially owned by Mr. Gilbert as
of such date are required to be voted in proportion to the votes cast by
all other shareholders of the Company. See "Approval of the Voting Rights
Proposal".
(3) 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)
5,936,298 shares of Common Stock issued and outstanding on September 20,
1996 plus (ii) for such individual the number of shares of Common Stock
subject to stock options or warrants presently exercisable, or exercisable
within 60 days after September 20, 1996, held by that individual, and which
percent is rounded to the nearest whole number.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
Other Transactions and Indebtedness of Management
The Company has entered into an agreement with Brigham & Women's Hospital,
Inc. pursuant to which payments are being made to such hospital in connection
with research being conducted by Dr. Sklar, a director of the Company. See
"Compensation Committee Interlocks and Insider Participation".
As part of the process to recruit a new executive, the Company lent an
affiliate of Mr. Sandberg $75,000 in March 1995 at 8% interest. Such loan was
repaid in full with interest in March 1996.
On October 5, 1995 the Company completed a $5,612,000 private placement
with G.S. Beckwith Gilbert and certain of his affiliates for 1 million shares of
Common Stock and 800,000 two year warrants exercisable at $6.00 (except as
otherwise described below). Upon consummation of such transaction, Mr. Gilbert
was elected to the Company's Board of Directors. On August 20, 1996, the
Company's Board of Directors approved an amendment to the terms of the Warrants
to extend from October 4, 1996 to October 31, 1996 the date through which the
Warrants can be exercised at $5.00 per share. The amendment was approved in
connection with the scheduling of the Annual Meeting for October 24, 1996 to
enable the voting on the Voting Rights Proposal to be completed prior to the
expiration of the $5.00 per share exercise price. See "Approval of the Voting
Rights Proposal".
For description of a loan from the Company to Mr. Johnson, see "Employment
and Severance Agreements".
APPROVAL OF THE VOTING RIGHTS PROPOSAL
On October 5, 1995 the Company completed a private sale (the "Private
Placement") to G. S. Beckwith Gilbert and certain of his affiliates
(collectively the "Gilbert Entities") of 1,000,000 shares of Common Stock (the
"Shares") and 800,000 two-year warrants (the "Warrants") exercisable at $6.00
per share of Common Stock (except as otherwise described below) for an aggregate
consideration of $5,612,000. The Company received cash of $5,316,000 and a
two-year promissory note in the principal amount of $296,000 bearing interest at
an annual rate equal to 7% (the "Private Placement Note"). Some or all of the
Warrants can be exercised at a price of $5.00 at any time on or before October
31, 1996. Upon such exercise, the Company will extinguish as an adjustment to
the purchase price paid for such Warrants, for each such Warrant for which such
exercise has been made, $0.37 of the principal amount of the Private Placement
Note upon payment of the interest due on such extinguished amount for the
outstanding period. If the 800,000 Warrants are all exercised on or before
October 31, 1996, the Private Placement Note for $296,000 will be fully
extinguished. See "Certain Transactions and Relationships". As of September 20,
1996, no Warrants have been exercised and $296,000 in principal of the Private
Placement Note is outstanding.
Under the terms of the Private Placement, for a period of seven years,
subject to earlier termination in certain events (the "Standstill Period"), the
Gilbert Entities are subject to "standstill" limitations providing generally
that (i) the Gilbert Entities will not beneficially own any securities of the
Company entitled to vote generally in the election of directors of the Company,
including Common Stock ("Voting Securities"), other than the Shares, the shares
issuable upon exercise of the Warrants (the "Warrant Shares"), shares of Common
Stock issuable pursuant to options or rights under Company plans ("Option
Shares") and additional Voting Securities so long as the votes represented by
such additional Voting Securities together with the votes represented by the
Shares, Warrant Shares and Option Shares do not equal or exceed 25% or more of
the total voting power represented by all outstanding Voting Securities ("Total
Voting Power"), (ii) without regard to clause (i), the Gilbert Entities' voting
power would be limited to 1,056,978 shares of Common Stock (the "Gilbert Voting
Limit") representing approximately 16.7% of the Total Voting Power (determined
on a post-transaction basis) and approximately 19.9% of the Total Voting Power
(determined on a pre-transaction basis), except in one limited circumstance
involving a sale of the Company in which the Gilbert Entities would not receive
an adequate return on their investment in the Company, (iii) subject to the
Gilbert Voting Limit, the Gilbert Entities would agree to vote for the Company's
nominees in elections of directors, and (iv) the Gilbert Entities would not
enter into voting trusts or voting agreements or similar arrangements, solicit
proxies or become participants in a proxy solicitation, participate in any 13D
group, or, with certain exceptions, make an unsolicited offer to enter into a
business combination or purchase any material assets of the Company.
Upon consummation of the Private Placement, Mr. Gilbert was elected to the
Company's Board of Directors and, so long as the Gilbert Entities beneficially
own 5% or more of the total Voting Securities outstanding, Mr. Gilbert will be
included in the nominees recommended to the shareholders for election to the
Board of Directors. The Gilbert Entities are also entitled to notice of certain
business combinations and other material events relating to the Company and, if
the Company issues Voting Securities for cash, the Gilbert Entities are entitled
to purchase additional Voting Securities from the Company to maintain their
proportionate stock ownership interest and, if the Company issues Voting
Securities to a person that after such issuance would own a greater percentage
of Voting Securities or Voting Power than the Gilbert Entities, the Gilbert
Entities are entitled to acquire a matching interest, subject, in each case, to
the Gilbert Voting Limit. The Gilbert Entities are entitled to notice of certain
third party actions that would result in a change of control of the Company, and
have a right of first negotiation if the Company proposes to enter into certain
business combinations.
Under the rules of the National Association of Securities Dealers, Inc.
("NASD") applicable to the Company, any issuance of securities by the Company
with voting rights greater than 19.9% of the Company's outstanding Voting
Securities (prior to any such issuance), or 1,056,978 votes, would require
approval by the Company's shareholders. Since the Gilbert Entities were
purchasing 1,000,000 shares of Common Stock and Warrants representing the right
to acquire an additional 800,000 shares of Common Stock, the Company would have
been required under the NASD rules to obtain shareholder approval of the
transaction. Because seeking shareholder approval at that time would have
substantially delayed the consummation of the Private Placement, the Company and
the Gilbert Entities agreed that (1) if at any time the Gilbert Entities
beneficially owned Voting Securities representing more than the Gilbert Voting
Limit (1,056,978 shares representing 16.75% of the Company's outstanding Voting
Securities), the Gilbert Entities agreed to take such action as would be
required so that (with one limited exception noted on the preceding page) all
shares of Voting Securities beneficially owned by the Gilbert Entities
representing votes in excess of the Gilbert Voting Limit are voted in the same
proportion as the votes cast by other holders of Voting Securities on all
matters to be voted on by the holders of Voting Securities (including, without
limitation, matters relating to mergers or other business combinations) and (2)
the Company would seek approval at the Company's first annual shareholders
meeting following such consummation to raise the Gilbert Voting Limit up to 20%
of the Company's outstanding Voting Securities from time to time (representing
1,187,260 votes based on the 5,936,298 shares of Common Stock outstanding as of
the record date for the Annual Meeting).
If the Company's shareholders approve the Voting Rights Proposal the
Company will enter into an appropriate amendment of the Private Placement
agreement with the Gilbert Entities to increase the Gilbert Voting Limit to 20%
of the total voting power of all the Company's Voting Securities outstanding
from time to time. If the Company's shareholders do not approve the Voting
Rights Proposal, the Gilbert Voting Limit will remain at 1,056,978 votes and Mr.
Gilbert will have the right for a period of 30 days after the Annual Meeting to
rescind some or all of the Warrants then outstanding and upon such rescission,
with respect to each rescinded Warrant the Company shall pay Mr. Gilbert $1.52
in cash and cancel $.37 of principal amount of the Private Placement Note. Other
than complying with its obligations under the Private Placement agreement, the
Company does not have any plans with respect to actions it might take if the
Voting Rights Proposal is not approved by its shareholders at the Annual
Meeting.
The Board of Directors recommends that shareholders vote "FOR" approval of
the Voting Rights Proposal. The Voting Rights Proposal reflects the Company's
agreement to the terms of the Gilbert Entities investment in the Company at the
time of the Private Placement, and the Company believes it is in the best
interest of the Company and its shareholders. Approval of the Voting Rights
Proposal requires that the number of votes cast in favor of approval of the
Voting Rights Proposal exceed the number of votes a cast against such approval.
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.
As of the record date for the Annual Meeting, the Directors of the Company
who approved the Private Placement and the Gilbert Entities, as a group,
beneficially owned an aggregate of 1,230,217 shares of Common Stock (which
amount excludes all shares subject to options and warrants outstanding as of the
record date for the Annual Meeting and exercisable (but not exercised) as of or
within 60 days after such record date representing approximately 21% of the
outstanding Common Stock. All such directors and the Gilbert Entities have
indicated their intention to vote all of their Common Stock "FOR" approval of
the Voting Rights Proposal.
APPROVAL OF THE DIANON SYSTEMS, INC.
1996 STOCK INCENTIVE PLAN
The Board of Directors has adopted, subject to approval at the Annual
Meeting, the DIANON Systems, Inc. 1996 Stock Incentive Plan (the "Plan"). The
purposes of the Plan are to enable the Company to attract, retain and reward
employees by offering employees an equity interest in the Company and to enable
the Company to pay part of the compensation of its outside directors in Common
Stock.
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
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 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 employees
(including officers) of the Company or of any entity in which the Company owns
at least a 20% interest. The employee participants in the Plan are selected from
among those eligible in the sole discretion of the Plan Committee. 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 employees (currently
numbering approximately 400) 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 700,000, of which 630,000 may be issued to
employees and 70,000 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 employee may be granted stock options, SARs, restricted stock, deferred
stock, or bonus stock under the Plan with respect to more than 300,000 shares of
Common Stock in any fiscal year. No employee may be granted tax-offset payments
with respect to more than the number of shares of Common Stock covered by awards
granted to such employee in such 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 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 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 the "base 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 therefor
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 July 27, 1995, (the date the automatic grant provisions with respect
to Outside Directors were adopted by the Board) was granted on that date, 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,
1995, 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.
All options granted prior to shareholder approval of the Plan were granted
subject to such approval. Outside Directors also may be granted discretionary
awards by the Board of Directors.
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 liability with respect to awards under
the Plan by delivering previously-owned shares 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 April 9, 2006.
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.
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,
or the term of the option, in the event of death) 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 an 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 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
The following table sets forth the number of stock options granted to the
indicated officers and employee and director groups under the Plan during 1995
and 1996 contingent on shareholder approval of the Plan. The table does not
reflect future awards which might be granted under the Plan. The size of future
awards and the identity of employee recipients of such awards cannot be
determined at this time.
New Plan Benefits
1996 Stock Incentive Plan
Name and Position Number of Stock Options
-------------------------------- --------------------------------
Non-Executive Director Group 23,861
(5 persons)
Additional Information
The last sale price of Common Stock on the NASDAQ National Market System on
September 4, 1996 was $6.50 per share.
The Company's Board of Directors recommends that shareholders vote "FOR"
approval of the 1996 Stock Incentive Plan. Approval of the Plan requires that
the number of votes cast in favor of approval of the Plan exceed the number of
votes cast against such approval. 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, 1996, was made by the Board of Directors
subject to shareholder approval. 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 1996. 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 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.
SHAREHOLDER PROPOSALS
In accordance with regulations issued by the Securities and Exchange
Commission, shareholder proposals intended for presentation at the 1997 Annual
Meeting of Shareholders must be received by the Secretary of the Company no
later than May 27, 1997 if such proposals are to be considered for inclusion in
the Company's Proxy Statement related to the 1997 Annual Meeting.
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
Upon the written request of a shareholder of the Company, addressed to
Richard A. Sandberg, Chairman of the Board, at 200 Watson Boulevard, Stratford,
Connecticut 06497, the Company will provide without charge to such shareholder a
copy of the Company's Annual Report on Form 10-K for its calendar year ended
December 31, 1995, including all statements and schedules (but without
exhibits), filed with the Securities and Exchange Commission.
------------------------
The information under the headings "Compensation Committee Report",
"Compensation Program Components", "Discussion of 1995 Compensation for the
Chairman and 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.
Appendix A
DIANON SYSTEMS, INC.
1996 STOCK INCENTIVE PLAN
SECTION 1. Purposes
The purposes of the Dianon Systems, Inc. 1996 Stock Incentive Plan (the
"Plan") are (i) to enable Dianon Systems, Inc. (the "Company") and its Related
Companies (as defined below) to attract, retain and reward employees and
strengthen the existing mutuality of interests between such employees and the
Company's stockholders by offering such employees an equity interest in the
Company, and (ii) to enable the Company to pay part of the compensation of its
Outside Directors (as defined in Section 5.2) in the form of equity of the
Company, thereby increasing such directors' proprietary interests in the
Company. For purposes of the Plan, a "Related Company" means any corporation,
partnership, joint venture or other entity in which the Company owns, directly
or indirectly, at least a 20% beneficial ownership interest.
SECTION 2. Types of Awards
2.1 Awards under the Plan may be in the form of (i) Stock Options; (ii)
Stock Appreciation Rights; (iii) Restricted Stock; (iv) Deferred Stock; (v)
Bonus Stock; (vi) Loans; and/or (vii) Tax Offset Payments. One or more types of
awards may be granted, which may be independent or granted in tandem. If two
awards are granted in tandem, the award holder may exercise (or otherwise
receive the benefit of) one award only to the extent he or she relinquishes the
tandem award.
2.2 Outside Directors shall receive Stock Options, Limited Stock
Appreciation Rights and Stock Grants as provided in Section 15. In addition,
Outside Directors may be granted awards in one or more of the forms set forth in
Section 2.1.
SECTION 3. Administration
3.1 The Plan shall be administered (i) by the Compensation Committee of
the Company's Board of Directors (the "Board") or such other committee of
directors as the Board shall designate (the "Committee"), with respect to awards
to persons other than Outside Directors, and (ii) by the Board with respect to
awards to Outside Directors (except as provided in Section 4.4). The Committee
shall consist of not less than two directors each of whom is an Outside
Director. The members of the Committee shall serve at the pleasure of the Board.
3.2 For purposes of this Plan the term "Granting Authority" shall mean
(i) the Board of Directors with respect to awards to Outside Directors (except
as provided in Section 4.4), and (ii) the Committee with respect to all other
awards. The Granting Authority shall have the following authority with respect
to awards under the Plan within its jurisdiction: to grant such awards to
persons eligible to receive them under the Plan; to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall
deem advisable; to interpret the terms and provisions of the Plan and any award
granted by it under the Plan; and to otherwise supervise the administration of
the Plan. In particular, and without limiting its authority and powers, the
Granting Authority shall have the authority with respect to the awards within
its jurisdiction:
(a) to determine whether and to what extent any award or combination of
awards will be granted hereunder, including whether any awards will
be granted in tandem with each other;
(b) to select the eligible persons to whom awards will be granted;
(c) to determine the number of shares of the common stock of the Company
(the "Stock") to be covered by each award granted hereunder subject
to the limitations contained herein;
(d) to determine the terms and conditions of any award granted
hereunder, including, but not limited to, any vesting or other
restrictions based on such performance objectives (the "Performance
Objectives") and such other factors as the Granting Authority may
establish, and to determine whether the Performance Objectives and
other terms and conditions of the award are satisfied;
(e) to determine the treatment of awards upon an award holder's
retirement, disability, death, termination for cause or other
termination of employment or service with the Company or Related
Company;
(f) to determine pursuant to a formula or otherwise the fair market
value of the Stock on a given date; provided, however, that if the
Granting Authority fails to make such a determination, fair market
value of the Stock on a given date shall be the closing sale price
on a given date, or if no such sale of Stock occurs on such date,
the weighted average of the closing sale prices on the nearest
trading dates before and after such date;
(g) to determine that amounts equal to the amount of any dividends
declared with respect to the number of shares covered by an award
(i) will be paid to the award holder currently or (ii) will be
deferred and deemed to be reinvested or (iii) will otherwise be
credited to the award holder, or that the award holder has no rights
with respect to such dividends;
(h) to determine whether, to what extent, and under what circumstances
Stock and other amounts payable with respect to an award will be
deferred either automatically or at the election of an award holder,
including providing for and determining the amount (if any) of
deemed earnings on any deferred amount during any deferral period;
(i) to provide that the shares of Stock received as a result of an award
shall be subject to a right of first refusal, pursuant to which the
award holder shall be required to offer to the Company any shares
that the award holder wishes to sell, subject to such terms and
conditions as the Granting Authority may specify;
(j) to amend the terms of any award (including those granted under
Section 15), prospectively or retroactively; provided, however, that
no amendment shall impair the rights of the award holder without his
or her written consent; and
(k) to substitute new Stock Options for previously granted Stock
Options, or for options granted under other plans or agreements, in
each case including previously granted options having higher option
prices.
3.3 The Committee shall have the right to designate awards as
"Performance Awards." Awards so designated shall be granted and administered in
a manner designed to preserve the deductibility of the compensation resulting
from such awards in accordance with Section 162(m) of the Internal Revenue Code
(the "Code"). The grant or vesting of a Performance Award shall be subject to
the achievement of Performance Objectives established by the Committee based on
one or more of the following criteria, in each case applied to the Company on a
consolidated basis and/or to a business unit and which the Committee may use as
an absolute measure, as a measure of improvement relative to prior performance,
or as a measure of comparable 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 relative to a
particular fiscal year shall be established by the Committee in writing no later
than 90 days after the beginning of such year. The Committee's determination as
to the achievement of Performance Objectives relating to a Performance Award
shall be made in writing. The Committee shall have discretion to modify the
Performance Objectives or vesting conditions 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.
3.4 All determinations made by the Granting Authority pursuant to
the provisions of the Plan shall be final and binding on all persons, including
the Company and Plan participants.
3.5 The Committee may from time to time delegate to one or more officers
of the Company any or all of its authorities granted hereunder except with
respect to awards granted to persons subject to Section 16 of the Securities
Exchange Act of 1934 or Performance Awards. The Committee shall specify the
maximum number of shares that the officer or officers to whom such authority is
delegated may award.
SECTION 4. Stock Subject to Plan
4.1 The total number of shares of Stock which may be issued under the
Plan shall be 700,000, of which 630,000 shall be used for awards to employees
and 70,000 shall be used for awards to Outside Directors (all subject to
adjustment as provided below). Such shares may consist of authorized but
unissued shares or treasury shares. The exercise of a Stock Appreciation Right
for cash or the payment of any other award in cash shall not count against this
share limit.
4.2 To the extent a Stock Option terminates without having been
exercised, or an award terminates without the award holder having received
payment of the award, or shares awarded are forfeited, the shares subject to
such award shall again be available for distribution in connection with future
awards under the Plan. Shares of Stock equal in number to the shares surrendered
in payment of the option price, and shares of Stock which are withheld in order
to satisfy federal, state or local tax liability, shall not count against the
above limit, and shall again be available for grants under the Plan.
4.3 No employee shall be granted Stock Options, Stock Appreciation
Rights, Restricted Stock, Deferred Stock, and/or Bonus Stock, or any combination
of the foregoing with respect to more than 300,000 shares of Stock in any fiscal
year (subject to adjustment as provided in Section 4.4). No employee shall be
granted a Tax Offset Payment in any fiscal year with respect to more than the
number of shares of Stock covered by awards granted to such employee in such
fiscal year.
4.4 In the event of any merger, reorganization, consolidation, sale of
substantially all assets, recapitalization, Stock dividend, Stock split,
spin-off, split-up, split-off, distribution of assets or other change in
corporate structure affecting the Stock, a substitution or adjustment, as may be
determined to be appropriate by the Committee in its sole discretion, shall be
made in the aggregate number of shares reserved for issuance under the Plan, the
number of shares as to which awards may be granted to any individual in any
calendar year, the number and type of shares subject to outstanding awards and
the amounts to be paid by award holders or the Company, as the case may be, with
respect to outstanding awards; provided, however, that no such adjustment shall
increase the aggregate value of any outstanding award. In the event any change
described in this Section 4.4 occurs, the Committee shall make appropriate
adjustment in the awards previously granted and to be granted to Outside
Directors under the Plan; provided that no such adjustment shall increase the
aggregate value of any outstanding award.
SECTION 5. Eligibility
5.1 Employees of the Company or a Related Company, including employees
who are officers and/or directors of the Company, are eligible to be granted
awards under the Plan, other than under Section 15. Employees shall be selected
for participation in the Plan from time to time by the Committee, in its sole
discretion, from among those eligible.
5.2 Awards under Section 15 of the Plan shall be made solely to Outside
Directors, which term shall mean any director of the Company other than one who
is an employee of the Company or a Related Company. The Board, in its
discretion, may also grant other awards under the Plan in one or more of the
forms set forth in Section 2.1 to one or more Outside Directors.
SECTION 6. Stock Options
6.1 The Stock Options awarded under the Plan may be of two types: (i)
Incentive Stock Options within the meaning of Section 422 of the Code or any
successor provision thereto (which may only be granted to employees); and (ii)
Non-Qualified Stock Options. To the extent that any Stock Option does not
qualify as an Incentive Stock Option, it shall constitute a Non-Qualified Stock
Option.
6.2 Subject to the following provisions, Stock Options awarded under the
Plan shall be in such form and shall have such terms and conditions as the
Granting Authority may determine:
(a) Option Price. The option price per share of Stock purchasable under
a Stock Option shall be determined by the Granting Authority, and
may be less than the fair market value of the Stock on the date of
the award of the Stock Option.
(b) Option Term. The term of each Stock Option shall be fixed by the
Granting Authority.
(c) Exercisability. Stock Options shall be exercisable at such time or
times and subject to such terms and conditions as shall be
determined by the Granting Authority. The Granting Authority may
waive such exercise provisions or accelerate the exercisability of
the Stock Option at any time in whole or in part.
(d) Method of Exercise. Stock Options may be exercised in whole or in
part at any time during the option period by giving written notice
of exercise to the Company specifying the number of shares to be
purchased, accompanied by payment of the purchase price. Payment of
the purchase price shall be made in such manner as the Granting
Authority may provide in the award, which may include cash
(including cash equivalents), delivery of shares of Stock already
owned by the optionee or subject to awards hereunder, "cashless
exercise", any other manner permitted by law determined by the
Granting Authority, or any combination of the foregoing. If the
Granting Authority determines that a Stock Option may be exercised
using shares of Restricted Stock, then unless the Granting Authority
provides otherwise, the shares received upon the exercise of a Stock
Option which are paid for using Restricted Stock shall be restricted
in accordance with the original terms of the Restricted Stock award.
(e) No Stockholder Rights. An optionee shall have neither rights to
dividends or other rights of a stockholder with respect to shares
subject to a Stock Option until the optionee has given written
notice of exercise and has paid for such shares.
(f) Surrender Rights. The Granting Authority may provide that options
may be surrendered for cash upon any terms and conditions set by the
Granting Authority.
(g) Non-transferability. Unless otherwise provided by the Granting
Authority, (i) Stock Options shall not be transferable by the
optionee other than by will or by the laws of descent and
distribution, and (ii) during the optionee's lifetime, all Stock
Options shall be exercisable only by the optionee or by his or her
guardian or legal representative.
(h) Termination of Service. Following the termination of an optionee's
service with the Company or a Related Company, the Stock Option
shall be exercisable to the extent determined by the Granting
Authority. The Granting Authority may provide different
post-termination exercise provisions with respect to termination of
service for different reasons. The Granting Authority may provide
that, notwithstanding the option term fixed pursuant to Section
6.2(b), a Stock Option which is outstanding on the date of an
optionee's death shall remain outstanding for an additional period
after the date of such death.
6.3 Notwithstanding the provisions of Section 6.2, no Incentive Stock
Option shall (i) have an option price which is less than 100% of the fair market
value of the Stock on the date of the award of the Incentive Stock Option, (ii)
be exercisable more than ten years after the date such Incentive Stock Option is
awarded, or (iii) be awarded more than ten years after the effective date of the
Plan specified in Section 19. No Incentive Stock Option granted to an employee
who owns more than 10% of the total combined voting power of all classes of
stock of the Company or any of its parent or subsidiary corporations, as defined
in Section 424 of the Code, shall (A) have an option price which is less than
110% of the fair market value of the Stock on the date of award of the Incentive
Stock Option or (B) be exercisable more than five years after the date such
Incentive Stock Option is awarded.
SECTION 7. Stock Appreciation Rights
7.1 A Stock Appreciation Right shall entitle the holder thereof to
receive payment of an amount, in cash, shares of Stock or a combination thereof,
as determined by the Granting Authority, equal in value to the excess of the
fair market value of the number of shares of Stock as to which the award is
granted on the date of exercise over an amount specified by the Granting
Authority. Any such award shall be in such form and shall have such terms and
conditions as the Granting Authority may determine. The grant shall specify the
number of shares of Stock as to which the Stock Appreciation Right is granted.
7.2 The Granting Authority may provide that a Stock Appreciation Right
may be exercised only within the 60-day period following occurrence of a Change
of Control (as defined in Section 17.2) (such Stock Appreciation Right being
referred to herein as a Limited Stock Appreciation Right). The Granting
Authority may also provide that in the event of a Change of Control the amount
to be paid upon exercise of a Stock Appreciation Right shall be based on the
Change of Control Price (as defined in Section 17.3).
SECTION 8. Restricted Stock
Subject to the following provisions, all awards of Restricted Stock shall
be in such form and shall have such terms and conditions as the Granting
Authority may determine:
(a) The Restricted Stock award shall specify 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, or
the conditions upon the satisfaction of which, the Restricted Stock
will vest. The grant and/or the vesting of Restricted Stock may be
conditioned upon the completion of a specified period of service
with the Company or a Related Company, upon the attainment of
specified Performance Objectives or upon such other criteria as the
Granting Authority may determine.
(b) Stock certificates representing the Restricted Stock awarded under
the Plan shall be registered in the award holder's name, but the
Granting Authority may direct that such certificates be held by the
Company on behalf of the award holder. Except as may be permitted by
the Granting Authority, no share of Restricted Stock may be sold,
transferred, assigned, pledged or otherwise encumbered by the award
holder until such share has vested in accordance with the terms of
the Restricted Stock award. At the time Restricted Stock vests, a
certificate for such vested shares shall be delivered to the award
holder (or his or her designated beneficiary in the event of death),
free of all restrictions.
(c) The Granting Authority may provide that the award holder shall have
the right to vote or receive dividends on Restricted Stock. Unless
the Granting Authority provides otherwise, Stock received as a
dividend on, or in connection with a stock split of, Restricted
Stock shall be subject to the same restrictions as the Restricted
Stock.
(d) Except as may be provided by the Granting Authority, in the event of
an award holder's termination of service before all of his or her
Restricted Stock has vested, or in the event any 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 shall be
forfeited, and the Granting Authority may provide that (i) any
purchase price paid by the award holder shall be returned to the
award holder or (ii) a cash payment equal to the Restricted Stock's
fair market value on the date of forfeiture, if lower, shall be paid
to the award holder.
(e) The Granting Authority may waive, in whole or in part, any or all of
the conditions to receipt of, or restrictions with respect to, any
or all of the award holder's Restricted Stock, other than
Performance Awards whose vesting was made subject to satisfaction of
one or more Performance Objectives (except that the Committee may
waive conditions or restrictions with respect to Performance Awards
if such waiver would not cause the Performance Award to fail to
qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Code).
SECTION 9. Deferred Stock Awards
Subject to the following provisions, all awards of Deferred Stock shall be
in such form and shall have such terms and conditions as the Granting Authority
may determine:
(a) The Deferred Stock award shall specify the number of shares of
Deferred Stock to be awarded and the duration of the period (the
"Deferral Period") during which, and the conditions under which,
receipt of the Stock will be deferred. The Granting Authority may
condition the grant or vesting of Deferred Stock, or receipt of
Stock or cash at the end of the Deferral Period, upon the attainment
of specified Performance Objectives or such other criteria as the
Granting Authority may determine.
(b) Except as may be provided by the Granting Authority, Deferred Stock
awards may not be sold, assigned, transferred, pledged or otherwise
encumbered during the Deferral Period.
(c) At the expiration of the Deferral Period, the award holder (or his
or her designated beneficiary in the event of death) shall receive
(i) certificates for the number of shares of Stock equal to the
number of shares covered by the Deferred Stock award, (ii) cash
equal to the fair market value of such Stock, or (iii) a combination
of shares and cash, as the Granting Authority may determine.
(d) Except as may be provided by the Granting Authority, in the event of
an award holder's termination of service before the Deferred Stock
has vested, his or her Deferred Stock award shall be forfeited.
(e) The Granting Authority may waive, in whole or in part, any or all of
the conditions to receipt of, or restrictions with respect to, Stock
or cash under a Deferred Stock award, other than with respect to
Performance Awards (except that the Committee may waive conditions
or restrictions with respect to Performance Awards if such waiver
would not cause the Performance Award to fail to qualify as
"performance-based compensation" within the meaning of Section
162(m) of the Code).
SECTION 10. Bonus Stock
The Granting Authority may award Bonus Stock subject to such terms and
conditions as the Granting Authority shall determine. The grant of Bonus Stock
may be conditioned upon the attainment of specified Performance Objectives or
upon such other criteria as the Granting Authority may determine. The Granting
Authority may waive such conditions in whole or in part other than with respect
to Performance Awards (except that the Committee may waive conditions or
restrictions with respect to Performance Awards if such waiver would not cause
the Performance Award to fail to qualify as "performance-based compensation"
within the meaning of Section 162(m) of the Code). The Granting Authority shall
also have the right to eliminate or reduce the amount of Bonus Stock otherwise
payable under an award. Unless otherwise specified by the Granting Authority, no
money shall be paid by the recipient for the Bonus Stock. Alternatively, the
Granting Authority may offer the award holder the opportunity to purchase Bonus
Stock at a discount from its fair market value. The Bonus Stock award shall be
satisfied by the delivery of the designated number of shares of Stock which are
not subject to restriction.
SECTION 11. Loans
The Granting Authority may provide that the Company shall make, or arrange
for, a loan or loans with respect to the exercise of any Stock Option awarded
under the Plan, with respect to the payment of the purchase price, if any, of
any Restricted Stock awarded hereunder or with respect to any taxes arising from
an award hereunder; provided, however, that the Company shall 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 of Stock awarded plus (ii) the amount of any taxes
arising from such award. The Granting Authority shall have full authority to
decide whether a loan will be made hereunder and to determine the amount, term
and provisions of any such loan, including the interest rate to be charged,
whether the loan will be with or without recourse against the borrower, any
security for the loan, the terms on which the loan is to be repaid and the
conditions, if any, under which the loan may be forgiven.
SECTION 12. Tax Offset Payments
The Granting Authority may provide for a Tax Offset Payment by the Company
with respect to one or more awards granted under the Plan. The Tax Offset
Payment shall be in an amount specified by the Granting Authority, which shall
not exceed the amount necessary to pay the federal, state, local and other taxes
payable with respect to the applicable award and the receipt of the Tax Offset
Payment, assuming that the award holder is taxed at the maximum tax rate
applicable to such income. The Tax Offset Payment shall be paid solely in cash.
SECTION 13. Election to Defer Awards
The Granting Authority may permit an employee or Outside Director to elect
to defer receipt of an award (other than an award pursuant to Section 15) for a
specified period or until a specified event, upon such terms as are determined
by the Granting Authority.
SECTION 14. Tax Withholding
14.1 Each employee shall, no later than the date as of which the value of
an award first becomes includible in such person's gross income for applicable
tax purposes, pay to the Company, or make arrangements satisfactory to the
Committee regarding payment of, any federal, state, local or other taxes of any
kind required by law to be withheld with respect to the award. The obligations
of the Company under the Plan shall be conditional on such payment or
arrangements, and the Company (and, where applicable, any Related Company),
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the employee.
14.2 To the extent permitted by the Committee, and subject to such terms
and conditions as the Committee may provide, an employee may elect to have the
withholding tax obligation, or any additional tax obligation with respect to any
awards hereunder, satisfied by (i) having the Company withhold shares of Stock
otherwise deliverable to such person with respect to the award or (ii)
delivering to the Company shares of unrestricted Stock. Alternatively, the
Committee may require that a portion of the shares of Stock otherwise
deliverable be applied to satisfy the withholding tax obligations with respect
to the award.
SECTION 15. Automatic Stock Options, Limited Stock Appreciation Rights and Stock
Grants for Outside Directors
15.1 Outside Directors shall be granted Stock Options as follows:
(a) Initial Grant. Each person who is an Outside Director on the date of
adoption of the Plan by the Board shall be granted on such date a
Stock Option to purchase the number of whole shares of Stock
obtained by dividing $5,000 by the closing sales price of the Stock
on the date of grant. Each person who becomes an Outside Director
after such date shall be granted, on the first trading day
coincident with or immediately following the effective date of his
or her election as an Outside Director, a Stock Option to purchase
the number of whole shares of Stock obtained by dividing $5,000 by
the closing sales price of the Stock on the date of grant.
(b) Quarterly Grants. On the first trading day of each calendar quarter
beginning with October 1, 1995, each Outside Director then serving
on the Board and who has served for all or a portion of the previous
calendar quarter shall be granted a Stock Option to purchase the
number of whole shares of Stock obtained by dividing $5,000 by the
closing sales price of the Stock on the date of grant.
(c) For purposes of this Section 15.1, the term trading day shall mean a
day on which the Stock is traded on a national securities exchange,
on the Nasdaq National Market, or in the over-the-counter market.
(d) Notwithstanding the foregoing, if on any date on which Stock Options
are to be granted under this Section 15.1 the remaining shares
available for issuance to Outside Directors under the Plan are
insufficient to enable each Outside Director to receive a Stock
Option to purchase the applicable number of shares of Stock set
forth above, each Outside Director who is entitled to be granted a
Stock Option pursuant to this Section 15.1 on such date shall be
granted a Stock Option to purchase his or her pro rata portion of
such remaining shares.
15.2 Stock Options granted under this Section 15 shall be Non-Qualified
Stock Options, and shall have the following terms and conditions:
(a) Option Price. The option price per share of Stock purchasable under
the Stock Option shall be equal to the closing sales price of the
Stock on the date the Stock Option is granted.
(b) Term of Option. The term of the Stock Option shall be ten years from
the date of grant, subject to earlier termination in the event of
termination of service as a director, as set forth in paragraphs (e)
and (f) below.
(c) Exercisability. Subject to paragraphs (e) and (f) below, each Stock
Option shall vest 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,
provided that the optionee is a director of the Company on such
date. The minimum number of shares with respect to which a Stock
Option may be exercised is the lesser of 100 shares or the number of
shares then subject to the Stock Option.
(d) Method of Exercise. The Stock Options may be exercised in whole or
in part at any time during the option period by giving written
notice of exercise to the Company specifying the number of shares to
be purchased, accompanied by payment of the purchase price. Payment
of the purchase price shall be made in cash (including cash
equivalents) or by delivery of shares of Stock already owned by the
optionee for at least six months, or by any combination of the
foregoing. Shares delivered upon payment of the exercise price shall
be valued at the average of the high and low sale price of the Stock
on the date of exercise (or, if the Stock is not traded on such
date, at the weighted average of the high and low prices on the
nearest trading dates before and after such date).
(e) Termination of Service as Director. If an optionee's service as a
director is terminated for any reason, such director's Stock Options
may be exercised for five years following such termination of
service (but not beyond the Option term), but only to the extent
such Options were vested on the date of termination of service.
(f) Change of Control. Notwithstanding any other provision of the Plan,
upon the occurrence of a Change of Control (as defined in Section
17.2), all Stock Options outstanding at the time of such Change of
Control shall become immediately vested and exercisable and shall
remain exercisable for five years after the director's termination
of service (but not beyond the option term).
(g) Non-transferability. No Stock Option shall be transferable by the
optionee other than by will or by the laws of descent and
distribution. During an optionee's lifetime, all Stock Options shall
be exercisable only by the optionee or by his or her guardian or
legal representative.
(h) Shareholder Rights. The holder of a Stock Option shall, as such,
have none of the rights of a shareholder.
15.3 Limited Stock Appreciation Rights in Tandem with Options. Each Stock
Option granted to an Outside Director under this Section 15 shall be granted in
tandem with a Limited Stock Appreciation Right which may be exercised only
within the 60-day period following a Change of Control. Upon exercise of the
Limited Stock Appreciation Right, the holder shall receive, for each share with
respect to which the Limited Stock Appreciation Right is exercised, an amount
equal in value to the excess of the Change of Control Price (as defined in
Section 17.3) over the exercise price of the related Stock Option. The Limited
Stock Appreciation Right shall be payable solely in cash, and shall be paid
within 30 days of the exercise of the Limited Stock Appreciation Right.
15.4 Quarterly Stock Grants. 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 and who
has served for all or a portion of the previous calendar quarter shall be
granted the number of whole shares of Stock obtained by dividing $2,000 by the
closing sales price of the Stock on the date of grant. Notwithstanding the
foregoing, if on any date on which shares are to be granted pursuant to this
Section 15.4 the remaining shares reserved for issuance to Outside Directors
under the Plan are insufficient to enable each Outside Director to receive the
applicable number of shares of Stock set forth above, each Outside Director who
is entitled to be granted shares pursuant to this Section 15.4 shall be granted
his or her pro rata portion of such remaining shares. All shares granted under
this Section 15.4 shall be fully vested and non-forfeitable at the time of
grant.
SECTION 16. Amendments and Termination
The Board may discontinue the Plan at any time and may amend it from time
to time. No amendment or discontinuation of the Plan shall adversely affect any
award previously granted without the award holder's written consent. To the
extent required in order to satisfy Rule 16b-3 under the Securities Exchange Act
of 1934 ("Rule 16b-3") (or any successor rule), the provisions of Section 15
shall not be amended more than once every six months, other than to comport with
changes in the Code, the Employee Retirement Income Security Act, or the rules
thereunder. Amendments may be made without stockholder approval except as
required to satisfy Rule 16b-3, Section 162(m) of the Code, or other NASDAQ,
stock exchange, or regulatory requirements.
SECTION 17. Change of Control
17.1 In the event of a Change of Control, unless otherwise determined by
the Granting Authority at the time of grant or by amendment (with the award
holder's consent) of such grant:
(a) all outstanding Stock Options and all outstanding Stock Appreciation
Rights (including Limited Stock Appreciation Rights) awarded under
the Plan shall become fully exercisable and vested;
(b) the restrictions and deferral limitations applicable to any
outstanding Restricted Stock and Deferred Stock awards under the
Plan shall lapse and such shares and awards shall be deemed fully
vested; and
(c) to the extent the cash payment of any award is based on the fair
market value of Stock, such fair market value shall be the Change of
Control Price.
17.2 A "Change of Control" shall be deemed to occur on:
(a) the date that any person or group deemed a person under Sections
3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934 (other
than the Company and its subsidiaries as determined immediately
prior to that date) has become the beneficial owner, directly or
indirectly (with beneficial ownership determined as provided in rule
13d-3, or any successor rule, under the Securities Exchange Act of
1934) of securities of the Company representing 25% or more of the
total combined voting power of all classes of stock of the Company
having the right under ordinary circumstances to vote at an election
of the Board, unless such person has acquired 80% or more of such
securities directly from the Company;
(b) the date on which one-third or more of the members of the Board
shall consist of persons other than Current Directors (for these
purposes a "Current Director" shall mean any member of the Board on
July 27, 1995 and any member of the Board whose nomination or
election has been approved by a majority of the Current Directors
then on the Board);
(c) the date of approval by the stockholders of the Company of an
agreement providing for the merger or consolidation of the Company
with another corporation where (i) the stockholders of the Company,
immediately prior to the merger or consolidation, would not
beneficially own, immediately after the merger or consolidation,
shares entitling such stockholders to 50% or more of all votes
(without consideration of the rights of any class of stock to elect
directors by a separate class vote) to which all stockholders of the
corporation issuing cash or securities in the merger or
consolidation would be entitled in the election of directors, or
(ii) where the members of the Board, immediately prior to the merger
or consolidation, would not, immediately after the merger or
consolidation, constitute a majority of the board of directors of
the corporation issuing cash or securities in the merger; or
(d) the date of approval by the stockholders of the Company of an
agreement providing for the sale or other disposition of all or
substantially all of the assets of the Company.
17.3 "Change of Control Price" means the highest price per share paid in
any transaction reported in the Nasdaq National Market or on any national
securities exchange where the Stock is traded, or paid or offered in any
transaction related to a Change of Control at any time during the 90-day period
ending with the Change of Control. Notwithstanding the foregoing sentence, in
the case of Stock Appreciation Rights granted in tandem with Incentive Stock
Options, the Change of Control Price shall be the highest price paid on the date
on which the Stock Appreciation Right is exercised.
SECTION 18. General Provisions
18.1 Each award under the Plan shall be subject to the requirement that,
if at any time the Granting Authority shall determine that (i) the listing,
registration or qualification of the Stock subject or related thereto upon any
securities exchange or under any state or federal law, or (ii) the consent or
approval of any government regulatory body or (iii) an agreement by the
recipient of an award with respect to the disposition of Stock is necessary or
desirable (in connection with any requirement or interpretation of any federal
or state securities law, rule or regulation) as a condition of, or in connection
with, the granting of such award or the issuance, purchase or delivery of Stock
thereunder, such award shall not be granted or exercised, in whole or in part,
unless such listing, registration, qualification, consent, approval or agreement
shall have been effected or obtained free of any conditions not acceptable to
the Granting Authority.
18.2 Nothing set forth in this Plan shall prevent the Board from adopting
other or additional compensation arrangements. Neither the adoption of the Plan
nor any award hereunder shall confer upon any employee of the Company, or of a
Related Company, any right to continued employment, and no award shall confer
upon any Outside Director any right to continued service as a director.
18.3 Determinations by the Granting Authority under the Plan relating to
the form, amount, and terms and conditions of awards need not be uniform, and
may be made selectively among persons who receive or are eligible to receive
awards under the Plan, whether or not such persons are similarly situated.
18.4 No member of the Board or the Committee, nor any officer or employee
of the Company acting on behalf of the Board or the Committee, shall be
personally liable for any action, determination or interpretation taken or made
with respect to the Plan, and all members of the Board or the Committee and all
officers or employees of the Company acting on their behalf shall, to the extent
permitted by law, be fully indemnified and protected by the Company in respect
of any such action, determination or interpretation.
SECTION 19. Effective Date of Plan
The provisions of the Plan with respect to formula grants to Outside
Directors (as currently set forth in Section 15) were adopted and shall be
effective on July 27, 1995, and the provisions of the Plan with respect to
grants to employees were adopted and shall be effective on April 10, 1996, in
each case subject to approval by the Company's stockholders at the 1996 Annual
Meeting of Stockholders. The provisions of the Plan with respect to
discretionary grants to Outside Directors were adopted on September __, 1996 and
shall become effective on the date of approval by the Company's stockholders at
the 1996 Annual Meeting of Stockholders.
DIANON SYSTEMS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
THE UNDERSIGNED HEREBY APPOINTS E. A. PULTZ AND S.L. SWENSON AS PROXIES, EACH
WITH THE POWER TO APPOINT HER SUBSTITUTE, AND HEREBY AUTHORIZES THEM TO
REPRESENT AND TO VOTE AS DESIGNATED BELOW ALL THE SHARES OF COMMON STOCK OF
DIANON SYSTEMS, INC. HELD OF RECORD BY THE UNDERSIGNED ON SEPTEMBER 20, 1996 AT
THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD AT THE COMPANY'S CORPORATE
HEADQUARTERS AT 200 WATSON BOULEVARD, STRATFORD, CONNECTICUT, ON OCTOBER 24,
1996 AT 10:00 A.M., AND ANY ADJOURNMENT THEREOF.
MANAGEMENT/BOARD OF DIRECTORS OF THE ISSUER RECOMMENDS A VOTE FOR PROPOSALS 1,
2, 3 AND 4.
PROPOSAL(S): MARK AN |X| IN THE APPROPRIATE BOX. PLEASE USE EITHER BLUE OR BLACK
INK.
1. ELECTION OF THE FOLLOWING NOMINEES FOR DIRECTOR: RICHARD A. SANDBERG, JOHN
P. DAVIS, WALTER O. FREDERICKS, JEFFREY L. SKLAR, G.S. BECKWITH GILBERT,
JAMES B. AMBERSON, AND KEVIN C. JOHNSON.
|_| FOR |_| AGAINST
TO WITHHOLD YOUR VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE THE NAME(S) ON THE LINE
BELOW.
- --------------------------------------------------------------------------------
2. TO APPROVE THE COMPANY'S AGREEMENT WITH G.S. BECKWITH GILBERT AND CERTAIN
OF HIS AFFILIATES THAT MR. GILBERT AND SUCH AFFILIATES BE PERMITTED TO VOTE
SHARES OF THE COMPANY'S COMMON STOCK PURCHASED BY THEM FROM THE COMPANY IN
OCTOBER 1995 REPRESENTING UP TO 20% OF THE TOTAL VOTING POWER OF THE
COMPANY'S VOTING SECURITIES OUTSTANDING FROM TIME TO TIME (THE "VOTING
RIGHTS PROPOSAL") AS MORE FULLY DISCUSSED UNDER "APPROVAL OF THE VOTING
RIGHTS PROPOSAL".
|_| FOR |_| AGAINST |_| ABSTAIN
- --------------------------------------------------------------------------------
3. PROPOSAL TO APPROVE THE ADOPTION OF THE 1996 STOCK INCENTIVE PLAN.
|_| FOR |_| AGAINST |_| ABSTAIN
- --------------------------------------------------------------------------------
4. PROPOSAL TO APPROVE THE APPOINTMENT OF ARTHUR ANDERSEN, LLP AS AUDITORS FOR
THE YEAR ENDING DECEMBER 31, 1996.
|_| FOR |_| AGAINST |_| ABSTAIN
(Continued and to be SIGNED on Reverse Side)
|_| CHECK IF YOU HAVE |_| CHECK IF YOU PLAN |_| CHECK IF YOU PLAN
MADE ADDITIONAL TO ATTEND THE TO ATTEND THE
COMMENTS MEETING MEETING AND VOTE
YOUR SHARES
THIS PROXY 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.