SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. _______________)
Filed by the Registrant [ X ]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the Com-
mission Only (as permitted by
[ X ] Definitive Proxy Statement Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
LANDEC CORPORATION
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials:
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
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(4) Date Filed:
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[LANDEC LOGO OMITTED]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 19, 1997
TO THE SHAREHOLDERS OF LANDEC CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Landec
Corporation (the "Company") will be held on Wednesday, March 19, 1997, at 2:00
p.m., local time, at Hyatt Rickeys Hotel, 4219 El Camino Real, Palo Alto,
California 94306 for the following purposes:
1. To elect directors to serve for the ensuing year and until their
successors are elected and qualified;
2. To approve the adoption of the Company's 1996 Stock Option Plan and the
reservation of 750,000 shares of Common Stock for issuance thereunder;
3. To approve an amendment to the Company's 1995 Directors' Stock Option Plan
to provide that options granted thereunder vest in full on the date of
grant;
4. To ratify the appointment of Ernst & Young LLP as the Company's
independent public accountants for the fiscal year ending October 31,
1997; and
5. To transact such other business as may properly come before the meeting or
any postponement or adjournment(s) thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on February 5, 1997 are
entitled to notice of and to vote at the meeting and any adjournment(s) thereof.
All shareholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed proxy card as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any shareholder attending
the meeting may vote in person even if such shareholder returned a proxy card.
BY ORDER OF THE BOARD OF DIRECTORS
TAE HEA NAHM
Secretary
Menlo Park, California
February 21, 1997
[LANDEC LOGO OMITTED]
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PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 19, 1997
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INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of Landec
Corporation (the "Company"), a California corporation, for use at the Annual
Meeting of Shareholders to be held on Wednesday, March 19, 1997 at 2:00 p.m.,
local time, or at any postponement or adjournment(s) thereof, for the purposes
set forth herein and in the accompanying Notice of Annual Meeting of
Shareholders. The Annual Meeting will be held at Hyatt Rickeys Hotel, 4219 El
Camino Real, Palo Alto, California 94306. The telephone number at that location
is (415) 493-8000.
The Company's principal executive offices are located at 3603 Haven Avenue,
Menlo Park, California 94025. The Company's telephone number at that location is
(415) 306-1650.
SOLICITATION
These proxy solicitation materials were mailed on or about February 24, 1997
to all shareholders entitled to vote at the meeting. The costs of soliciting
these proxies will be borne by the Company. These costs will include the
expenses of preparing and mailing proxy materials for the Annual Meeting and
reimbursement paid to brokerage firms and others for their expenses incurred in
forwarding solicitation material regarding the Annual Meeting to beneficial
owners of the Company's Common Stock. The Company may conduct further
solicitation personally, telephonically or by facsimile through its officers,
directors and regular employees, none of whom will receive additional
compensation for assisting with the solicitation.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company (Attention:
Joy T. Fry, Inspector of Elections) a written notice of revocation or a duly
executed proxy bearing a later date or by attending the meeting of shareholders
and voting in person.
VOTING
Holders of Common Stock are entitled to one vote per share on all matters.
Votes cast in person or by proxy at the Annual Meeting will be tabulated by
the Inspector of Elections with the assistance of the Company's transfer agent.
The Inspector of Elections will also determine whether or not a quorum is
present. The affirmative vote of a majority of shares represented and voting at
a duly held meeting at which a quorum is present is required under California
law for approval of proposals presented to shareholders. In general, California
law also provides that a quorum consists of a majority of the shares entitled to
vote, represented either in person or by proxy. The Inspector of Elections will
treat abstentions as shares that are present and entitled to vote for purposes
of determining the presence of a quorum but as not voting for purposes of
determining the approval of any matter submitted to the shareholders for a vote.
Any proxy which is returned using the form of proxy enclosed and which is not
marked as to a particular item will be voted for the election of directors, for
approval of adoption of the Company's 1996 Stock Option Plan and for the
reservation of 750,000 shares of Common Stock for issuance thereunder, for
approval of an amendment to the Company's 1995 Directors'
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Stock Option Plan to provide that options granted thereunder will vest in full
on the date of grant, and for ratification of the appointment of the designated
independent auditors, and as the proxy holders deem advisable on other matters
that may come before the meeting, as the case may be, with respect to the item
not marked. If a broker indicates on the enclosed proxy or its substitute that
it does not have discretionary authority as to certain shares to vote on a
particular matter ("broker non-votes"), those shares will not be considered as
voting with respect to that matter. While there is no definitive specific
statutory or case law authority in California concerning the proper treatment of
abstentions and broker non-votes, the Company believes that the tabulation
procedures to be followed by the Inspector of Elections are consistent with the
general statutory requirements in California concerning voting of shares and
determination of a quorum.
RECORD DATE AND SHARE OWNERSHIP
Only shareholders of record at the close of business on February 5, 1997, are
entitled to notice of and to vote at the meeting. As of the record date,
10,768,154 shares of the Company's Common Stock, par value $0.001 per share,
were issued and outstanding.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Proposals of shareholders of the Company that are intended to be presented by
such shareholders at the Company's 1998 Annual Meeting of Shareholders must be
received by Joy T. Fry of the Company no later than October 17, 1997, in order
that they may be considered for inclusion in the proxy statement and form of
proxy relating to that meeting.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
NOMINEES
The Company's bylaws currently provide for not less than four or more than
seven directors, and the Company's Articles of Incorporation provide for the
classification of the Board of Directors into two classes serving staggered
terms. The Company's Board of Directors currently consists of seven persons,
including three Class I directors and four Class II directors. Each Class I and
Class II director is elected for two year terms, with Class I directors elected
in odd-numbers years (e.g., 1997) and the Class II directors elected in even
numbered years (e.g., 1996). Accordingly, at the Annual Meeting, three Class I
directors will be elected.
The Board of Directors has nominated the three persons named below to serve
as Class I directors until the next odd-numbered year Annual Meeting during
which their successors will be elected and qualified. Unless otherwise
instructed, the proxy holders will vote the proxies received by them for the
Company's three nominees named below, all of whom are presently directors of the
Company. In the event that any nominee of the Company is unable or declines to
serve as a director at the time of the Annual Meeting, the proxies will be voted
for any nominee who shall be designated by the present Board of Directors to
fill the vacancy. In the event that additional persons are nominated for
election as directors, the proxy holders intend to vote all proxies received by
them in such a manner as will assure the election of as many of the nominees
listed below as possible, and, in such event, the specific nominees to be voted
for will be determined by the proxy holders. Assuming a quorum is present, the
three nominees for director receiving the greatest number of votes cast at the
Annual Meeting will be elected.
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The names of the nominees for Class I director and certain other information
about them as of February 14, 1997 are set forth below:
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
- --------------------------- ----- ------------------------------------------------- --------------
Ray F. Stewart, Ph.D. 43 Vice President, Technology of the Company; and 1986
Senior Vice President, Intellicoat Corporation, a
wholly-owned subsidiary of the Company
Stephen E. Halprin 58 Director 1988
Richard S. Schneider, Ph.D. 55 Director 1991
Except as set forth below, each of the nominees has been engaged in the
principal occupation set forth next to his name above during the past five
years. There is no family relationship between any director or executive officer
of the Company.
Ray F. Stewart, Ph.D. is the founder of the Company and has served as Vice
President and a director since the Company's inception in 1986. Since November
1996 he has also served as Senior Vice President of Intellicoat Corporation, a
wholly-owned subsidiary of the Company. Dr. Stewart has over 16 years of
experience in the materials industry. Prior to founding Landec, Dr. Stewart
worked at Raychem Corporation. While at Raychem Corporation from 1979 to 1986,
Dr. Stewart managed development efforts in the areas of adhesives, plastic
electrodes, sensors and synthetic polymer chemistry, and led the development and
commercialization of several new product lines. Dr. Stewart received a B.S. from
Northern Arizona University and a Ph.D. in organic chemistry from the University
of Minnesota.
Stephen E. Halprin has served as a director since April 1988. Since 1971, Mr.
Halprin has been a general partner of OSCCO Ventures. Mr. Halprin has been an
active member of the venture community since 1968, and is a director of a number
of technology based companies. Mr. Halprin received a B.S. from the
Massachusetts Institute of Technology and an M.B.A. from Stanford University.
Richard S. Schneider, Ph.D. has served as a director since September 1991.
Since October 1990, Dr. Schneider has been a general partner of Domain
Associates. Dr. Schneider has over 25 years of product development experience in
the fields of medical devices and biotechnology. Prior to his pursuing a career
in venture capital, Dr. Schneider was Vice President of Product Development at
Syva/Syntex Corporation and President of Biomedical Consulting Associates. He is
also a director of a number of private life science companies and is a member of
the Board of Directors of Imagyn Medical, Inc. and Fusion Medical Technologies,
Inc. Dr. Schneider received a Ph.D. in chemistry from the University of
Wisconsin, Madison.
Class II Directors
The names of the Company's Class II directors, and certain information about
them as of February 14, 1997 are set forth below:
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
- ---------------------- ----- ----------------------------------------------- --------------
Gary T. Steele 48 President, Chief Executive Officer and Chairman 1991
of the Board of Directors of the Company
Kirby L. Cramer 60 Director 1994
Richard Dulude 63 Director 1996
Damion E. Wicker, M.D. 36 Director 1997
Except as set forth below, each of the nominees has been engaged in the
principal occupation set forth next to his name above during the past five
years.
Gary T. Steele has served as President, Chief Executive Officer and a
director since September 1991 and as Chairman of the Board of Directors since
January 1996. Mr. Steele has over 15 years of experience in the biotechnology,
instrumentation and medical fields. From 1985 to 1991, Mr. Steele was President
and Chief Executive Officer of Molecular Devices Corporation, a bioanalytical
instrumentation company with product sales in 22 countries. From 1981 to 1985,
Mr. Steele was Vice President, Product Development and Business Development at
Genentech, Inc., a biomedical company focusing on pharmaceutical drug
development. Mr. Steele has also worked with McKinsey and Co. and Shell Oil
Company. Mr. Steele received a B.S. from Georgia Institute of Technology and an
M.B.A. from Stanford University.
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Kirby L. Cramer has served as a director since December 1994. Since April
1987, Mr. Cramer has been Chairman Emeritus of Hazleton Laboratories Corporation
and a director of a number of medical and financial companies. He also serves as
a director of Immunex Corporation, Advanced Technology Laboratories,
International Technology Corporation, Applied Bioscience International, Unilab
Corporation, Northwestern Trust and Commerce Bank of Washington. Mr. Cramer
received a B.A. from Northwestern University and an M.B.A. from the University
of Washington.
Richard Dulude has served as a director since May 1996. Mr. Dulude retired as
Vice Chairman of Corning Inc. in 1993 after a 36 year career in which he held
various general management positions in Corning's telecommunications, materials,
consumer and international businesses, including positions as Chairman and CEO
of SIECOR Corporation and Chairman and CEO of Corning-Vitro Corporation. Mr.
Dulude is currently a director of Raychem Corporation, AMBAC, Inc., Welch Allyn,
Inc. and HCIA, Inc., and on the Board of Trustees of Syracuse University. Mr.
Dulude received a B.S. from Syracuse University.
Damion E. Wicker, M.D. has served as a director since February 1997,
replacing Dr. Mitchell Blutt, a partner of Dr. Wicker's at Chase Capital
Partners who served as a director from June 1993 to February 1997. Dr. Wicker
has been a general partner of Chase Capital Partners, responsible for medical
venture capital investments since January, 1997. From April, 1993 to December
1996, Dr. Wicker was a principal of Chase Capital Partners. From June 1991 to
April 1993, Dr. Wicker served as a founder and president of Adams Scientific, a
biotechnology diagnostic company specializing in monoclonal and DNA probes for
detection of infectious diseases. Prior to founding Adam Scientific, he was with
MBW Venture Partners where he concentrated on making private equity investments
in emerging medical device, service and biotechnology companies. Dr. Wicker was
a Commonwealth Fund Medical Fellow for the Wilmer Eye Institute and a research
intern for the National Institute of Health. Current directorships include
Innotech, Hepatix and InteCare. Dr. Wicker received a B.S. from the
Massachusetts Institute of Technology, an M.D. from the Johns Hopkins University
School of Medicine, and an M.B.A. from the Wharton School of the University of
Pennsylvania.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
The Board of Directors held a total of eight meetings during the fiscal year
ended October 31, 1996. The Board of Directors has an Audit Committee and a
Compensation Committee. It does not have a nominating committee or a committee
performing the functions of a nominating committee.
The Audit Committee of the Board of Directors currently consists of directors
Stephen E. Halprin and Richard S. Schneider and held two meetings during 1996.
The Audit Committee recommends engagement of the Company's independent auditors,
and is primarily responsible for approving the services performed by the
Company's independent auditors and for reviewing and evaluating the Company's
accounting principles and its system of internal accounting controls.
The Compensation Committee of the Board of Directors currently consists of
directors Kirby L. Cramer and Richard S. Schneider and held three meetings
during 1996. Chief Executive Officer, President and director Gary T. Steele
served as a member of the Compensation Committee until February 1996. The
Compensation Committee establishes the compensation for the Company's executive
officers, including the Company's Chief Executive Officer.
No incumbent director attended fewer than 75% of the aggregate number of
meetings of the Board of Directors and meetings of the committees of the Board
of Directors that he was eligible to attend.
COMPENSATION OF DIRECTORS
Directors currently receive no cash fees for services provided in that
capacity but are reimbursed for out-of-pocket expenses incurred in connection
with attendance at meetings of the Board of Directors and committees thereof.
Between December 1993 and December 1995, nonemployee directors received options
to purchase a total of 57,388 shares of the Company's Common Stock at specified
exercise prices. In January 1996, the shareholders of the Company approved the
Company's 1995 Directors' Stock Option Plan (the "Directors' Option Plan")
pursuant to which each nonemployee director who has not previously
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been granted an option under any stock option plan of the Company will be
granted a nonstatutory stock option to purchase 20,000 shares of Common Stock
(the "First Option") on the date on which the optionee first becomes a
nonemployee director of the Company. Thereafter, on the date of each annual
meeting of the shareholders at which each optionee is re-elected to be a
nonemployee director, such nonemployee director (including directors who were
not eligible for a First Option) will be granted an additional option to
purchase 5,000 shares of Common Stock (a "Subsequent Option") if, on such date,
he or she shall have served on the Company's Board of Directors for at least six
months prior to the date of such annual meeting. In June 1996, the Directors'
Option Plan was amended by the Board of Directors to provide that the First
Option and each Subsequent Option will be fully vested and exercisable on grant.
Such amendment is subject to shareholder approval. See Proposal No. 3 to this
Proxy Statement. Options granted under the Directors' Option Plan have an
exercise price equal to the fair market value of the Company's Common Stock on
the date of grant with a term of ten years.
REQUIRED VOTE
The three Class I director nominees receiving the highest number of
affirmative votes of shares of the Company's Common Stock present at the Annual
Meeting in person or by proxy and entitled to vote shall be elected as
directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF
EACH OF THE NOMINEES LISTED ABOVE.
PROPOSAL NO. 2
APPROVAL OF THE ADOPTION OF THE 1996 STOCK OPTION PLAN
At the Annual Meeting, shareholders are being asked to approve adoption of
the 1996 Stock Option Plan (the "1996 Plan") and the reservation of 750,000
shares of Common Stock for issuance thereunder. The following is a summary of
the features of the 1996 Plan. The summary, however, does not purport to be a
complete description of the 1996 Plan. Any shareholder of the Company who wishes
to obtain a copy of the actual plan document may do so upon written request to
Joy T. Fry at the Company's principal executive offices at 3603 Haven Avenue,
Menlo Park, California 94025.
GENERAL
The Company's 1996 Plan was adopted by the Board of Directors in November
1996 to supplement the 1988 Stock Option Plan which had no shares available for
grant remaining thereunder as of February 5, 1997, and which will expire in
accordance with its stated termination date of July 1998. The Board of Directors
has reserved 750,000 shares of Common Stock for issuance under the 1996 Plan.
The Board of Directors believes that, in order to attract qualified employees to
the Company and to provide incentives to its current employees, it is necessary
to grant options to purchase Common Stock to such employees pursuant to the 1996
Plan. Accordingly, shareholders are being asked to approve the 1996 Plan.
The 1996 Plan provides for the granting to employees of incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), and for the granting of nonstatutory stock options to
employees and consultants. See "United States Federal Income Tax Information"
below for information concerning the tax treatment of both incentive stock
options and nonstatutory stock options.
As of February 5, 1997, no shares had been issued upon exercise of options
granted under the 1996 Plan, options to purchase 261,000 shares were outstanding
and 489,000 shares remained available for future grant. All of such outstanding
options were held by current executive officers (8 persons). As of February 5,
1997, the fair market value of all shares of Common Stock subject to outstanding
options under the 1996 Plan was $1,957,500 based on the closing sale price of
$7.50 for the Company's Common Stock as reported on the National Association of
Securities Dealers, Inc. Automated Quotation ("NASDAQ") National Market System
on such date.
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The 1996 Plan is not a qualified deferred compensation plan under Section
401(a) of the Code, and is not subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended.
RESERVATION OF SHARES UNDER THE 1996 PLAN
The Board of Directors believes that in order to attract and retain highly
qualified employees and consultants and to provide such employees and
consultants with adequate incentive through their proprietary interest in the
Company, it is necessary to reserve 750,000 shares of Common Stock for issuance
thereunder. At the Annual Meeting of Shareholders, the shareholders are being
asked to approve the 1996 Plan and the reservation of 750,000 shares of Common
Stock for issuance thereunder.
PURPOSE
The purposes of the 1996 Plan are to attract and retain the best available
personnel for the Company, to provide additional incentive to the employees,
officers, directors and consultants of the Company, and to promote the success
of the Company's business.
ADMINISTRATION
If permitted by Rule 16b-3 of the Securities Exchange Act of 1934, as Amended
(the "Exchange Act") and by the legal requirements relating to the
administration of incentive stock option plans, if any, of applicable securities
laws and the Internal Revenue Code of 1986, as amended, (the "Code")
(collectively, the "Applicable Laws"), grants under the 1996 Plan may (but need
not) be made by different administrative bodies with respect to employees or
consultants who are also officers or directors and employees who are neither
directors nor officers.
With respect to grants of options to employees or consultants who are also
officers or directors of the Company, grants under the 1996 Plan will be made by
(A) the Board of Directors, if the Board of Directors may make grants under the
1996 Plan in compliance with Rule 16b-3 and Section 162(m) of the Code as they
apply so as to qualify grants of options to "covered employees" as
performance-based compensation, or (B) a committee designated by the Board of
Directors to make grants under the 1996 Plan, which committee shall be
constituted in such a manner as to permit grants under the 1996 Plan to comply
with Rule 16b-3, to qualify grants of options to "covered employees" as
performance-based compensation under Section 162(m) of the Code and otherwise so
as to satisfy the Applicable Laws. With respect to grants of options to
employees or consultants who are neither directors nor officers of the Company,
the 1996 Plan will be administered by (A) the Board of Directors or (B) a
committee designated by the Board of Directors, which committee will be
constituted in such a manner so as to satisfy the Applicable Laws.
The Board of Directors or the committee designated by the Board of Directors
to administer the 1996 Plan is referred to in this Proxy Statement as the
"Administrator."
ELIGIBILITY
The 1996 Plan provides that options may be granted to employees (including
officers and directors who are also employees) and consultants of the Company.
Incentive stock options may be granted only to employees. The Administrator
selects the optionees and determines the number of shares and the exercise price
to be associated with each option. In making such determination, the
Administrator takes into account the duties and responsibilities of the
optionee, the value of the optionee's services, the optionee's present and
potential contribution to the success of the Company, and other relevant
factors. As of February 5, 1997 there are approximately 55 employees eligible to
participate in the 1996 Plan.
The 1996 Plan provides that the maximum number of shares of Common Stock
which may be granted under options to any one employee under the 1996 Plan
during any fiscal year is 500,000, subject to adjustment as provided in the 1996
Plan. There is also a limit on the aggregate market value of shares subject to
all incentive stock options that may be granted to an optionee during any
calendar year.
TERMS OF OPTIONS
The terms of options granted under the 1996 Plan are determined by the
Administrator. Each option is evidenced by a stock option agreement between the
Company and the optionee and is subject to the following additional terms and
conditions:
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(a) Exercise of the Option. The optionee must earn the right to exercise
the option by continuing to work for the Company. The Administrator
determines when options are exercisable. An option is exercised by giving
written notice of exercise to the Company specifying the number of full
shares of Common Stock to be purchased, and by tendering payment of the
purchase price to the Company. The method of payment of the exercise price of
the shares purchased upon exercise of an option is determined by the
Administrator.
(b) Exercise Price. The exercise price of options granted under the 1996
Plan is determined by the Administrator, and must be at least equal to the
fair market value of the shares on the date of grant, in the case of
incentive stock options, and 85% of the fair market value of the shares on
the date of grant, in the case of nonstatutory stock options, as determined
by the Administrator, based upon the closing price on the NASDAQ National
Market on the date of grant. Incentive stock options granted to shareholders
owning more than 10% of the Company's outstanding stock are subject to the
additional restriction that the exercise price on such options must be at
least 110% of the fair market value on the date of the grant. Nonstatutory
stock options granted to a "covered employee" under Section 162(m) of the
Code are subject to the additional restriction that the exercise price on
such options must be at least 100% of the fair market value on the date of
grant.
(c) Termination of Employment. If the optionee's employment or consulting
relationship with the Company is terminated for any reason other than death
or total and permanent disability, options under the 1996 Plan may be
exercised not later than thirty days (or such other period after, not
exceeding three months in the case of incentive stock options or six months
in the case of nonstatutory stock options, as determined by the
Administrator) after the date of such termination to the extent the option
was exercisable on the date of such termination. In no event may an option be
exercised by any person after its termination date.
(d) Disability. If an optionee is unable to continue his or her employment
or consulting relationship with the Company as a result of total and
permanent disability, options may be exercised within six months (or such
other period of time not exceeding twelve months as determined by the
Administrator) after the date of termination and may be exercised only to the
extent the option was exercisable on the date of termination, but in no event
may the option be exercised after its termination date.
(e) Death. If an optionee should die while employed or retained by the
Company, and such optionee has been continuously employed or retained by the
Company since the date of grant of the option, the option may be exercised
within six months after the date of death (or such other period of time, not
exceeding six months, as determined by the Administrator) by the optionee's
estate or by a person who acquired the right to exercise the option by
bequest or inheritance to the extent the right to exercise what would have
accrued had the optionee continued living and remained employed or retained
by the Company for three months after the date of death, but in no event may
the option be exercised after its termination date.
If an optionee should die within thirty days (or such other period of time
not exceeding three months as determined by the Administrator) after the
optionee has ceased to be continuously employed or retained by the Company,
the option may be exercised within six months after the date of death by the
optionee's estate or by a person who acquired the right to exercise the
option by bequest or inheritance to the extent that the optionee was entitled
to exercise the option at the date of termination, but in no event may the
option be exercised after its termination date.
(f) Option Termination Date. Incentive stock options granted under the
1996 Plan expire ten years from the date of grant unless a shorter period is
provided in the option agreement. Incentive stock options granted to
shareholders owning more than 10% of the Company's outstanding stock may not
have a term of more than five years.
(g) Nontransferability of Options. Incentive stock options are
nontransferable by the optionee, other than by will or the laws of descent
and distribution, and are exercisable only by the optionee during his or her
lifetime or, in the event of death, by a person who acquires the right to
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exercise the option by bequest or inheritance or by reason of the death of
the optionee. In the case of nonstatutory stock options, the Administrator
may at its discretion, in certain circumstances, allow the transferability of
such options.
(h) Acceleration of Options. In the event of a merger of the Company with
or into another corporation or sale of substantially all of the Company's
assets, the Administrator may either affect a substitution or assumption of
options or give written notice of the acceleration of the optionee's right to
exercise his or her outstanding options in part or in full at any time within
fifteen days of such notice.
(i) Other Provisions. The option agreement may contain such other terms,
provisions and conditions not inconsistent with the 1996 Plan as may be
determined by the Administrator.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
In the event any change is made in the Company's capitalization, such as a
stock split or dividend, that results in an increase or decrease in the number
of outstanding shares of Common Stock without receipt of consideration by the
Company, appropriate adjustment shall be made in the option price, the number of
shares subject to each option, the annual limitation on grants to employees, as
well as the number of shares available for issuance under the 1996 Plan. In the
event of the proposed dissolution or liquidation of the Company, all outstanding
options automatically terminate unless otherwise provided by the Administrator.
AMENDMENT AND TERMINATION
The Board of Directors may amend the 1996 Plan at any time or from time to
time or may terminate it without approval of the shareholders; provided,
however, that shareholder approval is required for any amendment to the 1996
Plan that: (i) increases the number of shares that may be issued under the 1996
Plan, (ii) modifies the standards of eligibility, or (iii) modifies the
limitation on grants to employees described in the 1996 Plan or results in other
changes which would require shareholder approval to qualify options granted
under the 1996 Plan as performance-based compensation under Section 162(m) of
the Code. However, no action by the Board of Directors or shareholders may alter
or impair any option previously granted under the 1996 Plan, unless mutually
agreed otherwise between the optionee and the Board of Directors. The 1996 Plan
shall terminate in November 2006, provided that any options then outstanding
under the 1996 Plan shall remain outstanding until they expire by their terms.
UNITED STATES FEDERAL INCOME TAX INFORMATION
The following is a brief summary of the U.S. federal income tax consequences
of transactions under the 1996 Plan based on federal income tax laws in effect
on the date of this Proxy Statement. This summary is not intended to be
exhaustive and does not address all matters which may be relevant to a
particular optionee based on his or her specific circumstances. The summary
addresses only current U.S. federal income tax law and expressly does not
discuss the income tax laws of any state, municipality, non-U.S. taxing
jurisdiction or gift, estate or other tax laws other than federal income tax
law. The Company advises all optionees to consult their own tax advisor
concerning the tax implications of option grants and exercises and the
disposition of stock acquired upon such exercises, under the 1996 Plan.
Options granted under the 1996 Plan may be either incentive stock options,
which are intended to qualify for the special tax treatment provided by Section
422 of the Code, or nonstatutory stock options which will not qualify. If an
option granted under the 1996 Plan is an incentive stock option, the optionee
will recognize no income upon grant of the incentive stock option and will incur
no tax liability due to the exercise, except to the extent that such exercise
causes the optionee to incur alternative minimum tax. (See discussion below.)
The Company will not be allowed a deduction for federal income tax purposes as a
result of the exercise of an incentive stock option regardless of the
applicability of the alternative minimum tax. Upon the sale or exchange of the
shares more than two years after grant of the option and one year after exercise
of the option by the optionee, any gain will be treated as a long-term capital
gain. If both of these holding periods are not satisfied, the optionee will
recognize ordinary income equal to the
8
difference between the exercise price and the lower of the fair market value of
the Common Stock on the date of the option exercise or the sale price of the
Common Stock. The Company will be entitled to a deduction in the same amount as
the ordinary income recognized by the optionee. Any gain or loss recognized on a
disposition of the shares prior to completion of both of the above holding
periods in excess of the amount treated as ordinary income will be characterized
as long-term capital gain if the sale occurs more than one year after exercise
of the option or as short-term capital gain if the sale is made earlier. For
individual taxpayers, the current U.S. federal income tax rate on long-term
capital gains is capped at 28%, whereas the maximum rate on other income is
39.6%. Capital losses for individual taxpayers are allowed in full against
capital gains plus $3,000 of other income.
All other options which do not qualify as incentive stock options are
referred to as nonstatutory stock options. An optionee will not recognize any
taxable income at the time he or she is granted a nonstatutory stock option.
However, upon its exercise, the optionee will recognize ordinary income for tax
purposes measured by the excess of the fair market value of the shares over the
exercise price. The income recognized by an optionee who is also an employee of
the Company will be subject to income and employment tax withholding by the
Company by payment in cash by the optionee or out of the optionee's current
earnings. Upon the sale of such shares by the optionee, any difference between
the sale price and the fair market value of the shares as of the date of
exercise of the option will be treated as capital gain or loss, and will qualify
for long-term capital gain or loss treatment if the shares have been held for
more than one year from date of exercise.
ALTERNATIVE MINIMUM TAX
The exercise of an incentive stock option may subject the optionee to the
alternative minimum tax under Section 55 of the Code. The alternative minimum
tax is calculated by applying a tax rate of 26% to alternative minimum taxable
income of joint filers up to $175,000 ($87,500 for married taxpayers filing
separately) and 28% to alternative minimum taxable income above that amount.
Alternative minimum taxable income is equal to (i) taxable income adjusted for
certain items, plus (ii) items of tax preference less (iii) an exemption amount
of $45,000 for joint returns, $33,750 for unmarried individual returns and
$22,500 in the case of married taxpayers filing separately (which exemption
amounts are phased out for upper income taxpayers). Alternative minimum tax will
be due if the tax determined under the foregoing formula exceeds the regular tax
of the taxpayer for the year.
In computing alternative minimum taxable income, shares purchased upon
exercise of an incentive stock option are treated as if they had been acquired
by the optionee pursuant to exercise of a nonstatutory stock option. As a
result, the optionee recognizes alternative minimum taxable income equal to the
excess of the fair market value of the Common Stock on the date of exercise over
the option exercise price. Because the alternative minimum tax calculation may
be complex, optionees should consult their own tax advisors prior to exercising
incentive stock options.
If an optionee pays alternative minimum tax, the amount of such tax may be
carried forward as a credit against any subsequent year's regular tax in excess
of the alternative minimum tax for such year.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock present at the Annual Meeting in person or by proxy and
entitled to vote is required to approve the 1996 Plan and the reservation of
750,000 shares of Common Stock for issuance thereunder.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF
THE 1996 PLAN AND THE RESERVATION OF 750,000 SHARES OF
COMMON STOCK FOR ISSUANCE THEREUNDER.
9
PROPOSAL NO. 3
APPROVAL OF AMENDMENT TO THE 1995 DIRECTORS' STOCK OPTION PLAN
At the Annual Meeting, the Company's shareholders are being asked to approve
an amendment to the 1995 Directors' Stock Option Plan (the "Directors' Option
Plan"), to provide that the options granted thereunder will vest in full on the
date of grant. The Directors' Option Plan was adopted by the Board of Directors
in December 1995 and approved by the shareholders in January 1996. In June 1996,
the Board of Directors adopted the above amendment, for which shareholder
approval is being sought by this Proxy Statement. The following is a summary of
principal features of the Directors' Option Plan. The summary, however, does not
purport to be a complete description of all the provisions of the Directors'
Option Plan as amended in June 1996. Any shareholder of the Company who wishes
to obtain a copy of the actual plan document may do so upon written request to
Joy T. Fry at the Company's principal executive offices at 3603 Haven Avenue,
Menlo Park, California 94025.
GENERAL AND PURPOSE
The Directors' Option Plan provides for the grant of nonstatutory stock
options to nonemployee directors of the Company. The Board has reserved a total
of 200,000 shares of Common Stock for issuance thereunder. The Directors' Option
Plan is designed to work automatically and not to require administration;
however, to the extent administration is necessary, it will be provided by the
Board of Directors.
The purpose of the Directors' Option Plan is to provide an incentive for
directors to continue to serve the Company as directors and to assist the
Company in recruiting highly qualified individuals when vacancies occur on the
Board of Directors.
GRANT AND EXERCISE OF OPTION
The Directors' Option Plan provides that each person who becomes a
nonemployee director after the effective date of the Directors' Option Plan
shall be automatically granted a "First Option" to purchase 20,000 shares of
Common Stock on the date on which such person first becomes a nonemployee
director, whether through election by the shareholders of the Company or
appointment by the Board of Directors to fill a vacancy, unless such person has
previously been granted an option by the Company to purchase shares under any
stock option plan of the Company. A "Subsequent Option" is automatically granted
to each nonemployee director on the date of each annual meeting of the
shareholders, provided that on that date the nonemployee director has served on
the Board of Directors for at least six months.
The Directors' Option Plan provides for neither a maximum nor a minimum
number of shares subject to options that may be granted to any one nonemployee
director, but does provide for the number of shares that may be included in any
grant and the method of making a grant. No option granted under the Directors'
Option Plan is transferable by the optionee other than by will or the laws of
descent or distribution or pursuant to the terms of a qualified domestic
relations order (as defined by the Internal Revenue Code of 1986), and each
option is exercisable, during the lifetime of the optionee, only by such
optionee.
Prior to the June 1996 amendment approved by the Board of Directors, the
Directors' Option Plan provided that 25% of the shares subject to each First
Option becomes exercisable on each of the first, second, third and fourth
anniversaries of the date of grant of the First Option, and 100% of the shares
subject to the Subsequent Option becomes exerciseable on the fourth anniversary
of the date of grant of the Subsequent Option. The options remain exercisable
for up to ninety days following the optionee's termination of service as a
director of the Company, unless such termination is a result of death, in which
case the options remain exercisable for up to a six-month period (or such lesser
period as determined by the Board), or disability, in which case the options
remain exercisable for up to a six-month period (or such other period not
exceeding twelve months as determined by the Board). The shareholders are being
asked to approve an amendment allowing the First Options and the Subsequent
Options to be exercisable in full and fully vested on the date of grant.
AMENDMENT TO MODIFY VESTING PERIOD
The Board of Directors believes that in order to attract and retain highly
qualified outside directors and to provide such outside directors with adequate
incentive through their proprietary interest in the
10
Company, it is necessary to amend the Directors' Option Plan to allow the
options granted thereunder to be exercisable in full on the date of the grant.
At the Annual Meeting of Shareholders, the shareholders are being asked to
approve the above amendment to the Directors' Option Plan.
EXERCISE PRICE AND TERM OF OPTIONS
The exercise price of all stock options granted under the Directors' Option
Plan shall be equal to the fair market value of a share of the Company's Common
Stock on the date of grant of the option, which is defined to be the closing
sale price of the Company's Common Stock on an exchange or the NASDAQ National
Market System on the date of grant. Options granted under the Directors' Option
Plan have a term of ten years unless terminated sooner.
MERGER OR SALE OF ASSETS
In the event of the dissolution or liquidation of the Company, a sale of all
or substantially all of the assets of the Company, the merger of the Company
with or into another corporation in which the Company is not the surviving
corporation or any other capital reorganization in which more than 50% of the
shares of the Company entitled to vote are exchanged, each nonemployee director
will have a reasonable time within which to exercise their options, prior to the
effectiveness of such dissolution, liquidation, sale, merger or reorganization,
at the end of which time the options will terminate, or the right to exercise
the options, including any part of the options that would not otherwise be
exercisable, or receive substitute options with comparable terms, as to an
equivalent number of shares of stock of the corporation succeeding the Company
or acquiring its business by reason of such dissolution, liquidation, sale,
merger or reorganization.
AMENDMENT AND TERMINATION
The Board of Directors may at any time amend or terminate the Directors'
Option Plan, except that such termination cannot affect options previously
granted without the agreement of any optionee so affected. Notwithstanding the
foregoing, the provisions regarding the grant of options under the Directors'
Option Plan may be amended only once in any six-month period, other than to
comport with changes in the Code, the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder.
If not terminated earlier, the Directors' Option Plan will expire in 2005.
U.S. FEDERAL INCOME TAX INFORMATION
The following is a brief summary of the effect of federal income taxation
upon the optionee and the Company with respect to the grant and exercise of
options under the Directors' Option Plan, does not purport to be complete, and
does not discuss the income tax laws of any municipality, state or foreign
country in which an optionee may reside. The Company advises all eligible
directors to consult their own tax advisors concerning tax implications of
option grants and exercises and the disposition of stock acquired upon such
exercises under the Directors' Option Plan.
Options granted under the Directors' Option Plan are nonstatutory stock
options. An optionee will not recognize any taxable income at the time he or she
is granted a nonstatutory option. However upon its exercise, the optionee will
recognize ordinary income for tax purposes measured by the excess of the then
fair market value of the shares over the option price. Because the optionee is a
director of the Company, the date of taxation (and the date of measurement of
taxable ordinary income) may be deferred unless the optionee files an election
with the Internal Revenue Service under Section 83(b) of the Code. Upon resale
of such shares by the optionee, any difference between the sale price and the
exercise price, to the extent not recognized as ordinary income as provided
above will be treated as capital gain (or loss), and will be long-term capital
gain if the optionee has held the shares more than one year. For individual
taxpayers, the current federal income tax rate on long-term capital gains is
capped at 28%, whereas the maximum rate on other income is 39.6%. Capital losses
for individual taxpayers are allowed under U.S. tax laws in full against capital
gains plus $3,000 of other income. The Company will be entitled to a tax
deduction in the amount and at the time that the optionee recognizes ordinary
income with respect to shares acquired upon exercise of a nonstatutory stock
option.
11
REQUIRED VOTE
The affirmative vote of the holders of a majority of the Company's Common
Stock present at the Annual Meeting in person or by proxy and entitled to vote
is required to approve adoption of the amendment to the Directors' Option Plan
to provide that options granted thereunder will be fully vested and exercisable
on the date of grant.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE AMENDMENT TO
THE 1995 DIRECTORS' STOCK OPTION PLAN WHICH PROVIDES THAT OPTIONS
GRANTED THEREUNDER WILL VEST IN FULL ON THE DATE OF GRANT.
PROPOSAL NO. 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed the firm of Ernst & Young LLP,
independent public accountants, to audit the financial statements of the Company
for the fiscal year ending October 31, 1997, and recommends that the
shareholders vote for ratification of this appointment. In the event the
shareholders do not ratify such appointment, the Board of Directors will
reconsider its selection. Ernst & Young LLP has audited the Company's financial
statements for the fiscal years ending October 31, 1994, 1995 and 1996.
Representatives of Ernst & Young LLP are expected to be present at the meeting
with the opportunity to make a statement if they desire to do so, and are
expected to be available to respond to appropriate questions.
REQUIRED VOTE
The ratification of the appointment of Ernst & Young LLP as the Company's
independent public accountants requires the affirmative vote of the holders of a
majority of the shares of the Company's Common Stock present at the Annual
Meeting in person or by proxy and entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF
ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS
FOR THE FISCAL YEAR ENDING OCTOBER 31, 1997.
12
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
Common Stock as of January 10, 1997 as to (i) each person who is known by the
Company to beneficially own more than five percent of the Company's Common
Stock, (ii) each of the Company's directors, (iii) each of the executive
officers named in the Summary Compensation Table of this proxy and (iv) all
directors and executive officers as a group.
SHARES BENEFICIALLY
5% SHAREHOLDERS, DIRECTORS, OWNED(1)
NAMED EXECUTIVE OFFICERS, ----------------------------
AND DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP NUMBER(2) PERCENT OF TOTAL
- ---------------------------------------------- ----------- ----------------
Chase Capital Partners ........................ 1,329,552 12.42%
380 Madison Avenue, 12th Floor
New York, NY 10128
Domain Partners II, L.P. ...................... 793,951 7.43
One Palmer Square, Suite 515
Princeton, NJ 08542
Ray F. Stewart, Ph.D. ......................... 292,248 2.71
Gary T. Steele ................................ 267,448 2.48
David D. Taft, Ph.D. .......................... 151,447 1.41
Steven P. James ............................... 58,256 *
Joy T. Fry .................................... 54,500 *
Mitchell Blutt, M.D. (3) ...................... 1,337,957 12.42
Kirby L. Cramer ............................... 15,434 *
Richard Dulude ................................ 21,666 *
Stephen E. Halprin (4) ........................ 29,307 *
Richard S. Schneider, Ph.D. (5) ............... 803,879 7.47
All directors and executive officers as a
group (13 persons) (3)(4)(5)(6) .............. 3,089,420 28.69
- -------------
* Less than 1%
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock.
(2) Includes with respect to each named person the following shares subject to
stock options exercisable within 60 days of January 10, 1997: Ray F.
Stewart--11,303, Gary T. Steele--266,665, David D. Taft--132,317, Stephen
P. James--37,387, Joy T. Fry--46,112, Dr. Mitchell Blutt--8,405, Kirby L.
Cramer--15,434, Richard Dulude--21,666, Stephen E. Halprin--9,274, Richard
S. Schneider, Ph.D.--6,015.
(3) Consists of 1,329,552 shares held by Chase Capital Partners and 8,405
shares issuable upon exercise of outstanding options exercisable by Dr.
Mitchell Blutt and Chase Venture Capital Associates, L.P. within 60 days of
January 10, 1997. Dr. Blutt, a general partner of Chase Capital Partners
and Chase Venture Capital Associates, L.P., was a director of the Company
through February 1997, when Damion E. Wicker, M.D., his partner at Chase
Capital Partners, replaced him on the Company's Board of Directors. Dr.
Blutt disclaims beneficial ownership of shares held by Chase Capital
Partners and Chase Venture Capital Associates, L.P. except to the extent of
his pecuniary interest in such shares.
(4) Consists of 20,033 shares held by OSCCO III, L.P., and 9,274 shares
issuable upon exercise of outstanding options exercisable by Stephen
Halprin within 60 days of January 10, 1997. Mr. Halprin,
13
a general partner of the general partner of OSCCO III, L.P., is a director
of the Company. Mr. Halprin disclaims beneficial ownership of such shares
except to the extent of his pecuniary interest in such shares.
(5) Consists of 292 shares held by Dr. Schneider, 793,951 shares held by Domain
Partners II, L.P., 3,621 shares held by Domain Associates, 72 shares
issuable upon exercise of outstanding options exercisable by Domain
Associates within 60 days of January 10, 1997, and 5,943 shares issuable
upon exercise of outstanding options exercisable by Richard Schneider ,
Ph.D. within 60 days of January 10, 1997. Dr. Schneider is a director of
the Company and a general partner of the general partner of Domain Partners
II, L.P. and a general partner of Domain Associates. Dr. Schneider
disclaims beneficial ownership of shares held by Domain Partners II, L.P.
and Domain Associates except to the extent of his pecuniary interest in
such shares.
(6) Includes an aggregate of 585,770 shares held by officers and directors
which are issuable upon exercise of options exercisable within 60 days of
January 10, 1997.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement, in whole or in part, the following report and
the Performance Graph in this proxy shall not be incorporated by reference into
any such filings.
REPORT OF THE COMPENSATION COMMITTEE
GENERAL
The Company's executive compensation policies are determined by the
Compensation Committee (the "Committee") of the Board of Directors. The
Committee is comprised of two nonemployee directors.
The objective of the Company's executive compensation program is to align
executive compensation with the Company's business objectives and performance,
and to enable the Company to attract, retain and reward executives who
contribute to the long-term business success of the Company. The Company's
executive compensation program is based on the same four basic principles that
guide compensation decisions for all employees of the Company:
o The Company compensates for demonstrated and sustained performance.
o The Company compensates competitively.
o The Company strives for equity and fairness in the administration of
compensation.
o The Company believes that each employee should understand how his or her
compensation is determined.
The Company believes in compensating its executives for demonstrated and
sustained levels of performance in their individual jobs. The achievement of
higher levels of performance and contribution are rewarded by higher levels of
compensation. In order to ensure that it compensates its executives
competitively, the Company regularly compares its compensation practices to
those of other companies of comparable size within similar industries. Through
the use of independent compensation surveys and analysis, employee compensation
training, and periodic pay reviews, the Company strives to ensure that
compensation is administered equitably and fairly and that a balance is
maintained between how executives are paid relative to other employees and
relative to executives with similar responsibilities in comparable companies.
The Committee meets at least twice annually: once late in the year to
establish the compensation program for the next fiscal year and once, mid-year,
to evaluate how effectively the program is meeting its objectives. Additionally,
the Committee may hold special meetings to approve the compensation program of a
newly hired executive or an executive whose scope of responsibility has
significantly changed. Each year, the Committee meets with the Chief Executive
Officer ("CEO") regarding executive compensation projections for the next three
years and proposals for executive compensation for the next
14
operating year. Compensation plans are based on compensation surveys and
assessments as to the demonstrated and sustained performance of the individual
executives. The Committee then independently reviews the performance of the CEO
and the Company, and develops the annual compensation plan for the CEO based on
competitive compensation data and the Committee's evaluation of the CEO's
demonstrated and sustained performance and its expectation as to his future
contributions in leading the Company. The Committee presents for adoption its
findings on the compensation of each individual executive at a subsequent
meeting of the full Board of Directors.
COMPENSATION OF EXECUTIVE OFFICERS
During fiscal year 1996, the Company's executive compensation program was
comprised of the following key components:
Base Salary. The Company sets the base salaries of its executives at the
levels of comparably sized companies engaged in similar industries.
Equity-Based Incentives. Stock options are an important component of the
total compensation of executives, and are designed to align the interests of
each executive with those of the shareholders. Each year the Committee considers
the grant to executives of stock option awards under the Company's 1996 Stock
Option Plan. The Committee believes that stock options provide added incentive
for the executives to influence the strategic direction of the Company, and to
create and increase value for customers, shareholders and employees. The option
grants utilize four-year vesting periods to encourage executives to continue
contributing to the Company. The number of stock option shares that are granted
to individual executives is, in part, based on independent survey data
reflecting competitive stock option practices.
Bonus Awards Paid in Fiscal Year 1996. In September 1996, the Committee
approved a bonus for the CEO in recognition of his efforts in contributing to
the Company's fiscal 1996 performance. In December 1995, the Committee approved
bonuses for certain executive officers earned in fiscal year 1995, which were
paid in fiscal year 1996.
Compensation of the Chief Executive Officer. The fiscal year 1996
compensation of Gary T. Steele, the Company's CEO, consisted of base salary and
a bonus. The CEO's base salary for fiscal year 1996 was established by the
Committee at a level somewhat comparable to the base salaries of comparably
sized companies engaged in similar industries. As with other executive officers
of the Company, the amounts of the CEO's bonus awards are based on attainment of
a combination of corporate and individual performance objectives. Mr. Steele's
fiscal year-end bonus of $50,000, or 20.9 percent of his base salary, reflect
the Committee's judgment as to Mr. Steele's personal performance during the
fiscal year as well as his role in the attainment of the Company's overall
objectives.
Deductibility of Executive Compensation. The Committee has considered the
impact of Section 162(m) of the Internal Revenue Code adopted under the Omnibus
Budget Reconciliation Act of 1993, which section disallows a deduction for any
publicly held corporation for individual compensation exceeding $1 million in
any taxable year for the CEO and four other most highly compensated executive
officers, unless such compensation meets the requirements for the
"performance-based" exception to the general rule. Since the cash compensation
paid by the Company to each of its executive officers is expected to be well
below $1 million, the Committee believes that this section will not affect the
tax deductions available to the Company. It will be the Committee's policy to
qualify, to the extent reasonable, the executive officers' compensation for
deductibility under applicable tax law.
COMPENSATION COMMITTEE
Kirby L. Cramer
Richard S. Schneider, Ph.D.
15
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Steele was a member of the Compensation Committee through February 1996
and Chief Executive Officer and President of the Company. Mr. Steele resigned
from the Compensation Committee immediately prior to the Company's initial
public offering of its stock in February 1996. Neither Mr. Cramer nor Dr.
Schneider has been an officer or employee of the Company or any of its
subsidiaries.
COMPENSATION OF EXECUTIVE OFFICERS
The table on the next page shows the compensation received by (a) the
individual who served as the Company's Chief Executive Officer during the fiscal
year ended October 31, 1996; (b) the four other most highly compensated
individuals who were serving as executive officers of the Company at fiscal year
ended October 31, 1996; and (c) the compensation received by each such
individual for the Company's two preceding fiscal years.
16
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------------------- --------------
AWARDS
--------------
FISCAL OTHER ANNUAL STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION OPTIONS COMPENSATION($)
- --------------------------- ------- --------- -------- -------------- -------------- ---------------
(1) (2) ($) (3)
Gary T. Steele 1996 238,884 50,060 -- -- 4,908
Chief Executive Officer, 1995 219,423 15,050 -- 34,782 1,906
President and Chairman of 1994 205,000 15,000 -- 17,391 --
the Board
David D. Taft 1996 199,719 20,060 -- -- --
Chief Operating Officer 1995 188,061 50 -- 31,304 --
1994 180,000 5,000 -- -- --
Ray F. Stewart 1996 151,154 60 -- -- 1,073
Vice President, 1995 129,000 50 -- 13,913 1,431
Technology; and Senior 1994 113,135 -- -- -- --
Vice President, Intellicoat
Corporation(4)
Steven P. James 1996 136,400 20,060 -- -- --
Vice President, General 1995 121,615 50 -- 41,739 --
Manager of Membrane 1994 108,135 -- -- 6,956 --
Products
Joy T. Fry 1996 123,646 7,560 -- -- --
Vice President, Finance 1995 109,041 50 -- 24,347 --
and Administration and 1994 98,442 -- -- 12,173 --
Chief Financial Officer
- -----------------
(1) Includes amounts deferred under the Company's 401(k) plan.
(2) With the exception of Gary T. Steele, includes bonuses paid in the
indicated year but earned in the preceding year and excludes bonuses earned
in the indicated year and paid in the subsequent year. For Gary T. Steele,
indicates bonuses earned in the indicated year and paid in the indicated
year.
(3) Comprised of premiums paid by the Company under the Company's group term
life insurance policy.
(4) Intellicoat Corporation is a wholly-owned subsidiary of the Company.
STOCK OPTION GRANTS IN FISCAL YEAR 1996
There were no stock option grants in fiscal year 1996 to the executive
officers named in the Summary Compensation Table.
17
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1996
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information for the executive officers named
in the Summary Compensation Table with respect to exercises in fiscal year 1996
of options to purchase Common Stock of the Company.
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS AT
SHARES AT 10/31/96 10/31/96
ACQUIRED ON VALUE (EXERCISABLE/ (EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE)(1) UNEXERCISABLE)(2)
- --------------- ------------- ------------- ----------------- --------------------
Gary T. Steele -- -- 261,955/33,696 $2,162,280/$259,862
David D. Taft 17,391 $198,605(3) 118,839/37,682 $ 981,093/$301,196
Ray F. Stewart -- -- 9,564/11,305 $ 76,141/$85,107
Steven P. James -- -- 33,060/29,546 $ 268,155/$231,718
Joy T. Fry 7,000 $ 6,020(4) 42,526/20,036 $ 348,022/$154,338
- ---------------
(1) No stock appreciation rights (SARs) were outstanding during fiscal year
1996.
(2) Based on the closing price of the Company's Common Stock as reported on the
NASDAQ National Market on October 31, 1996 of $8.875 per share minus the
exercise price of the options.
(3) Value realized is calculated based on the fair market value of the
Company's Common Stock as determined by its Board of Directors on the date
of exercise ($12.00 on February 10, 1996, and $12.00 on February 12, 1996)
minus the exercise price of the option ($0.58) and does not necessarily
indicate that the optionee sold such stock. At the time of the exercise of
the option, the Company was a private company.
(4) Value realized is calculated based on the fair market value of the
Company's Common Stock as determined by its Board of Directors on the date
of exercise ($1.44 on December 15, 1995) minus the exercise price of the
option ($0.58) and does not necessarily indicate that the optionee sold
such stock. At the time of the exercise of the option, the Company was a
private company.
18
PERFORMANCE GRAPH
The following graph summarizes cumulative total shareholder return data
(assuming reinvestment of dividends) for the period since the Company's stock
was first registered under Section 12 of the Securities Exchange Act of 1934
(February 15, 1996). The graph assumes that $100 was invested (i) on February
15, 1996 in the Common Stock of Landec Corporation at a price per share of
$12.00, the price at which such stock was first offered to the public on that
date, (ii) on January 31, 1996 in the Standard & Poor's 500 Stock Index and
(iii) on January 31, 1996 in the NASDAQ Industrial Index. The stock price
performance on the following graph is not necessarily indicative of future stock
price performance.
[The following description data is supplied in accordance with Rule 304(d) of
Regulation S-T]
1/31/96 2/15/96 2/29/96 3/31/96 4/30/96 5/31/96
------- ------- ------- ------- ------- -------
Landec Corporation 100.00 108.29 135.36 158.27 172.85
Standard & Poor's
500 Index 100.00 100.35 100.69 101.49 102.85 105.20
NASDAQ Industrial Index 100.00 101.89 103.78 105.70 115.40 122.10
6/30/96 7/31/96 8/31/96 9/30/96 10/31/96
------- ------- ------- ------- --------
Landec Corporation 158.27 124.95 116.62 81.22 73.93
Standard & Poor's
500 Index 105.43 100.61 102.51 108.07 110.89
NASDAQ Industrial Index 114.53 101.81 108.39 114.24 111.05
* $100 invested on 2/15/96 in the Common Stock of Landec Corporation or on
1/31/96 in the above indices including reinvestment of dividends. Fiscal
year ending October 31, 1996.
1/31/96(1) 10/31/96
---------- --------
Landec Corporation ............................. 100 73.93
Standard & Poor's 500 Index .................... 100 110.89
NASDAQ Industrial Index ........................ 100 111.05
(1) February 15, 1996 for Landec Corporation.
19
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In fiscal 1996, there were no transactions with management and others,
certain business relationships, or indebtedness of management requiring
disclosure under Item 404 of Regulation S-K of the Securities and Exchange Act
of 1933.
COMPLIANCE WITH SECTION 16(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity securities
to file with the Securities and Exchange Commission (the "SEC") initial reports
of ownership and reports of changes in ownership of Common Stock and other
equity securities of the Company. Officers, directors and holders of more than
ten percent of the Company's Common Stock are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely upon review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended October 31, 1996 all Section
16(a) filing requirements applicable to the Company's officers, directors and
holders of more than ten percent of the Company's Common Stock were complied
with.
OTHER MATTERS
The Board of Directors knows of no other matters to be submitted to the
meeting. If any other matters properly come before the meeting, then the persons
named in the enclosed form of proxy will vote the shares they represent in such
manner as the Board may recommend.
It is important that the proxies be returned promptly and that your shares be
represented. Shareholders are urged to mark, date, execute and promptly return
the accompanying proxy card in the enclosed envelope.
BY ORDER OF THE BOARD OF DIRECTORS
TAE HEA NAHM
Secretary
Dated: February 21, 1997
20
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF LANDEC CORPORATION FOR THE
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MARCH 19, 1997
The undersigned shareholder of Landec Corporation, a California corporation,
hereby acknowledges receipt of the Notice of Annual Meeting of Shareholders and
Proxy Statement, each dated February 21, 1997, and hereby appoints Gary T.
Steele and Joy T. Fry or either of them, proxies and attorneys-in-fact, with
full power to each of substitution, on behalf and in the name of the
undersigned, to represent the undersigned at the Annual Meeting of Shareholders
of Landec Corporation to be held on Wednesday, March 19, 1997 at 2:00 p.m.,
local time, at Hyatt Rickeys Hotel in Palo Alto, located at 4219 El Camino Real,
Palo Alto, California 94306 and at any adjournment or postponement thereof, and
to vote all shares of Common Stock which the undersigned would be entitled to
vote if then and there personally present, on the matters set forth below:
1. ELECTION OF DIRECTORS:
[ ] FOR all nominees listed below (except as indicated).
[ ] WITHHOLD authority to vote for all nominees listed below.
IF YOU WISH TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
A LINE THROUGH THAT NOMINEE'S NAME IN THE LIST BELOW:
Ray F. Stewart, Ph.D., Stephen E. Halprin, Richard S. Schneider, Ph.D.
2. PROPOSAL TO APPROVE THE ADOPTION OF THE COMPANY'S 1996 STOCK OPTION PLAN AND
THE RESERVATION FOR ISSUANCE THEREUNDER OF 750,000 SHARES:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. PROPOSAL TO APPROVE AN AMENDMENT TO THE COMPANY'S 1995 DIRECTORS' STOCK
OPTION PLAN TO PROVIDE THAT THE OPTIONS GRANTED THEREUNDER WILL VEST IN FULL
ON THE DATE OF GRANT:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS THE INDEPENDENT
PUBLIC ACCOUNTANTS OF THE COMPANY FOR THE FISCAL YEAR ENDING OCTOBER 31,
1997:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
and, in their discretion, upon such other matter or matters that may properly
come before the meeting and any postponement(s) or adjournment(s) thereof.
(Continued and to be signed on reverse side)
(Continued from other side)
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED AS FOLLOWS: (1) FOR THE ELECTION OF DIRECTORS; (2) FOR APPROVAL OF
THE ADOPTION OF THE COMPANY'S 1996 STOCK OPTION PLAN AND THE RESERVATION FOR
ISSUANCE THEREUNDER OF 750,000 SHARES; (3) FOR APPROVAL OF AN AMENDMENT TO THE
COMPANY'S 1995 DIRECTORS' STOCK OPTION PLAN TO PROVIDE THAT THE OPTIONS GRANTED
THEREUNDER WILL BE FULLY VESTED AND EXERCISABLE ON THE DATE OF GRANT; (4) FOR
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S
INDEPENDENT PUBLIC ACCOUNTANTS, AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER
MATTERS AS MAY COME BEFORE THE MEETING.
--------------------------------------------
SIGNATURE
DATE:
---------------------------------------
--------------------------------------------
SIGNATURE
DATE:
---------------------------------------
(THIS PROXY SHOULD BE MARKED, DATED, SIGNED BY THE SHAREHOLDER(S) EXACTLY AS HIS
OR HER NAME APPEARS HEREON, AND RETURNED PROMPTLY IN THE ENCLOSED ENVELOPE.
PERSONS SIGNING IN A FIDUCIARY CAPACITY SHOULD SO INDICATE. IF SHARES ARE HELD
BY JOINT TENANTS OR AS COMMUNITY PROPERTY, BOTH SHOULD SIGN.)
LANDEC CORPORATION
1996 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Stock Option Plan
are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to the Employees and
Consultants of the Company and to promote the success of the Company's business.
Options granted hereunder may be either Incentive Stock
Options (as defined under Section 422 of the Code) or Nonstatutory Stock
Options, at the discretion of the Board and as reflected in the terms of the
written option agreement.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Administrator" shall mean the Board or any of its
Committees appointed pursuant to Section 4 of the Plan.
(b) "Affiliate" shall mean an entity other than a Subsidiary
(as defined below) in which the Company owns an equity interest.
(c) "Applicable Laws" shall have the meaning set forth in
Section 4(a) below.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(f) "Committee" shall mean the Committee appointed by the
Board of Directors in accordance with Section 4(a) of the Plan, if one is
appointed.
(g) "Common Stock" shall mean the Common Stock of the Company.
(h) "Company" shall mean Landec Corporation, a California
corporation.
(i) "Consultant" means any person, including an advisor, who
is engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services; provided that the term Consultant shall not
include directors who are not compensated for their services or are paid only a
director's fee by the Company.
(j) "Continuous Status as an Employee or Consultant" shall
mean the absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of sick leave, military leave, or any other
leave of absence approved by the
-1-
Administrator; provided that such leave is for a period of not more than 90 days
or reemployment upon the expiration of such leave is guaranteed by contract or
statute. For purposes of this Plan, a change in status from an Employee to a
Consultant or from a Consultant to an Employee will not constitute a termination
of employment.
(k) "Director" shall mean a member of the Board.
(l) "Employee" shall mean any person (including any Named
Executive, Officer or Director) employed by the Company or any Parent,
Subsidiary or Affiliate of the Company. The payment by the Company of a
director's fee to a Director shall not be sufficient to constitute "employment"
of such Director by the Company.
(m) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(n) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system including without limitation the
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("Nasdaq") System, its Fair Market Value shall be the
closing sales price for such stock as quoted on such system on the date of
determination (if for a given day no sales were reported, the closing bid on
that day shall be used), as such price is reported in The Wall Street Journal or
such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq
System (but not on the National Market thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the bid and asked prices for the Common
Stock or;
(iii) In the absence of an established market for
the Common Stock, the Fair Market Value thereof shall be determined in good
faith by the Administrator.
(o) "Incentive Stock Option" shall mean an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code, as designated in the applicable written option agreement.
(p) "Named Executive" shall mean any individual who, on the
last day of the Company's fiscal year, is the chief executive officer of the
Company (or is acting in such capacity) or among the four highest compensated
officers of the Company (other than the chief executive officer). Such officer
status shall be determined pursuant to the executive compensation disclosure
rules under the Exchange Act.
-2-
(q) "Nonstatutory Stock Option" shall mean an Option not
intended to qualify as an Incentive Stock Option, as designated in the
applicable written option agreement.
(r) "Officer" shall mean a person who is an officer of the
Company within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(s) "Option" shall mean a stock option granted pursuant to the
Plan.
(t) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(u) "Optionee" shall mean an Employee or Consultant who
receives an Option.
(v) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(w) "Plan" shall mean this 1996 Stock Option Plan.
(x) "Rule 16b-3" shall mean Rule 16b-3 promulgated under the
Exchange Act as the same may be amended from time to time, or any successor
provision.
(y) "Share" shall mean a share of the Common Stock, as
adjusted in accordance with Section 14 of the Plan.
(z) "Subsidiary" shall mean a "subsidiary corporation,"
whether now or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of
Section 14 of the Plan, the maximum aggregate number of shares that may be
optioned and sold under the Plan is 750,000 shares of Common Stock. The Shares
may be authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares that were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan. Notwithstanding any other provision of the Plan,
shares issued under the Plan and later repurchased by the Company shall not
become available for future grant under the Plan.
4. Administration of the Plan.
(a) Composition of Administrator.
(i) Multiple Administrative Bodies. If permitted by
Rule 16b-3, and by the legal requirements relating to the administration of
incentive stock
-3-
option plans, if any, of applicable securities laws and the Code (collectively,
the "Applicable Laws"), grants under the Plan may (but need not) be made by
different administrative bodies with respect to Directors, Officers who are not
directors and Employees who are neither Directors nor Officers.
(ii) Administration with respect to Directors and
Officers. With respect to grants of Options to Employees or Consultants who are
also Officers or Directors of the Company, grants under the Plan shall be made
by (A) the Board, if the Board may make grants under the Plan in compliance with
Rule 16b-3 and Section 162(m) of the Code as it applies so as to qualify grants
of Options to Named Executives as performance-based compensation, or (B) a
Committee designated by the Board to make grants under the Plan, which Committee
shall be constituted in such a manner as to permit grants under the Plan to
comply with Rule 16b-3, to qualify grants of Options to Named Executives as
performance-based compensation under Section 162(m) of the Code and otherwise so
as to satisfy the Applicable Laws.
(iii) Administration with respect to Other Persons.
With respect to grants of Options to Employees or Consultants who are neither
Directors nor Officers of the Company, the Plan shall be administered by (A) the
Board or (B) a Committee designated by the Board, which Committee shall be
constituted in such a manner as to satisfy the Applicable Laws.
(iv) General. If a Committee has been appointed
pursuant to subsection (ii) or (iii) of this Section 4(a), such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of any Committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies (however caused)
and remove all members of a Committee and thereafter directly administer the
Plan, all to the extent permitted by the Applicable Laws and, in the case of a
Committee appointed under subsection (ii), to the extent permitted by Rule 16b-3
and to the extent required under Section 162(m) of the Code to qualify grants of
Options to Named Executives as performance-based compensation.
(b) Powers of the Administrator. Subject to the provisions of
the Plan and in the case of a Committee, the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the
Common Stock, in accordance with Section 2(m) of the Plan;
(ii) to select the Employees and Consultants to
whom Options may from time to time be granted hereunder;
(iii) to determine whether and to what extent
Options are granted hereunder;
-4-
(iv) to determine the number of shares of Common
Stock to be covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the
Plan;
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder
(including, but not limited to, the share price and any restriction or
limitation, or any vesting acceleration or waiver of forfeiture restrictions
regarding any Option and/or the shares of Common Stock relating thereto, based
in each case on such factors as the Administrator shall determine, in its sole
discretion);
(vii) to reduce the exercise price of any Option to
the then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was
granted.
(c) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options.
5. Eligibility.
(a) Recipients of Grants. Nonstatutory Stock Options may be
granted to Employees and Consultants. Incentive Stock Options may be granted
only to Employees, provided, however, that Employees of an Affiliate shall not
be eligible to receive Incentive Stock Options. An Employee or Consultant who
has been granted an Option may, if he or she is otherwise eligible, be granted
an additional Option or Options.
(b) Type of Option. Each Option shall be designated in the
written option agreement as either an Incentive Stock Option or a Nonstatutory
Stock Option. However, notwithstanding such designations, to the extent that the
aggregate Fair Market Value of Shares with respect to which Incentive Stock
Options are exercisable for the first time by an Optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
For purposes of this Section 5(b), Incentive Stock Options shall be taken into
account in the order in which they were granted, and the Fair Market Value of
the Shares shall be determined as of the time the Option with respect to such
Shares is granted.
(c) No Employment Rights. The Plan shall not confer upon any
Optionee any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with his or her
right or the Company's right to terminate his or her employment or consulting
relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon the earlier
to occur of its adoption by the Board or its approval by the shareholders of the
Company as
-5-
described in Section 20 of the Plan. It shall continue in effect for a term of
ten (10) years unless sooner terminated under Section 16 of the Plan.
7. Term of Option. The term of each Option shall be the term
stated in the Option Agreement; provided, however, that in the case of an
Incentive Stock Option, the term shall be no more than ten (10) years from the
date of grant thereof or such shorter term as may be provided in the Option
Agreement. However, in the case of an Incentive Stock Option granted to an
Optionee who, at the time the Option is granted, owns stock representing more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Option shall
be five (5) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement.
8. Limitation on Grants to Employees. Subject to adjustment as
provided in this Plan, the maximum number of Shares which may be subject to
options granted to any one Employee under this Plan for any fiscal year of the
Company shall be 500,000.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per Share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be such price as is
determined by the Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time
of the grant of such Incentive Stock Option, owns stock representing more than
ten percent (10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per Share exercise price shall be no less than
110% of the Fair Market Value per Share on the date of grant; or
(B) granted to any other Employee, the per
Share exercise price shall be no less than 100% of the Fair Market Value per
Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of
the grant of such Option, is a Named Executive of the Company, the per share
Exercise Price shall be no less than 100% of the Fair Market Value on the date
of grant; or
(B) granted to any person other than a Named
Executive, the per Share exercise price shall be no less than 85% of the Fair
Market Value per Share on the date of grant.
(iii) Notwithstanding anything to the contrary in
subsections 9(a)(i) or 9(a)(ii) above, in the case of an Option granted on or
after the effective date of
-6-
registration of any class of equity security of the Company pursuant to Section
12 of the Exchange Act and prior to six months after the termination of such
registration, the per Share exercise price shall be no less than 100% of the
Fair Market Value per Share on the date of grant.
(b) Permissible Consideration. The consideration to be paid
for the Shares to be issued upon exercise of an Option, including the method of
payment, shall be determined by the Administrator (and, in the case of an
Incentive Stock Option, shall be determined at the time of grant) and may
consist entirely of (1) cash, (2) check, (3) authorization from the Company to
retain from the total number of Shares as to which the Option is exercised that
number of Shares having a Fair Market Value on the date of exercise equal to the
exercise price for the total number of Shares as to which the Option is
exercised, (4) delivery of a properly executed exercise notice together with
irrevocable instructions to a broker to deliver promptly to the Company the
amount of sale or loan proceeds required to pay the exercise price, (5) any
combination of the foregoing methods of payment, or (6) such other consideration
and method of payment for the issuance of Shares to the extent permitted under
Applicable Laws. In making its determination as to the type of consideration to
accept, the Administrator shall consider if acceptance of such consideration may
be reasonably expected to benefit the Company.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable at such times and under such
conditions as determined by the Administrator, including performance criteria
with respect to the Company and/or the Optionee, and as shall be permissible
under the terms of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
the Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received by
the Company. Full payment may, as authorized by the Administrator, consist of
any consideration and method of payment allowable under Section 9(b) of the
Plan. Until the issuance (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 14 of the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
-7-
(b) Termination of Status as an Employee or Consultant. In the
event of termination of an Optionee's Continuous Status as an Employee or
Consultant, such Optionee may, but only within thirty (30) days (or such other
period of time, not exceeding three (3) months in the case of an Incentive Stock
Option or six (6) months in the case of a Nonstatutory Stock Option, as is
determined by the Administrator, with such determination in the case of an
Incentive Stock Option being made at the time of grant of the Option) after the
date of such termination (but in no event later than the date of expiration of
the term of such Option as set forth in the Option Agreement), exercise his or
her Option to the extent that he or she was entitled to exercise it at the date
of such termination. To the extent that the Optionee was not entitled to
exercise the Option at the date of such termination, or if the optionee does not
exercise such Option (which he or she was entitled to exercise) within the time
specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding Section 10(b)
above, in the event of termination of an Optionee's Continuous Status as an
Employee or Consultant as a result of his or her total and permanent disability
(as defined in Section 22(e)(3) of the Code), he or she may, but only within six
(6) months (or such other period of time not exceeding twelve (12) months as is
determined by the Administrator, with such determination in the case of an
Incentive Stock Option being made at the time of grant of the Option) from the
date of such termination (but in no event later than the date of expiration of
the term of such Option as set forth in the Option Agreement), exercise his or
her Option to the extent he or she was entitled to exercise it at the date of
such termination. To the extent that he or she was not entitled to exercise the
Option at the date of termination, or if he does not exercise such Option (which
he was entitled to exercise) within the time specified herein, the Option shall
terminate.
(d) Death of Optionee. In the event of the death of an
Optionee:
(i) during the term of the Option who is at the time
of his death an Employee or Consultant of the Company and who shall have been in
Continuous Status as an Employee or Consultant since the date of grant of the
Option, the Option may be exercised, at any time within six (6) months (or such
other period of time, not exceeding six (6) months, as is determined by the
Administrator, with such determination in the case of an Incentive Stock Option
being made at the time of grant of the Option) following the date of death (but
in no event later than the date of expiration of the term of such Option as set
forth in the Option Agreement), by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance but only to
the extent of the right to exercise that would have accrued had the Optionee
continued living and remained in Continuous Status as an Employee or Consultant
three (3) months (or such other period of time as is determined by the
Administrator as provided above) after the date of death, subject to the
limitation set forth in Section 5(b); or
(ii) within thirty (30) days (or such other period
of time not exceeding three (3) months as is determined by the Administrator,
with such determination in the case of an Incentive Stock Option being made at
the time of grant of the Option) after the termination of Continuous Status as
an Employee or Consultant, the Option may
-8-
be exercised, at any time within six (6) months following the date of death (but
in no event later than the date of expiration of the term of such Option as set
forth in the Option Agreement), by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent of the right to exercise that had accrued at the date of termination.
(e) Rule 16b-3. Options granted to persons subject to Section
16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
11. Withholding Taxes. As a condition to the exercise of Options
granted hereunder, the Optionee shall make such arrangements as the
Administrator may require for the satisfaction of any federal, state, local or
foreign withholding tax obligations that may arise in connection with the
exercise, receipt or vesting of such Option. The Company shall not be required
to issue any Shares under the Plan until such obligations are satisfied.
12. Stock Withholding to Satisfy Withholding Tax Obligations. At
the discretion of the Administrator, Optionees may satisfy withholding
obligations as provided in this paragraph. When an Optionee incurs tax liability
in connection with an Option which tax liability is subject to tax withholding
under applicable tax laws, and the Optionee is obligated to pay the Company an
amount required to be withheld under applicable tax laws, the Optionee may
satisfy the withholding tax obligation by one or some combination of the
following methods: (a) by cash payment, or (b) out of Optionee's current
compensation, or (c) if permitted by the Administrator, in its discretion, by
surrendering to the Company Shares that (i) in the case of Shares previously
acquired from the Company, have been owned by the Optionee for more than six
months on the date of surrender, and (ii) have a fair market value on the date
of surrender equal to or less than Optionee's marginal tax rate times the
ordinary income recognized, or (d) by electing to have the Company withhold from
the Shares to be issued upon exercise of the Option that number of Shares having
a fair market value equal to the amount required to be withheld. For this
purpose, the fair market value of the Shares to be withheld shall be determined
on the date that the amount of tax to be withheld is to be determined (the "Tax
Date").
Any surrender by an Officer or Director of previously owned
Shares to satisfy tax withholding obligations arising upon exercise of this
Option must comply with the applicable provisions of Rule 16b-3.
All elections by an Optionee to have Shares withheld to
satisfy tax withholding obligations shall be made in writing in a form
acceptable to the Administrator and shall be subject to the following
restrictions:
(a) the election must be made on or prior to the applicable
Tax Date;
-9-
(b) once made, the election shall be irrevocable as to the
particular Shares of the Option as to which the election is made; and
(c) all elections shall be subject to the consent or
disapproval of the Administrator.
In the event the election to have Shares withheld is made by
an Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option is exercised but such
Optionee shall be unconditionally obligated to tender back to the Company the
proper number of Shares on the Tax Date.
13. Non-Transferability of Options. The Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution; provided that the
Administrator may in its discretion grant transferable Nonstatutory Stock
Options pursuant to option agreements specifying (i) the manner in which such
Nonstatutory Stock Options are transferable and (ii) that any such transfer
shall be subject to the Applicable Laws. The designation of a beneficiary by an
Optionee will not constitute a transfer. An Option may be exercised, during the
lifetime of the Optionee, only by the Optionee or a transferee permitted by this
Section 13.
14. Adjustments Upon Changes in Capitalization; Corporate
Transactions.
(a) Adjustment. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, the number of shares of Common Stock that have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Option, the maximum number of shares of Common Stock for which Options may
be granted to any employee under Section 8 of the Plan, and the price per share
of Common Stock covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Administrator, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an Option.
(b) Corporate Transactions. In the event of the proposed
dissolution or liquidation of the Company, the Option will terminate immediately
prior to the
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consummation of such proposed action, unless otherwise provided by the
Administrator. The Administrator may, in the exercise of its sole discretion in
such instances, declare that any Option shall terminate as of a date fixed by
the Administrator and give each Optionee the right to exercise his or her Option
as to all or any part of the Optioned Stock, including Shares as to which the
Option would not otherwise be exercisable. In the event of a proposed sale of
all or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, the Option shall be assumed or an
equivalent option shall be substituted by such successor corporation or a parent
or subsidiary of such successor corporation, unless the Administrator
determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, that the Optionee shall have the right to exercise
the Option as to some or all of the Optioned Stock, including Shares as to which
the Option would not otherwise be exercisable. If the Administrator makes an
Option exercisable in lieu of assumption or substitution in the event of a
merger or sale of assets, the Administrator shall notify the Optionee that the
Option shall be exercisable for a period of fifteen (15) days from the date of
such notice, and the Option will terminate upon the expiration of such period.
15. Time of Granting Options. The date of grant of an Option
shall, for all purposes, be the date on which the Administrator makes the
determination granting such Option or such other date as is determined by the
Administrator; provided however that in the case of any Incentive Stock Option,
the grant date shall be the later of the date on which the Administrator makes
the determination granting such Incentive Stock Option or the date of
commencement of the Optionee's employment relationship with the Company. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option is so granted within a reasonable time after the date of such grant.
16. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or
terminate the Plan from time to time in such respects as the Board may deem
advisable; provided that, the following revisions or amendments shall require
approval of the shareholders of the Company in the manner described in Section
20 of the Plan:
(i) any increase in the number of Shares subject
to the Plan, other than an adjustment under Section 14 of the Plan;
(ii) any change in the designation of the class
of persons eligible to be granted Options; or
(iii) any change in the limitation on grants to
employees as described in Section 8 of the Plan or other changes which would
require shareholder approval to qualify options granted hereunder as
performance-based compensation under Section 162(m) of the Code.
(b) Shareholder Approval. If any amendment requiring
shareholder approval under Section 16(a) of the Plan is made subsequent to the
first registration of any
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class of equity securities by the Company under Section 12 of the Exchange Act,
such shareholder approval shall be solicited as described in Section 20 of the
Plan.
(c) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
17. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
18. Reservation of Shares. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan. The inability of
the Company to obtain authority from any regulatory body having jurisdiction,
which authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
19. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
20. Shareholder Approval.
(a) Continuance of the Plan shall be subject to approval by
the shareholders of the Company within twelve (12) months before or after the
date the Plan is adopted. Such shareholder approval shall be obtained in the
manner and to the degree required under applicable federal and state law and the
rules of any stock exchange upon which the Shares are listed.
(b) In the event that the Company registers any class of
equity securities pursuant to Section 12 of the Exchange Act, any required
approval of the shareholders of the Company obtained after such registration
shall be solicited
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substantially in accordance with Section 14(a) of the Exchange Act and the rules
and regulations promulgated thereunder.
(c) If any required approval by the shareholders of the Plan
itself or of any amendment thereto is solicited at any time otherwise than in
the manner described in Section 20(b) hereof, then the Company shall, at or
prior to the first annual meeting of shareholders held subsequent to the later
of (1) the first registration of any class of equity securities of the Company
under Section 12 of the Exchange Act or (2) the granting of an Option hereunder
to an officer or director after such registration, do the following:
(i) furnish in writing to the holders entitled to
vote for the Plan substantially the same information that would be required (if
proxies to be voted with respect to approval or disapproval of the Plan or
amendment were then being solicited) by the rules and regulations in effect
under Section 14(a) of the Exchange Act at the time such information is
furnished; and
(ii) file with, or mail for filing to, the
Securities and Exchange Commission four copies of the written information
referred to in subsection (i) hereof not later than the date on which such
information is first sent or given to shareholders.
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EXHIBIT F
LANDEC CORPORATION
1995 DIRECTORS' STOCK OPTION PLAN
As Amended June 1996
1. Purposes of the Plan. The purposes of this Directors' Stock Option
Plan are to attract and retain the best available personnel for service as
Directors of the Company, to provide additional incentive to the Outside
Directors of the Company to serve as Directors, and to encourage their continued
service on the Board.
All options granted hereunder shall be "nonstatutory stock
options".
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean Landec Corporation, a California
corporation.
(e) "Continuous Status as a Director" shall mean the absence
of any interruption or termination of service as a Director.
(f) "Director" shall mean a member of the Board.
(g) "Employee" shall mean any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
(h) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(i) "Option" shall mean a stock option granted pursuant to the
Plan. All options shall be nonstatutory stock options (i.e., options that are
not intended to qualify as incentive stock options under Section 422 of the
Code).
(j) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(k) "Optionee" shall mean an Outside Director who receives an
Option.
(l) "Outside Director" shall mean a Director who is not an
Employee.
(m) "Parent" shall mean a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(n) "Plan" shall mean this 1995 Directors' Stock Option Plan.
(o) "Share" shall mean a share of the Common Stock, as
adjusted in accordance with Section 11 of the Plan.
(p) "Subsidiary" shall mean a "subsidiary corporation",
whether now or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of
Section 11 of the Plan, the maximum aggregate number of Shares which may be
optioned and sold under the Plan is 200,000 Shares (the "Pool") of Common Stock.
The Shares may be authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any
reason without having been exercised in full, the unpurchased Shares which were
subject thereto shall, unless the Plan shall have been terminated, become
available for future grant under the Plan. If Shares which were acquired upon
exercise of an Option are subsequently repurchased by the Company, such Shares
shall not in any event be returned to the Plan and shall not become available
for future grant under the Plan.
4. Administration of and Grants of Options under the Plan.
(a) Administrator. Except as otherwise required herein, the
Plan shall be administered by the Board.
(b) Procedure for Grants. All grants of Options hereunder
shall be automatic and nondiscretionary and shall be made strictly in accordance
with the following provisions:
(i) No person shall have any discretion to
select which Outside Directors shall be granted Options or to determine the
number of Shares to be covered by Options granted to Outside Directors.
(ii) Each person who becomes an Outside Director
after the effective date of the Plan, other than any person who has previously
been granted an option by the Company to purchase shares under any stock option
plan of the Company, shall be automatically granted an Option to purchase 20,000
Shares (the "First Option") on the date on which such person first becomes an
Outside Director, whether through election by the shareholders of the Company or
appointment by the Board of Directors to fill a vacancy.
(iii) Each Outside Director shall be automatically
granted an Option to purchase 5,000 Shares ((a "Subsequent Option") on the date
of each Annual Meeting of the Company's shareholders at which such Outside
Director is elected, provided that, on such date, he or she shall have served on
the Board for at least six (6) months prior to the date of such Annual Meeting.
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(iv) Notwithstanding the provisions of
subsections (ii) and (iii) hereof, in the event that a grant would cause the
number of Shares subject to outstanding Options plus the number of Shares
previously purchased upon exercise of Options to exceed the Pool, then each such
automatic grant shall be for that number of Shares determined by dividing the
total number of Shares remaining available for grant by the number of Outside
Directors receiving an Option on such date on the automatic grant date. Any
further grants shall then be deferred until such time, if any, as additional
Shares become available for grant under the Plan through action of the
shareholders to increase the number of Shares which may be issued under the Plan
or through cancellation or expiration of Options previously granted hereunder.
(v) Notwithstanding the provisions of
subsections (ii) and (iii) hereof, any grant of an Option made before the
Company has obtained shareholder approval of the Plan in accordance with Section
17 hereof shall be conditioned upon obtaining such shareholder approval of the
Plan in accordance with Section 17 hereof.
(vi) The terms of each First Option granted
hereunder shall be as follows:
(1) the First Option shall be exercisable
only while the Outside Director remains a Director of the Company, except as set
forth in Section 9 hereof.
(2) the exercise price per Share shall be
100% of the fair market value per Share on the date of grant of the First
Option, determined in accordance with Section 8 hereof.
(3) the First Option shall be exercisable in
full on the date of grant of the Option.
(vii) The terms of each Subsequent Option granted
hereunder shall be as follows:
(1) the Subsequent Option shall be
exercisable only while the Outside Director remains a Director of the Company,
except as set forth in Section 9 hereof.
(2) the exercise price per Share shall be
100% of the fair market value per Share on the date of grant of the Subsequent
Option, determined in accordance with Section 8 hereof.
(3) the Subsequent Option shall be
exercisable in full on the date of grant of the Subsequent Option.
(c) Powers of the Board. Subject to the provisions and
restrictions of the Plan, the Board shall have the authority, in its discretion:
(i) to determine, upon review of relevant information and in accordance with
Section 8(b) of the Plan, the fair market value of the Common Stock; (ii) to
determine the exercise price per share of Options to be granted, which exercise
price shall be determined in accordance with Section 8(a) of the Plan; (iii) to
interpret the Plan; (iv) to prescribe, amend and rescind rules and regulations
relating to the Plan; (v) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option
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previously granted hereunder; and (vi) to make all other determinations deemed
necessary or advisable for the administration of the Plan.
(d) Effect of Board's Decision. All decisions, determinations
and interpretations of the Board shall be final and binding on all Optionees and
any other holders of any Options granted under the Plan.
(e) Suspension or Termination of Option. If the President or
his or her designee reasonably believes that an Optionee has committed an act of
misconduct, the President may suspend the Optionee's right to exercise any
option pending a determination by the Board of Directors (excluding the Outside
Director accused of such misconduct). If the Board of Directors (excluding the
Outside Director accused of such misconduct) determines an Optionee has
committed an act of embezzlement, fraud, dishonesty, nonpayment of an obligation
owed to the Company, breach of fiduciary duty or deliberate disregard of the
Company rules resulting in loss, damage or injury to the Company, or if an
Optionee makes an unauthorized disclosure of any Company trade secret or
confidential information, engages in any conduct constituting unfair
competition, induces any Company customer to breach a contract with the Company
or induces any principal for whom the Company acts as agent to terminate such
agency relationship, neither the Optionee nor his or her estate shall be
entitled to exercise any option whatsoever. In making such determination, the
Board of Directors (excluding the Outside Director accused of such misconduct)
shall act fairly and shall give the Optionee an opportunity to appear and
present evidence on Optionee's behalf at a hearing before the Board or a
committee of the Board.
5. Eligibility. Options may be granted only to Outside Directors.
All Options shall be automatically granted in accordance with the terms set
forth in Section 4(b) hereof. An Outside Director who has been granted an Option
may, if he or she is otherwise eligible, be granted an additional Option or
Options in accordance with such provisions.
The Plan shall not confer upon any Optionee any right with
respect to continuation of service as a Director or nomination to serve as a
Director, nor shall it interfere in any way with any rights which the Director
or the Company may have to terminate his or her directorship at any time.
6. Term of Plan; Effective Date. The Plan shall become effective
on the earlier to occur of its adoption by the Board of Directors or its
approval by the shareholders of the Company. It shall continue in effect for a
term of ten (10) years unless sooner terminated under Section 13 of the Plan.
7. Term of Options. The term of each Option shall be ten (10)
years from the date of grant thereof.
8. Exercise Price and Consideration.
(a) Exercise Price. The per Share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be 100% of the fair
market value per Share on the date of grant of the Option.
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(b) Fair Market Value. The fair market value shall be
determined by the Board; provided, however, that where there is a public market
for the Common Stock, the fair market value per Share shall be the mean of the
bid and asked prices of the Common Stock in the over-the-counter market on the
date of grant, as reported in The Wall Street Journal (or, if not so reported,
as otherwise reported by the National Association of Securities Dealers
Automated Quotation ("Nasdaq") System) or, in the event the Common Stock is
traded on the Nasdaq National Market or listed on a stock exchange, the fair
market value per Share shall be the closing price on such system or exchange on
the date of grant of the Option, as reported in The Wall Street Journal. With
respect to any Options granted hereunder concurrently with the initial
effectiveness of the Plan, the fair market value shall be the Price to Public as
set forth in the final prospectus relating to such initial public offering.
(c) Form of Consideration. The consideration to be paid for
the Shares to be issued upon exercise of an Option shall consist entirely of
cash, check, other Shares of Common Stock having a fair market value on the date
of surrender equal to the aggregate exercise price of the Shares as to which
said Option shall be exercised (which, if acquired from the Company, shall have
been held for at least six months), or any combination of such methods of
payment and/or any other consideration or method of payment as shall be
permitted under applicable corporate law.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable at such times as are set forth in
Section 4(b) hereof; provided, however, that no Options shall be exercisable
prior to shareholder approval of the Plan in accordance with Section 17 hereof
has been obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance with the
terms of the Option by the person entitled to exercise the Option and full
payment for the Shares with respect to which the Option is exercised has been
received by the Company. Full payment may consist of any consideration and
method of payment allowable under Section 8(c) of the Plan. Until the issuance
(as evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. A share certificate for the number of Shares so acquired
shall be issued to the Optionee as soon as practicable after exercise of the
Option. No adjustment will be made for a dividend or other right for which the
record date is prior to the date the stock certificate is issued, except as
provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares which thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of Shares as
to which the Option is exercised.
(b) Termination of Status as a Director. If an Outside
Director ceases to serve as a Director, he or she may, but only within ninety
(90) days after the date he or she ceases to be a
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Director of the Company, exercise his or her Option to the extent that he or she
was entitled to exercise it at the date of such termination. Notwithstanding the
foregoing, in no event may the Option be exercised after its term set forth in
Section 7 has expired. To the extent that such Outside Director was not entitled
to exercise an Option at the date of such termination, or does not exercise such
Option (which he or she was entitled to exercise) within the time specified
herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding Section 9(b)
above, in the event a Director is unable to continue his or her service as a
Director with the Company as a result of his or her total and permanent
disability (as defined in Section 22(e)(3) of the Internal Revenue Code), he or
she may, but only within six (6) months (or such other period of time not
exceeding twelve (12) months as is determined by the Board) from the date of
such termination, exercise his or her Option to the extent he or she was
entitled to exercise it at the date of such termination. Notwithstanding the
foregoing, in no event may the Option be exercised after its term set forth in
Section 7 has expired. To the extent that he or she was not entitled to exercise
the Option at the date of termination, or if he or she does not exercise such
Option (which he or she was entitled to exercise) within the time specified
herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an
Optionee:
(i) During the term of the Option who is, at the
time of his or her death, a Director of the Company and who shall have been in
Continuous Status as a Director since the date of grant of the Option, the
Option may be exercised, at any time within six (6) months following the date of
death, by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent of the
right to exercise that would have accrued had the Optionee continued living and
remained in Continuous Status as Director for six (6) months (or such lesser
period of time as is determined by the Board) after the date of death.
Notwithstanding the foregoing, in no event may the Option be exercised after its
term set forth in Section 7 has expired.
(ii) Within three (3) months after the
termination of Continuous Status as a Director, the Option may be exercised, at
any time within six (6) months following the date of death, by the Optionee's
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent of the right to exercise that had accrued
at the date of termination. Notwithstanding the foregoing, in no event may the
option be exercised after its term set forth in Section 7 has expired.
10. Nontransferability of Options. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution or pursuant to a qualified
domestic relations order (as defined by the Code or the rules thereunder). The
designation of a beneficiary by an Optionee does not constitute a transfer. An
Option may be exercised during the lifetime of an Optionee only by the Optionee
or a transferee permitted by this Section.
11. Adjustments Upon Changes in Capitalization; Corporate
Transactions.
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(a) Adjustment. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) Corporate Transactions. In the event of (i) a dissolution
or liquidation of the Company, (ii) a sale of all or substantially all of the
Company's assets, (iii) a merger or consolidation in which the Company is not
the surviving corporation, or (iv) any other capital reorganization in which
more than fifty percent (50%) of the shares of the Company entitled to vote are
exchanged, the Company shall give to the Eligible Director, at the time of
adoption of the plan for liquidation, dissolution, sale, merger, consolidation
or reorganization, either a reasonable time thereafter within which to exercise
the Option prior to the effectiveness of such liquidation, dissolution, sale,
merger, consolidation or reorganization, at the end of which time the Option
shall terminate, or the right to exercise the Option (or receive a substitute
option with comparable terms) as to an equivalent number of shares of stock of
the corporation succeeding the Company or acquiring its business by reason of
such liquidation, dissolution, sale, merger, consolidation or reorganization.
12. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4(b) hereof.
Notice of the determination shall be given to each Outside Director to whom an
Option is so granted within a reasonable time after the date of such grant.
13. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or
terminate the Plan from time to time in such respects as the Board may deem
advisable; provided that, to the extent necessary and desirable to comply with
Rule 16b-3 under the Exchange Act (or any other applicable law or regulation),
the Company shall obtain approval of the shareholders of the Company to Plan
amendments to the extent and in the manner required by such law or regulation.
Notwithstanding the foregoing, the provisions set forth in Section 4 of this
Plan (and any other Sections of this Plan that affect the formula award terms
required to be specified in this Plan by Rule 16b-3) shall not be amended more
than once every six months, other than to comport with
-7-
changes in the Code, the Employee Retirement Income Security Act of 1974, as
amended, or the rules thereunder.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan that would impair the rights of any Optionee shall not
affect Options already granted to such Optionee and such Options shall remain in
full force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee and the Board, which agreement
must be in writing and signed by the Optionee and the Company.
14. Conditions Upon Issuance of Shares. Shares shall not be
issued pursuant to the exercise of an Option unless the exercise of such Option
and the issuance and delivery of such Shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, the Securities
Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance. As a
condition to the exercise of an Option, the Company may require the person
exercising such Option to represent and warrant at the time of any such exercise
that the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares, if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
relevant provisions of law.
15. Reservation of Shares. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan. Inability of the
Company to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
16. Option Agreement. Options shall be evidenced by written
option agreements in such form as the Board shall approve.
17. Shareholder Approval. Continuance of the Plan shall be
subject to approval by the shareholders of the Company at or prior to the first
annual meeting of shareholders held subsequent to the granting of an Option
hereunder. If such shareholder approval is obtained at a duly held shareholders'
meeting, it may be obtained by the affirmative vote of the holders of a majority
of the outstanding shares of the Company present or represented and entitled to
vote thereon. If such shareholder approval is obtained by written consent, it
may be obtained by the written consent of the holders of a majority of the
outstanding shares of the Company. Options may be granted, but not exercised,
before such shareholder approval.
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