<PAGE> 1
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:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
OEC MEDICAL SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(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 transaction 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:
(5) Total fee paid:
[ ] 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:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
OEC MEDICAL SYSTEMS, INC.
384 WRIGHT BROTHERS DRIVE
SALT LAKE CITY, UTAH 84116
April 13, 1998
TO OUR STOCKHOLDERS:
You are invited to attend the Annual Meeting of Stockholders of OEC Medical
Systems, Inc. (the "Company"), which will be held at 10:00 a.m. on Wednesday,
May 20, 1998 at the Little America Hotel, 500 South Main, Salt Lake City, Utah.
At this important meeting, you will be asked to vote on the election of
directors, the adoption of a 1998 Stock Option Plan, the approval of an
amendment to the 1993 Employee Incentive Stock Acquisition Plan, and to ratify
the selection of Deloitte & Touche LLP as the Company's accountants. Your Board
of Directors unanimously recommends to the stockholders of the Company that they
vote FOR the nominees to the Board of Directors, FOR the 1998 Stock Option Plan,
FOR the amendment to the 1993 Employee Incentive Stock Acquisition Plan and FOR
the ratification of the Company's selection of Deloitte & Touche LLP as
independent auditors for the fiscal year ending December 31, 1998.
Your vote is important to the Company. Whether or not you plan to attend
the meeting, please return a completed proxy card in the enclosed envelope. If
you do attend the meeting and wish to vote in person, you may withdraw your
proxy and vote your shares personally.
We look forward to seeing you at the meeting.
Sincerely,
LOGO
Joseph W. Pepper
President & CEO
<PAGE> 3
OEC MEDICAL SYSTEMS, INC.
384 WRIGHT BROTHERS DRIVE
SALT LAKE CITY, UTAH 84116
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 20, 1998
The Annual Meeting of the Stockholders of OEC Medical Systems, Inc. (the
"Company") will be held at 10:00 a.m. MDT on Wednesday, May 20, 1998, at the
Little America Hotel, 500 South Main, Salt Lake City, Utah for the following
purposes:
1. To elect six directors of the Company. Management's nominees for
election are Gregory K. Hinckley, Benno P. Lotz, Allan W. May, Ruediger
Naumann-Etienne, Joseph W. Pepper and Chase N. Peterson.
2. To approve the 1998 Stock Option Plan (the "1998 Plan")
3. To approve an amendment to the 1993 Employee Incentive Stock Acquisition
Plan to increase the number of shares of the Company's common stock
authorized for issuance under such Plan by an additional 125,000 shares.
4. To ratify the appointment of Deloitte & Touche LLP, certified public
accountants, as independent auditors for the fiscal year ending December
31, 1998.
5. To transact such other business as may properly come before the meeting
and any adjournment thereof.
Stockholders of record at the close of business on April 1, 1998 will
receive this notice and are entitled to vote at the meeting.
PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY
IN THE ENCLOSED REPLY ENVELOPE.
BY ORDER OF THE BOARD OF DIRECTORS
LOGO
Clarence R. Verhoef
Secretary
Dated: April 13, 1998
IMPORTANT: WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO
COMPLETE AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED.
<PAGE> 4
OEC MEDICAL SYSTEMS, INC.
384 WRIGHT BROTHERS DRIVE
SALT LAKE CITY, UTAH 84116
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 20, 1998
This Proxy Statement is furnished in connection with the solicitation by
and on behalf of the Board of Directors of OEC Medical Systems, Inc. ("OEC" or
the "Company") of proxies to be used at the Annual Meeting of Stockholders (the
"Annual Meeting") which will be held on May 20, 1998, at 10:00 a.m., Mountain
Daylight Time, at the Little America Hotel, 500 South Main, Salt Lake City, Utah
or at any adjournment or postponement thereof, for the purposes set forth in the
accompanying Notice of Annual Meeting of Stockholders. This Proxy Statement and
the Proxy were first mailed to stockholders on or about April 13, 1998. A copy
of the Company's Annual Report to Stockholders for 1997 accompanies this Proxy
Statement.
The entire cost of soliciting proxies, including the costs of preparing,
assembling, printing and mailing this Proxy Statement, the Proxy and any
additional soliciting material furnished to stockholders, will be borne by OEC.
Arrangements may be made with brokerage houses and other custodians, nominees
and fiduciaries to send proxies and proxy materials to the beneficial owners of
stock, and such persons may be reimbursed for their expenses. The Company has
employed ChaseMellon Shareholder Services, a proxy solicitation firm, to solicit
proxies. The amounts to be paid to such proxy solicitation firm are not expected
to exceed $15,000. Proxies may be solicited by directors, officers or regular
employees of the Company in person or by telephone, telegram or other means. No
additional compensation will be paid to such individuals for any such services.
The Company's principal executive offices are located at 384 Wright
Brothers Drive, Salt Lake City, Utah 84116.
VOTING RIGHTS
The close of business on April 1, 1998 was the record date for stockholders
entitled to notice of and to vote at the Annual Meeting (the "Record Date"). As
of that date, OEC had outstanding 12,736,151 shares of Common Stock. All of the
outstanding shares of Common Stock on the Record Date are entitled to vote at
the Annual Meeting, and stockholders of record entitled to vote at this meeting
will have one vote for each share so held on the matters to be voted upon,
including voting on the election of directors.
REVOCATION OF PROXIES
Any person giving a proxy has the power to revoke it at any time before its
exercise. A proxy may be revoked by filing with the Secretary of the Company at
the Company's principal executive offices as set forth above an instrument of
revocation or a duly executed proxy bearing a later date, or by attending the
Annual Meeting and voting in person. Subject to any such revocation, all shares
represented by properly executed proxies will be voted in accordance with
specifications on the enclosed proxy. If no such specifications are made,
proxies will be voted FOR the election of the six nominees for director, FOR the
1998 Stock Option Plan, FOR the amendment to the 1993 Employee Incentive Stock
Acquisition Plan, and FOR the ratification of Deloitte & Touche LLP as the
Company's independent auditors for the fiscal year ending December 31, 1998.
Management does not know of any matters to be presented at this Annual Meeting
other than those set forth in this Proxy Statement and in the Notice
accompanying this Proxy Statement. If other matters should properly come before
the meeting, the proxy holders will vote on such matters in accordance with
their best judgment. Abstentions and broker non-votes are each included in the
determination of the number of shares present for quorum purposes. Abstentions
are counted in tabulations of the votes cast on proposals presented
<PAGE> 5
to stockholders, whereas broker non-votes are not counted for purposes of
determining whether a proposal has been approved.
PROPOSAL NO. 1
NOMINATION AND ELECTION OF DIRECTORS
Six directors are to be elected at the 1998 Annual Meeting, each to serve
until the next annual meeting of stockholders and until his successor shall be
elected and qualified, or until his earlier death, resignation or removal. The
six candidates receiving the highest number of affirmative votes of the shares
entitled to vote at the Annual Meeting will be elected directors of the Company.
If any nominee is not available for election (a contingency the Company
does not now foresee) it is the intention of the Board of Directors to recommend
the election of a substitute nominee, and proxies in the accompanying form will
be voted for the election of any substitute nominee, unless authority to vote
such proxies in the election of directors has been withheld. Unless you request
on your proxy form that voting of your proxy be withheld for any one or more of
the following nominees for director, your proxy will be voted for the election
of the six nominees listed below.
INFORMATION WITH RESPECT TO NOMINEES
The names of and certain information with respect to the persons nominated
by the Board of Directors for election as directors are included below.
<TABLE>
<CAPTION>
NAME AGE POSITION AND OTHER INFORMATION
---- --- ------------------------------
<S> <C> <C>
Gregory K. Hinckley 51 Director
Benno P. Lotz 67 Director
Allan W. May 50 Director
Ruediger Naumann-Etienne 51 Chairman of the Board
Joseph W. Pepper 51 President and Chief Executive Officer
Chase N. Peterson 68 Director
</TABLE>
GREGORY K. HINCKLEY is Executive Vice President, Chief Operating Officer
and Chief Financial Officer of Mentor Graphics Corporation since 1996. From 1992
to 1996, he was Senior Vice President and Chief Financial Officer of VLSI
Technology, Inc. He is also a director of Amkor Technology, Inc. and has been a
director of the Company since June 1995.
BENNO P. LOTZ is a self-employed management consultant. From 1976 to 1983,
he was President and Chief Executive Officer of Orthopedic Equipment Company,
Inc. In 1983, when that entity became a subsidiary of the Company's predecessor,
Diasonics, Inc., he was named Chairman and General Manager, a position that he
held until his retirement in 1991. He has been a director of the Company since
March 1995.
ALLAN W. MAY has been President and Chief Operating Officer of Intella
since August 1997. From November 1996 to August 1997, he was President and CEO
of MAST Immunosystems, Inc. Prior to that, he had been Senior Vice President,
Strategic Development, General Counsel and Secretary of the Company since 1994.
He was Senior Vice President, Business Development and General Counsel and
Secretary of Diasonics Utrasound, Inc. from October 1993 through October 1994.
He has been a director of the Company since February 1994.
RUEDIGER NAUMANN-ETIENNE is Chairman of the Board. He was President and
Chief Executive Officer from 1995 to 1997, a position, which he resigned in May
when Joseph W. Pepper joined the Company. He has been a director of the Company
since 1989, and was named Chairman in 1993. He was President and Chief Operating
Officer of the Company from 1987 to 1990 and Executive Vice President and Chief
Financial Officer from 1984 to 1988. He has also been Managing Director of
Intertec from 1990.
2
<PAGE> 6
JOSEPH W. PEPPER was named President and Chief Executive Officer, and
appointed to the Board of Directors of OEC Medical Systems, Inc., in May of
1997. Prior to joining OEC, he was President of the Medical Devices Division of
Ohmeda, Inc. from 1995 to 1997. From 1992 to 1995, he was President of Ohmeda's
Medical Systems Division, and from 1988 to 1992 he was Vice President in charge
of the Monitoring Business Unit. Prior to that, Mr. Pepper held engineering
management positions at General Electric and at the Electric Power Research
Institute. He is a director on the board of Heartlab, Inc.
CHASE N. PETERSON, M.D. has been Professor of Internal Medicine (Clinical)
at the University of Utah since 1983 and Professor of Family and Preventive
Medicine (Clinical) since 1991. He was President of the University of Utah from
1983 through 1991. Dr. Peterson is a director on the boards of First Security
Corporation, O.C. Tanner, Utah Power, The Homeless Health Clinic, Grand Canyon
Trust, and Utah Open Lands. He has been a Director of the Company since October
1993.
Committees of the OEC Board. During 1997, there were six meetings of the
Board of Directors of the Company. OEC has standing Audit, Nominations and
Compensation Committees. Each director attended or participated in at least 75%
of the aggregate of (i) the total number of Board meetings held during the 1997
fiscal year and (ii) the total number of meetings held during such year by each
Committee on which he served. The Audit Committee, currently consisting of
Messrs. Hinckley, Lotz, and Peterson, recommends to the Board, subject to
stockholder approval, the engagement of the independent auditors and reviews the
independence of the auditors and the scope and results of OEC's procedures for
the adequacy of its system of internal accounting controls. The Nominations
Committee, currently consisting of Messrs. May and Peterson, selects and
nominates to the Board nominees for election as directors. The Compensation
Committee, currently consisting of Messrs. Hinckley and Peterson, reviews and
recommends to the Board the remuneration arrangements for senior management of
OEC, administers its compensation and employee benefit plans and administers the
Company's Stock Plan and the Employee Incentive Stock Acquisition Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
THE NOMINEES TO THE BOARD OF DIRECTORS.
PROPOSAL NO. 2:
APPROVAL OF THE 1998 STOCK OPTION PLAN
The stockholders are being asked to approve the 1998 Stock Option Plan (the
"1998 Plan"). The 1998 Plan was adopted by the Board of Directors on March 31,
1998. As of March 31, 1998, no shares had been issued pursuant to the 1998 Plan.
The 1998 Plan will replace the Company's existing 1990 Stock Option/ Stock
Purchase Plan (the "1990 Plan") with respect to future offerings to key
individuals essential to the Company's long-term growth and success. As of March
31, 1998, an aggregate of 1,859,403 shares had been issued under the 1990 Plan
at a weighted average exercise price of $7.86 per share. In addition, as of such
date, options to purchase 1,800,509 shares were outstanding at a weighted
average exercise price of $9.44 per share and 33,391 shares remained available
for issuance under the 1990 Plan. Based on present participation levels, the
Company expects that it will issue all such available shares pursuant to current
obligations under the 1990 Plan within the next few months, and the 1990 Plan
will terminate when all such shares have been issued. The 1998 Plan is
substantially identical to the 1990 Plan except that the 1998 Plan shall
initially have 300,000 shares of Common Stock reserved for issuance thereunder
plus provide for an annual increase (the "Option Renewal Feature") to be made on
the last day of each fiscal year equal to the lesser of (i) 2 1/2% of the Issued
Shares (as hereinafter defined) on such date, (ii) 500,000 shares or (iii) an
amount determined by the Board. "Issued Shares" shall mean the number of shares
of Common Stock of the Company outstanding on such date plus any shares
reacquired by the Company during the fiscal year that ends on such date.
The Company believes that the 1998 Plan is a key component of its strategy
to attract and retain skilled employees and quality management. The Board
believes it is in the Company's best interests to adopt the 1998 Plan so that
the Company may continue to attract and retain key employees and quality
management by granting options to purchase the Company's Common Stock and
provide other incentives to the employees in the form of equity ownership. While
it believes that establishment of the 1998 Plan will encourage employees
3
<PAGE> 7
to be stockholders, the Company also recognizes that option grants under the
1998 Plan can result in dilution to existing stockholders. The Company attempts
to limit the impact of this dilution through its share repurchase program. Since
December 1994, the Company has repurchased 1,058,000 shares of its Common Stock
for approximately $10,197,000. By contrast, had the Option Renewal Feature been
in place at the beginning of the 1997 fiscal year, less than 310,000 shares
would have been added to the 1998 Plan at that time. The Company intends to
repurchase shares as business conditions dictate.
The following is a summary of the principal features of the 1998 Plan,
together with the applicable tax and accounting implications, which will be in
effect if the 1998 Plan is approved by the stockholders. This summary, however,
does not purport to be a complete description of all the provisions of the 1998
Plan. Any stockholder who wishes to obtain a copy of the actual plan document
may do so by written request to the Corporate Secretary at the Company's
executive offices in Salt Lake City, Utah.
The 1998 Plan is divided into two (2) separate components:
(i) the Discretionary Option Grant Program pursuant to which employees
(including officers), non-employee Board members (other than those at the
time serving on the Compensation Committee) and consultants may, at the
discretion of the Plan Administrator, be granted options to purchase shares
of Common Stock at an exercise price equal to the fair market value of the
option shares on the grant date; and
(ii) the Automatic Option Grant Program pursuant to which option
grants will automatically be made at periodic intervals to non-employee
Board members to purchase shares of Common Stock at an exercise price equal
to the fair market value of the option shares on the grant date.
The options granted under the Discretionary Option Grant Program may be
either incentive stock options ("Incentive Options") designed to qualify for
favorable tax treatment under Section 422 of the Internal Revenue Code or
non-statutory options which are not entitled to such treatment. All grants under
the Automatic Option Grant Program will be non-statutory options.
Issuable Shares. The maximum number of shares of Common Stock authorized
for issuance over the term of the 1998 Plan may not exceed 300,000 shares, plus
an annual increase to be made on the last day of the immediately preceding
fiscal year equal to the lesser of (i) 2 1/2% of the Issued Shares on such date,
(ii) 500,000 shares or (iii) an amount determined by the Board. The shares of
Common Stock issuable under the 1998 Plan may be drawn from shares of the
Company's authorized but previously unissued Common Stock or from shares of
Common Stock reacquired by the Company, including shares purchased on the open
market and held as treasury shares. In no event, however, may any one
participant in the 1998 Plan receive stock options or separately exercisable
stock appreciation rights for more than 150,000 shares of Common Stock in the
aggregate per calendar year, except that such limit will be increased to 250,000
shares for the calendar year in which such individual receives his or her
initial stock option grant under the 1998 Plan.
The shares of Common Stock subject to any outstanding options, which expire
or terminate prior to exercise (including options canceled in accordance with
the cancellation-regrant provisions of the 1998 Plan), may become the subject of
subsequent option grants or direct stock issuances under the 1998 Plan. However,
shares subject to any options cashed out in accordance with the Change in
Control provisions described below and all shares issued under the 1998 Plan,
whether or not repurchased by the Company pursuant to its repurchase rights
under the 1998 Plan, will reduce on a one-for-one basis the number of shares
available for subsequent issuance under the 1998 Plan.
Administration. The Discretionary Option Grant Program will be
administered by the Compensation Committee (the "Committee"). The Committee will
be comprised of two or more non-employee Board members appointed by the Board
and will as Plan Administrator have complete discretion, within the scope of its
jurisdiction under the 1998 Plan, to determine which eligible individuals are to
receive option grants or stock appreciation rights, the number of shares subject
to each such grant or right, the status of any granted option as either an
Incentive Option or a non-statutory option, the vesting schedule (if any) to be
in effect for the option grant or stock issuance and the maximum term for which
any granted option is to remain
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<PAGE> 8
outstanding. The Compensation Committee of the Board serves as the sole Plan
Administrator of the 1998 Plan.
Eligibility. Employees (including officers), non-employee Board members
(other than those at the time serving on the Compensation Committee), including
non-employee Board members who have previously been in employee status with the
Company (or its predecessor), and independent consultants and advisors of the
Company or any subsidiary corporation are eligible to participate in the
Discretionary Option Grant in effect under the 1998 Plan. Non-employee Board
members (including those serving on the Compensation Committee and those who
have previously been in employee status with the Company (or its predecessor)
will also be eligible to participate in the Automatic Option Grant Program. As
of March 31, 1998, approximately 635 individuals (including six executive
officers and three non-employee Board member) were eligible to participate in
the Discretionary Option Grant, and five non-employee Board members were
eligible to receive option grants under the Automatic Option Grant Program.
Price and Exercisability. The exercise price per share of Common Stock
subject to option grants made under the Discretionary Option Grant Program may
not be less than the fair market value of such Common Stock on the grant date.
The exercise or purchase price is generally payable in cash. However, the
exercise price of any outstanding option may also be paid in shares of Common
Stock upon the exercise of the option or purchase right. Such price may also be
paid through a same-day sale program, pursuant to which the purchased shares are
immediately sold and a portion of the sale proceeds are applied to the payment
of the purchase price. For employees of the Company or its subsidiaries, the
exercise or purchase price may also, with the Plan Administrator's approval, be
paid with a promissory note to become due and payable upon such terms and
conditions as the Plan Administrator may establish.
Options granted under the Discretionary Option Grant Program may be
immediately exercisable for the full number of shares purchasable thereunder or
may become exercisable in cumulative increments over a period of months or years
or upon attainment of specified performance objectives as determined by the Plan
Administrator. No option granted under the 1998 Plan may have a maximum term in
excess of ten (10) years.
Valuation. For purposes of establishing the option exercise or stock
purchase price and for all other valuation purposes under the 1998 Plan, the
fair market value per share of Common Stock on any relevant date will be the
closing selling price per share on such date, as quoted on the New York Stock
Exchange. If there is no reported selling price for such date, then the closing
selling price for the last previous date for which such quotation exists will be
determinative of fair market value. On March 25, 1998, the fair market value per
share of Common Stock was $24.00 the closing selling price per share on that
date on the New York Stock Exchange.
Termination of Service. If an optionee ceases to remain in the Company's
service for any reason other than death or permanent disability, the optionee
will have a limited period, not to exceed ninety (90) days following such
cessation of service, in which to exercise his or her outstanding options for
any vested shares for which those options are exercisable at the time of such
cessation of service. The Plan Administrator will have complete discretion,
exercisable either at the time of the option grant or at any time while the
option remains outstanding, to accelerate the exercisability of such option with
respect to one or more subsequent installments for which the option would
otherwise have become exercisable had the optionee's cessation of service not
occurred.
In the event of the optionee's death or permanent disability while in the
Company's service, the option may be exercised for any vested shares for which
the option is exercisable on the date of the optionee's cessation of service.
Such exercise must be effected prior to the earlier of (i) twelve months (or
such shorter period as the Plan Administrator may have specified in the option
agreement) after the date of the optionee's death or permanent disability or
(ii) the specified expiration date of the option term.
The Plan Administrator has the authority to extend the period of time for
which one or more options may remain outstanding after the optionee's cessation
of service from the period designated in the agreements evidencing such options
to such longer period as the Plan Administrator may deem appropriate under the
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<PAGE> 9
circumstances. However, in no event may the exercise period for an outstanding
option be extended beyond the specified expiration date of the option term.
For purposes of the Discretionary Option Grant, a plan participant will be
deemed to continue in the Company's service for so long as such individual
renders periodic services to the Company or any subsidiary, whether as an
employee, non-employee board member or independent consultant.
Stockholder Rights and Assignability of Options and Purchase Rights. No
optionee will have any stockholder rights with respect to the option shares
until that individual has exercised the option and paid the exercise price for
the purchased shares. Options and purchase rights granted under the 1998 Plan
are not assignable or transferable other than by will or the laws of inheritance
following the holder's death, and each such option or purchase right may only be
exercised by the individual to whom granted, while that individual is alive.
Accelerated Vesting/Stock Appreciation Rights. Upon the occurrence of a
Change of Control, there will be immediate vesting of all unvested shares issued
under the Discretionary Option Grant which have been outstanding under the 1998
Plan for a period of at least six (6) months.
A Change of Control will be deemed to occur upon any of:
(1) the consummation of any transaction which is (i) is approved by
the stockholders in which the Company will cease to be an independent
corporation (including, without limitation, a reverse merger transaction in
which the Company becomes the subsidiary of another corporation) or the
sale or other disposition of all or substantially all of the Company's
assets other than in the ordinary course of business, and (ii) causes the
optionee to lose his or her status as Employee, Consultant, or Board member
within one year of the closing date of such transaction;
(2) the first date on which one or more contested elections for Board
membership results in less than two thirds of the Board members being
comprised of individuals (a) who were members of the Board on a date three
(3) years prior to the date of the first such contested election for Board
membership or (b) who were elected or nominated for election as Board
members by the affirmative vote of at least a majority of those Board
members described in clause (a) who were still in office as of the date the
Board approved such election or nomination;
(3) the acquisition by any person or related group of persons, other
than any such group which includes the Company, of (A) 40% or more of the
outstanding Common Stock pursuant to a tender or exchange offer which the
Board does not recommend that the stockholders accept or (B) 50% or more of
the outstanding Common Stock in a single transaction or a series of related
transactions; or
(4) any dissolution or liquidation of the Company or any merger or
consolidation in which the Company is not the surviving corporation, except
for a transaction the principal purpose of which is to change the Company's
state of incorporation.
Any option accelerated upon a Change of Control event (other than a clause
(4) event) will remain exercisable for a period of thirty (30) days following
such event (or for such extended period as determined by the Plan Administrator
in its sole discretion, exercisable either at the time of the grant of such
option or at any time prior to the occurrence of such event).
The acceleration of options and the vesting of shares under the 1998 Plan
upon such a Change of Control may be seen as an anti-takeover provision and may
have the effect of discouraging a proposal for merger, a takeover attempt or
other efforts to gain control of the Company.
The Plan Administrator will also have the discretionary authority to grant
one or more optionees the right to surrender their options upon a Change of
Control in return for a stock appreciation payment in cash from the Company
equal to the difference between the exercise price in effect under each
surrendered option and the amount which a holder of the number of shares subject
to the surrendered option would have received for those shares in connection
with the Change of Control.
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<PAGE> 10
Tax Withholding. Participants in the Discretionary Option Grant may, upon
such terms and conditions as the Plan Administrator deems appropriate, be
granted the right to have the Company withhold, from the shares otherwise
issuable under any exercised option or purchase right, one or more of those
shares with an aggregate fair market value equal to all or part of the federal
and state income and employment taxes incurred in connection with the
acquisition of such shares. In lieu of such direct withholding, participants may
also be granted the right to deliver existing shares of Common Stock in
satisfaction of such taxes.
Cancellation/Regrant. The Plan Administrator has the authority to effect,
from time to time, the cancellation of outstanding options under the
Discretionary Option Grant Program in return for the grant of new options for
the same or different number of option shares with an exercise price per share
equal to the fair market value of the Common Stock on the new grant date.
Automatic Option Grant Program. Under the Automatic Option Grant Program,
each individual who is first appointed or elected as a non-employee Board member
at any time after the 1998 Annual Stockholders' Meeting will automatically be
granted, at the time of such initial appointment or election, an option to
purchase 3,000 shares of Common Stock. Each individual who (i) is re-elected as
a non-employee Board member at one or more Annual Stockholders' Meeting
beginning with the 1998 Annual Meeting will automatically be granted, on the
date of each such Annual Meeting at which he or she is so re-elected, an option
to purchase 3,000 shares of Common Stock. However, no non-employee Board member
may receive his or her first annual 3,000-share automatic option grant until he
or she has served on the Board for at least six (6) months, and no non-employee
Board member may receive an automatic option grant under the 1998 Plan as well
as the 1990 Plan.
Each option grant under the automatic grant program will be subject to the
following additional terms and conditions:
(1) The option price per share will not be less than 100% of the fair
market value per share of Common Stock on the grant date.
(2) Each option is to have a maximum term of ten (10) years, measured
from the grant date, subject to earlier termination upon the optionee's
cessation of Board service.
(3) Each automatic option grant will become exercisable in three (3)
successive equal annual installments upon the optionee's completion of each
year of Board service over the three (3)-year period measured from the
grant date.
Each automatic grant will remain exercisable for up to a six (6)-month
period following the optionee's termination of Board service or for up to a
one-year period following the optionee's death if he or she dies while serving
as a Board member or within six (6) months after cessation of such Board
service. During the applicable period, the option may be exercised for any or
all of the shares for which the option is exercisable at the time of the
optionee's cessation of Board service.
The option will become immediately exercisable for all of the option shares
upon the occurrence of a Change of Control (as defined above) provided that the
option has been outstanding under the program for at least six (6) months.
Upon the successful completion of a hostile tender offer for 40% or more of
the outstanding Common Stock, the non-employee Board member will have the
unconditional right to surrender any automatic grant held for at least six (6)
months for a stock appreciation distribution in cash from the Company equal to
the excess of (i) the takeover price of the number of shares subject to the
surrendered option, whether or not the option is at the time exercisable for any
or all of those shares, over (ii) the aggregate option price payable for such
shares. For purposes of such calculation, the takeover price per share of Common
Stock subject to the surrendered option will be deemed to be equal to the
greater of (A) the fair market value of such shares on the option surrender date
(as determined in accordance with the normal valuation provisions of the 1998
Plan) or (B) the highest reported price per share paid by the tender offeror in
acquiring the Common Stock.
7
<PAGE> 11
The remaining terms and conditions of the option will in general conform to
the terms described above for grants made under the Discretionary Option Grant
Program and will be incorporated into the option agreement evidencing the
automatic grant.
Change in Capital Structure. In the event of any increase or decrease in
the number of outstanding shares of Common Stock resulting from a subdivision or
consolidation of such shares or the payment of a dividend of Common Stock, a
rights offering covering shares of Common Stock or any other increase or
decrease effected without receipt of consideration by the Company, the Committee
may, in its discretion, make appropriate adjustments to (i) the maximum number
and/or class of securities issuable under the 1998 Plan, (ii) the maximum number
and/or class of securities for which any one individual may receive stock
options and, separately exercisable stock appreciation rights under the 1998
Plan per calendar year, and (iii) the number and/or class of securities and
price per share in effect under each outstanding option. Upon the occurrence of
any of the foregoing events, the appropriate automatic adjustment will be made
to the number and/or class of securities per non-employee Board member for which
option grants will subsequently be made under the Automatic Option Grant
Program.
Stock Awards. As of March 31,1998, no option grants to purchase shares of
the Company's Common Stock were outstanding under the 1998 Plan. The table below
shows, as to each of the Named Officers in the Summary Compensation Table and
the various indicated individuals and groups, the number of shares of Common
Stock subject to options granted under the 1990 Plan during the period beginning
January 1, 1997 and ending December 31, 1997, together with the weighted average
exercise price payable per share.
OPTION TRANSACTIONS
<TABLE>
<CAPTION>
OPTIONS GRANTED WEIGHTED AVERAGE
NAME (NUMBER OF SHARES) EXERCISE PRICE
---- ------------------ ----------------
<S> <C> <C>
Ruediger Naumann-Etienne................... -- --
Joseph W. Pepper........................... 150,000 $17.25
Randy W. Zundel............................ -- --
Barry K. Hanover........................... -- --
Larry E. Harrawood......................... -- --
Gary N. Kilman............................. -- --
All executive officers as a group.......... 150,000 $17.25
Gregory K. Hinckley, Director.............. 5,000 $17.25
Benno P. Lotz, Director.................... -- --
Allan W. May, Director..................... 5,000 $17.25
Chase N. Peterson, Director................ -- --
All non-employee directors as a group...... 10,000 $17.25
All employees, including current officers
who are not executive officers as a
group.................................... 84,000 $15.28
</TABLE>
As of March 31, 1998, options covering 1,800,509 shares of Common Stock
were outstanding under the 1990 Plan, 33,391 shares remained available for
future option grant and 1,859,463 shares have been issued under the 1990 Plan.
Amendment and Termination. The Board may amend or modify the 1998 Plan at
any time; however, no such amendment may, without the approval of stockholders,
(i) materially increase the benefits accruing to participants or modify the
class of individuals eligible for participation or (ii) materially increase the
number of shares available for issuance, except in the event of certain changes
to the Company's capital structure. Amendments to the Automatic Option Grant
Program may not be made at intervals more frequently than once every six (6)
months, except in certain limited circumstances. The 1998 Plan will terminate on
May 20, 2008, unless sooner terminated by the Board.
8
<PAGE> 12
Federal Tax Consequences. Options granted under the 1998 Plan may be
either Incentive Options, which satisfy the requirements of Section 422 of the
Internal Revenue Code, or non-satutory options which are not intended to meet
such requirements. The federal income tax treatment for the two types of options
differs as follows:
Incentive Options. An optionee recognizes no taxable income at the
time of the option grant, and no taxable income is generally recognized at
the time the option is exercised. The optionee will, however, recognize
taxable income in the year in which the purchased shares are sold or
otherwise made the subject of disposition.
For federal income tax purposes, dispositions are divided into two
categories: (i) qualified and (ii) nonqualified. The optionee will make a
qualifying disposition of the purchased shares if the sale or other
disposition of such shares is made after the optionee has held the shares
for more than two (2) years after the grant date of the option and more
than one (1) year after the exercise date. If the optionee fails to satisfy
either of these two holding periods prior to the sale or other disposition
of the purchased shares, then a disqualifying disposition will result.
Upon a qualifying disposition of the shares, the optionee will
recognize long-term capital gain in an amount equal to the excess of (i)
the amount realized upon the sale or other disposition of the purchased
shares over (ii) the exercise price paid for such shares. If there is a
disqualifying disposition of the shares, then the excess of (i) the fair
market value of those shares on the date the option was exercised over (ii)
the exercise price paid for the shares will be taxable as ordinary income.
Any additional gain recognized upon the disposition will be a capital gain.
If the optionee makes a disqualifying disposition of the purchased
shares, then the Company will be entitled to a business expense deduction,
for the taxable year in which such disposition occurs, equal to the excess
of (i) the fair market value of such shares on the date the option was
exercised over (ii) the exercise price paid for the shares. In no other
instance will the Company be allowed a deduction with respect to the
optionee's disposition of the purchased shares.
Non-Statutory Options. An optionee upon the grant of a non-statutory
option recognizes no taxable income. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise
date over the exercise price paid for the shares, and the optionee will be
required to satisfy the tax withholding requirements applicable to such
income.
The Company will be entitled to a business expense deduction equal to
the amount of ordinary income recognized by the optionee with respect to
the exercised non-statutory option. The deduction will in general be
allowed for the taxable year of the Company in which such ordinary income
is recognized by the optionee.
Deductibility of Executive Compensation. The Company anticipates that any
compensation deemed paid by it in connection with disqualifying dispositions of
Incentive Option shares or exercises of non-statutory options will qualify as
performance-based compensation for purposes of Internal Revenue Code Section
162(m) and will not have to be taken into account for purposes of the $1 million
limitation per covered individual on the deductibility of the compensation paid
to certain executive officers of the Company. Accordingly, all compensation
deemed paid with respect to those options will remain deductible by the Company
without limitation under Internal Revenue Code Section 162(m).
Accounting Treatment. Under current accounting principles, neither the
grant nor the exercise of options by an employee or board member will result in
any charge to the Company's earnings. However, option grants to non-employees
excluding board members) will result in a charge to the Company's earnings based
on the fair value of the grant using the Black-Scholes option pricing model. In
addition, the Company must disclose, in pro-forma statements to the Company's
financial statements, the impact options granted to employees or board members
would have upon the Company's reported earnings were the value of those options
at the time of grant treated as a compensation expense. The number of
outstanding options may be a factor in determining the Company's earnings per
share on a fully-diluted basis.
9
<PAGE> 13
Stockholder Approval. The affirmative vote of a majority of the
outstanding shares of the Company's Common Stock present or represented and
entitled to vote at the 1998 Annual Meeting is required for approval of the 1998
Plan. Should such stockholder approval not be obtained, then any options granted
on the basis of the 1998 Plan will terminate without becoming exercisable for
any of the shares of Common Stock subject to those options, and no further
options will be granted on the basis of such share increase. In addition,
without such stockholder approval, the non-employee Board members will not be
eligible to receive any option grants under the Automatic Option Grant Program,
and any stock options granted under the program to non-employee Board members
will terminate without ever becoming exercisable for the shares subject to those
options or rights. However, the 1990 Plan will continue to remain in effect, and
option grants may continue to be made pursuant to the provisions of the 1990
Plan until the available reserve of Common Stock as last approved by the
stockholders has been issued pursuant to option grants made under the 1990 Plan.
The Board of Directors believes that option grants under the 1998 Plan play
an important role in the Company's efforts to attract and retain the services of
individuals of outstanding ability who are essential to the Company's long-term
financial success. Accordingly, the Board of Directors recommends that the
stockholders vote FOR the approval of the 1998 Plan.
New Plan Benefits. No option grants have been granted to date on the basis
of the 1998 Plan for which the stockholder approval is sought pursuant to this
Proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE 1998 PLAN.
PROPOSAL NO. 3:
APPROVAL OF AMENDMENT TO THE
1993 EMPLOYEE INCENTIVE STOCK ACQUISITION PLAN
The Company's stockholders are being asked to approve an amendment to the
Company's 1993 Employee Incentive Stock Acquisition Plan (the "Acquisition
Plan") which will increase the maximum number of shares of Common Stock
authorized for issuance over the term of the Acquisition Plan by an additional
125,000 shares to 400,000 shares. As of March 31, 1998, a total of 54,201 shares
were available under the Acquisition Plan. Based upon current participation
levels, the Company expects that it will issue all such available shares
pursuant to existing obligations within the next several months. The Acquisition
Plan is substantially identical to the existing plan, except that it will
increase the maximum number of shares authorized for issuance over the term of
the Acquisition Plan.
The purpose of the new amendment is to ensure that the Company will
continue to have a sufficient reserve of Common Stock available under the
Acquisition Plan to provide eligible employees of the Company and its
participating affiliates with the opportunity to acquire a proprietary interest
in the Company through participation in a payroll-deduction based employee stock
purchase plan under Section 423 of the Internal Revenue Code. The Company
believes that the Acquisition Plan is a key component of its strategy to attract
and retain skilled employees and quality management.
The Board believes it is in the Company's best interests to adopt the
Acquisition Plan so that the Company may continue to provide eligible employees
the opportunity to purchase the Company's Common Stock through payroll
deductions, thereby aligning their financial interests more closely with those
of the existing stockholders. While it believes that the Acquisition Plan will
encourage employees to be stockholders, the Company also recognizes that
employee stock purchases can result in dilution to existing stockholders. The
Company attempts to limit the impact of this dilution through a share repurchase
program. Since December 1994, the Company has repurchased 1,058,000 shares of
its Common Stock for approximately $10,197,000. The Company intends to
repurchase shares as business conditions dictate.
The Acquisition Plan was adopted by the Board of Directors and approved by
the Company's stockholders at the 1993 Annual Meeting held on September 17, 1993
as the successor to the Company's pre-existing Employee Incentive Stock
Acquisition Plan. The new Acquisition Plan became effective with the purchase
period, which began on January 1, 1994. The Acquisition Plan was subsequently
amended effective
10
<PAGE> 14
March 26, 1996, to increase the number of shares available in the Acquisition
Plan from 175,000 to 275,000 and that amendment was approved by the stockholders
at the 1996 Annual meeting held June 11, 1996. The Board adopted the
125,000-share increase for which stockholder approval is sought under this
Proposal on March 31, 1998.
The following is a summary of the principal features of the Acquisition
Plan, as amended. The summary, however, does not purport to be a complete
description of all the provisions of the Acquisition Plan. Any stockholder who
wishes to obtain a copy of the actual plan document may do so by written request
to the Corporate Secretary at the Company's executive offices in Salt Lake City,
Utah.
Purpose. The purpose of the Acquisition Plan is to provide eligible
employees of the Company and its participating subsidiaries with the opportunity
to acquire a proprietary interest in the Company through participation in a plan
intended to qualify for the favorable tax benefits afforded employee stock
purchase plans under Section 423 of the Internal Revenue Code. Participating
subsidiaries may include any subsidiary corporation of the Company, whether now
existing or hereafter created, which the Company's Board of Directors
designates.
Administration. The Compensation Committee of the Board administers the
Acquisition Plan. The Compensation Committee as Plan Administrator has full
authority to adopt administrative rules and procedures and to interpret the
provisions of the Acquisition Plan. The Company will pay all costs and expenses
incurred in plan administration without charge to participants.
Issuable Securities. The shares of Common Stock issuable under the
Acquisition Plan may be either shares newly-issued by the Company or shares
reacquired by the Company, including shares purchased on the open market. The
maximum number of shares of Common Stock that may be sold to participants over
the term of the Acquisition Plan may not exceed 400,000 shares, inclusive of the
125,000-share increase for which stockholder approval is sought under this
Proposal.
In the event that any change is made to the outstanding Common Stock
(whether by reason of subdivision or consolidation, stock dividend, or other
change in corporate structure effected without the Company's receipt of
consideration), appropriate adjustments will be made to (i) the class and
maximum number of securities issuable over the term of the Acquisition Plan,
(ii) the class and maximum number of securities purchasable per participant
during any one purchase period and (iii) the class and number of securities and
the price per share in effect under each outstanding purchase right.
Eligibility and Participation. Any individual who renders services to the
Company or a participating subsidiary as an employee is eligible to participate
in the Acquisition Plan. As of March 31, 1998, approximately 550 employees,
including 6 executive officers, were eligible to participate in the Acquisition
Plan.
Purchase Periods and Purchase Rights. Shares are offered under the
Acquisition Plan through a series of successive purchase periods each with
duration of six (6) months. The purchase periods run from January 1 to June 30
and from July 1 until December 31 each year.
The participant will be granted a separate purchase right for each purchase
period in which he or she participates. The purchase right will be granted on
the start date of the purchase period and will be automatically exercised on the
last day of that period.
Purchase Price. The purchase price of the Common Stock acquired at the end
of each purchase period will be equal to the lesser of (i) 85% of the fair
market value per share of Common Stock on the day preceding the date on which
such purchase period begins or (ii) 85% of the fair market value per share of
Common Stock on the last trading day in the purchase period.
The fair market value per share of Common Stock on any relevant date will
be the closing selling price per share on such date as reported on the New York
Stock Exchange. On March 25, 1998, the fair market value per share was $24.00
the closing selling price per share on that date on the New York Stock Exchange.
11
<PAGE> 15
Payroll Deductions and Stock Purchases. Each participant may, through
authorized payroll deductions, apply from 2% to 20% of his or her cash
compensation each purchase period to the purchase of Common Stock at the end of
that purchase period.
Special Limitations. The Acquisition Plan imposes certain limitations upon
a participant's rights to acquire Common Stock, including the following
limitations:
(i) Purchase rights may not be granted to any individual who owns
stock (including stock purchasable under any outstanding purchase rights)
possessing 5% or more of the total combined voting power or value of all
classes of stock of the Company or any of its subsidiaries.
(ii) Purchase rights granted to a participant may not permit such
individual to purchase more than $25,000 of Common Stock (valued at the
time each purchase right is granted) during any one calendar year.
(iii) The maximum number of shares of Common Stock purchasable by any
participant per purchase period may not exceed 2,000 shares.
Termination of Purchase Rights. The purchase right of a participant will
immediately terminate upon (i) the participant's termination of employment or
(ii) his or her election to withdraw from the Acquisition Plan.
Stockholder Rights. No participant will have any stockholder rights with
respect to the shares covered by his or her outstanding purchase right until the
shares are actually purchased on the participant's behalf. No adjustment will be
made for dividends, distributions or other rights for which the record date is
prior to the date of such purchase.
Merger or Dissolution. In the event of a dissolution or liquidation of the
Company or a merger or consolidation of the Company, the Acquisition Plan will
terminate and all payroll deductions made by participants during the purchase
period in which such transaction occurs will be refunded to the participants.
Amendment and Termination. The Acquisition Plan will terminate upon the
earlier of (i) December 31, 2002 or (ii) the date on which all shares available
for issuance are sold pursuant to exercised purchase rights.
The Board may from time to time alter, amend, suspend or discontinue the
provisions of the Acquisition Plan. However, the Board may not, without approval
of the stockholders, (i) increase the number of shares issuable under the
Acquisition Plan or the maximum number of shares which any participant may
purchase per purchase period, except in connection with certain changes in the
Company's capital structure, (ii) materially increase the benefits accruing to
participants or (iii) materially modify the requirements for eligibility to
participate in the Acquisition Plan.
Accounting Treatment. The issuance of Common Stock under the Acquisition
Plan will not result in a compensation expense chargeable against the Company's
reported earnings. However, the Company must disclose, in pro-forma statements
to the Company's financial statements, the impact the purchase rights granted
under the Acquisition Plan would have upon the Company's reported earnings were
the value of those purchase rights treated as compensation expense.
Stock Issuances. The table below shows, as to each of the Named Officers
in the Summary Compensation Table and the various indicated groups, the number
of shares of Common Stock purchased under the Acquisition Plan between January
1, 1997 and March 31, 1998, together with the weighted average purchase price
paid per share.
12
<PAGE> 16
ACQUISITION PLAN TRANSACTIONS
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
NAME PURCHASED SHARES PURCHASE PRICE
- ---- ---------------- ----------------
<S> <C> <C>
Ruediger Naumann-Etienne..................... -- --
Joseph W. Pepper............................. 453 $14.88
Randy W. Zundel.............................. -- --
Barry K. Hanover............................. 453 $14.88
Larry E. Harrawood........................... 1,177 $13.72
Gary N. Kilman............................... 586 $12.75
All executive officers as a group............ 2,669 $13.90
All employees, including current officers who
are not executive officers as a group...... 44,628 $13.75
</TABLE>
As of March 31, 1998, 220,799 shares of Common Stock had been issued under
the Acquisition Plan, and 179,201 shares remained available for future issuance
(inclusive of the 125,000-share increase for which stockholder approval is
sought under this Proposal).
Federal Tax Consequences. The Acquisition Plan is intended to be an
"employee stock purchase plan" within the meaning of Section 423 of the Internal
Revenue Code. Under a plan which so qualifies, no taxable income will be
recognized by a participant, and no deductions will be allowed to the Company,
at the time the purchase right is granted or at the time such right is
exercised. Taxable income will not be recognized by the participant until there
is a sale or other disposition of the shares acquired under the Acquisition Plan
or in the event the participant should die while still owning the purchased
shares.
If the participant sells or otherwise disposes of the purchased shares
within two (2) years after the start date of the purchase period, then (i) the
participant will recognize ordinary income in the year of sale or disposition
equal to the amount by which the fair market value of the shares on the purchase
date exceeded the purchase price and (ii) the Company will be entitled to a
business expense deduction in the same amount for the taxable year in which such
disposition occurs. If the participant sells or disposes of the purchased shares
more than two (2) years after the start date of the purchase period, then no
deduction will be available to the Company, and the participant will recognize
ordinary income in the year of sale or disposition equal to the lesser of (i)
the amount by which the fair market value of the shares on the sale or
disposition date exceeded the purchase price paid for those shares or (ii) 15%
of the fair market value of the shares on the start date of the purchase period.
Any additional gain upon the disposition will be taxed as a long-term capital
gain.
If the participant still owns the purchased shares at the time of death,
the lesser of (i) the amount by which the fair market value of the shares on the
date of death exceeds the purchase price or (ii) 15% of the fair market value of
the shares on the start date of the purchase period in which such shares were
acquired will constitute ordinary income in the year of death.
New Plan Benefits. No purchase rights have been granted, and no shares of
Common Stock have been issued, under the Acquisition Plan on the basis of the
125,000-share increase for which stockholder approval is sought under this
Proposal.
Stockholder Approval. The affirmative vote of a majority of the
outstanding voting shares of the Company present or represented and entitled to
vote at the 1998 Annual Meeting is required for approval of the 125,000-share
increase to the Acquisition Plan. Should such stockholder approval not be
obtained, then the share increase will not be implemented, and any purchase
rights granted on the basis of such share increase will immediately terminate.
No additional purchase rights will be granted on the basis of such share
increase, and the Acquisition Plan will terminate once the existing share
reserve has been issued.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE AMENDMENT
TO THE ACQUISITION PLAN.
13
<PAGE> 17
COMPENSATION
The following table provides certain summary information concerning the
compensation paid or accrued by the Company and its subsidiaries, to or on
behalf of the Company's Chief Executive Officer and each of the other four most
highly compensated executive officers of the Company whose salary and bonus for
the 1997 fiscal year was in excess of $100,000, for services rendered in each of
the fiscal years ended December 31, 1997, 1996 and 1995, respectively. Dr.
Ruediger Naumann-Etienne is also included in the table because he served as the
Company's Chief Executive Officer for part of the 1997 fiscal year until his
resignation on May 15, 1997. The individuals named in such tables are designated
the "Named Officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES ALL OTHER
------------------------ UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS ($) OPTIONS ($)(2)
--------------------------- ---- ------------ --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
RUEDIGER NAUMANN--ETIENNE(3) 1997 91,367 71,304 -- 3,000
Chairman of the Board, 1996 206,963 138,192 50,000 --
Former President & CEO 1995 200,000 100,000 100,000 --
JOSEPH W. PEPPER(4) 1997 168,234 211,975 150,000 151,412
President and 1996 -- -- -- --
Chief Executive Officer 1995 -- -- -- --
RANDY W. ZUNDEL 1997 169,190 133,754 -- 20,182
Executive Vice President, 1996 160,857 110,254 30,000 19,219
Chief Operating & 1995 153,465 77,214 70,000 17,879
Chief Financial Officer
BARRY K. HANOVER 1997 134,032 86,881 -- 15,032
Executive Vice President, 1996 123,488 65,081 25,000 13,127
Engineering & Chief Technical Officer 1995 108,878 44,740 50,000 11,782
LARRY E. HARRAWOOD 1997 158,323 103,176 -- 20,009
Vice President, 1996 151,390 85,304 20,000 19,045
Marketing & Business Development 1995 145,169 58,544 60,000 17,730
GARY N. KILMAN(5) 1997 150,485 139,143 -- 9,991
Vice President, 1996 124,562 110,177 20,000 18,937
Sales 1995 120,012 88,932 50,000 21,367
</TABLE>
- ---------------
(1) Includes salary deferred under the Company's 401(k) Savings Plan.
(2) For the 1997 fiscal year the indicated amount for each Named Officer was
comprised of (i) the contributions made by the Company to the Company's
401(k) Savings Plan on behalf of each such officer which match his salary
deferral contributions to such plan, up to a maximum match of $3,000 per
participant, and (ii) the imputed cost of life insurance coverage provided
by the split dollar life insurance policy which the Company maintains for
each Named Officer plus the value to the Named Officer of the
14
<PAGE> 18
benefit provided by the Company's payment of the premium on such insurance
policy, and (iii) relocation expenses as defined in Note 4.
<TABLE>
<CAPTION>
PLAN INSURANCE
CONTRIBUTION BENEFIT
1997 1997
------------ ---------
<S> <C> <C>
Mr. Naumann............................... 3,000 $ --
Mr. Pepper................................ -- 7,657
Mr. Zundel................................ 3,000 17,182
Mr. Hanover............................... 3,000 12,032
Mr. Harrawood............................. 3,000 17,009
Mr. Kilman................................ 3,000 6,991
</TABLE>
(3) Dr. Naumann-Etienne was President and CEO of the Company from February 1995
until May 1997 when Dr. Joseph W. Pepper assumed the title. Dr. Naumann
received additional compensation of $70,000 in 1997 under a consulting
agreement for his role as Chairman of the Board.
(4) Dr. Joseph W. Pepper joined OEC Medical Systems, Inc. in May 1997 as
President and CEO. He was paid $143,755 to cover his relocation expenses to
Salt Lake City, Utah.
(5) Mr. Kilman resigned as an officer of the Company on October 31, 1997. Please
see section entitled "Employment Contracts and Changes of Employment
Arrangements" for further information concerning Mr. Kilman's severance
benefits.
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options under the Company's 1990 Stock Option/Stock Purchase Plan for the 1997
fiscal year to each of the Named Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
% OF TOTAL AT ASSUMED ANNUAL RATES OF
OPTIONS STOCK PRICE APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OPTION TERM
GRANTED EMPLOYEES IN PRICE EXPIRATION -----------------------------
NAME (#)(1) FISCAL YEAR $(SH)(2) DATE 5%(3) 10%(3)
---- ------- ------------ -------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ruediger Naumann-Etienne......... -- -- -- -- -- --
Joseph W. Pepper................. 150,000 46.9% $17.25 5/15/07 $1,627,264 $4,123,808
Randy W. Zundel.................. -- -- -- -- -- --
Barry K. Hanover................. -- -- -- -- -- --
Larry E. Harrawood............... -- -- -- -- -- --
Gary N. Kilman................... -- -- -- -- -- --
</TABLE>
- ---------------
(1) This option was granted May 15,1997. It will become immediately exercisable
for all the option shares should any of the following change in control
events occur while the optionee continues in the Company's service: (i) the
acquisition of the Company by merger or sale of substantially all of the
Company's assets or 50% or more of the Company's outstanding common stock,
(ii) the successful completion of a hostile tender offer for more than 40%
of the Company's outstanding common stock, (iii) a change in the composition
of more than one-third of the Board members by proxy contest or (iv) the
dissolution or liquidation of the Company.
(2) The exercise price may be paid in cash, in shares of Company Common Stock
valued at fair market value on the exercise date or through a cashless
exercise procedure involving a same-day sale of the purchased shares.
(3) There is no assurance provided to any executive officer or any other holder
of the Company's securities that the actual stock price appreciation over
the 10-year option term will be at the assumed 5% and 10%
15
<PAGE> 19
levels or at any other defined level. Unless the market price of the
Company Common Stock appreciates over the option term, no value will be
realized from the option grants made to the executive officers.
OPTION EXERCISES AND HOLDINGS
The following table provides information, with respect to the Named
Officers, concerning the exercise of options during the last fiscal year and
unexercised options held as of the end of the fiscal year. No stock appreciation
rights were exercised during the last fiscal year, nor were any stock
appreciation rights outstanding at the end of such fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE VALUE OF UNEXERCISED
REALIZED IN-THE-MONEY OPTIONS AT
(MARKET NUMBER OF SECURITIES FY-END (MARKET PRICE
SHARES PRICE AT UNDERLYING UNEXERCISED SHARES AT FY-END [$19.94]
ACQUIRED ON EXERCISE LESS OPTIONS AT FY-END (1) LESS EXERCISE PRICE) (1)
EXERCISE EXERCISE --------------------------- ---------------------------
NAME (#) PRICE) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ruediger Naumann-Etienne... 67,500 $911,244 129,625 34,375 $1,730,605 $281,445
Joseph W. Pepper........... -- -- 45,000 105,000 120,938 282,188
Randy W. Zundel............ -- -- 154,375 20,625 2,080,205 168,867
Barry K. Hanover........... 14,000 178,500 93,813 17,187 1,266,843 140,718
Larry E. Harrawood......... 3,500 48,825 147,850 13,750 2,011,832 112,578
Gary N. Kilman............. 10,450 126,233 95,800 13,750 1,290,088 112,578
</TABLE>
- ---------------
(1) Includes options granted under a predessor plan (the "OEC Plan") prior to
the distribution ("Distribution") by the Company of its interests in
Diasonics Ultrasound, Inc. and FOCAL Surgery, Inc. to its stockholders on
September 30, 1993 which were adjusted to reflect such Distribution ("OEC
Adjusted Options"). Pursuant to the Distribution, each option (the
"Diasonics Option") outstanding under the OEC Plan which was not exercised
prior to the Distribution was split into three separately exercisable
options -- the OEC Adjusted Option, the Diasonics Ultrasound Adjusted Option
and the FOCAL Surgery Adjusted Option (together, the "Adjusted Options").
Each OEC Adjusted Option covers the same number of shares of Common Stock as
the number of shares subject to the Diasonics Option to which it relates.
Each OEC Adjusted Option in general has the same terms and conditions
(including the same vesting/exercise schedule) as in effect for the Diasonics
Option immediately prior to the Distribution. However, the per share exercise
price in effect under the Diasonics Option immediately prior to the Distribution
was allocated among each of the Adjusted Options on the basis of the relative
fair market values of the underlying common stock of each of the three companies
after the Distribution.
For purposes of vesting and continued exercisability of each OEC Adjusted
Option, employment or service (whether as an employee, consultant or
non-employee director) with any one of the three companies or their respective
subsidiaries will be treated as service and employment with the Company, as if
the Distribution did not take place. Accordingly, each of the OEC Adjusted
Options held by an individual after the Distribution will continue to vest and
remain outstanding for so long as that individual remains in the employ or
service of any one of the three companies or their subsidiaries. Each OEC
Adjusted Option will, however, terminate and cease to be exercisable upon the
earliest to occur of (i) the specified expiration date of the original Diasonics
Option, (ii) the expiration of the three (3)-month period following the date the
option holder ceases all employment and service relationships with the three
companies and their subsidiaries or (iii) the expiration of the twelve
(12)-month period following the date of the option holder's death or permanent
disability if such individual dies or becomes disabled while in the service of
one or more of the companies.
16
<PAGE> 20
The number of shares of Company Common Stock purchasable by each Named
Officer under his OEC Adjusted Option at the end of the 1997 fiscal year is as
follows: Dr. Naumann-Etienne 14,000 shares; Dr. Pepper 0 shares; Mr. Zundel
18,010 shares; Mr. Hanover 0 shares; Mr. Harrawood 11,600 shares; Mr. Kilman
6,000 shares.
Director's Compensation. All non-employee members of the Board are paid an
annual retainer of $20,000 plus reimbursement of all out-of-pocket costs
incurred in connection with their attendance at Board or committee meetings.
The Company's proposed 1998 Stock Option Plan contains an automatic option
grant program for non-employee Board members. Under that program, each
non-employee Board member automatically receives a non-statutory option grant
for 3,000 shares of Common Stock upon his initial election or appointment to the
Board, and each eligible individual re-elected as a non-employee Board member at
one or more Annual Stockholders Meetings also receives an automatic option grant
on the date of each such Annual Meeting for an additional 3,000 shares (provided
such individual has not received an initial automatic grant within the preceding
six months). Each grant will have an exercise price per share equal to the
market price of the Common Stock on the grant date. Each grant will become
exercisable over the optionee's period of Board service in three equal annual
installments, beginning one year after the grant date. However, in the event
there is a change in control of the Company whether effected by merger, sale of
substantially all of the Company's assets or 50% or more of the outstanding
Common Stock or the completion of a hostile tender offer for 40% or more of the
outstanding Common Stock, or in the event there is a change in the composition
of one-third or more of the Board members effected through a contested election
of Board members or in the event of dissolution or liquidation of the Company,
then each automatic grant outstanding for at least six months will immediately
accelerate and become exercisable for all of the option shares. Each of the
automatic grants will have a maximum term of ten years measured from the grant
date, subject to earlier termination upon the optionee's cessation of Board
service. Upon the successful completion of a hostile tender offer for 40% or
more of the outstanding Common Stock, options will automatically be canceled in
return for a cash distribution from the Company based upon the tender-offer
price of the shares of Common Stock subject to the canceled options. Messrs.
Hinckley and May received an automatic option grant for 5,000 shares upon
re-election to the Board at the 1997 Annual Meeting pursuant with the 1990 Plan
in effect at the time. Each such automatic option grant had an exercise price of
$17.25 per share and will become exercisable on three successive equal annual
installments over the period of continual Board service measured from the grant
date.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES ACT OF 1934
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file with
the Securities and Exchange Commission and the New York Stock Exchange initial
reports of ownership and reports of changes in ownership of Common Stock and
other equity securities of the Company. Officers, directors and greater than
ten-percent stockholders are required by SEC regulation to furnish the Company
with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely upon review of copies of such
reports furnished to the Company and written representations that no other
reports were required, all Section 16(a) filing requirements applicable to the
Company's officers, directors and greater than ten-percent stockholders for the
1997 fiscal year were complied with, except one amended Form 4 which was amended
to reflect one transaction that was filed late for Ruediger Naumann-Etienne.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors, subject to review by
the full Board, is responsible for the establishment of remuneration
arrangements for senior management and the administration of compensation and
employee benefits plans. In addition, the Compensation Committee sets the base
salary of the Company's executive officers, approves individual bonus programs
for executive officers, and
17
<PAGE> 21
administers the Company's 1990 Plan and the 1998 Stock Option Plan under which
grants may be made to executive officers and other key employees. The following
is a summary of policies of the Committee that affect the compensation paid to
executive officers, as reflected in the tables and text set forth elsewhere in
the Proxy Statement.
The objectives of the Company's executive compensation program are to
motivate and retain current executives and to attract future ones. The Company's
executive compensation program is designed to: (1) provide a direct and
substantial link between Company performance and executive pay, (2) consider
individual performance and accomplishments and compensate accordingly, and (3)
determine the Company's position in the medical device and high technology labor
markets and be competitive in those labor markets.
The Company positions its executive pay levels at the median of U.S.
medical and technology companies. To this end, the Company tracks executive pay
levels against companies of similar size, i.e., approximately $100-$200 million.
The Committee also considers geographic location and companies that may compete
with OEC in recruiting executive talent.
The data utilized by the Committee in establishing executive compensation
levels is compiled by the Senior Manager, Human Resources, who has
responsibility to verify that compensation is competitive for similar positions.
Primarily, three compensation surveys were used: (1) the 1997 Radford
Associates/ Alexander & Alexander Consulting Group's "Management Total
Compensation Report", (2) the 1997 Radford Salt Lake Area compensation survey,
and (3) a November 1997 customized, senior level, executive survey of Utah based
companies prepared by the Industrial Relations Council, a private Utah employers
association.
The Company's executive compensation program has three components: (1) base
salary, (2) short-term incentives, and (3) long-term incentives. Base salary is
used primarily as an attraction and retention device. Base pay is established
within discrete ranges as determined for each position and is adjusted on a
merit review basis each February. Pay is sufficiently variable, under the
program, that 75th percentile performance will result in 75th percentile pay
levels and below median performance levels will result in below median pay. Base
pay increases are determined by long-term contributions to the Company's
performance as well as the individual executive's position, duties, and
responsibilities.
Dr. Ruediger Naumann-Etienne's salary increase in 1997 as Chief Executive
Officer was based upon his contribution toward the Company's achievement of key
objectives, such as earnings per share and profit before tax. In 1997, the Chief
Executive Officer did receive a pay increase of 4.3 percent. All other executive
officers received base salary increases averaging 5.4 percent. The increased
levels of base salary in effect for the Company's executive officers for the
1997 fiscal year ranged from the 40th percentile to the 60th percentile of the
surveyed compensation data for comparable positions at similarly sized medical
and technology companies. Dr. Naumann's salary as Chief Executive was at the
10th percentile.
When Dr. Joseph W. Pepper succeeded Dr. Naumann as Chief Executive Officer
in May 1997, the committee established his level of base compensation at
$270,000 per year, based upon negotiation with Dr. Pepper and the compensation
levels in effect for chief executive officers at similar sized medical and
technology companies on the basis of the compensation surveys of these
companies. Dr. Pepper's base compensation level is at the 40th percentile.
Short-term incentive pay is paid on an annual basis, if earned. Incentive
pay is provided through the Management Incentive Plan (MIP). Each year
individual and financial objectives are established. To the degree a participant
meets or exceeds his/her personal objectives and the business unit and the
Company meets or exceeds their financial objectives, the participating executive
will receive a bonus payable in February following the close of the fiscal year.
The measurement of Company financial performance used in determining
individual incentive pay is profit before tax (PBT). Payments are made based
upon performance versus the target. Performance above the target results in
proportionately higher bonus payouts. Likewise, below target performance results
in proportionately lower bonus payouts (50 percent of the target bonus at 75
percent of target achievement). All bonuses become discretionary if performance
is below 75 percent of target performance. Since financial
18
<PAGE> 22
performance for fiscal 1997 exceeded expectations, the Chief Executive Officer
received a $211,950 bonus, Dr. Naumann, the former Chief Executive Officer,
received a $71,304 bonus, and all other executive officers as a group received
bonuses totaling $379,312.
Long-term incentives are provided through stock options. The stock option
plan is intended to provide incentive to key employees of the Company and
attract new employees with outstanding qualifications, in addition to incenting
executives to make the types of decisions that will continue to improve Company
performance in the long term. The number of shares subject to each option grant
is based upon the officer's tenure, level of responsibility and relative
position with the Company. The Company has established certain general
guidelines in making option grants to the executive officers in an attempt to
target a fixed number of option shares based upon the individual's position with
the Company and his/her existing holdings of vested options. However, the
Committee does not adhere strictly to these guidelines and will vary the size
and terms of the option grant made to each executive officer as it feels the
circumstances warrant. Each grant allows the officer to acquire shares of the
Company's common stock at a fixed price per share (the market price on the grant
date) over a specified period of time (up to ten years), provided the officer
continues in the Company's employ. In 1997, 150,000 options were granted to
executive officers (see distribution in the preceding Option Grant Table) under
the Company's 1990 Plan.
In total, about one-third of the Chief Executive Officer's annual
compensation is variable upon meeting the financial target. Looking forward over
a five-year term and calculating the values of stock options, about 60% of the
Chief Executive Officer's total compensation will be variable. The Chief
Executive Officer's targeted pay mix is heavily weighted toward long-term
incentives and, therefore, long-term corporate and stock market performance.
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to publicly held companies for compensation exceeding
$1 million paid to certain of the corporation's executive officers. The
compensation to be paid to the Company's executive officers for the 1997 fiscal
year did not exceed the $1 million limit per officer, nor is it expected that
the compensation to be paid to the Company's executive officers for fiscal 1998
will exceed that limit. Any compensation deemed paid to an executive officer
upon his exercise of option grants qualifies as performance-based compensation
which will not be subject to the $1 million limitation. Since it is very
unlikely that the cash compensation payable to any of the Company's executive
officers in the foreseeable future will approach the $1 million limit, the
Committee has decided at this time not to take any other action to limit or
restructure the elements of cash compensation payable to the Company's executive
officer. The Committee will reconsider this decision should the individual
compensation of any executive officer ever approach the $1 million level.
Submitted by the Compensation Committee of the Company's Board of Directors.
Gregory K. Hinckley
Dr. Chase N. Peterson
19
<PAGE> 23
EMPLOYMENT CONTRACTS AND CHANGE OF EMPLOYMENT ARRANGEMENTS
No executive officers of the Company have employment agreements with the
Company. In connection with the resignation of Gary Kilman, he became entitled
to certain separation benefits. These include nine months of base salary
continuation payments, totaling $149,277, six months of continued medical
coverage, a lump sum cash payment of $61,230 paid in February 1998, and
continued vesting of his existing stock options until July 31, 1998, after which
time he will have 90 days in which to exercise vested options; unvested options
will be automatically canceled. If Mr. Kilman accepts full or part-time
employment prior to July 31, 1998, the balance of base salary continuation
payments would be paid in a lump sum and stock options would cease to vest.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee is a current or former employee of
the Company. No executive officer of the Company served on the board of
directors or compensation committee of any entity that has one or more executive
officers serving as a member of the Company's Board of Directors or Compensation
Committee.
20
<PAGE> 24
PERFORMANCE GRAPH
The following graph shows (i) a five-year comparison of cumulative
stockholder returns for the Company, the Standard & Poor's 500 Stock Index and
the DJ Medical & Biotech Index for December 31, 1992 through December 31, 1997;
and (ii) a comparison of the Company's total return with that of the foregoing
indices and the S & P MIDCAP400 and S&P Healthcare (Medical Products &
Supplies), the Company's newly selected indices, for the fiscal year ended
December 31, 1997.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933 or the Exchange Act of 1934
that might incorporate future filings made by the Company under those statutes,
neither the preceding Compensation Committee Report on Executive Compensation
nor the Comparison of Cumulative Total Return graph shall be incorporated by
reference into any such filings; nor shall such report or graph be incorporated
by reference into any future filings made by the Company under these statues.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG OEC MEDICAL SYSTEMS, INC.
<TABLE>
<CAPTION>
D J
MEDICAL
S&P &
MEASUREMENT PERIOD MIDCAP BIOLOGICAL S&P HLTH
(FISCAL YEAR COVERED) OEC MED S&P 500 400 TECH CARE
<S> <C> <C> <C> <C> <C>
DEC-92 100 100 100 100 100
DEC-93 76.99 110.08 113.95 87.17 76.26
DEC-94 72.79 111.53 109.87 99.47 90.43
DEC-95 109.19 153.45 143.86 170.36 152.84
DEC-96 167.98 188.68 171.48 180.86 175.42
DEC-97 223.28 251.64 226.79 233.03 218.7
</TABLE>
* $100 Invested on December 31, 1992 in Stock or Index -- Including
Reinvestment of Dividends. Fiscal Year ending December 31.
(1) Assumes $100 was invested in each of the Company's stock, the S&P 500 Index
and the Dow Jones Medical and Biotechnology Index as of December 31, 1992.
Total stockholder return assumes reinvestment of dividends. While the
Company has paid no cash dividends, it did declare a distribution of the
stock of its wholly owned ultrasound business, Diasonics Ultrasound, Inc.
(including its wholly owned subsidiary, FOCAL Surgery, Inc.) effective
October 1, 1993. The distribution of that stock has been treated as a
dividend of the equivalent cash value of shares of Diasonics Ultrasound,
Inc. and FOCAL Surgery Inc. for purposes of computing the effect of dividend
reinvestment in computing stockholder return in this graph. The equivalent
cash value of shares distributed was computed based on the average of bid
and ask prices for each of Diasonics Ultrasound, Inc. common, when-issued
NASDAQ, and FOCAL Surgery, Inc. common, when issued OTC, as of October 1,
1993.
(2) The Company has selected the S & P MIDCAP400 and S&P Healthcare (Medical
Products & Supplies) for future reference, since it believes that such
indices more accurately reflect stockholder
21
<PAGE> 25
returns for companies of comparable capitalization to those of the Company
in the Company's true industry.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of March 31, 1998 concerning
beneficial ownership of Common Stock by each of the directors, nominees for
directors, and the named Officers in the Summary Compensation Table, known
beneficial holders of more than 5% of the outstanding Common Stock and all
directors and executive officers as a group. All information is based on
information known to the Company with respect to such persons' beneficial
ownership of shares of Company common stock as of March 31, 1998. Unless
otherwise noted, the listed persons have sole voting and dispositive powers with
respect to the shares held in their names, subject to community property laws,
if applicable:
<TABLE>
<S> <C> <C>
Forstmann-Leff Assoc., Inc.......................... 3,168,750 23.7%
FLA Asset Management, Inc.
Stamford Advisors Corp.
55 East 52nd Street
New York, NY 10055(1)
FMR Corporation..................................... 1,066,400 7.98%
82 Devonshire Street
Boston, MA 02109(1)
Peter B. Cannell & Co., Inc......................... 691,375 5.36%
645 Madison Avenue,
New York, NY 10022(1)
Ruediger Naumann-Etienne(2)......................... 171,477 1.3%
Joseph W. Pepper(2)................................. 60,453 *
Randy W. Zundel(2).................................. 138,748 1.1%
Barry K. Hanover (2)................................ 86,828 *
Larry E. Harrawood(2)............................... 148,216 1.2%
Gary N. Kilman(2)................................... 57,637 *
Gregory K. Hinckley(2).............................. 6,668 *
Benno P. Lotz(2).................................... 11,975 *
Allan W. May(2)..................................... 150,229 1.2%
Chase N. Peterson(2)................................ 16,001 *
All executive officers and directors as a group (10
persons)(3)....................................... 848,232 6.7%
</TABLE>
- ---------------
(*) Less than 1%.
(1) Information provided pursuant to Schedule 13G reports filed with the
Securities Exchange Commission in February 1998. The calculation of percent
ownership is inclusive of treasury stock.
(2) Includes options to purchase common stock which are currently exercisable or
will become exercisable within 60 days of March 31, 1998, as follows: Dr.
Ruediger Naumann-Etienne, 132,750; Dr. Joseph W. Pepper, 60,000 shares; Mr.
Zundel, 136,250; Mr. Hanover, 86,375; Mr. Harrawood, 127,500 shares; Mr.
Kilman, 57,050; Mr. Hinckley, 6,668 shares; Mr. Lotz, 1,975; Mr. May,
146,667; Mr. Peterson, 15,001.
(3) Includes options to purchase 770,236 shares of common stock, which are
currently exercisable or will become exercisable within 60 days of March 31,
1998.
22
<PAGE> 26
PROPOSAL NO. 4:
RATIFICATION OF INDEPENDENT AUDITORS
The firm of Deloitte & Touche LLP served as independent auditors for the
Company for the year ended December 31, 1997. The Board of Directors has
appointed, subject to the ratification by the stockholders, Deloitte & Touche
LLP as independent auditors for the year ending December 31, 1998.
Representatives of Deloitte & Touche LLP are expected to be present at the
meeting with the opportunity to make a statement, if they The Board of Directors
Recommends to the Stockholders That They Vote FOR Ratification of the
Appointment of Deloitte & Touche LLP.
STOCKHOLDERS' PROPOSALS
Proposals of stockholders that are intended to be presented at the 1999
Annual Meeting of Stockholders of the Company must be received by December 14,
1998 in order to be considered for inclusion in the proxy statement and proxy
relating to that meeting.
OTHER MATTERS
The Board of Directors knows of no other matter to be acted upon at the
meeting. However, if any other matter is properly brought before the meeting,
the persons named in the accompanying form of Proxy will vote thereon in
accordance with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS
LOGO
Clarence R. Verhoef
Secretary
23
<PAGE> 27
OEC MEDICAL SYSTEMS, INC.
1993 EMPLOYEE INCENTIVE
STOCK ACQUISITION PLAN
(AS AMENDED AND RESTATED EFFECTIVE MARCH 31, 1998)
SECTION 1. PURPOSE.
The Plan has been established to provide Eligible Employees with
an opportunity to increase their proprietary interest in the Company's success
by purchasing Stock directly from the Company on favorable terms and to pay for
such purchases through payroll deductions. The Plan is intended to qualify under
section 423 of the Code. The Plan is the successor to the Company's Employee
Incentive Stock Acquisition Plan (the "Original Plan") which was terminated on
June 30, 1993, and no further shares of Stock will be issuable under the
Original Plan.
SECTION 2. DURATION; PARTICIPATION PERIODS; SHARES AUTHORIZED.
The Plan shall be in effect from January 1, 1994 to December 31,
2002. While the Plan is in effect, there shall be eighteen (18) Participation
Periods of six months each commencing on January 1 and July 1 of each calendar
year. The maximum number of shares of Stock available for purchase over the term
of the Plan shall be 400,000 shares, subject to adjustment as provided in
Section 11. Such share reserve is comprised of (i) the 175,000 shares originally
reserved for issuance under the Plan plus (ii) an additional increase of 100,000
shares authorized by the Board on March 26, 1996, and (iii) an additional
increase of 125,000 shares authorized by the Board on March 31, 1998, subject to
stockholder approval at the 1998 Annual Stockholders Meeting.
SECTION 3. ADMINISTRATION.
The Plan shall be administered by the Committee, which shall have
full authority to interpret and construe any provision of the Plan and to adopt
such rules and regulations for administering the Plan as it may deem necessary
in order to comply with the requirements of Section 423 of the Code. Decisions
of the Committee shall be final and binding on all parties who have an interest
in the Plan. No member of the Board or of the Committee shall be liable to any
Eligible Employee, or to any person whose rights derive from an Eligible
Employee, for any act or omission made in good faith.
SECTION 4. ELIGIBILITY AND PARTICIPATION.
(a) Each Eligible Employee may elect to become a Participant
in the Plan for a Participation Period by executing the enrollment form
prescribed for such
<PAGE> 28
purpose by the Committee. The enrollment form shall be filed with the Company
not later than the 10th working day prior to the commencement of the
Participation Period. The Eligible Employee shall designate on the enrollment
form the percentage of his or her Compensation which he or she elects to have
withheld for the purchase of Stock, which shall be a whole percentage of the
Eligible Employee's Compensation, but not less than two percent (2%) nor more
than twenty percent (20%).
(b) By enrolling in the Plan, a Participant is given the right
to purchase the maximum number of whole shares of Stock which can be purchased
with the amount of the Participant's Compensation which has been withheld during
the Participation Period; provided, however, that with respect to any
Participation Period, no Participant shall purchase more than a maximum of 2,000
shares of Stock nor shares of Stock in excess of the amounts set forth in
Section 12.
SECTION 5. EMPLOYEE CONTRIBUTIONS.
A Participant shall purchase shares of Stock by means of payroll
deductions. Payroll deductions as designated by the Participant pursuant to
Section 4(a) shall commence with the first payroll period in the Participation
Period and shall continue in each subsequent payroll period during participation
in the Plan. If a Participant wishes to change the rate of payroll withholding,
he or she may do so by filing a new enrollment form with the Company not later
than the 10th working day prior to the commencement of the Participation Period
for which such change is to be effective.
SECTION 6. PLAN ACCOUNTS; PURCHASE OF SHARES.
(a) The Company shall maintain a Plan Account on its books in
the name of each Participant. As of the close of each payroll period in a
Participation Period, the amount deducted from the Participant's Compensation
shall be credited to the Participant's Plan Account. No interest shall be
credited to Plan Accounts.
(b) As of the last day of each Participation Period, the
Participant is deemed to have elected to purchase the number of whole shares of
Stock calculated in accord with this Subsection (b), unless the Participant has
previously elected to withdraw from the Plan in accord with Section 8. The
amount then in the Participant's Plan Account shall be divided by the Purchase
Price, and the number of whole shares which results (subject to the limitations
described in Section 4(b) and Subsection (c) below) shall be purchased from the
Company with the funds in the Participant's Plan Account. Share certificates
representing the number of shares of Stock so purchased shall be issued and
delivered to the Participant as soon as reasonably practicable after the close
of the Participation Period.
(c) In the event that the aggregate number of shares which all
Participants elect to purchase during the Participation Period exceeds the
number of shares remaining available for issuance under the Plan, then the
number of shares to
2
<PAGE> 29
which each Participant is entitled shall be determined by multiplying the number
of shares available for issuance by a fraction, the numerator of which is the
number of shares which such Participant has elected to purchase and the
denominator of which is the number of shares which all Participants have elected
to purchase.
(d) Any amount remaining in the Participant's Plan Account
which represents the Purchase Price for a fractional share shall be carried over
in the Participant's Plan Account to the next Participation Period. Any amount
remaining in the Participant's Plan Account which represents the Purchase Price
for whole shares which could not be purchased under Section 4(b) or Subsection
(c) above shall be refunded to the Participant in cash, without interest.
SECTION 7. PURCHASE PRICE.
The Purchase Price for each share of Stock shall be the lesser of
(a) eighty-five percent (85%) of the Fair Market Value of such share on the last
trading day before the commencement of the Participation Period, or (b)
eighty-five percent (85%) of the Fair Market Value of such share on the last
trading day in the Participation Period.
SECTION 8. WITHDRAWAL FROM THE PLAN.
A Participant may elect to withdraw from the Plan at any time
before the last day of a Participation Period by filing the prescribed form with
the Company, and payroll deductions shall cease as soon as reasonably
practicable thereafter. Within 45 days after the close of such Participation
Period, the amount credited to the Plan Account of any Participant who has
withdrawn from the Plan shall be refunded to him or her in cash, without
interest. A Participant who has withdrawn from the Plan shall not be a
Participant in future Participation Periods, unless he or she again enrolls
under Section 4.
SECTION 9. EFFECT OF TERMINATION OF EMPLOYMENT.
Termination of employment as an Eligible Employee for any reason,
including death, shall be treated as an automatic withdrawal from the Plan under
Section 8. Such withdrawal shall be deemed to occur as of the date when
employment terminates. A transfer from one Participating Company to another
shall not be treated as a termination of employment.
SECTION 10. RIGHTS NOT TRANSFERABLE.
The rights of any participant under the Plan, or any
Participant's interest in any Stock or moneys to which he or she may be entitled
under the Plan, shall not be transferable by voluntary or involuntary assignment
or by operation of law, or in any other manner other than by will or the laws of
descent and distribution. If a Participant in any manner attempts to transfer,
assign or otherwise encumber his or her rights or
3
<PAGE> 30
interest under the Plan, other than by will or the laws or descent and
distribution, then such act shall be treated as an election by the Participant
to withdraw from the Plan under Section 8.
SECTION 11. RECAPITALIZATIONS, ETC.
(a) The class and maximum number of securities offered under
the Plan, the class and maximum number of securities purchasable per Participant
during any one Participation Period and the class and number of securities and
the Purchase Price per share in effect under each outstanding purchase right
under the Plan shall be adjusted proportionately by the Committee for any
increase or decrease in the number of outstanding shares of Stock resulting from
a subdivision or consolidation of shares, the payment of a stock dividend, or
any recapitalization or other increase or decrease in such shares effected
without receipt or payment of consideration by the Company. The foregoing
notwithstanding, no adjustment shall be made if it would cause the Plan to fail
to meet the requirements of Section 423 of the Code.
(b) In the event of a dissolution or liquidation of the
Company, or a merger, consolidation or reorganization to which the Company is a
constituent corporation, the Plan shall terminate, unless the plan of merger,
consolidation or reorganization provides otherwise, and all amounts which have
been paid toward the Purchase Price of Stock hereunder shall be refunded without
interest. The Plan shall in no event be construed to restrict in any way the
Company's right to undertake a dissolution, liquidation, merger, consolidation
or other reorganization.
SECTION 12. LIMITATION ON STOCK OWNERSHIP.
Any other provision hereof to the contrary notwithstanding, the
following limitations on acquisition of shares of Stock shall apply:
(a) No Participant shall be granted a right to purchase Stock
under the Plan if such Participant, immediately after his or her election to
purchase such Stock, would own stock possessing more than five percent (5%) of
the total combined voting power or value of all classes of stock of the Company
(or any parent or Subsidiary of the Company). For purposes of this Section
12(a), each Participant shall be considered to own any stock which he or she has
a right or option to purchase under this or any other plan, and each Participant
shall be considered to have the right to purchase 2,000 shares of Stock under
this Plan with respect to each Participation Period.
(b) No Participant shall be granted a right to purchase Stock
under the Plan if such Participant's rights to purchase stock under this and all
other qualified employee stock purchase plans of the Company or any parent or
Subsidiary of the Company would accrue at a rate which exceeds $25,000 of the
Fair Market Value of such stock (determined at the time when such right is
granted) for each calendar year for which such right is outstanding at any time.
Ownership of stock shall be determined after applying the attribution rules of
Section 424(d) of the Code. For purposes of this
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Section 12(b), the right to acquire Stock under each purchase right shall accrue
as and when the purchase right first becomes exercisable on the last day of the
Participation Period for which such right is granted.
SECTION 13. NO RIGHTS AS AN EMPLOYEE.
Nothing in the Plan shall be construed to give any person the
right to remain in the employ of a Participating Company or to affect the right
of the Participating Company to terminate the employment of any person at any
time, with or without cause.
SECTION 14. NO RIGHTS AS A SHAREHOLDER.
A Participant shall have no rights as a shareholder with respect
to any shares of Stock which he or she may have a right to purchase under the
Plan until shares are actually purchased on the Participant's behalf in
accordance with Section 6.
SECTION 15. AMENDMENT OR DISCONTINUANCE.
The Board shall have the right to amend, modify or terminate the
Plan at any time and without notice, provided that no change in the class of
employees eligible to participate in the Plan or the benefits accruing to
Participants under the Plan and, except as provided in Section 11, no increase
in the aggregate number of shares of Stock to be issued under the Plan or the
maximum number of shares of Stock purchasable per Participant during any one
Participation Period shall be effective, unless approved by the vote of the
stockholders of the Company in the manner provided in Section 16.
SECTION 16. SHAREHOLDER APPROVAL.
The Plan and all elections to purchase shares hereunder shall be
void, and all amounts which have been paid toward the Purchase Price of Stock
hereunder shall be refunded without interest, unless the Plan is approved and
ratified by the holders of a majority of the Company's outstanding shares within
12 months before or after the date when the Plan is adopted by the Board. The
provisions of Section 6 notwithstanding, no stock certificates shall be issued
to any Participant until the Plan has been approved and ratified in the above
manner.
The Plan was amended effective March 26, 1996 in order to
increase the reserve of Stock available for issuance under the Plan by an
additional 100,000 shares. The Plan was amended again by the Board on March 31,
1998 in order to increase in the reserve by an additional 125,000 shares. Such
125,000 share increase is subject to stockholder approval at the 1998 Annual
Stockholders Meeting, and no shares of Stock shall be issued under the Plan on
the basis of that increase unless and until such stockholder approval is
obtained.
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SECTION 17. DEFINITIONS.
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as
amended.
(c) "Committee" means the committee of two or more
non-employee Board members appointed from time to time by the Board to
administer the Plan, as provided in Section 3(b).
(d) "Company" means OEC Medical Systems, Inc., a Delaware
corporation which is the successor to Diasonics, Inc.
(e) "Compensation" means the aggregate cash compensation paid
to a Participant by the Participating Companies, including cash bonuses,
commissions, shift differentials, overtime and similar cash payments, but
excluding income recognized in connection with the exercise of stock options and
other noncash items, all as determined by the Committee.
(f) "Eligible Employee" means any employee of a Participating
Company.
(g) "Fair Market Value" shall mean the market price of Stock,
determined by the Committee as follows:
(i) If Stock is traded on a stock exchange on the date
in question, then the Fair Market Value shall be equal to the
closing price reported by the applicable composite-transaction
report for such date.
(ii) If the foregoing provision is inapplicable, then
the Fair Market Value shall be determined by the Committee in
good faith on such basis as it deemed appropriate.
In all cases, the determination of Fair Market Value by the
Committee shall be conclusive and binding on all persons.
(h) "Participant" means an Eligible Employee who elects to
participate in the Plan, as provided in Section 4(a).
(i) "Participating Company" means the Company and such present
or future Subsidiaries as the Board shall designate.
(j) "Participation Period" means a period during which
contributions may be made toward the purchase of Stock under the Plan, as
determined pursuant to Section 2.
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(k) "Plan" means this OEC Medical Systems, Inc. 1993 Employee
Incentive Stock Acquisition Plan.
(l) "Plan Account" means the account established for each
Participant pursuant to Section 6.
(m) "Purchase Price" means the price at which Participants may
purchase Stock under the Plan, as determined pursuant to Section 7.
(n) "Stock" means the Common Stock of the Company, par value
$0.01 per share.
(o) "Subsidiary" means a corporation 50 percent or more of the
total combined voting power of all classes of stock of which is owned, directly
or indirectly, by the Company.
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OEC MEDICAL SYSTEMS, INC.
1998 STOCK OPTION PLAN
ARTICLE ONE
GENERAL PROVISIONS
1. PURPOSE.
This 1998 Stock Option Plan (the "Plan") is intended to provide
key Employees (including Officers and Directors), non-employee Board members and
Consultants of the Company and the Company's Subsidiaries with the opportunity
to acquire an equity interest in the Company and thereby encourage them to
continue to provide services to the Company or the Company's Subsidiaries. The
effective date of this Plan shall be May 20, 1998.
2. DEFINITIONS.
As used herein, the following terms have the meanings indicated:
2.1 "Board" means the Board of Directors of the Company.
2.2 "Code" means the Internal Revenue Code of 1986, as
amended.
2.3 "Committee" means one or more committees of the Board,
each with at least two Board members, which shall assume responsibility for the
administration of one or more functions under the Plan, either to the extent
expressly provided in the Plan or as specifically authorized by Board
resolution.
2.4 "Common Stock" means the common stock of the Company, $.01
par value per share.
2.5 "Company" means OEC Medical Systems, Inc., a Delaware
corporation.
2.6 "Consultant" means any person (other than a Director) or
entity (including any corporation, partnership or limited liability company)
rendering services to the Company or a Subsidiary as an independent contractor
or any person (other than a Director) who is employed by the person or entity
rendering such services or any person or entity (other than a Director) who is
an exclusive independent distributor for the Company or a Subsidiary.
2.7 "Director" means an individual who is a member of the
Board or a member of the board of directors of any Subsidiary.
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2.8 "Employee" means an individual who is employed, within the
meaning of Section 3401 of the Code and the regulations thereunder, as a common
law employee by the Company or one or more Subsidiary corporations, including
any Officer or Director who is so employed, but excluding any Officer or
Director who is not so employed.
2.9 "Employment Termination" means:
(i) In the case of an Employee, the cessation of such
individual's Employee status for any reason without his/her
becoming or continuing as a Consultant or Director; and
(ii) In the case of a Director, the cessation of such
individual's service on the Board for any reason without his/her
becoming or continuing as an Employee or Consultant; and
(iii) In the case of a Consultant, the cessation of such
person's status as a Consultant for any reason without his/her
becoming or continuing as an Employee or Director.
2.10 "Exercise Price" means the price per share at which an
Option may be exercised.
2.11 "Fair Market Value" means the closing price per share of
Common Stock on the relevant determination date on an established stock
exchange, if the Common Stock is listed and traded on such an exchange. If no
sale of Common Stock is made on any such exchange on the date in question, the
Fair Market Value shall be determined by the closing price of the Common Stock
on the next preceding day upon which such a sale shall have occurred.
2.12 "Grant Date" is the date on which (i) the Committee grants
a discretionary Option under Article Two of the Plan, or (ii) an automatic grant
is made to a non-employee member of the Board pursuant to the provisions of
Article Three.
2.13 "Incentive Stock Option" means an Option under Article Two
which meets the requirements of Section 422(b) of the Code. 2.14 "1933 Act"
means the Securities Act of 1933, as amended.
2.15 "1934 Act" means the Securities Exchange Act of 1934, as
amended.
2.16 "Nonstatutory Stock Option" means an Option under Article
Two or Article Three which is not intended to meet the requirements of Section
422(b), 423(b) or 424(b) of the Code.
2.17 "Note" means a full recourse promissory note of an
Optionee.
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2.18 "Officer" means any Employee who is at the time of
determination subject to the short-swing profit restrictions of Section 16 of
the 1934 Act.
2.19 "Option" means, except where the context clearly indicates
otherwise, (i) any discretionary stock option grant made by the Committee
pursuant to Article Two of the Plan or (ii) any automatic stock option grant
made pursuant to the provisions of Article Three.
2.20 "Optionee" means, except where the context clearly
indicates otherwise, (i) an Employee, non-employee Director or Consultant to
whom a discretionary Option has been granted pursuant to Article Two of the Plan
or (ii) a non-employee Director to whom an automatic grant has been made
pursuant to the provisions of Article Three.
2.21 "Permanent Disability" means a disability within the
meaning of Section 22(e)(3) of the Code.
2.22 "Plan" means this OEC Medical Systems, Inc. 1998 Stock
Option Plan, as it may be subsequently amended from time to time.
2.23 "Purchase Price" means, with respect to an Option granted
under Article Two or Article Three, the Exercise Price times the number of
Shares with respect to which such Option is exercised.
2.24 "Shares" means the shares of Common Stock issuable under
the Plan pursuant to Options granted under Articles Two and Three.
2.25 "Subsidiary" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company,
provided each such corporation (other than the last corporation) in the unbroken
chain owns at least 50 percent of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
2.26 "10% Stockholder" means an individual who owns stock
possessing 10% or more of the total combined voting power of all classes of
outstanding stock of the Company or any one of its Subsidiary corporations. In
determining such stock ownership, the following guidelines shall be in effect:
(i) The individual shall be considered to own the stock
owned, directly or indirectly, by or for his/her brothers and
sisters, spouse, ancestors and lineal descendants. Stock owned,
directly or indirectly, by or for a corporation, partnership,
limited liability company, estate or trust shall be considered as
being owned proportionately by or for its stockholders, partners,
members or beneficiaries. Stock with respect to which such
individual holds an Option shall not be counted.
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(ii) "Outstanding stock" shall include all stock actually
issued and outstanding immediately after the grant of an Option
to such individual, but shall not include Shares authorized for
issuance under any Options held by such individual or by any
other person.
3. STRUCTURE OF THE PLAN.
3.1 Stock Programs. The Plan shall be divided into two
separate components: the Discretionary Option Grant Program specified in Article
Two and the Automatic Option Grant Program specified in Article Three. Under the
Discretionary Option Grant Program, eligible Employees, non-employee Directors
(other than those serving as members of the Primary Committee), whether or not
they have previously been in Employee status, and Consultants may, at the
discretion of the Committee, be granted Options to purchase shares of Common
Stock at an Exercise Price equal to or greater than the Fair Market Value of the
shares on the Grant Date. Under the Automatic Option Grant Program, the
non-employee Directors, whether or not they have previously been in Employee
status, will automatically receive periodic option grants to purchase shares of
Common Stock at an Exercise Price equal to the Fair Market Value of the shares
on each automatic Grant Date.
3.2 Applicability. Unless the context clearly indicates
otherwise, the provisions of Articles One and Four of the Plan shall apply to
the Discretionary Option Grant Program and the Automatic Option Grant Program
and shall accordingly govern the interests of all individuals under the Plan.
4. STOCK.
4.1 Number of Shares. The Shares of Common Stock issuable
under the Plan shall be shares of the Company's authorized but unissued Common
Stock or Shares of Common Stock reacquired by the Company. Subject to the
provisions of Section 4.4 of this Article One, the maximum aggregate number of
Shares available for issuance under the Plan is 300,000 Shares, plus an annual
increase to be made on the last day of the immediately preceding fiscal year
equal to the lesser of (a) 2 1/2 % of the Issued Shares (as defined below) on
such date, (b) 500,000 shares, or (c) an amount determined by the Board. "Issued
Shares" shall mean the number of Shares of Common Stock of the Company
outstanding on such date plus any Shares reacquired by the Company during the
fiscal year that ends on such date.
4.2 Share Limitation. No one person participating in the Plan
may receive Options or separately exercisable stock appreciation rights for more
than 150,000 shares of Common Stock in the aggregate per calendar year, except
that such limit shall be increased to 250,000 shares of Common Stock for the
calendar year in which such person receives his/her initial Option grant under
the Plan.
4.3 Reissuances. In the event that any outstanding Option for
any reason expires or is terminated, whether or not pursuant to the
cancellation-regrant
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OEC MEDICAL SYSTEMS, INC. 1998 STOCK OPTION PLAN
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provisions of Section 2 of Article Two, the Shares allocable to the unexercised
portion of such Option may be made the subject of subsequent Option grants under
this Plan. Shares subject to any Option or portion thereof surrendered or
canceled in accordance with Section 1.8(b) of Article Two or Section 3.2 of
Article Three and all Share issuances under the Plan, whether or not such Shares
are subsequently repurchased by the Company pursuant to its repurchase rights
under Article Two, shall reduce on a share-for-share basis the number of shares
of Common Stock available for subsequent Option grants under this Plan, except
that if Shares are repurchased by the Company at their original purchase price
and the original purchaser did not receive any benefits of ownership of such
Shares, such Shares shall become available for future grant under the Plan. In
addition, should the Purchase Price of an outstanding Option exercised under the
Plan be paid with shares of Common Stock or should shares of Common Stock be
withheld by the Company in satisfaction of the withholding taxes incurred by the
Optionee in connection with the acquisition or vesting of Shares issued under
the Plan, then the number of shares of Common Stock available for issuance under
the Plan shall be reduced by the gross number of Shares for which the Option is
exercised, and not by the net number of Shares of Common Stock actually issued
to the Optionee.
4.4 Adjustments. Subject to any required action by
stockholders, in the event of any increase or decrease in the number of the
Company's outstanding shares of Common Stock resulting from a subdivision or
consolidation of such shares or the payment of a stock dividend (but only of
Common Stock), a rights offering covering shares of 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, the Primary Committee may, in
its discretion, make proportionate adjustments to:
(i) the maximum number of Shares which may be issued
pursuant to this Plan,
(ii) the maximum number of Shares for which any one
person may receive Option grants and separately exercisable stock
appreciation rights per calendar year pursuant to this Plan, and
(iii) the number of Shares purchasable under each Option
outstanding under the Discretionary Option Grant Program and the
Exercise Price payable per share thereunder.
Upon the occurrence of any of the foregoing Section 4.4
transactions affecting the Common Stock issuable under the Plan, the following
adjustments shall automatically be made to the Automatic Option Grant Program
and the outstanding grants thereunder:
(i) the number of Shares for which automatic option
grants are to made per non-employee Board member at each
subsequent Annual Stockholders Meeting shall be proportionately
adjusted to reflect the effect
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of the Section 4.4 transaction upon the Company's outstanding
Common Stock, and
(ii) the number of Shares purchasable under each Option
outstanding under the Automatic Option Grant Program and the
Exercise Price payable per share thereunder shall be
proportionately adjusted to reflect the effect of the Section 4.4
transaction and thereby preclude any dilution or enlargement of
rights under such Option.
5. ADMINISTRATION OF THE PLAN.
5.1 Committees. Except to the limited extent provided below,
the Plan shall be administered solely and exclusively by one or more Committees
appointed by the Board and comprised of at least two members of the Board. Each
member of the primary Committee ("Primary Committee") shall be a "disinterested
person" within the meaning of SEC Rule 16b-3(c)(2)(i) under the 1934 Act. The
Primary Committee shall have sole and exclusive authority to grant Options under
Article Two to individuals who are at the time either Officers or Directors.
Individuals who are not at the time either Officers or Directors may be granted
Options under Article Two by the Primary Committee, by a secondary Committee of
two or more Board members or by the Board. Administration of the automatic
option grant provisions of Article Three of the Plan shall be self-executing in
accordance with the terms and conditions of such Article Three, and neither the
Board, the Primary Committee nor any secondary Committee shall exercise any
discretionary functions with respect to the Option grants made pursuant to those
provisions of the Plan.
5.2 Procedures. The Board shall appoint the members of each
Committee and may from time to time remove one or more of such members.
Vacancies on any Committee however caused shall be filled by the Board. Each
Committee shall appoint one of its members as chairman and shall hold meetings
at such times and places as it may determine. Acts of a majority of the members
of the Committee at a meeting at which a quorum is present, or acts approved in
writing by all of the Committee members, shall be valid acts of the Committee.
5.3 Interpretation. All questions of interpretation,
construction, implementation and application of the Plan shall be determined by
the Primary Committee. Such determinations shall be final and binding on all
persons. No member of any Committee or the Board shall be liable for any act or
omission with respect to the Plan or any Option granted or any Shares issued
pursuant hereto, provided such member acted (or failed to act) in good faith.
6. PARTICIPATION.
6.1 Selection. The applicable Committee shall, from time to
time at its discretion, select (from among the eligible individuals specified
below) the persons who are to be granted Options ("Optionees") under Article
Two, establish the number of
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Shares subject to each such grant, and determine whether any Options granted
under Article Two are to be Incentive Stock Options or Nonstatutory Stock
Options (except that no Incentive Stock Option may be granted to any person who
is not an Employee).
6.2 Eligibility. The persons eligible to participate in the
Discretionary Option Grant Program shall be limited to Employees (including
Officers or Directors), non-employee Directors (other than individuals at the
time serving as members of the Primary Committee), whether or not he/she has
previously been in Employee status, and Consultants (including employees of
Consultants). Non-employee Directors serving as members of the Primary Committee
shall not, during such period of service, be eligible to participate in the
Discretionary Option Grant Program. However, each non-employee Director serving
on the Primary Committee and each of the other non-employee Directors shall be
eligible to receive automatic Option grants pursuant to the provisions of
Article Three, whether or not he/she has previously been in Employee status.
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
1. TERMS AND CONDITIONS OF OPTIONS.
1.1 Option Agreements. Discretionary Option grants made by the
Committee pursuant to this Article Two shall be evidenced by written stock
option agreements ("Option Agreements") in such form as the Primary Committee
shall from time to time determine. The Option Agreements shall comply with and
be subject to the terms and conditions set forth below. Except as the Committee
authorizing the grant may otherwise determine, any Option granted under this
Article Two shall cease to be effective unless the Optionee returns a
duly-executed Option Agreement to the Company within sixty (60) days after such
agreement is sent to the Optionee. Waiver of the 60-day return requirement with
respect to one or more Optionees shall not constitute a waiver with respect to
any other Optionee. To the extent an Option is granted to a person who is not an
Employee, non-employee Director or Consultant at the time of grant, such grant
shall not become effective until such person becomes an Employee, Director or
Consultant and shall terminate in the event such person does not become an
Employee, Director or Consultant within the time period specified by the
Committee authorizing the grant.
1.2 Minimum Service Period. Except as otherwise specified in
Section 1.8 of this Article Two, no Option granted under this Article Two shall
become exercisable unless and until the Optionee renders services as an
Employee, non-employee Board member or Consultant for the minimum period which
the Committee authorizing the grant specifies in the Option Agreement, but such
Option Agreement shall not impose upon the Company or its Subsidiaries any
obligation to retain the Optionee as an Employee, non-employee Board member or
Consultant for any period of specific duration.
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1.3 Number of Shares. Each Option shall state the number of
Shares to which it pertains (the "Option Shares") and shall provide for the
adjustment thereof in accordance with the provisions of Section 4.4 of Article
One.
1.4 Exercise Price. The following provisions shall be in
effect for establishing the Exercise Price for each granted Option:
(i) The Exercise Price shall not be less than the Fair
Market Value of the Option Shares on the Grant Date (or on such
other date as may be required by law if the Option is intended to
be an Incentive Stock Option) and shall be set forth in the
Option Agreement.
(ii) If any Optionee is on the Grant Date a 10%
Stockholder, then the Exercise Price shall not be less than one
hundred and ten percent (110%) of the Fair Market Value of the
Option Shares on the Grant Date.
1.5 Limitation on Exercisability. The aggregate Fair Market
Value (determined as of the respective date or dates of grant) of the Common
Stock for which one or more Options granted to any Optionee under this Article
Two (or any other option plan of the Company or its parent or Subsidiary
corporations) may for the first time become exercisable as incentive stock
options under the Federal tax laws during any one calendar year shall not exceed
the sum of One Hundred Thousand Dollars ($100,000). To the extent the Optionee
holds two or more such Options which become exercisable for the first time in
the same calendar year, the foregoing limitation on the exercisability thereof
as incentive stock options under the Federal tax laws shall be applied on the
basis of the order in which such Options are granted.
1.6 Payment. The Purchase Price shall become immediately due
upon exercise of the Option and shall be payable in one of the following forms:
(i) full payment in cash or cash equivalents;
(ii) full payment in shares of Common Stock held by the
Optionee for the requisite period necessary to avoid a charge to
the Company's earnings for financial reporting purposes and
valued at Fair Market Value on the date of exercise;
(iii) full payment through a combination of shares of
Common Stock held for the requisite period necessary to avoid a
charge to the Company's earnings for financial reporting purposes
and valued at Fair Market Value on the date of exercise and cash
or cash equivalents;
(iv) in the discretion of the Committee authorizing the
grant, pursuant to a Note executed by the Optionee, provided such
individual is an Employee;
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OEC MEDICAL SYSTEMS, INC. 1998 STOCK OPTION PLAN
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(v) on a partly-paid basis in accordance with the
applicable provisions of Delaware law; or
(vi) full payment through a broker-dealer sale and
remittance procedure pursuant to which the Optionee (I) shall
provide irrevocable written instructions to a Company-designated
brokerage firm to effect the immediate sale of the purchased
Shares and to remit to the Company out of the sale proceeds
available on the settlement date, an amount equal to the Purchase
Price payable for the purchased Shares plus all applicable
Federal and state income and employment taxes and (II) shall
provide written directives to the Company to deliver the
certificates for the purchased Shares directly to such brokerage
firm in order to complete the sale transaction.
The interest rate and other terms and conditions of any Note or
partly-paid issuance shall be determined by the authorizing Committee in its
sole discretion; provided, however, that such Note shall be a full-recourse
obligation of the Optionee and shall not have a maximum term in excess of one
(1) year. The Note shall bear interest at the minimum rate required by the
Federal tax laws to avoid the imputation of interest income to the Company and
compensation income to the Optionee. The Company may require the Optionee to
pledge to the Company any or all of the Shares acquired upon exercise of the
Option as security for payment of the Note and execute an assignment separate
from certificate with respect to the pledged Shares. The Company (or a
pledgeholder selected by it) may retain possession of the stock certificate(s)
representing the pledged Shares and the assignment separate from certificate in
order to perfect such security interest.
1.7 Term and Non-Transferability. Each Option shall state the
time or times when it is to become exercisable for the Option Shares. No Option
shall be exercisable after the expiration of ten (10) years from the Grant Date,
and no Option granted to a 10% Stockholder shall have a term in excess of five
(5) years from the Grant Date. During the lifetime of the Optionee, the Option,
together with any stock appreciation rights pertaining to such Option, shall be
exercisable only by the Optionee and shall not be assignable or transferable. In
the event of the Optionee's death, neither the Option nor any stock appreciation
rights pertaining to such Option shall be transferable by the Optionee other
than by will or by the laws of descent and distribution.
1.8 Acceleration of Vesting/Stock Appreciation Rights.
(a) Provided (i) a period of six (6) months shall have elapsed
from the Grant Date of the Option and (ii) the Optionee is at the time of
exercise an active Consultant, Employee or Director, then such Optionee shall
have the right (without regard to the normal vesting schedule set forth in the
Option Agreement) to exercise such Option in whole or in part for fully-vested
Shares:
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OEC MEDICAL SYSTEMS, INC. 1998 STOCK OPTION PLAN
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(i) Within thirty (30) days following loss of Employee,
Consultant, or Director status due to the consummation of any
transaction which (I) is approved by the stockholders of the
Company in which the Company will cease to be an independent
corporation (including, without limitation, a reverse merger
transaction in which the Company becomes the subsidiary of
another corporation) or the sale or other disposition of all or
substantially all of the assets of the Company, and (II) caused
the Optionee to lose his/her status as an Employee, Consultant,
or Director within one year after the closing date of such
transaction;
(ii) Within thirty (30) days following the first date on
which there is a change in the composition of the Board effected
through one or more contested elections for Board membership such
that less than two thirds of the individual members of the Board
(determined by rounding up to the next whole number) is comprised
of individuals who: (A) were Directors of the Company on a date
three (3) years prior to the date of such change or (B) were
elected or nominated for election as such Directors during the
intervening three (3)-year period by affirmative vote of at least
a majority of those Directors described in clause (A) above who
were still in office as of the date the Board approved such
election or nomination;
(iii) Within thirty (30) days after any "person" (as such
term is used in Sections 13(d) and 14(d) of the 1934 Act) or any
related group of persons (other than such a group that includes
the Company) acquires beneficial ownership of (A) 40% or more of
the outstanding Common Stock pursuant to a tender or exchange
offer that the Board does not recommend the stockholders to
accept or (B) 50% or more of the outstanding Common Stock in a
single transaction or in a series of related transactions; or
(iv) Within the thirty (30)-day period ending with the
effective date of any dissolution or liquidation of the Company
or any merger or consolidation in which the Company is not the
surviving corporation (except for a transaction the principal
purpose of which is to change the state of the Company's
incorporation), but not earlier than the date on which any
required stockholder approval is obtained.
If the accelerated Option is not exercised during the applicable
30-day period described in subparagraph (i) or (iv) above, then such Option
shall terminate at the close of business on the last day of such 30-day period,
unless such Option is assumed by the successor corporation or its parent. Should
an outstanding Option not qualify for acceleration under subparagraph (i) or
(iv), then such Option shall be subject to adjustment under Section 3.1 of this
Article Two, to the extent such Option is to continue in effect after the
subparagraph (i) or (iv) transaction. The Primary Committee shall have full
power and authority to extend (either at the time of the Option grant or at
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OEC MEDICAL SYSTEMS, INC. 1998 STOCK OPTION PLAN
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any time prior to the acceleration event) the period of time for which the
Option is to remain exercisable following the occurrence of any acceleration
event described in subparagraph (i) through (iii) above from the thirty (30)-day
period specified in such subparagraph to such greater period of time as the
Primary Committee shall deem appropriate.
(b) In the sole discretion of the Primary Committee, a stock
appreciation right ("SAR") may be granted in connection with all or any part of
an Option granted under this Article Two, either at the time of such Option
grant or at any time thereafter during the term of the Option. The SAR shall
give the Optionee the right to surrender all or part of the Option subject to
the SAR during any of the 30-day periods described in subparagraphs (i) through
(iv) of paragraph (a) above (provided and only if a period of at least six (6)
months shall have elapsed from the Grant Date of such Option) and thereby to
obtain payment in cash from the Company of an amount equal to the difference
obtained by subtracting the aggregate Exercise Price of the Option Shares
subject to the portion of the Option surrendered from the Fair Market Value of
such Option Shares on the date of such surrender. In the case of an SAR
exercised during either of the 30-day periods described in subparagraphs (i) and
(iv) of paragraph (a) above, "Fair Market Value" shall be deemed to be equal to
the greater of (A) the value of the consideration per share that the Optionee
would have received in connection with the subparagraph (i) or (iv) transaction
as a stockholder of the Company if he/she had exercised the Option (or part
thereof) prior to the consummation of such transaction or (B) the Fair Market
Value determined in good faith by the Primary Committee (as composed on the day
preceding the date of consummation of the subparagraph (i) or (iv) transaction),
taking into consideration all relevant facts and circumstances. When an SAR is
exercised, the underlying Option, to the extent surrendered, shall no longer be
exercisable. An SAR may only be exercised when the Fair Market Value of the
underlying Option Shares exceeds the Exercise Price payable for such shares. For
purposes of Section 4 of Article One of the Plan, the exercise of an SAR shall
be deemed to be an exercise of the underlying Option, and the number of Shares
subject to such Option shall not be available for subsequent Option grants under
the Plan.
1.9 Employment Termination (Except by Death or Permanent
Disability). If an Optionee's Employment Termination occurs for any reason other
than death or Permanent Disability, any outstanding Option held by such Optionee
under this Article Two shall not remain exercisable for more than a ninety
(90)-day period following the date of such Employment Termination; provided,
however that under no circumstances shall such Option be exercisable after the
specified expiration date of the option term. During such limited exercise
period, the Option may not be exercised for more than that number of vested
Shares (if any) for which the Option is exercisable at the time of the
Optionee's Employment Termination. Upon the expiration of such limited exercise
period or (if earlier) upon the expiration of the option term, the Option shall
terminate and cease to be exercisable. In the case of an Optionee who is an
Employee, no Employment Termination shall occur while such Employee is on
military leave, sick leave or other bona fide leave of absence (to be determined
in the sole discretion of the Committee authorizing the grant). The foregoing
notwithstanding, in
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the case of an Incentive Stock Option, Employment Termination shall be deemed to
have occurred on the ninetieth (90th) day after the Employee ceases active
Employee status, unless the Employee's reemployment rights are guaranteed by
statute or contract.
1.10 Death or Permanent Disability of Optionee. If an
Optionee's Employment Termination occurs by reason of death or Permanent
Disability, then any Option held by such Optionee under this Article Two may be
exercised, for up to that number of vested Shares (if any) for which the Option
is exercisable on the date of such Employment Termination, at any time prior to
the earlier of (i) twelve months (or such shorter period as the Committee may
have specified in the Option Agreement) after the date of the Optionee's death
or Permanent Disability or (ii) the specified expiration date of the option
term. In the case of the Optionee's death, the exercise may be made by the
executors or administrators of the Optionee's estate or by any person or persons
who have acquired the Option directly from the Optionee by bequest or
inheritance, but only to the extent that the Option has not previously been
exercised.
1.11 Conditions on Exercise. An Option shall be exercisable at
such time or times as the Committee authorizing the grant shall specify in the
Option Agreement and the Shares acquired upon exercise of the Option shall be
subject to such restrictions (including repurchase rights of the Company or
first refusal restrictions) as the Committee may specify in such Option
Agreement or any related stock purchase agreement.
1.12 Stockholder Rights. An Optionee (or a transferee of an
Optionee) shall have no stockholder rights with respect to any Shares covered by
the Option until such individual shall have exercised the Option, paid the
Purchase Price and been issued a stock certificate for the purchased Shares. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property), distributions or other rights for which the
record date is prior to the date such stock certificate is issued, except as may
otherwise be provided in Section 4.4 of Article One.
1.13 Modification, Extension and Renewal of Options. Within the
limitations of the Plan, the Primary Committee may, without the consent of the
Optionees, modify, extend or renew one or more outstanding Options or cancel
outstanding Options (to the extent not previously exercised), whether or not in
exchange for the grant of new Options in substitution therefor.
1.14 Method of Exercise. Subject to all of the provisions
hereof, an Option may be exercised from time to time in whole or in part (to the
extent exercisable) by delivery of a written notice to the Company setting forth
the number of Shares with respect to which the Option is being exercised. The
notice shall specify the address to which stock certificates for the purchased
Shares should be mailed and shall be accompanied by payment of the Purchase
Price (unless the sale and remittance procedure of clause (vi) of Section 1.6 of
this Article Two is utilized in connection with the Option exercise) and any
documents required pursuant to the last paragraph of such Section 1.6. Within a
reasonable time after receipt of such written notice and payment,
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the Company shall cause the stock certificates for the purchased Shares to be
delivered to or on behalf of the Optionee.
1.15 Other Provisions. The Option Agreements authorized under
the Plan may contain such other provisions not inconsistent with the terms of
the Plan as the Committee authorizing the grant shall deem advisable.
2. CANCELLATION AND NEW GRANT OF OPTION.
2.1 The Primary Committee shall have the authority to effect,
at any time and from time to time, the cancellation of any or all outstanding
Options under this Article Two and to grant in substitution therefor new Options
under this Article Two covering the same or different numbers of shares of
Common Stock but with an Exercise Price not less than one hundred percent (100%)
of the Fair Market Value of the Option Shares on the new Grant Date (or, in the
case of a 10% Stockholder, not less than one hundred ten percent (110%) of such
Fair Market Value).
3. SPECIAL ADJUSTMENTS.
3.1 Transactions. Subject to the acceleration and termination
provisions of Section 1.8(a) of this Article Two and any required stockholder
action, should the Company be a party to any merger or consolidation, each
continuing or assumed Option under this Article Two shall pertain and apply to
the securities which a holder of the number of Shares subject to the Option
would have been entitled to receive in consummation of such merger or
consolidation, with such appropriate adjustment in the Exercise Price as may be
determined by the Primary Committee. Appropriate adjustments shall also be made
to (i) the maximum number and kind of securities which may be issued pursuant to
this Article Two and (ii) the maximum number and kind of securities for which
any one person may be granted Options and separately exercisable stock
appreciation rights per calendar year under the Plan. Upon the dissolution or
liquidation of the Company, each outstanding Option under this Article Two
shall, subject to the acceleration provisions of Section 1.8(a) of this Article
Two, terminate on the effective date of such dissolution or liquidation.
3.2 Limitation.
(a) To the extent that the foregoing adjustments of this
Section 3 relate to securities of the Company, such adjustments shall be made by
the Primary Committee, whose determination shall be conclusive and binding on
all persons. Except as expressly provided in Section 4.4 of Article One and
Section 1.8 of this Article Two:
(i) the Optionee shall have no rights by reason of any
subdivision or consolidation of shares of stock of any class, the
payment of any stock dividend or any other increase or decrease
in the number of shares of stock of any class or by reason of any
dissolution, liquidation,
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merger or consolidation or spin-off of assets or stock of another
corporation; and
(ii) 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 of Shares or Exerecise Price
subject to an outstanding Option. (b) The grant of an Option
pursuant to this Article Two shall not affect in any way the
right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or
business structure, to merge or consolidate or to dissolve,
liquidate, sell or transfer all or any part of its business or
assets.
4. SPECIAL POWERS.
4.1 Acceleration. The Committee granting the Option shall have
complete discretion, exercisable either at the time the Option grant is made
under this Article Two or at any time while the Option remains outstanding, to
provide that the Option shall, within the limited period following the
Optionee's Employment Termination during which the Option is to remain
exercisable in accordance with the applicable provisions of Section 1.9 or 1.10
of this Article Two, be exercisable not only with respect to the number of
Option Shares for which it is exercisable at the time of such Employment
Termination but also with respect to one or more subsequent installments of
Option Shares for which the Option would otherwise have become exercisable had
the Optionee's Employment Termination not occurred.
4.2 Extension of Exercise Period. The Committee granting the
Option shall have full power and authority to extend the period of time for
which the Option is to remain exercisable following the Optionee's Employment
Termination from the applicable period specified in Section 1.9 or 1.10 of this
Article Two to such greater period of time as the Committee shall deem
appropriate; provided, however, that in no event shall such Option be
exercisable after the specified expiration date of the option term.
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
1. ELIGIBILITY.
1.1 Eligible Optionees. The individuals eligible to receive an
automatic Option grant pursuant to the provisions of this Article Three shall be
limited to the following:
(i) Each individual who is elected or reelected as a
non-employee member of the Board at any Annual Stockholders
Meeting beginning with the 1998 Annual Stockholders Meeting; and
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(ii) Each individual who is appointed or elected as a
non-employee Board member at any time after the 1998 Annual
Stockholders Meeting but other than at an Annual Stockholders
Meeting.
An individual who satisfies the criteria of clause (i) or (ii)
above shall be designated an Eligible Board Member for purposes of this Article
Three.
1.2 Limitation. Except for the Option grants to be made
pursuant to the provisions of this Automatic Option Grant Program and any other
grants or issuances otherwise permitted without loss of disinterested person
status under SEC Rule 16b-3(c)(2)(i) under the 1934 Act, non-employee Directors
serving as members of the Primary Committee shall not, during such period of
service, be eligible to receive any additional Option grants or Share issuances
under this Plan or any other stock plan of the Company or its Subsidiary
corporations.
2. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS.
2.1 Grant Date. On the date of each Annual Stockholders
Meeting, beginning with the 1998 Annual Stockholders Meeting, each individual
who is at such time elected or re-elected as an Eligible Board Member shall
automatically be granted, on the date of such Annual Stockholders Meeting, a
Nonstatutory Stock Option to purchase 3,000 shares of Common Stock upon the
terms and conditions of this Article Three. Should an individual be appointed or
elected as an Eligible Board Member at any time after the 1998 Annual
Stockholders Meeting but other than at an Annual Stockholders Meeting, then such
individual shall automatically be granted, at the time of such election or
appointment, a Nonstatutory Stock Option to purchase 3,000 shares of Common
Stock upon the terms and conditions of this Article Three; provided, however,
that any such individual shall not be eligible to receive his/her next automatic
Option grant under this Article Three until the first Annual Stockholders
Meeting which is at least six (6) months after the date of the initial automatic
Option grant made to such individual. The 3000-share limitation per annual
automatic Option grant to each Eligible Board Member shall be subject to
periodic adjustment pursuant to the applicable provisions of Section 4.4 of
Article One. The number of shares of Common Stock for which a Nonstatutory Stock
Option is granted to an Eligible Board Member under this Automatic Option Grant
Program with respect to a particular election, reelection, or appointment of
such Eligible Board Member to the Board shall be reduced, on a share-for-share
basis, by the number of shares of Common Stock, if any, for which a Nonstatutory
Stock Option is granted to that Eligible Board Member with respect to that
particular election, reelection or appointment to the Board under the Company's
1990 Stock Option/Stock Purchase Plan.
2.2 Exercise Price. The Exercise Price per share shall be
equal to one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the automatic grant date.
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2.3 Payment. The Exercise Price shall become immediately due
upon exercise of the Option and shall be payable in one of the alternative forms
specified below:
(i) full payment in cash or check made payable to the
Company's order; or
(ii) full payment in shares of Common Stock held for the
requisite period necessary to avoid a charge to the Company's
reported earnings and valued at Fair Market Value on the Exercise
Date (as such term is defined below); or
(iii) full payment in a combination of shares of Common
Stock held for the requisite period necessary to avoid a charge
to the Company's reported earnings and valued at Fair Market
Value on the Exercise Date and cash or check payable to the
Company's order; or
(iv) full payment through a broker-dealer sale and
remittance procedure pursuant to which the Optionee (I) shall
provide irrevocable written instructions to a Company-designated
brokerage firm to effect the immediate sale of the purchased
Shares and to remit to the Company out of the sale proceeds
available on the settlement date, an amount equal to the
aggregate Exercise Price payable for the purchased Shares and
(II) shall provide written directives to the Company to deliver
the certificates for the purchased Shares directly to such
brokerage firm in order to complete the sale transaction.
The Exercise Date shall be the date on which written notice of
the exercise of the Option is delivered to the Company. Except to the extent the
sale and remittance procedure of clause (iv) above is utilized in connection
with such exercise of the Option, payment of the Exercise Price for the
purchased Shares must accompany the exercise notice.
2.4 Option Term. Each granted Option under this Article Three
shall have a maximum term of ten (10) years measured from the automatic grant
date.
2.5 Exercisability. The Option shall become exercisable for
the Option Shares in a series of three (3) successive equal annual installments
upon the Optionee's completion of each year of Board service over the three
(3)-year period measured from the automatic grant date.
2.6 Non-Transferability. During the lifetime of the Optionee,
the Option, together with any stock appreciation rights pertaining to such
Option, shall be exercisable only by the Optionee and shall not be assignable or
transferable by the Optionee, except for a transfer of the Option by will or by
the laws of descent and distribution following the Optionee's death.
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2.7 Effect of Termination of Board Service.
(a) Should the Optionee cease to serve as a Board member for
any reason (other than death) while holding one or more automatic Option grants
under this Automatic Option Grant Program, then such Optionee shall have up to a
six (6) month period following the date of such cessation of Board service in
which to exercise each such Option for any or all of the shares of Common Stock
for which the Option is exercisable at the time Board service ceases.
(b) Should the Optionee die while holding one or more
outstanding automatic Option grants under this Automatic Option Grant Program,
then each such Option may subsequently be exercised, for any or all of the
shares of Common Stock for which the Option is exercisable at the time of the
Optionee's cessation of Board service, by the personal representative of the
optionee's estate or by the person or persons to whom the Option is transferred
pursuant to the optionee's will or in accordance with the laws of descent and
distribution. Any such exercise must, however, occur within twelve (12) months
after the date of the Optionee's death.
(c) In no event shall any Option granted under this Automatic
Option Grant Program remain exercisable after the specified expiration date of
the ten (10)-year option term. Upon the expiration of the applicable exercise
period specified in subparagraphs (a) and (b) above or (if earlier) upon the
expiration of the ten (10) year option term, such Option shall terminate and
cease to be exercisable.
2.8 Stockholder Rights. The holder of an automatic Option
grant under this Automatic Option Grant Program shall have none of the rights of
a stockholder with respect to any Shares covered by such Option until such
individual shall have exercised the Option, paid the Exercise Price and been
issued a stock certificate for the purchased Shares. No adjustment shall be made
for dividends (ordinary or extraordinary, whether in cash, securities or other
property), distributions or other rights for which the record date is prior to
the date such stock certificate is issued, except as may otherwise be provided
in Section 4.4 of Article One.
2.9 Remaining Terms. The remaining terms and conditions of
each automatic Option grant shall be as set forth in the prototype Nonstatutory
Stock Option Agreement attached as Exhibit A to this Plan.
3. CHANGE IN CONTROL.
3.1 Acceleration of Vesting.
(a) Each automatic Option grant which has been outstanding
under this Automatic Option Grant Program for a period of at least six (6)
months and which is not otherwise at the time fully exercisable for all the
Option Shares shall automatically accelerate in full immediately prior to the
specified effective date for any Change in
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Control event identified below and shall thereupon become exercisable for any or
all of the Shares at the time subject to such Option.
(b) For purposes of this Automatic Option Grant Program, a
Change in Control shall be deemed to occur upon:
(i) the consummation of any transaction which (I) is
approved by the stockholders of the Company in which the Company
will cease to be an independent corporation (including, without
limitation, a reverse merger transaction in which the Company
becomes the subsidiary of another corporation) or the sale or
other disposition of all or substantially all of the assets of
the Company, and (II) caused the Optionee to lose his/her status
as an Eligible Board Member within one year after the closing
date of the transaction;
(ii) the first date on which there is a change in the
composition of the Board effected through one or more contested
elections for Board membership such that less than two thirds of
the individual members of the Board (determined by rounding up to
the next whole number) is comprised of individuals who: (A) were
Directors of the Company on a date three (3) years prior to the
date of such change or (B) were elected or nominated for election
as such Directors during the intervening three (3)-year period by
affirmative vote of at least a majority of those Directors
described in clause (A) above who were still in office as of the
date the Board approved such election or nomination;
(iii) the acquisition by any "person" (as such term is
used in Sections 13(d) and 14(d) of the 1934 Act) or any related
group of persons (other than such a group that includes the
Company) of beneficial ownership of (A) 40% or more of the
outstanding Common Stock pursuant to a tender or exchange offer
that the Board does not recommend the stockholders to accept or
(B) 50% or more of the outstanding Common Stock in a single
transaction or in a series of related transactions; or
(iv) any dissolution or liquidation of the Company or
any merger or consolidation in which the Company is not the
surviving corporation (except for a transaction the principal
purpose of which is to change the state of the Company's
incorporation), but not earlier than the date on which any
required stockholder approval is obtained.
Each accelerated Option under this Section 3.1 shall, except to
the extent assumed by the successor entity, terminate on the effective date of
the subparagraph (i) or (iv) Change in Control event or thirty (30) days after
the occurrence of the subparagraph (ii) or (iii) Change in Control event (other
than a subparagraph (iii) Change in Control triggering the immediate
cancellation of the Option under Section 3.2(a)) and shall thereupon cease to be
exercisable. Options which do not qualify for
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acceleration upon the occurrence of a subparagraph (i) or (iv) Change in Control
event shall be subject to adjustment under Section 5.1 of this ArticleThree, to
the extent they continue in effect or are assumed in connection with that Change
in Control event.
(c) The automatic Option grants outstanding under this
Automatic Option Grant Program shall in no way affect the right of the Company
to adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.
3.2 Stock Appreciation Right.
(a) Upon the consummation of a Change in Control event of the
type specified in clause (A) of subparagraph (iii) of Section 3.1(b) of this
Article Three, each automatic Option granted under this Automatic Option Grant
Program and outstanding for a period of at least six (6) months shall, to the
extent such Option is at the time held by an Eligible Board Member, be
automatically canceled, and such Eligible Board Member shall in return receive
an appreciation distribution from the Company in an amount equal to the excess
of (i) the Change in Control Price of the shares of Common Stock at the time
subject to the cancelled Option over (ii) the aggregate Exercise Price payable
for such Shares. For purposes of such appreciation distribution, the Change in
Control Price per share shall be deemed to be equal to the greater of (a) the
Fair Market Value per share on the date of the Option cancellation or (b) the
highest reported price per share paid by the tender offeror in effecting the
hostile Change in Control. In no event, however, shall any Option be cancelled
pursuant to the foregoing provisions of this subparagraph, unless more than
fifty percent (50%) of the Common Stock which is acquired in such hostile Change
in Control is purchased from persons other than officers or directors of the
Company subject to Section 16(b) of the 1934 Act.
(b) All appreciation distributions under this Section 3.2
shall be made entirely in cash, and neither the approval of the Primary
Committee or the Board shall be required in connection with the option surrender
or option cancellation and the resulting cash distribution. The shares of Common
Stock subject to each surrendered or cancelled Option shall not be available for
subsequent issuance under this Plan.
4. AMENDMENT OF THE AUTOMATIC GRANT PROVISIONS.
4.1 Limited Amendments. The provisions of this Automatic
Option Grant Program, together with the outstanding option grants under such
program, may not be amended more than once every six (6) months other than to
comply with applicable Federal income tax laws and regulations.
5. SPECIAL ADJUSTMENTS.
5.1 Transactions. Subject to the acceleration and termination
provisions of Section 3.1(a) of this Article Three, should the Company be a
party to any merger or consolidation, each continuing or assumed Option under
this Article Three
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shall pertain and apply to the securities which a holder of the number of Shares
subject to the Option would have been entitled to receive in consummation of
such merger or consolidation, with such appropriate adjustment in the Exercise
Price as may be necessary to preclude the dilution or enlargement of benefits
thereunder. Appropriate adjustments shall also be made to the aggregate number
and kind of securities which may subsequently be issued pursuant to this Article
Three. Upon the dissolution or liquidation of the Company, each outstanding
Option under this Article Three shall, subject to the acceleration provisions of
Section 3.1(a) of this Article Three, terminate on the effective date of such
dissolution or liquidation.
ARTICLE FOUR
MISCELLANEOUS
1. REQUIREMENTS OF LAW.
1.1 Legality of Issuance. The Company shall not be required to
grant any Option under the Plan or to issue or sell Shares upon the exercise of
any such Option and shall not have any liability for its failure to do so if, in
the opinion of the Company and the Company's counsel, such grant, issuance or
sale could reasonably constitute a violation by the Company of any provision of
law, including (without limitation) any provision of the 1933 Act or any state
securities law.
Restrictions on Transfer; Representations of Optionee. Regardless of
whether the grant of Options and the sale of Shares pursuant thereto
have been registered under the 1933 Act or have been registered or
qualified under the securities laws of any state, the Company may impose
restrictions upon the sale, pledge or other transfer of the granted
Options or the issued Shares (including the placement of appropriate
legends on stock certificates) if, in the judgment of the Company and
the Company's counsel, such restrictions are necessary or desirable in
order to achieve compliance with the provisions of the 1933 Act, the
securities laws of any state, or any other law. In the event that the
grant of Options or the sale of Shares is not registered under the 1933
Act, but an exemption is available which requires an investment
representation or other representations, each Optionee will be required
to represent that the granted Option or the Shares issued pursuant
thereto are being acquired for investment and not with a view to the
sale or distribution thereof, and to make such other representations as
are deemed necessary or appropriate by the Company and the Company's
counsel. Any determination by the Company and the Company's counsel in
connection with any of the matters set forth in this Section 1.2 shall
be final and binding on all persons.
1.2 Registration or Qualification of Securities. The Company
may, but shall not be obligated to, register, perfect an exemption for, or
qualify the grant of Options and the issuance of Shares under the 1933 Act or
any other applicable law, or
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list the Shares on any securities exchange. The Company shall not be obligated
to take any affirmative action in order to cause the grant of Options or the
issuance and sale of Shares pursuant thereto to comply with any securities laws.
1.3 Exchange of Certificates. If, in the opinion of the
Company and the Company's counsel, any legend placed on a stock certificate
representing Shares is no longer required, the holder of such certificate shall
be entitled to exchange the certificate for a certificate representing the like
number of Shares lacking the legend.
2. TAX WITHHOLDING.
2.1 Withholding Requirements. The Company's obligation to
deliver Shares upon the exercise or surrender of Options or SARs under Article
Two or Article Three shall be subject to the satisfaction of all applicable
Federal, state and local income and employment tax withholding requirements.
2.2 Withholding of Shares. The Primary Committee may, in its
discretion and upon such terms and conditions as it may deem appropriate
(including the applicable safe-harbor provisions of SEC Rule 16b-3 or any
successor rule or regulation) provide any or all Optionees with the election to
have the Company withhold, from the Shares purchased pursuant to Articles Two of
the Plan, a portion of such Shares with an aggregate Fair Market Value equal to
the designated percentage (any multiple of 5% specified by the Optionee) of the
Federal and state income and employment taxes ("Taxes") incurred in connection
with the acquisition or subsequent vesting of such Shares. In lieu of such
direct withholding, Optionees may also be granted the right to deliver already
outstanding shares of Common Stock to the Company in satisfaction of such Taxes.
The withheld or delivered shares of Common Stock shall be valued at the Fair
Market Value on the applicable determination date for such Taxes.
3. AMENDMENT OR TERMINATION OF THE PLAN.
3.1 Amendment. The Board may, from time to time, amend or
modify the Plan; provided, however that any such amendment shall not adversely
affect rights and obligations with respect to Options or unvested Shares at the
time outstanding under the Plan and any amendment to the Automatic Option Grant
Program shall be in compliance with the limitation of Section 4.1 of Article
Three. In addition, no such revision or amendment shall:
(a) Increase the maximum number of Shares issuable in the
aggregate under this Plan, except for permissible adjustments under Sections 4.1
and 4.4 of Article One, Section 3.1 of Article Two and Section 5.1 of Article
Three;
(b) Increase the maximum number of Shares for which any one
person may be granted Options and separately exercisable stock appreciation
rights per
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calendar year under this Plan, except for permissible adjustments under Section
4.4 of Article One, Section 3.1 of Article Two and Section 5.1 of Article Three;
(c) Decrease the authority of the Primary Committee;
(d) Materially modify the eligibility requirements for the
grant of Options under the Plan;
(e) Materially increase the benefits accruing to Optionees
under the Plan; or
(f) Except upon the requisite stockholder approval, amend this
Section 3.1 to defeat its purpose.
3.2 Termination. This Plan shall terminate on May 20, 2008. No
Options shall be granted after that date, but any Options outstanding on that
date shall not be affected by such termination.
4. EMPLOYMENT RIGHTS.
The fact that a person is eligible for or receives an Option
under Article Two of the Plan shall not affect the right of the Company or any
Subsidiary (as applicable) to terminate such person's relationship with the
Company or such Subsidiary as an Employee or Consultant, which right is hereby
reserved, nor the right of the stockholders of the Company or any Subsidiary (as
applicable) to terminate such person's relationship to the Company or such
Subsidiary as a Director.
5. APPLICATION OF FUNDS.
Any cash proceeds received by the Company from the sale of Common
Stock under the Plan will be used for general corporate purposes.
6. EFFECTIVE DATE.
The Plan is effective as of May 20, 1998, subject to stockholder
approval at the 1998 Annual Stockholders Meeting. No Options shall be granted
under this Plan unless and until the Plan has been approved by the stockholders
of the Company at the 1998 Annual Stockholders Meeting. If this Plan is not
approved by the stockholders of the Company at the 1998 Annual Stockholders
Meeting, the entire Plan shall be null and void.
7. APPLICABLE LAW.
The provisions of the Plan relating to the exercise of Options
granted hereunder and any subsequent vesting of the issued Shares shall be
subject to and construed under the laws of the State of Utah without resort to
that state's conflict-of-laws rules.
22
OEC MEDICAL SYSTEMS, INC. 1998 STOCK OPTION PLAN
MARCH 1998
<PAGE> 56
PLEASE MARK
YOUR VOTES AS [X]
INDICATED IN
THIS EXAMPLE
FOR all nominees listed
below (Except any Nominee whose
name has been struck out)
1. Election of Directors: [ ]
Gregory K. Hinckley Benno P. Lotz, Allan W. May,
Roediger Naumann-Etienne, Joseph W. Pepper and
Chase N. Peterson
FOR AGAINST ABSTAIN
2. To approve the 1998 Stock Option Plan. [ ] [ ] [ ]
FOR AGAINST ABSTAIN
3. To approve an amendment to the 1993 Employee [ ] [ ] [ ]
Incentive Stock Acquisition Plan.
FOR AGAINST ABSTAIN
4. Ratification of Deloitte & Touche LLP as [ ] [ ] [ ]
independent auditors for 1998.
The proxies designated on the reverse are directed to vote as
instructed above, or, if no instruction is made, to vote in
accordance with the recommendations of the Board of Directors,
and in accordance with the discretion of the proxies on such
other matters as may properly come before the meeting. Such
authority includes the right, in the discretion of the proxies,
and each of them to emulate votes for the election of Directors
in each class and thereby distribute, in such proportions within
each class and thereby distribute, in such proportions within each
class as the proxies see fit, the votes represented by this
proxy among the nominees in each class named above.
Signature(s) ____________________________________________ Date ______
NOTE: PLEASE SIGN AS NAME APPEARS HEREON. JOINT OWNERS SHOULD EACH SIGN.
WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN,
PLEASE GIVE FULL TITLE AS SUCH.
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FOLD AND DETACH HERE
<PAGE> 57
PROXY
OEC MEDICAL SYSTEMS, INC.
This Proxy is solicited on behalf of the Board of Directors
The undersigned appoints Joseph W. Pepper and Clarence R. Vemoet, and
severally, as proxies, with full power of substitution, to vote all the shares
of Common Stock of OEC Medical Systems, Inc. (The "Company") which the
undersigned may be entitled to vote at the Annual Meeting of Stockholders to be
held at the Little America Hotel, 500 S. Main SLC, Utah on Wednesday, May 20,
1998; at 10 a.m. Utah time, as instructed on the reverse, and upon all matters
which may properly be considered at such meeting or any adjournment thereof. To
vote in accordance with the Board of Directors recommendations, merely sign
below; no boxes need be checked.
(Continued on the other side)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
