<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
(Amendment No. __)
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
Somanetics Corporation
------------------------------------------------
(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 the 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.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
[SOMANETICS LOGO]
1653 EAST MAPLE ROAD
TROY, MICHIGAN 48083-4208
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 17, 1998
To the Shareholders of Somanetics Corporation:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Somanetics Corporation will be held at the Sterling Inn Banquet & Conference
Center, 34911 Van Dyke, Sterling Heights, Michigan 48312, at 10:30 a.m. Eastern
Standard Time on Tuesday, March 17, 1998 for the following purposes:
1. To select one director to serve until the 2001 Annual Meeting
of Shareholders and until his successor is elected and qualified.
2. To consider and act upon a proposal to amend and restate the
Company's Restated Articles of Incorporation to (i) increase the
Company's authorized Common Shares from 6,000,000 to 20,000,000 shares,
and (ii) remove provisions relating to the reverse stock split effected
April 10, 1997.
3. To consider and act upon a proposal to approve an amendment to
the Somanetics Corporation 1997 Stock Option Plan to increase the
number of Common Shares reserved for issuance pursuant to the exercise
of options granted under the 1997 Plan by 450,000 shares, from 295,000
to 745,000 shares.
4. To transact such other business as may properly come before
the meeting and any adjournment thereof.
Only shareholders of record on January 26, 1998 will be entitled to
notice of, and to vote at, the meeting or any adjournment thereof.
All shareholders are cordially invited to attend the meeting. Whether
or not you expect to attend the meeting, please complete, date and sign the
enclosed proxy and return it as promptly as possible to ensure your
representation at the meeting. A return postage-prepaid envelope is enclosed for
that purpose. If you return the proxy, you may withdraw your proxy and vote your
shares in person if you attend the meeting.
Your attention is called to the attached Proxy Statement and the
accompanying proxy. A copy of the Annual Report of the Company for the fiscal
year ended November 30, 1997 accompanies this notice.
By order of the Board of Directors
Bruce J. Barrett
President and Chief Executive Officer
Troy, Michigan
February 4, 1998
<PAGE> 3
SOMANETICS CORPORATION
1653 EAST MAPLE ROAD
TROY, MICHIGAN 48083-4208
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MARCH 17, 1998
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Somanetics Corporation (the "Company")
for use at the 1998 Annual Meeting of Shareholders to be held at the Sterling
Inn Banquet & Conference Center, 34911 Van Dyke, Sterling Heights, Michigan
48312, at 10:30 a.m. Eastern Standard Time on Tuesday, March 17, 1998, and at
any adjournment thereof, for the purposes set forth in the accompanying Notice
of Annual Meeting of Shareholders. The mailing of this Proxy Statement and
accompanying proxy will take place on or about February 4, 1998.
Solicitation
The Company will bear the entire cost of solicitation of proxies in the
enclosed form, including the preparation, assembly, printing and mailing of this
Proxy Statement, the accompanying proxy and any additional information furnished
to shareholders. The solicitation of proxies by mail may be supplemented by
telephone, telegraph or personal solicitation by directors, officers or other
regular employees of the Company; no additional compensation will be paid to
directors, officers or other regular employees for such services. The Company
has also engaged Shareholder Communications Corporation, to solicit proxies by
mail or telephone or in person, at a cost to the Company expected to be
approximately $6,500, plus an additional fee for each completed call to a
shareholder, plus reasonable out-of-pocket expenses. Brokers, nominees and other
similar record holders will be requested to forward soliciting material and will
be reimbursed by the Company upon request for their out-of-pocket expenses.
VOTING SECURITIES AND PRINCIPAL HOLDERS
Voting Rights and Outstanding Shares
Only shareholders of record at the close of business on January 26, 1998
will be entitled to notice of, and to vote at, the Annual Meeting or any
adjournment of the meeting. As of the close of business on January 26, 1998, the
Company had 4,285,334 outstanding Common Shares, $0.01 par value ("Common
Shares"), the only class of stock outstanding and entitled to vote.
Each Common Share is entitled to one vote on each matter submitted for
a vote at the meeting. The presence, in person or by proxy, of the holders of
record of a majority of the
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<PAGE> 4
outstanding Common Shares entitled to vote, or 2,142,668 shares, is necessary to
constitute a quorum for the transaction of business at the meeting or any
adjournment thereof.
Revocability of Proxies
A shareholder giving a proxy may revoke it at any time before it is
voted by giving written notice of such revocation to the Secretary of the
Company or by executing and delivering to the Secretary a later dated proxy.
Attendance at the meeting by a shareholder who has given a proxy will not have
the effect of revoking it unless such shareholder gives such written notice of
revocation to the Secretary before the proxy is voted. Any written notice
revoking a proxy, and any later dated proxy, should be sent to Somanetics
Corporation, 1653 East Maple Road, Troy, Michigan 48083-4208, Attention:
Investor Relations Department.
Valid proxies in the enclosed form which are returned in time for the
meeting and executed and dated in accordance with the instructions on the proxy
will be voted as specified in the Proxy. If no specification is made, the
proxies will be voted FOR the election as a director of the nominee listed
below, FOR the proposed increase in the Company's authorized Common Shares and
related amendments and FOR the proposed increase in the number of Common Shares
reserved for issuance pursuant to the exercise of options granted under the 1997
Stock Option Plan.
Principal Holders of the Company's Voting Securities
As of January 26, 1998, no person was known by the Company to
beneficially own more than 5% of the Company's Common Shares, its only
outstanding class of voting shares.
I. ELECTION OF DIRECTOR
The Board of Directors proposes that the one person named below as
nominee for election as director for a three-year term be elected as a director
of the Company to hold office until the Annual Meeting of Shareholders to be
held in 2001, and until his successor is elected and qualified. Mr. Barrett was
elected as a director by the Board of Directors effective as of June 1994 to
fill a vacancy in the Board of Directors. If a quorum is present, the nominee
receiving the greatest number of votes cast at the meeting or its adjournment
shall be elected. Withheld votes and broker non-votes will not be deemed votes
cast in determining which nominee receives the greatest number of votes cast,
but will be counted for purposes of determining whether a quorum is present. The
persons named in the accompanying proxy intend to vote all valid proxies
received by them FOR the election of the nominee listed below unless the giver
of the proxy withholds authority to vote for such nominee. The nominee listed
below has consented to serve if elected. If the nominee is unable or declines to
serve, which is not expected, it is intended that the proxies be voted in
accordance with the best judgment of the proxy holders for another qualified
person.
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<PAGE> 5
The following information is furnished as of January 26, 1998 with
respect to the nominee for election as a director, with respect to each person
whose term of office as a director will continue after the meeting, with respect
to each executive officer of the Company named in the Summary Compensation Table
below, and with respect to all directors and executive officers as a group:
<TABLE>
<CAPTION>
AMOUNT AND PERCENTAGE
NATURE OF OF
POSITION AND OFFICES WITH COMMON SHARES COMMON TERM
DIRECTOR THE COMPANY AND OTHER BENEFICIALLY SHARES TO
NAME SINCE AGE PRINCIPAL OCCUPATION OWNED OWNED(1) EXPIRE
---- ----- --- -------------------- ----- -------- ------
<S> <C> <C> <C> <C> <C> <C>
NOMINEE FOR ELECTION AS DIRECTOR FOR A THREE-YEAR TERM
Bruce J. Barrett........ 6/94 38 President, Chief Executive 75,892 (2) 1.7% 2001
Officer and a Director
of the Company
DIRECTORS CONTINUING IN OFFICE
Daniel S. Follis........ 4/89 60 Director of the 28,056 (3) * 1999
Company and President
of Verschuren & Follis, Inc.
Dr. James I. Ausman..... 6/94 60 Director of the Company, 18,410 (4) * 1999
Professor and Head of the
Department of Neurosurgery
at the University of Illinois
at Chicago
H. Raymond Wallace...... 6/94 62 Chairman of the Board and 6,236 (5) * 2000
a Director of the Company
OTHER CURRENT EXECUTIVE OFFICERS
Raymond W. Gunn........................................................ 38,425 (6) *
All directors and executive officers as a group (9 persons)............ 188,737 (7) 4.3%
</TABLE>
- - ----------
* Less than 1%
(1) Based on 4,285,334 Common Shares outstanding as of January 26, 1998.
(2) Includes 72,400 Common Shares that Mr. Barrett has the right to acquire
within 60 days of January 26, 1998 and 500 Common Shares owned by his
wife.
(3) Includes 6,625 Common Shares that Mr. Follis has the right to acquire
within 60 days of January 26, 1998. The 28,056 Common Shares shown above
as beneficially owned by Mr. Follis include 8,820 Common Shares owned by
The Infinity Fund, a limited partnership in which Mr. Follis is a 6.068%
limited partner and a 50% general partner and which is administered by
Verschuren & Follis, Inc., a corporation in which Mr. Follis is a 50%
shareholder, a director and the President.
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<PAGE> 6
(4) Includes 5,636 Common Shares that Dr. Ausman has the right to acquire
within 60 days of January 26, 1998, 12,774 Common Shares owned jointly
with his wife, and 3,030 shares held in an individual retirement account
over which Dr. Ausman exercises sole voting and investment control.
(5) Includes 4,636 Common Shares that Mr. Wallace has the right to acquire
within 60 days of January 26, 1998 and 1,000 shares held in a living
trust; Mr. Wallace has sole voting and dispositive power over the shares
held in the trust.
(6) Includes 36,825 Common Shares that Mr. Gunn has the right to acquire
within 60 days of January 26, 1998.
(7) Includes 142,740 Common Shares that all executive officers and directors
as a group have the right to acquire within 60 days of January 26, 1998.
BIOGRAPHICAL INFORMATION
The following is a brief account of the business experience during the
past five years of the nominee for the Board of Directors of the Company and of
each director whose term of office will continue after the meeting:
Bruce J. Barrett has served as the Company's President and Chief
Executive Officer and as a director of the Company since June 1, 1994. Mr.
Barrett previously served, from June 1993 until May 31, 1994, as the Director,
Hospital Products Division for Abbott Laboratories, Ltd., a health care
equipment manufacturer and distributor, and from September 1989 until May 1993
as the Director, Sales and Marketing for Abbott Critical Care Systems, a
division of Abbott Laboratories, Inc., a health care equipment manufacturer and
distributor. While at Abbott Critical Care systems, Mr. Barrett managed Abbott's
invasive oximetry products for approximately four years. From September 1981
until June 1987, he served as the group product manager of hemodynamic
monitoring products of Baxter-Edwards Critical Care, an affiliate of Baxter
International, Inc., another health care equipment manufacturer and distributor.
Mr. Barrett received a B.S. degree in marketing from Indiana State University
and an M.B.A. degree from Arizona State University.
Daniel S. Follis has served as a director of the Company since April
1989. Since 1981, he has served as President of Verschuren & Follis, Inc., which
advises and administers The Infinity Fund, a limited partnership which invests
in emerging growth companies. Mr. Follis received a B.A. degree in business from
Michigan State University.
James I. Ausman, M.D., Ph.D. has served as a director of the Company
since June 1994. He has been Professor and Head of the Department of
Neurosurgery at the University of Illinois at Chicago since August 1991. From
September 1978 until July 1991 he was Chairman of the Department of Neurosurgery
at Henry Ford Hospital in Detroit. From December 1987 until July 1991 he served
as Director of the Henry Ford Neurosurgical Institute, also at Henry Ford
Hospital. In addition, he was Clinical Professor of Surgery, Section of
Neurosurgery at the University of Michigan in Ann Arbor from 1980 until 1991.
Dr. Ausman received a B.S. degree in chemistry and biology from Tufts
University, a Doctorate of Medicine from Johns Hopkins University School of
Medicine, a Masters of Arts in Physiology, from the State University of
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<PAGE> 7
New York at Buffalo, and a Ph.D. in Pharmacology from George Washington
University. He has also received graduate training in neurosurgery at the
University of Minnesota and has obtained board certification from the American
Board of Neurological Surgery.
H. Raymond Wallace has served as the Company's Chairman of the Board
since January 1995 (as a non-officer Chairman of the Board since April 1995) and
as a director of the Company since June 1994. He also served as a consultant to
the Company from April 1994 until January 1995. He also served as Chairman of
the Board of Cardiometrics, Inc., a cardiovascular medical device company, from
December 1993 until its merger into Endosonics, Inc. in July 1997, and has
served as a self-employed consultant to medical device and other companies since
January 1994. From September 1986 until May 1993 (when he retired), he served as
Vice President and General Manager of Abbott Critical Care Systems. Mr. Wallace
received a B.A. degree from Ohio State University and an M.B.A. degree from the
University of California, Berkeley.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended November 30, 1997, the Board of Directors
held three meetings and took action by written consent on two occasions.
Audit Committee
The Board of Directors has an Audit Committee which consists of two
directors. H. Raymond Wallace and Daniel S. Follis are the current members of
this committee. The Audit Committee (i) recommends to the Board the conditions,
compensation and term of appointment of independent certified public accountants
for the audit of the Company's financial statements, (ii) reviews examination
reports of the Company prepared by regulatory authorities, and (iii) provides
the Board with such assistance as is necessary with respect to the Company's
corporate and reporting practices. The Audit Committee may also from time to
time confer with the auditors to exchange views relating to the scope and
results of the audit. During the fiscal year ended November 30, 1997, the Audit
Committee held two meetings.
Compensation Committee
The Board of Directors has a Compensation Committee which consists of
two directors. H. Raymond Wallace and Daniel S. Follis are the current members
of this committee. The Compensation Committee makes recommendations to the Board
of Directors with respect to compensation arrangements and plans for senior
management, officers and directors of the Company and administers the Company's
1983 Stock Option Plan, 1991 Incentive Stock Option Plan, 1997 Stock Option Plan
and 1993 Director Stock Option Plan. During the fiscal year ended November 30,
1997, the Compensation Committee held five meetings and took action by written
consent on one occasion.
The Company does not have a nominating committee.
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<PAGE> 8
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information for each of the fiscal years
ended November 30, 1997, 1996, and 1995 concerning compensation of (i) all
individuals serving as the Company's Chief Executive Officer during the fiscal
year ended November 30, 1997, and (ii) each other executive officer of the
Company whose total annual salary and bonus exceeded $100,000 in fiscal 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
AWARDS
------------
SECURITIES ALL OTHER
NAME AND ANNUAL COMPENSATION UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) ($)
------------------ ---- --------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Bruce J. Barrett, President
and Chief Executive Officer 1997 200,688 12,188 135,000 -0-
1996 195,000 -0- 43,200 (1) -0-
1995 195,000 -0- 33,000 (1) -0-
Raymond W. Gunn, Executive
Vice President and Chief
Financial Officer.......... 1997 110,250 4,823 45,000 -0-
1996 105,000 -0- 19,100 (1) -0-
1995 95,625 -0- 10,000 (1) -0-
</TABLE>
- - ----------
(1) The fiscal 1995 numbers include options to purchase 16,500 and 5,000
Common Shares granted to Messrs. Barrett and Gunn, respectively,
subject to shareholder approval of an amendment to the Company's 1991
Incentive Stock Option Plan at the 1995 Annual Meeting of Shareholders.
Although more than 85% of those voting approved the proposed amendment
to the 1991 Incentive Stock Option Plan, as a result of a significant
number of broker non-votes, there were insufficient votes in favor of
the amendment, it was not approved and the options were cancelled. The
fiscal 1995 numbers also include options to purchase 16,500 and 5,000
Common Shares granted to Messrs. Barrett and Gunn, respectively, after
the 1995 Annual Meeting of Shareholders and subject to shareholder
approval of an amendment to the Company's 1991 Incentive Stock Option
Plan at the next meeting of the Company's shareholders. These options
were cancelled in December 1995 (and the proposed amendment was
cancelled) in exchange for options covering the same number of shares
and exercisable at the same exercise price, but granted independent of
the Company's stock option plans and not subject to shareholder
approval. The fiscal 1996 numbers include these options to purchase
16,500 and 5,000 Common Shares granted to Messrs. Barrett and Gunn,
respectively.
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<PAGE> 9
Option Grants Table
The following table sets forth information concerning individual grants
of stock options made during the fiscal year ended November 30, 1997 to each of
the executive officers of the Company named in the Summary Compensation Table
above:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
- - -------------------------------------------------------------------------------------- Potential
% of Realizable Value at
Total Assumed Annual
Number of Options Rates of Stock Price
Securities Granted to Appreciation
Underlying Employees Exercise for Option Term
Options in Fiscal Price Expiration ----------------------
Name Granted (#) Year ($/Sh) Date 5% ($) 10% ($)
---- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Bruce J. Barrett........... 135,000 (1) 44.0 $4.75 4/24/07 403,279 1,021,987
Raymond W. Gunn............ 45,000 (1) 14.7 $4.75 4/24/07 134,426 340,662
</TABLE>
- - ----------
(1) Options to purchase 135,000 and 45,000 Common Shares were granted to
Messrs. Barrett and Gunn, respectively, in fiscal 1997 under the
Company's 1997 Stock Option Plan, exercisable at the then current fair
market value of the underlying Common Shares. Each of the options set
forth in the table is exercisable in one-third cumulative annual
increments beginning April 24, 1998. Each option also becomes 100%
exercisable immediately 10 days before or upon specified changes in
control of the Company.
With respect to each of the options described above, the portion of
such option which is exercisable at the date of termination of employment
remains exercisable until the expiration date of the option, unless termination
is for cause. If upon exercise of these options the Company must pay any amount
for income tax withholding, in the Compensation Committee's or the Board of
Directors' sole discretion, either the optionee will pay such amount to the
Company or the number of Common Shares delivered by the Company to the optionee
will be appropriately reduced to reimburse the Company for such payment. The
Compensation Committee or the Board may also permit the optionee to choose to
have such shares withheld or to tender Common Shares the optionee already owns.
The Compensation Committee or the Board may also make such other arrangements
with respect to income tax withholding as it shall determine.
Aggregated Option Exercises and Fiscal Year-End Option Value Table
The following table sets forth information concerning each exercise of
stock options during the fiscal year ended November 30, 1997 by each of the
executive officers named in the Summary Compensation Table above and the value
of unexercised options held by such persons as of November 30, 1997:
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<PAGE> 10
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES FY-END (#) FY-END ($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- - ---- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Bruce J. Barrett........... -0- -0- 68,275/149,925 13,016/206,839
Raymond W. Gunn............ -0- -0- 35,575/51,025 6,874/69,791
</TABLE>
Compensation of Directors and Scientific Advisors
The Company's directors who are not officers or employees of the
Company (collectively, the "Outside Directors") receive $1,000 for each Board
meeting attended in person, $250 for each telephonic Board meeting attended, and
$250 for each Board committee meeting attended on a date other than the date of
a Board meeting. The Company also reimburses Outside Directors for their
reasonable expenses of attending Board and Board committee meetings.
On January 14, 1993, the Board of Directors adopted the Somanetics
Corporation 1993 Director Stock Option Plan (the "Directors Plan"). The
Directors Plan provides for the grant of options to purchase 1,500 shares every
three years beginning June 30, 1993 and ending June 30, 2002 (including June 30,
1996) to each director who is not an officer or employee of the Company. The
exercise price of the options is the fair market value of the Common Shares on
the date of grant. Options vest in one-third annual increments beginning on the
date of grant and expire ten years after the date of grant. In addition, each
director who is not an officer or employee of the Company and who first becomes
a director of the Company after the date the Directors Plan was adopted is
automatically granted an option to purchase a pro-rata portion of 1,500 Common
Shares vesting over the period remaining until the next regular grant of options
under the Directors Plan.
Subject to approval by the shareholders at the Annual Meeting of the
proposed amendment to the Company's 1997 Stock Option Plan, increasing the
number of shares reserved for issuance upon the exercise of options granted
under the plan by 450,000 shares (see Part III of this Proxy Statement), the
Board of Directors has (i) terminated the Directors Plan, which means that no
future grants of stock options will be made under the Directors Plan, (ii)
determined to grant Outside Directors who continue to serve as directors of the
Company after the annual meeting of shareholders (beginning with the 1998 Annual
Meeting), 10-year options to purchase 2,000 Common Shares each year on the date
of the annual meeting of shareholders, exercisable at the fair market value of
the Common Shares on the date of grant, and (iii) effective as of the date of
the 1998 Annual Meeting, in exchange for the cancellation of certain outstanding
stock
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options, granted ten-year stock options under the 1997 Stock Option Plan to Mr.
Follis, Dr. Ausman and Mr. Wallace to purchase 7,500, 5,511, and 5,511 Common
Shares, respectively, at an exercise price equal to the closing sale price of
the Common Shares as of the date of the Annual Meeting (the "Replacement
Options"). If the proposed amendment to the 1997 Stock Option Plan is not
approved, the Directors Plan will not be terminated, the annual option grants to
Outside Directors under the 1997 Stock Option Plan will not be made (although
grants under the Directors Plan will continue) and the Replacement Options will
not be granted.
The Replacement Options cover the same number of shares and are subject
to the same terms and conditions as the options previously granted to such
directors under the Directors Plan or under the 1991 Incentive Stock Option
Plan, except that the exercise price of the Replacement Options will be the fair
market value of the Common Shares as of the date of the 1998 Annual Meeting. The
Replacement Options are effective only when the director cancels all options
previously granted to him under the Directors Plan and the 1991 Incentive Stock
Option Plan. Dr. Ausman also has an option to purchase 2,000 Common Shares at
$5.00 a share granted independent of the Company's plans that is not being
canceled. The Board determined to replace the stock options previously granted
to the Outside Directors under the Directors Plan and the 1991 Incentive Stock
Option Plan because it determined that options with exercise prices equal to the
then current market price of the Company's Common Shares would provide better
incentives to the directors. The Board believes that such options would better
motivate the Company's directors and give them increased incentive to remain
with the Company and make contributions to the long-term performance and growth
of the Company. The Board also believes that such options would more closely
join the interests of such directors with the interests of shareholders of the
Company.
The Company's scientific advisors are not presently compensated by the
Company for their services as Advisory Board members. The Company pays Advisory
Board members their reasonable expenses for attending Advisory Board meetings.
No such expenses were incurred for the fiscal year ended November 30, 1997.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
Bruce J. Barrett. As of May 13, 1994, the Company entered into an
employment agreement with Bruce J. Barrett, pursuant to which, as amended, he is
employed as President and Chief Executive Officer (or in such other position as
the Board of Directors determines) for a period ending April 30, 2000. Mr.
Barrett's annual salary is currently $204,750, which may be increased by the
Board of Directors, and he received a one-time signing bonus equal to $24,375
upon execution of the agreement. Mr. Barrett is also entitled to participate in
any bonus plan established by the Compensation Committee of the Board of
Directors. The Company adopted bonus plans both for fiscal 1997 and for fiscal
1998. Mr. Barrett is entitled to various fringe benefits under the agreement,
including 12 months of compensation and six months of benefits if his employment
under the agreement is terminated without cause or if the agreement expires
without being renewed. Mr. Barrett has agreed not to compete with the Company
during specified periods following the termination of his employment.
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<PAGE> 12
Raymond W. Gunn. Pursuant to the employment agreement between the
Company and Mr. Gunn, dated December 1, 1992, as amended, Mr. Gunn is employed
as Executive Vice President and Chief Financial Officer, Treasurer and Secretary
of the Company (or in such other position as the Board of Directors determines)
for a period ending April 30, 2000. Mr. Gunn's base salary under the agreement
is currently $110,250, which may be increased by the Board of Directors. Mr.
Gunn is entitled to a bonus determined at the discretion of the Company's Board
of Directors. Mr. Gunn is entitled to various fringe benefits under the
agreement, including disability insurance, a leased automobile, and twelve
months of compensation and benefits if his employment under the agreement is
terminated without cause or if the agreement expires without being renewed. The
agreement also provides that Mr. Gunn will not compete against the Company
during specified periods following the termination of his employment.
Stock Option Terms. All options granted under the Company's stock
option plans through January 26, 1998, that are not already 100% exercisable
immediately, including options granted to Messrs. Barrett and Gunn, become 100%
exercisable immediately ten days before or upon specified changes in control of
the Company.
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended November 30, 1997, Daniel S. Follis and H.
Raymond Wallace served as the members of the Company's Compensation Committee.
None of the members of the Company's Compensation Committee was, during the
fiscal year ended November 30, 1997, an officer or employee of the Company, or a
former officer of the Company, except that Mr. Wallace became the Company's
non-salaried Chairman of the Board on January 27, 1995 and became a non-officer
Chairman of the Board effective April 6, 1995. Mr. Follis has the relationship
with the Company described below:
Distributorship Agreement. The Company entered into a distributorship
agreement with Somatek, Inc., an entity 50% owned by Mr. Follis. The
distributorship covered the territory of Michigan. The agreement was approved by
the Company's disinterested directors and was made in the ordinary course of
business on the Company's standard form of distributorship agreement.
Transactions pursuant to the distributorship agreement were on substantially the
same terms, including the purchase price of the Company's product covered by
such agreement, as those prevailing at the time for comparable agreements and
transactions with other distributors. During the fiscal year ended November 30,
1997, the Company had no sales to Somatek, Inc. pursuant to its distributor
agreement. Effective February 28, 1997, the Company terminated its distribution
agreement with Somatek, Inc., and in connection with such termination, the
Company wrote off $12,500 of its receivables from Somatek, Inc. in exchange for
the return of two INVOS 3100A Cerebral Oximeters from Somatek, Inc. As of
November 30, 1997 and January 26, 1998, Somatek, Inc. had no outstanding
indebtedness to the Company.
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<PAGE> 13
Board Compensation Committee Report on Executive Compensation
General. The Compensation Committee's overall compensation policy
applicable to the Company's executive officers is to provide a compensation
package that is intended to attract and retain qualified executives for the
Company and to provide them with incentives to achieve Company goals and
increase shareholder value. The Compensation Committee implements this policy
through salaries, bonuses, stock options, a 401(k) plan, and employment
agreements and miscellaneous personal benefits.
Salaries. The Compensation Committee's policy is to provide salaries
(i) that are approximately at the median of the salaries paid to similar
executive officers in similar companies, adjusted in the Committee's subjective
judgment to reflect differences in duties of the officers and differences in the
size and stage of development of the companies, in order to attract and retain
qualified executives and (ii) that compensate individual employees for their
individual contributions and performance. The Compensation Committee determines
comparable salaries paid by other companies similar to the Company through its
subjective evaluation of its members' knowledge of salaries paid by other
companies, studies conducted by the Health Industry Manufacturers Association
(the respondents to which include some companies included in the industry index
used by the Company in its performance graph below), salary requests of
individuals interviewed by the Company for open positions and recommendations of
management. The Committee subjectively evaluates this information and the
Company's financial resources and prospects to determine the salary and
severance arrangements for an executive officer. Mr. Barrett's and Mr. Gunn's
salaries are believed to be between the 75th and 80th percentiles for Mr.
Barrett, and between the 65th and 70th percentiles for Mr. Gunn, of salaries
paid to similar executive officers in similar companies, based on a survey of
public manufacturing organizations with sales between $0 and $2.9 million.
Salaries for fiscal 1997 were determined based on a subjective evaluation of the
factors described above, without giving any specific priority or weighting to
any of the factors.
Bonuses. The Compensation Committee's policy is to recommend bonuses
that compensate executive officers for achieving Company goals. In addition, the
Compensation Committee's policy is to pay discretionary bonuses, determined near
the end of the fiscal year, to compensate executive officers for performance or
achievements during the fiscal year not covered by bonuses paid earlier in the
year.
For fiscal 1997, the Company adopted the Employee Incentive
Compensation Program for all non-commissioned, full-time employees. Half of the
potential bonuses under the plan were based on the Company's revenues,
determined quarterly. The quarterly bonus equalled (i) the percentage of the
Company's year-to-date revenues compared to budgeted revenues, (ii) multiplied
by a factor, (iii) multiplied by the employee's salary, (iv) multiplied by a
"pay-out rate", and (v) multiplied by .125 (i.e., one-half of the potential
bonus, divided among the four quarters). No bonus was payable for revenues less
than 70% of budgeted revenues, and the formula required an improvement in
revenues for every quarter except the first quarter. The factors ranged from .50
for revenues from 70% to 80% of budget to 1.50 for revenues in excess
11
<PAGE> 14
of 125% of budget, and equalled 1.00 for revenues equal to 100% of the budget.
Pay-out rates ranged from 10% to 50%, depending on the employee, and were 50%
and 35% for Messrs. Barrett and Gunn, respectively.
The other half of the bonuses under the plan were based on pre-defined
objectives for each employee, which were weighted according to level of
importance. This half of the bonus equalled (i) the percentage of objectives
achieved, (ii) multiplied by the employee's salary, (iii) multiplied by the
"pay-out rate", (iv) multiplied by .5 (i.e., half of the total potential bonus),
(v) multiplied by the Company's percentage of revenues compared to planned
revenues, and (vi) multiplied by the percentage of the Company's profits
compared to planned profits. This formula required improvements in sales, but
did not require an improvement in net loss. The Compensation Committee retained
discretion to increase or decrease bonuses by 20%, and to pay no bonuses to
employees who failed to achieve 50% of their objectives. In 1997, the Company
met 100% of its revenue target in the first quarter, but not in any other
quarter, and, therefore, paid a first quarter sales bonus, but no other bonuses
under the plan. As a result of the Company's sales and lack of profitability,
the Company's desire to control overhead and the Company's financial condition
at the end of the year, the Compensation Committee recommended that no
additional bonuses be paid to executive officers for fiscal 1997.
Stock Options. The Compensation Committee's policy is to award stock
options to each officer, employee, director and scientific advisor of the
Company in amounts reflecting the participant's position and ability to
influence the Company's overall performance, determined based on the Committee's
subjective judgment after reviewing the number of options previously granted to
such person, the number of options granted to persons in similar positions both
at the Company and at other companies deemed comparable to the Company (based on
the members' knowledge of options granted by other companies), the number of
options remaining available for grant and management's recommendations. The
number of options granted in 1997 to executives was determined based on the
above factors and recommended levels of share ownership by the underwriter of
the Company's 1997 public offering, management's recommendations and the
Compensation Committee's subjective judgment primarily after reviewing the
previous grants of options to such executives and their ownership of Common
Shares. Options are intended to provide participants with an increased incentive
to make contributions to the long-term performance and growth of the Company, to
join the interests of participants with the interests of shareholders of the
Company and to attract and retain qualified employees.
The Compensation Committee's policy is to grant options with a term of
ten years to provide a long-term incentive and to fix the exercise price of the
options at the fair market value of the underlying shares on the date of grant.
Such options only provide compensation if the price of the underlying shares
increases. In addition, the Committee's policy is to grant options that vest
over a specific period to provide the executive with an incentive to remain with
the Company. Generally, options granted to the Company's executives vest in
three equal annual installments beginning one year after the date of grant. The
Committee's policy is also to provide new executives with options to attract
them to the Company based on negotiations with
12
<PAGE> 15
new executives, management's recommendations and the Committee's subjective
judgment primarily after reviewing the number of options granted to similar
executives of the Company.
Generally, the Compensation Committee reserves the right to pay
compensation to Company executives in amounts it deems appropriate regardless of
whether such compensation is deductible for federal income tax purposes. Options
granted to executives in fiscal 1997 are potentially subject to limits on
permitted federal income tax deductions upon exercise of such options, including
under current treasury regulations concerning the $1,000,000 cap on executive
compensation deductions under Section 162(m) of the Internal Revenue Code of
1986, as amended. The Committee determined to recommend the grants of options to
executives in April 1997 despite such options potentially being subject to the
$1,000,000 cap on executive compensation. The Committee determined that such
grants were more important to the Company than the potential loss of related
compensation deductions upon exercise of the options, especially in light of the
Company's net operating loss carryforwards, its current inability to use
additional compensation deductions and the non-cash nature of deductions
available upon exercise of stock options.
401(k) Plan. The Company has adopted a 401(k) plan to provide all
eligible employees a means to accumulate retirement savings. Participants may
defer specified portions of their compensation and the Company may, but is not
required to, make (i) matching contributions equal to a percentage of such
deferrals and (ii) additional discretionary contributions. The Compensation
committee's policy is to make matching or additional contributions to the 401(k)
plan either (i) out of the Company's profits to reward employees for their
collective efforts in producing profits, or (ii) contingent on achieving
specified goals to provide additional incentives to meet those goals. The amount
of such contributions is based on the Committee's subjective judgment of what is
appropriate, after reviewing management's recommendation. As a result of a lack
of profits in fiscal 1997 and in light of the Company's resources and its desire
to control overhead, the Committee recommended that the Company not make a
contribution to the 401(k) plan for fiscal 1997.
Employment Agreements and Miscellaneous Personal Benefits. The
Compensation Committee's policy has been to have employment agreements with each
of its executive officers to provide them with specified minimum positions,
periods of employment, salaries, fringe benefits and severance benefits. These
benefits are intended to permit the executive officer to focus his attention on
performing his duties to the Company, rather than on the security of his
employment, and to provide the officer with benefits deemed by the Compensation
Committee to be suitable for the executive's office. The Compensation
Committee's policy, however, is that personal benefits (other than severance
pay) should not exceed 10% of the executive's salary and bonus for the year.
During 1997, the Company extended the terms of its employment agreements with
executive officers through April 30, 2000, based on the recommendation of the
underwriter of the Company's 1997 public offering, management's recommendations
and the Committee's subjective judgment of an appropriate term to secure the
services of its executives.
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<PAGE> 16
Fiscal 1997 Compensation Decisions Concerning CEO. In November 1996,
the Compensation Committee recommended that Mr. Barrett's salary remain at
$195,000 for 1997, and in April 1997, the Committee recommended that Mr.
Barrett's salary be increased to $204,750 effective May 1, 1997 and that his
employment agreement be extended to April 30, 2000. As described in "Salaries",
the amount of the recommended salary increase for Mr. Barrett was based
primarily on the Committee's subjective evaluation of its members' knowledge of
salaries paid by other companies, the lack of any increase in Mr. Barrett's
salary since he became the Company's President in June 1994, recommendations of
management, and the Company's financial resources and prospects. Mr. Barrett's
salary is believed to be between the 75th and 80th percentiles of salaries paid
to similar executive officers in similar companies, based on a survey of public
manufacturing organizations with sales between $0 and $2.9 million. As described
in "Employment Agreements and Miscellaneous Personal Benefits," the extension of
Mr. Barrett's employment agreement was based on the recommendation of the
underwriter of the Company's 1997 public offering, management's recommendations
and the Committee's subjective judgment of an appropriate term to secure Mr.
Barrett's services.
In November 1996 the Committee recommended the approval of the 1997
Employee Incentive Compensation Program, and in March 1997, the Committee
recommended paying the revenue portion of the bonus under that plan, including
$12,187.50 to Mr. Barrett. In November 1997, the Committee recommended that no
additional bonuses be paid to the Company's executive officers for fiscal 1997
and that no contribution be made to the 401(k) plan for fiscal 1997. The
Committee recommended adoption of the bonus plan as a means to compensate
executive officers for achieving Company goals, specifically its sales,
profitability and individual officer goals. The bonus paid after the first
quarter of fiscal 1997 was based on achievement of 100% of the Company's revenue
goals for the quarter pursuant to the formula contained in the plan. No
additional year-end bonuses or 401(k) contributions for fiscal 1997 were
recommended as a result of the Company's lack of sales and profitability, the
Company's desire to control overhead and the Company's financial condition at
the end of the year.
In April 1997, the Committee recommended that the Board grant Mr.
Barrett a 10-year option to purchase 135,000 Common Shares at $4.75 a share. The
amount granted to Mr. Barrett was based on the factors described in "Stock
Options," including his position and ability to influence the Company's overall
performance, determined based on the Committee's subjective judgment after
reviewing the number of options previously granted to him and his ownership of
Common Shares, the number of options granted in the past to persons in similar
positions both at the Company and at other companies deemed comparable to the
company (based on the directors' knowledge of options granted by other
companies), the number of options remaining available for grant, the recommended
levels of share ownership by the underwriter of the Company's 1997 public
offering, management's recommendation and the Committee's subjective judgment.
By the Compensation Committee
H. Raymond Wallace
Daniel S. Follis
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<PAGE> 17
Performance Graph
The following line graph compares for the fiscal years ended November
30, 1993, 1994, 1995, 1996 and 1997 (i) the yearly percentage change in the
Company's cumulative total shareholder return (i.e., the change in share price
divided by the initial share price, expressed as the resulting value of a $100
investment; the Company has not paid cash dividends) on the Company's Common
Shares, with (ii) the cumulative total return of The Standard & Poor's SmallCap
600 Index and with (iii) the cumulative total return on the publicly-traded
equity of a peer group selected by the Company based on companies in electronic
medical monitoring fields within Standard Industrial Classification Code 3845
(Electromedical and Electrotherapeutic Apparatus) that the Company believes are
in fields similar to the Company's business.
COMPARISON OF CUMULATIVE TOTAL RETURN*
AMONG SOMANETICS CORPORATION,
STANDARD & POOR'S SMALLCAP 600 INDEX AND
PEER GROUP INDEX**
[Performance Graph]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Somanetics Corporation ................................ 100.00 46.81 17.02 10.64 22.33 10.64
Standard & Poor's SmallCap 600 Index................... 100.00 118.71 114.36 149.77 182.55 227.35
Electronic Medical Monitoring Peer Group............... 100.00 84.81 99.38 123.47 106.97 106.32
</TABLE>
15
<PAGE> 18
Assumes $100 invested on November 30, 1992 in Somanetics Corporation Common
Shares, The Standard & Poor's SmallCap 600 Index and the Peer Group Index.
- - ----------
*Total return assumes reinvestment of dividends.
**Fiscal Year ending November 30.
The companies that the Company believes are in fields similar to the
Company's business, that are in electronic medical monitoring fields within
Standard Industrial Classification Code 3845 (Electromedical and
Electrotherapeutic Apparatus) and that have publicly-traded securities are as
follows: Abaxis Inc., Applied Biometrics Inc., Biocontrol Technology, Inc.,
Conmed Corporation, Marquette Medical Systems Inc., Novametrix Medical Systems
Inc., Physio Control International Corporation, Physiometrix, Inc., Protocol
Systems, Inc., qmed, Inc., Spacelabs Medical, Inc. and SpectRx, Inc.
SCIENTIFIC ADVISORS
The Company uses scientific advisors primarily for individual
consultation in their areas of expertise, including assisting it with technical
issues regarding its technology and identifying and evaluating potential
additional applications of the Company's INVOS technology.
The following are scientific advisors to the Company:
James I. Ausman, M.D., Ph.D. For a description of the principal
occupation and employment of Dr. Ausman, see "Election of Director--Biographical
Information."
Gregory Crosby, M.D. Dr. Crosby has served as the Evan & Marion Helfaer
Professor and Chairman of the Department of Anesthesiology at the University of
Wisconsin Medical School, Madison, Wisconsin since 1996. For 15 years prior to
1996, he was affiliated with Harvard Medical School and Massachusetts General
Hospital. Dr. Crosby is a neuroanesthesiologist who serves as an examiner on the
American Board of Anesthesiology, on the American Society of Anesthesiologists
subcommittee on Clinical Neurosciences, as Associate Editor of Anesthesiology,
as Section Editor for Neuroanesthesia of the Journal of Clinical Anesthesia, and
as a member of the editorial board for the Journal of Neurosurgical
Anesthesiology.
Robert R. Di Loreto, M.D. Dr. Di Loreto has held senior staff
appointments in the Department of Surgery, Urology Section, and the Department
of Pediatrics, Pediatric Urology Section, at St. John Hospital and Medical
Center in Detroit since 1980. In addition, he has been the Medical Director of
Michigan Mobile Lithotripsy Inc. since 1988, and has served on the adjunct
teaching staff, Department of Urology, at Henry Ford Hospital in Detroit since
1980. Dr. Di Loreto also has sat as a panel member, Center for Device
Evaluation, Division of Gastroenterology and Urology, at the FDA, since 1990.
Manuel Dujovny, M.D. Dr. Dujovny has served as the Professor and
Associate Head of the Department of Neurosurgery, College of Medicine and
Neuropsychiatric Institute, University of Illinois Hospital at Chicago, since
August 1991. He also is the Director of Imaging Guided Stereotactic Surgery and
Radiosurgery at the University Hospital. Previously he served as Director of
Neurosurgical Research at the Henry Ford Neurological Institute from 1981 until
August 1991. From 1984 until 1991 he also served as the Director of the Brain
and Spinal Cord Tumor Center at Henry Ford Hospital. He serves on numerous FDA
working groups examining materials and products, and on the American Society of
Testing Materials (ASTM) committee
16
<PAGE> 19
for neurological surgery. Dr. Dujovny has also written numerous articles on
cerebral ischemia- related difficulties.
George A. Kling, M.D. Dr. Kling has served as the Chairman and
Professor of the Department of Radiology at Wayne State University School of
Medicine in Detroit since July 1984, and Chief of the Department of Radiology,
Harper-Grace Hospitals in Detroit since July 1976. Dr. Kling has served Wayne
State University and Harper-Grace Hospitals, and the radiological community, in
a number of important capacities since 1962, including American Roentgen Ray
Society Councilor to the American College of Radiology and committee
appointments to the Michigan State Medical Society and the Wayne County Medical
Society.
Donald S. Prough, M.D. Dr. Prough has served as Professor and Chairman
of the Department of Anesthesiology at The University of Texas Medical Branch in
Galveston since February 1992. Before that he served as Professor of Anesthesia
and Neurology; Head, Section on Critical Care; and Medical Director, Cerebral
Blood Flow Laboratory, at The Bowman Gray School of Medicine, of Wake Forest
University, Winston-Salem, North Carolina, since 1980. He also is editor of the
Neurosurgical Anesthesia Section of Anesthesia and Analgesia and a member of the
editorial board of Critical Care Medicine. Dr. Prough has spoken frequently
about brain monitoring at national meetings of anesthesiologists and physicians
specializing in intensive care.
Hugh F. Stoddart. Mr. Stoddart has served as a consultant to business
in the fields of science and technology. For forty years he has invented and
developed products for medicine and industry using diverse technologies such as
imaging, image processing, radiation detection, optics, x-rays, spectroscopy,
lasers, computers and electronics. Examples include the first commercial brain
scanner based on positron emission, the Harvard scanner for high resolution
imaging of brain function and systems for non-invasive infrared spectroscopy of
the human body. He is presently Principle Investigator on two R&D projects,
funded by the National Institute of Health and the United States Army, involving
medical applications of in vivo near-infrared spectroscopy. He has participated
as president, vice-president, director, or product manager in a number of
medical device and high-technology companies, including the Atomic Instrument
Company, Baird, Atomium, Perkin-Elmer, Bedford Engineering, Cleon, Union Carbide
Imaging Systems, Strichman Medical, and NeuroPhysics, where he is currently
Chairman and Senior Scientist. He served as President and Chief Executive
Officer of Strichman Medical Equipment Inc. from 1988 to 1993, and Vice
President and Director of Union Carbide Imaging Systems from 1976 to 1980.
Strichman Medical is a manufacturer of computer workstations for nuclear
medicine and scanners for producing images of the functioning of the human
brain. Union Carbide Imaging Systems is a developer and manufacturer of nuclear
medical imaging equipment.
Under a consulting agreement dated February 28, 1983, Mr. Stoddart has
agreed to provide consulting services to the Company for a term ending February
28, 1999, which term is automatically renewed each year unless terminated by
either party by at least 30 days notice prior to the renewal of the agreement.
Pursuant to this agreement, the Company has entered into a Consulting Order with
NeuroPhysics Corporation, a research and development company owned by Mr.
Stoddart and his son, pursuant to which the Company is funding a portion of
17
<PAGE> 20
NeuroPhysics' research into the feasibility and development of prototypes of
four new products. The United States government is also funding a portion of the
research pursuant to two research grants. NeuroPhysics has granted the Company
certain ownership and commercialization rights in the new products, subject to
the rights of the United States Federal government and royalties payable to
NeuroPhysics. The new products are intended to be noninvasive, in vivo, near-
infrared spectroscopy devices that (i) monitor liver oxygenation for assessing
and controlling hemorrhagic shock (shock resulting from loss of blood), (ii)
locate and assess subdural hematomas (bleeding between the brain and the skull),
(iii) monitor certain blood gases and (iv) monitor fetal cerebral blood
oxygenation during labor and delivery. There can be no assurance that the
Company will be able to successfully apply the INVOS technology or related
technologies in the development of commercially viable products or that
competitors will not develop and market similar products before the Company
does.
During fiscal 1997, the Company paid approximately $166,560 in fees and
expenses to Mr. Stoddart and NeuroPhysics under this agreement. Also, effective
April 24, 19978, the Company granted Mr. Stoddart's son, also a consultant to
the Company, a ten-year option to purchase 1,500 Common Shares at $4.75 a share
in exchange for cancellation of his 10-year option to purchase 1,500 Common
Shares at $14.375 a share.
The scientific advisors are employed by and/or have consulting
agreements with entities other than the Company, and they are expected to devote
only a small portion of their time to the Company. They do not actively
participate in the Company's activities or in the development of the Company's
technology. Certain of the institutions with which the scientific advisors are
affiliated may have regulations or policies which limit the ability of such
personnel to act as part-time consultants or in other capacities for a
commercial enterprise. Regulations or policies currently in effect or adopted in
the future might limit the ability of the scientific advisors to consult with
the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "SEC"). Officers, directors and greater than ten-percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) reports they file. Based solely on review of the copies of such reports
furnished to the Company during or with respect to fiscal 1997, or written
representations that no Forms 5 were required, the Company believes that during
the fiscal year ended November 30, 1997 all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten-percent beneficial
owners were complied with.
18
<PAGE> 21
CERTAIN TRANSACTIONS
See "Executive Compensation--Compensation Committee Interlocks and
Insider Participation" for a description of a distributorship agreement between
the Company and Mr. Follis.
II. APPROVAL OF AMENDMENT TO ARTICLES OF INCORPORATION
TO INCREASE AUTHORIZED COMMON SHARES
GENERAL
Article III of the Company's Articles of Incorporation presently
provides for an authorized capitalization of the Company of 6,000,000 Common
Shares, par value $0.01 per share, and 1,000,000 Preferred Shares, par value
$0.01 per share. As of January 26, 1998, none of the Preferred Shares had been
issued and 4,285,334 Common Shares were issued and outstanding, with 1,008,686
additional Common Shares reserved for issuance pursuant to the exercise of
options and warrants outstanding or reserved for grant under Company stock
option plans (1,437,186 if the amendment to the 1997 Stock Option Plan described
in Part III of this Proxy Statement is approved). The Company's Board of
Directors has determined that it would be advisable to amend and restate the
Company's Restated Articles of Incorporation to (i) increase the Company's
authorized Common Shares from 6,000,000 to 20,000,000 shares, and (ii) remove
provisions relating to the reverse stock split effected April 10, 1997.
Subject to shareholder approval, the Board of Directors has approved an
amendment and restatement of the Company's Restated Articles of Incorporation
which would revise Article III of the Company's Articles of Incorporation to (i)
increase from 6,000,000 to 20,000,000, the number of authorized Common Shares,
and (ii) delete the provisions in Article III of the Restated Articles of
Incorporation relating to the reverse stock split effected April 10, 1997, all
substantially as set forth in the form of Restated Articles of Incorporation
attached as Exhibit A (collectively, the "Amendment").
The Amendment will become effective upon the filing with the Michigan
Department of Consumer and Industry Services, Corporation, Securities and Land
Development Bureau of the proposed Restated Articles of Incorporation. If the
Amendment is approved, the Company currently expects the Restated Articles of
Incorporation to be filed as soon as practicable after the Annual Meeting.
PURPOSES OF THE AMENDMENT
The Amendment is being proposed to increase the number of the Company's
authorized but unissued Common Shares. As of January 26, 1998, the Company had
6,000,000 Common Shares authorized, 4,285,334 Common Shares issued and
outstanding and 1,008,686 Common Shares reserved for issuance pursuant to the
exercise of options and warrants outstanding or reserved for grant under Company
stock option plans (1,437,186 if the amendment to the 1997
19
<PAGE> 22
Stock Option Plan described in Part III of this Proxy Statement is approved). If
the proposal is approved by the shareholders of the Company, the additional
14,000,000 Common Shares so authorized will be available for issuance by the
Board of Directors of the Company for raising additional capital, stock options,
acquisitions, stock splits, stock dividends or other corporate purposes.
There are no arrangements, understandings or plans for the issuance of
any such additional shares, other than (i) shares reserved for issuance upon the
exercise of stock options and warrants outstanding or authorized for issuance
under existing plans or under the proposed amended 1997 Stock Option Plan (see
Part III of this Proxy Statement), although there are no current plans for any
specific grants, and (ii) the Company's plans to raise additional capital in
fiscal 1998 to support its business, as described below. The Company does not
expect that it would seek authorization from shareholders for issuance of such
additional shares unless required by applicable law or regulation or the rules
of the market in which the Company's Common Shares are traded. There are no
preemptive rights available to shareholders in connection with the issuance of
any such shares.
The Company is negotiating with an underwriter to underwrite a proposed
public offering, or to act as a placement agent for a private placement, by the
Company of newly-issued securities. The offerings may be subject to shareholder
approval of the Amendment. Among other things, the offering will be contingent
on satisfactory completion of a due diligence investigation of the Company by
the underwriter, any private placement investor and their agents. Any such
public offering will be made only by means of a prospectus. In addition, the
type and amount of security, if any, that might ultimately be issued in any
such offering have not yet been definitively determined and will be dependent
on negotiations with the underwriter and any private placement investor, market
conditions and management's then current estimate of the proceeds necessary or
desired to sustain the Company's operations. There can be no assurance that
such offering will occur or that the Company will be able to raise any capital
or capital in amounts it desires, or on terms and conditions acceptable to
the Company.
VOTE REQUIRED
Approval of the Amendment requires the affirmative vote of the holders
of a majority of the outstanding Common Shares. Abstentions and broker non-votes
will not be deemed affirmative votes, and will have the same effect as a
negative vote on the proposal. Such votes, however, will be counted in
determining the number of Common Shares present or represented by proxy in
determining whether a quorum is present Proxies received in response to this
solicitation will, in the absence of any contrary specification, be voted in
favor of the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT AND
RESTATEMENT OF THE COMPANY'S ARTICLES OF INCORPORATION, AND YOUR PROXY WILL BE
SO VOTED UNLESS YOU SPECIFY OTHERWISE.
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<PAGE> 23
III. PROPOSAL TO APPROVE AN AMENDMENT TO THE
SOMANETICS CORPORATION 1997 STOCK OPTION PLAN
TO INCREASE AUTHORIZED SHARES
GENERAL
At the meeting, shareholders will be asked to consider and act upon a
proposal to approve an amendment to the Somanetics Corporation 1997 Stock Option
Plan (the "1997 Option Plan") to increase the number of Common Shares, par value
$0.01 per share ("Common Shares"), reserved for issuance pursuant to the
exercise of options granted under the 1997 Option Plan by 450,000 shares, from
295,000 to 745,000 shares (the "1997 Option Plan Amendment"). Pursuant to the
1997 Option Plan, 295,000 Common Shares, are currently reserved for issuance
pursuant to options granted or to be granted to key employees (including
officers), directors, consultants or advisors (the "Participants") of or to the
Company or of or to any corporation or other entity in which the Company has a
direct or indirect ownership interest of 50% or more of the total combined
voting power of all classes of outstanding voting equity interests
("Subsidiary") as the Company's Board of Directors or a committee appointed by
the Board of Directors shall determine.
Options granted under the 1997 Option Plan may be "Incentive Stock
Options" (options meeting the requirements set forth in the 1997 Option Plan and
which are also intended to be and qualify as incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and the
applicable rules and regulations thereunder (the "Code")), nonqualified options
(options which meet the requirements set forth in the 1997 Option Plan but are
not intended to be, or do not qualify as, an incentive stock option within the
meaning of Section 422) or both. The 1997 Option Plan contains various
provisions to ensure that Incentive Stock Options comply with Section 422. The
Board of Directors adopted the 1997 Option Plan on January 15, 1997, and
approved the 1997 Option Plan Amendment on January 15, 1998, subject to
shareholder approval.
The Company's 1983 Stock Option Plan (the "1983 Plan") terminated in
1993, except as to options granted before that date. As of January 26, 1998,
options to purchase 9,315 Common Shares remained outstanding under the 1983
Plan. The Company's 1991 Incentive Stock Option Plan ("1991 Plan") authorizes
the issuance of up to 115,000 Common Shares, of which options to purchase 4,711
Common Shares have been exercised, options to purchase 106,712 Common Shares are
outstanding, and options to purchase 3,577 Common Shares are available for
future grants as of January 26, 1998. In addition, as of January 26, 1998, the
Company had granted options independent of any of its stock option plans to
purchase 175,168 Common Shares As of January 26, 1998, (i) options to purchase
253,200 Common Shares were outstanding under the 1997 Stock Option Plan, no
options granted under the 1997 Option Plan had been exercised and 41,800
remained available for the grant of options under the 1997 Option Plan. The
proposed 1997 Option Plan Amendment would increase the number of Common Shares
reserved for issuance pursuant to options granted or to be granted under the
1997 Option Plan by 450,000 Common Shares.
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<PAGE> 24
The Company's 1993 Director Stock Option Plan (the "Directors Plan")
authorizes the issuance of up to 24,000 Common Shares, of which options to
purchase 2 Common Shares had been exercised, options to purchase 10,520 Common
Shares are outstanding, and options to purchase 13,478 Common Shares are
available for future grants as of January 26, 1998. Subject to approval of the
1997 Option Plan Amendment at the Annual Meeting, the Board of Directors has (i)
terminated the Directors Plan, which means that no future grants of stock
options will be made under the Directors Plan, (ii) determined to grant Outside
Directors who continue to serve as directors of the Company after the annual
meeting of shareholders (beginning with the 1998 Annual Meeting), 10-year
options to purchase 2,000 Common Shares each year on the date of the annual
meeting of shareholders, exercisable at the fair market value of the Common
Shares on the date of grant, all under the amended 1997 Option Plan, and (iii)
effective as of the date of the 1998 Annual Meeting, in exchange for the
cancellation of certain outstanding stock options, granted ten-year stock
options under the amended 1997 Stock Option Plan to Mr. Follis, Dr. Ausman and
Mr. Wallace to purchase 7,500, 5,511, and 5,511 Common Shares, respectively, at
an exercise price equal to the closing sale price of the Common Shares as of the
date of the Annual Meeting (the "Replacement Options"). If the 1997 Option Plan
Amendment is not approved, the Directors Plan will not be terminated, the annual
option grants to Outside Directors under the 1997 Stock Option Plan will not be
made (although grants under the Directors Plan will continue) and the
Replacement Options will not be granted.
The Replacement Options cover the same number of shares and are subject
to the same terms and conditions as the options previously granted to such
directors under the Directors Plan or under the 1991 Incentive Stock Option
Plan, except that the exercise price of the Replacement Options will be the fair
market value of the Common Shares as of the date of the 1998 Annual Meeting. The
Replacement Options are effective only when the director cancels all options
previously granted to him under the Directors Plan and the 1991 Incentive Stock
Option Plan. Dr. Ausman also has an option to purchase 2,000 Common Shares at
$5.00 a share granted independent of the Company's plans that is not being
canceled.
The Company also has the following warrants outstanding: (i) warrants
granted to the placement agent in connection with three Regulation S offerings
of Common Shares in 1994, 1995 and 1996 to purchase an aggregate of 79,394
Common Shares, (ii) warrants issued to purchasers in connection with two
Regulation S offerings of Common Shares in 1995 and 1996 to purchase an
aggregate of 115,520 Common Shares as of January 26, 1998, and (iii) warrants
granted to the underwriter in connection with the Company's 1997 public offering
of Common Shares to purchase an aggregate of 200,000 Common Shares.
The Board of Directors believes that it is in the best interests of the
Company and its shareholders to approve the 1997 Option Plan Amendment to allow
the Company to continue to grant options to Participants in accordance with the
terms of the 1997 Option Plan.
The purpose of the 1997 Option Plan is to provide key employees
(including officers), directors, consultants and advisors of the Company and its
Subsidiaries with an increased incentive to make significant and extraordinary
contributions to the long-term performance and
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growth of the Company, to join the interests of key employees, directors,
consultants and advisors with the interests of shareholders of the Company and
to facilitate attracting and retaining key employees, directors, consultants and
advisors of the Company. The 1997 Option Plan, however, could have an
"anti-takeover" effect, particularly with regard to the Committee's ability to
accelerate the exercisability of stock options in connection with a change in
control.
Persons deemed to be affiliates of the Company, i.e., persons who
directly or indirectly through one or more intermediaries, control, are
controlled by, or are under common control with, the Company, must resell
securities acquired under the 1997 Option Plan pursuant to a registration
statement under the Securities Act of 1933, as amended, and the rules and
regulations thereunder (the "Securities Act"), Rule 144 under the Securities Act
or an applicable exemption under the Securities Act.
The Company is the issuer of the securities offered pursuant to the
1997 Option Plan. The Common Shares of the Company issuable upon exercise of
stock options under the 1997 Option Plan may be either authorized and unissued
or reacquired Common Shares of the Company. The 1997 Option Plan is not subject
to any provisions of the Employee Retirement Income Security Act of 1974 and is
not qualified under Section 401(a) of the Code.
APPROVAL OF THE 1997 OPTION PLAN AMENDMENT
The approval by a majority of the votes cast by the holders of Common
Shares at the meeting and entitled to vote on the action is necessary for
shareholder approval of the 1997 Option Plan Amendment. Abstentions, withheld
votes and broker non-votes will not be deemed votes cast in determining approval
of this proposal, but will be counted in determining the number of Common Shares
present or represented by proxy in determining whether a quorum is present. The
Board does not intend to place the 1997 Option Plan Amendment into effect unless
such approval is obtained at the Annual Meeting, and such approval is sought, in
part, in order to exempt the granting of options under the 1997 Option Plan from
the provisions of Section 162(m) of the Code and in order to comply with
shareholder approval requirements for securities traded on The Nasdaq SmallCap
Market.
A FULL COPY OF THE 1997 OPTION PLAN, AS PROPOSED TO BE AMENDED, MARKED
TO SHOW THE PROPOSED CHANGES, IS ATTACHED AS EXHIBIT B TO THIS PROXY STATEMENT.
THE MAJOR FEATURES OF THE 1997 OPTION PLAN, AS PROPOSED TO BE AMENDED, ARE
SUMMARIZED BELOW, BUT THIS IS ONLY A SUMMARY AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE ACTUAL TEXT. CAPITALIZED TERMS NOT OTHERWISE DEFINED IN THIS
PROXY STATEMENT HAVE THE MEANINGS GIVEN THEM IN THE 1997 OPTION PLAN. AS OF THE
RECORD DATE, THE CLOSING SALES PRICE OF THE COMPANY'S COMMON SHARES WAS
$5.0625.
ADMINISTRATION
The 1997 Option Plan is administered by a committee or entity appointed
by the Board of Directors to perform any of the functions and duties of the
Committee under the 1997 Option
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Plan and, with respect to administration of the 1997 Option Plan regarding
Participants who are subject to Section 16(a) and (b) of the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder (the "Exchange
Act"), that is a committee meeting the standards of Rule 16b-3 under the
Exchange Act, or any similar successor rule, or the Board of Directors as a
whole (the "Committee"). Members of the Committee serve at the pleasure of the
Board of Directors and may be removed or replaced by the Board of Directors at
any time. The Committee currently consists of Daniel S. Follis and H. Raymond
Wallace or the Board of Directors as a whole.
Subject to the provisions of the 1997 Option Plan, the Committee is
authorized to interpret the 1997 Option Plan, to promulgate, amend and rescind
rules and regulations relating to the 1997 Option Plan, and to make all other
determinations necessary or advisable for the 1997 Option Plan's administration.
Interpretation and construction of any provision of the 1997 Option Plan by the
Committee is, unless otherwise determined by the Board of Directors of the
Company, final and conclusive. Subject to the provisions of the 1997 Option
Plan, the Committee determines, from those eligible to be Participants under the
Plan, the persons to be granted stock options, the amount of stock to be
optioned to each such person, the time such options shall be granted, the time
or times such option shall be exercisable and the terms and conditions of any
stock options. Such terms and conditions may, in the Committee's sole
discretion, with no requirement whatsoever that the Committee follow past
practices, act in a manner consistent with past practices, or treat any key
employee, director, consultant or advisor in a manner consistent with the
treatment afforded other key employees, directors, consultants or advisors with
respect to the Plan or otherwise ("Discretion"), include, without limitation,
provisions providing for termination of the option, forfeiture of the gain on
any option exercises or both if the Participant competes with the Company or
otherwise acts contrary to the Company's interests, and provisions imposing
restrictions, potential forfeiture or both on shares acquired upon exercise of
options granted pursuant to this Plan. The Committee may condition any grant on
the potential Participant's agreement to such terms and conditions.
Subject to the requirements of the Code with respect to Incentive
Options that are intended to remain Incentive Options, in connection with a
Participant ceasing to be an employee of the Company or a subsidiary for any
reason, the stock option agreement may provide for the acceleration of, or the
Committee may accelerate, in its Discretion (exercised at the date of the grant
of the stock option or after the date of grant), in whole or in part, the time
or times or installments with respect to which any stock option granted under
the 1997 Option Plan shall be exercisable in connection with termination of a
Participant's employment with the Company or a subsidiary, subject to any
restrictions, terms and conditions fixed by the Committee either at the date of
the award or at the date it exercises such Discretion.
In addition to such other rights of indemnification as they may have,
the members of the Committee will be indemnified by the Company in connection
with any claim, action, suit or proceeding relating to any action taken or
failure to act under or in connection with the 1997 Option Plan or any option
granted under the 1997 Option Plan to the full extent provided for
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under the Company's Restated Articles of Incorporation or bylaws with respect to
indemnification of directors of the Company.
1997 OPTION PLAN PARTICIPANTS
The selection of persons who are eligible to participate in the 1997
Option Plan and grants and awards to those individuals are determined by the
Committee, in its Discretion. The only established criterion to determine
eligibility under the 1997 Option Plan is that individuals must be key employees
(including officers), directors, consultants or advisors of or to the Company or
any Subsidiary, as determined by the Committee in its Discretion; provided that
Incentive Options may be granted only to employees (as defined in the Code) of
the Company or a corporate Subsidiary, to the extent required by Section 422 of
the Code, or any successor provision.
Approximately 39 key employees, 3 directors, 9 consultants and advisors
are currently eligible to participate in the 1997 Option Plan, all of whom have
been granted options under the 1983 Plan, the 1991 Plan, the 1997 Option Plan,
the Directors Plan or independent of any stock option plan.
Subject to adjustments as described under "Shares Subject to Grant or
Award", no Participant may be granted stock options to purchase more than
200,000 Common Shares in the aggregate in any fiscal year. In addition, grants
and awards are subject to the maximum number of shares remaining with respect to
which stock options may be granted at any time under the 1997 Option Plan. There
are also certain limitations on the maximum value of Incentive Options which may
become first exercisable by any person in any year. Each grant or award under
the 1997 Option Plan must be evidenced by a written agreement containing such
provisions as may be approved by the Committee.
SHARES SUBJECT TO GRANT OR AWARD
The maximum number of Common Shares with respect to which stock options
may be granted under the 1997 Option Plan is currently 295,000 Common Shares and
is proposed to be amended to be 745,000 Common Shares, which may consist in
whole or in part of authorized and unissued or reacquired Common Shares. Unless
the 1997 Option Plan has terminated, shares covered by the unexercised portion
of canceled, expired or otherwise terminated options under the 1997 Option Plan
are again available for option and sale.
The number and type of shares subject to each outstanding stock option,
the option price with respect to outstanding stock options, the aggregate number
and type of shares remaining available under the 1997 Option Plan, and the
maximum number and type of shares that may be granted to any Participant in any
fiscal year are subject to such adjustment as the Committee, in its Discretion,
deems appropriate to reflect such events such as stock dividends, stock splits,
recapitalizations, mergers, statutory share exchanges or reorganizations of or
by the Company; provided that no fractional shares may be issued pursuant to the
1997 Option Plan, no rights may
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be granted under the 1997 Option Plan with respect to fractional shares, and any
fractional shares resulting from such adjustments shall be eliminated from any
outstanding option.
AMENDMENT OR TERMINATION OF THE 1997 OPTION PLAN
The Board of Directors may terminate or amend the 1997 Option Plan, or
amend any stock option agreement under the 1997 Option Plan, at any time;
provided that, (i) to the extent required by Section 162(m) of the Code and
related regulations, or any successor rule, but only with respect to amendments
or revisions affecting Participants whose compensation is subject to Section
162(m) of the Code, and to the extent required by Section 422 of the Code, or
any successor section, but only with respect to Incentive Stock Options, no such
amendment or revision may increase the maximum number of shares in the aggregate
that are subject to the 1997 Option Plan without the approval or ratification of
the shareholders of the Company, and (ii) no such amendment or revision may
change the option price or alter or impair any stock option previously granted
under the 1997 Option Plan, in a manner adverse to a Participant, without the
consent of such Participant, all except as described under the caption "Shares
Subject to Grant".
Unless sooner terminated by the Board of Directors, the 1997 Option
Plan will terminate on January 15, 2007, which is ten years after its original
adoption by the Board of Directors, and no stock options may be granted under
the 1997 Option Plan after that date. The termination of the 1997 Option Plan
will not affect the validity of any option outstanding on the date of
termination.
STOCK OPTIONS
Grant of Stock Options
Both Incentive Options and Nonqualified Options may be granted under
the 1997 Option Plan. An Incentive Option is intended to be, and qualifies as,
an incentive stock option within the meaning of Section 422 of the Code. Any
Incentive Option granted under the 1997 Option Plan must have an exercise price
not less than 100% of the fair market value of the shares on the date on which
such option is granted. With respect to an Incentive Option granted to a
Participant who owns more than 10% of the total combined voting shares of the
Company or of any parent or Subsidiary of the Company, the exercise price of
such option must not be less than 110% of the fair market value of the shares
subject to such option on the date such option is granted. A Nonqualified Option
granted under the 1997 Option Plan must have an exercise price of not less than
the par value, if any, of the Common Shares.
At the time of the exercise of any option granted pursuant to the 1997
Option Plan, the Participant must pay the full option price for all shares
purchased (a) in cash or, (b) with the consent of the Committee, in its
Discretion, (i) in Common Shares, (ii) by a promissory note payable to the order
of the Company which is acceptable to the Committee, (iii) by a cash down
payment and a promissory note for the unpaid balance, (iv) subject to such
conditions as may be
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established by the Committee, by the Company retaining from the shares to be
delivered upon exercise of the stock option that number of shares having a fair
market value on the date of exercise equal to the option price of the number of
shares with respect to which the Participant exercises the option, (v) by
delivery to the Company of written notice of the exercise in such form as the
Committee may prescribe, accompanied by irrevocable instructions to a stock
broker to promptly deliver to the Company full payment for the shares with
respect to which the option is exercised from the proceeds of the stockbroker's
sale of, or loan against, the shares, or (vi) in such other manner as the
Committee determines is appropriate, in its Discretion. The aggregate fair
market value (determined as of the date the option is granted) of the underlying
stock with respect to which Incentive Options are first exercisable for the
first time by such individual during any calendar year (under all of such plans
of the Company and its parent and Subsidiary corporations ) cannot exceed
$100,000.
Term of Stock Options
If not sooner terminated, each stock option granted under the 1997
Option Plan will expire not more than ten years from the date of grant; provided
that, with respect to an Incentive Option granted to a Participant who, at the
time of the grant, owns more than 10% of the total combined voting stock of all
classes of stock of the Company or of any parent or Subsidiary, such option must
expire not more than five years after the date of the grant.
Continuation of Employment
Options granted under the 1997 Option Plan may be exercised only while
the Participant is an employee, director, consultant or advisor of or to the
Company or a Subsidiary, except as described under "Extraordinary Transactions"
and except that the Committee may, in its Discretion, permit the exercise of all
or any portion of the options granted to such Participant (i) for a period not
to exceed three months following such termination with respect to Incentive
Options that are intended to remain Incentive Options if such termination is not
due to death or permanent disability of the Participant, (ii) for a period not
to exceed one year following termination of employment with respect to Incentive
Options that are Intended to remain Incentive Options if termination of
employment is due to the death or permanent disability of the Participant, and
(iii) for a period not to extend beyond the expiration date with respect to
Nonqualified Options or Incentive Options that are not intended to remain
Incentive Options, all subject to any restrictions, terms and conditions fixed
by the Committee either at the date of the award or at the date it exercises
such Discretion.
In no event, however, shall an option be exercisable after its
expiration date, and, unless the Committee in its Discretion determines
otherwise (pursuant to the 1997 Option Plan), an option may only be exercised
after termination of a Participant's employment, consultation or other service
by or to the Company to the extent exercisable on the date of such termination
or to the extent exercisable as a result of the reason for such termination. The
Committee may evidence the exercise of its Discretion in any manner it deems
appropriate, including by resolution or by a provision in, or amendment to, the
option.
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Subject to the requirements of the Code with respect to Incentive
Options that are intended to remain Incentive Options, in connection with a
Participant ceasing to be an employee of the Company or a subsidiary for any
reason, the stock option agreement may provide for the acceleration of, or the
Committee may accelerate, in its Discretion (exercised at the date of the grant
of the stock option or after the date of grant), in whole or in part, the time
or times or installments with respect to which any option granted under the 1997
Option Plan shall be exercisable in connection with termination of a
Participant's employment with the Company or a Subsidiary, subject to any
restrictions, terms and conditions fixed by the Committee either at the date of
the award or at the date it exercises such Discretion.
The Committee may require, in its Discretion, that any Participant
under the 1997 Option Plan to whom an option shall be granted shall agree in
writing as a condition of the granting of such option to remain in his or here
position as an employee, director, consultant or advisor of the Company or a
Subsidiary of the Company for a designated minimum period from the date of the
granting of such stock option as shall be fixed by the Committee. Nothing
contained in the 1997 Option Plan or in any option granted pursuant to the 1997
Option Plan, nor any action taken by the Committee under the 1997 Option Plan
confers upon any Participant any right with respect to continuation of
employment, consultation or other service by or to the Company or any Subsidiary
or interfere in any way with the right of the Company or a Subsidiary to
terminate such person's employment, consultation or other service at any time.
Sequential Exercise
Successive stock options may be granted to the same Participant whether
or not the option or options previously granted to such Participant remain
unexercised. A Participant may exercise any option granted under the 1997 Option
Plan, if then exercisable, notwithstanding that options granted to such
Participant before the option then being exercised remain unexercised.
Transferability of Options
Except as otherwise described below, to the extent required by Section
422 of the Code, or any successor section, but only with respect to Incentive
Options, or to the extent determined by the Committee in its Discretion (either
by resolution or by a provision in, or amendment to, the option), (i) no option
granted under the 1997 Option Plan to a Participant shall be transferable by
such Participant otherwise than by will, or by the laws of descent and
distribution or, with respect to Nonqualified Options only (unless permitted by
Section 422 of the Code or any successor section), pursuant to a qualified
domestic relations order as defined in the Code or Title I of the Employee
Retirement Income Security Act, or the rules thereunder, and (ii) each option is
exercisable, during the lifetime of the Participant, only by the Participant.
The Committee may, in its Discretion, authorize all or a portion of the
options to be granted to an optionee to be on terms which permit transfer by
such optionee to, and the exercise of such option by, (i) the spouse, children
or grandchildren of the optionee ("Immediate Family Members"), (ii) a trust or
trusts for the exclusive benefit of such Immediate Family Members, (iii)
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a partnership in which such Immediate Family Members are the only partners, or
(iv) such other persons or entities as determined by the Committee, in its
Discretion, on such terms and conditions as the Committee, in its Discretion,
may determine; provided that (y) the stock option agreement pursuant to which
such options are granted must be approved by the Committee and must expressly
provide for transferability in a manner consistent with these provisions of the
1997 Option Plan, and (z) subsequent transfers of transferred options are
prohibited except for transfers the original optionee would be permitted to make
(if he or she were still the owner of the option) in accordance with the 1997
Option Plan.
Following transfer, any such options shall continue to be subject to
the same terms and conditions as were applicable immediately before transfer,
provided that for some purposes under the 1997 Option Plan (generally relating
to exercise of the option) the term "Participant" shall be deemed to refer to
the transferee. The events of termination of employment, described above under
the caption "Continuation of Employment", continue to be applied with respect to
the original optionee. Following such events of termination of employment of the
original optionee, the options are exercisable by the transferee only to the
extent, and for the periods, described above under the caption "Continuation of
Employment". The original optionee remains subject to withholding taxes and
related requirements upon exercise described below under the caption "Federal
Income Taxes--Withholding Payments". The Company has no obligation to provide
any notice to any transferee, including, without limitation, notice of any
termination of the option as a result of termination of the original optionee's
employment with, or other service to, the Company.
Shareholder Rights
No Participant in the 1997 Option Plan has any of the rights of a
shareholder of the Company under any option granted under the 1997 Option Plan
until the actual issuance of shares to the Participant, and before such issuance
no adjustment will be made for dividends, distributions or other rights in
respect of such shares, except as described under the caption "Shares Subject to
Grant".
EXTRAORDINARY TRANSACTIONS
If the Company engages in specified consolidations, mergers, transfers
of substantially all of its properties and assets, dissolutions, liquidations,
reorganizations or reclassifications in such a way that holders of Common Shares
are entitled to receive stock, securities, cash or other assets with respect to,
or in exchange for, the Common Shares (each a "Transaction"), then each
Participant holding a stock option granted under the 1997 Option Plan upon the
exercise of such option after consummation of a Transaction will be entitled to
receive (for the same aggregate exercise price) the stock and other securities,
cash and assets the Participant would have received upon consummation of the
Transaction if he or she had exercised the option in full immediately before
consummation of the Transaction.
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In addition, in connection with a Transaction, the Committee, acting in
its Discretion without the consent of any Participant and regardless of any
other provision of the 1997 Option Plan, may (i) permit stock options
outstanding under the 1997 Option Plan to be exercised in full for a limited
period of time, after which all unexercised stock options and all rights of
Participants under such options would terminate, (ii) permit stock options
outstanding under the 1997 Option Plan to be exercised in full for their then
remaining terms, or (iii) require all stock options outstanding under the 1997
Option Plan to be surrendered to the Company for cancellation and payment to
each Participant in cash of the excess of the fair market value of the
underlying Common Shares as of the date such Transaction is effective over the
exercise price, less any applicable withholding taxes. The 1997 Option Plan
provides, however, that the Committee may not select an alternative for a
Participant that would result in his or her liability under Section 16(b) of the
Exchange Act, without the Participant's consent. If all of the alternatives have
such a result, the Committee will take such action to put such Participant in as
close to the same position as he or she would have been in if one of the
alternatives described above had been selected, but without resulting in any
payment by such Participant under Section 16(b) of the Exchange Act.
Notwithstanding the foregoing, with the consent of each Participant, the
Committee may make such provision with respect to any Transaction as it deems
appropriate.
FEDERAL INCOME TAX CONSEQUENCES
The rules governing the tax treatment of options and shares acquired
upon the exercise of options are quite technical. Therefore, the description of
federal income tax consequences set forth below is necessarily general in nature
and does not purport to be complete. Moreover, statutory provisions are subject
to change, as are their interpretations, and their application may vary in
individual circumstances. Finally, the tax consequences under applicable state
and local income tax laws may not be the same as under the federal income tax
laws.
Incentive Options
Incentive Options granted pursuant to the 1997 Option Plan are intended
to qualify as "Incentive Stock Options" within the meaning of Section 422 of the
Code. If the Participant makes no disposition of the shares acquired pursuant to
exercise of an Incentive Option within one year after the transfer of shares to
such Participant and within two years from grant of the option, such Participant
will realize no taxable income as a result of the grant or exercise of such
option, and any gain or loss that is subsequently realized upon a sale of other
disposition of the shares may be treated as long-term capital gain or loss, as
the case may be. Under these circumstances, the Company will not be entitled to
a deduction for federal income tax purposes with respect to either the issuance
of such Incentive Options or the transfer of shares upon their exercise.
If shares acquired upon exercise of Incentive Options are disposed of
prior to the expiration of the above time periods, the Participant will
recognize ordinary income in the year in which the disqualifying disposition
occurs, the amount of which will generally be the lesser
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of (i) the excess of the market value of the shares on the date of exercise over
the option price, or (ii) the gain recognized on such disposition. Such amount
will ordinarily be deductible by the Company for federal income tax purposes in
the same year, provided that the amount constitutes reasonable compensation and
that the Company satisfies certain federal income tax withholding requirements.
In addition, the excess, if any, of the amount realized on a disqualifying
disposition over the market value of the shares on the date of exercise will be
treated as capital gain.
Nonqualified Options
A Participant who acquires shares by exercise of a Nonqualified Option
generally realizes as taxable ordinary income, at the time of exercise, the
difference between the exercise price and the fair market value of the shares on
the date of exercise. Such amount will ordinarily be deductible by the Company
in the same year, provided that the amount constitutes reasonable compensation
and that the Company satisfies certain federal income tax withholding
requirements. Subsequent appreciation or decline in the value of the shares will
generally be treated as capital gain or loss on the sale or other disposition of
the shares.
Capital Gains Rates
Legislation enacted in 1997 reduces, in certain circumstances, the tax
rate applicable to long-term capital gain. If a Participant recognizes long-term
capital gain upon the sale or other disposition of shares acquired upon exercise
of options, the tax rate applicable to such gain will depend on a number of
factors, including the date the options are granted, the date the options are
exercised, the date the shares are sold or otherwise disposed of, the length of
time the Participant holds the shares, and the Participant's marginal tax
bracket. Participants should consult their own tax advisors concerning the
impact to them of the 1997 legislation regarding long-term capital gain tax
rates, as well as the other tax consequences of participation in the 1997 Option
Plan.
Withholding Payments
If upon the exercise of any Nonqualified Option or a disqualifying
disposition (within the meaning of Section 422 of the Code) of shares acquired
upon exercise of an Incentive Option, there shall be payable by the Company or a
Subsidiary any amount for income tax withholding, in the Committee's Discretion,
either the Participant shall pay such amount to the Company or such Subsidiary,
or the amount of Common Shares delivered by the Company to the Participant will
be appropriately reduced, to reimburse the Company or such Subsidiary for such
payment.
The Company or any of its Subsidiaries will have the right to withhold
the amount of such taxes from any other sums or property due or to become due
from the Company or any of its Subsidiaries to the Participant upon such terms
and conditions as the Committee shall prescribe. The Company may also defer
issuance of the stock upon exercise of such option until payment by the
Participant to the Company of the amount of any such tax. The Committee may, in
its
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Discretion, permit Participants to satisfy such withholding obligations, in
whole or in part, by electing to have the amount of Common Shares delivered or
deliverable by the Company upon exercise of a stock option appropriately
reduced, or by electing to tender Common Shares back to the Company subsequent
to exercise of a stock option to reimburse the Company for such income tax
withholding, subject to such rules and regulations, if any, as the Committee may
adopt. The Committee may make such other arrangements with respect to income tax
withholding as it shall determine.
Limitation on Compensation Deduction
Publicly-held corporations are precluded from deducting compensation
paid to certain of their executive officers in excess of $1 million. The
employees covered by the $1 million limitation on deductibility of compensation
consist of the chief executive officer and those employees whose annual
compensation is required to be reported to the Securities and Exchange
Commission because the employee is one of the company's four highest compensated
employees for the taxable year (other than the chief executive officer).
Ordinary income attributable to stock options generally is included in an
employee's compensation for purposes of the $1 million limitation on
deductibility of compensation.
However, there is an exception to the $1 million deduction limitation
for compensation (including compensation attributable to stock options) paid
pursuant to a qualified performance-based compensation plan. Compensation
attributable to a stock option is deemed to satisfy the qualified
performance-based compensation exception if (i) the grant is made by a
compensation committee comprised of outside directors, (ii) the plan under which
the options may be granted states the maximum number of shares with respect to
which options may be granted during a specified period to any employee, (iii)
under the terms of the option, the amount of compensation the employee would
receive is based solely on an increase in the value of the shares after the date
of the grant (e.g., the option is granted at an exercise price equal to or
greater than fair market value as of the date of the grant), and (iv) the
individuals eligible to receive grants, the maximum number of shares for which
grants may be made to any employee, the exercise price of the options and other
disclosures required by SEC proxy rules are disclosed to, and subsequently
approved by, shareholders.
If the amount of compensation a covered employee may receive under the
grant is not based solely on an increase in the value of the shares after the
date of the grant (e.g., an option is granted with an exercise price that is
less than the fair market value as of the date of the grant), none of the
compensation attributable to the grant is qualified performance-based
compensation unless the grant is made on account of the attainment of a
performance goal that has been previously established and approved by the
shareholders of the Company and otherwise qualifies under Section 162(m) of the
Code. The Company has not established any performance goals for grants under the
1997 Option Plan that meet the requirements of the performance-based
compensation standard required by Section 162(m) of the Code. The grant of
options by the Board of Directors or by a committee not meeting the requirements
of Section 162(m) will not
32
<PAGE> 35
qualify for the performance-based compensation exception to the $1 million
compensation deduction limitation.
ACCOUNTING TREATMENT
Generally, under current accounting rules applicable to the Company,
neither the grant nor the exercise of an Incentive Option or a Nonqualified
Option under the 1997 Option Plan requires any charge against earnings, if the
exercise price of the option is equal to the fair market value of the shares on
the date of grant. Footnote disclosure of the value of such options, however, is
required. If the exercise price is below the fair market value of the shares on
the date of grant, an earnings charge equal to the difference will be required
either at the date of grant or possibly over the term of the option. If the
optionee is allowed to pay the exercise price of an option with shares held less
than six months (or possibly, if such price is paid by the Company withholding
shares issuable upon exercise of the option), the Company will recognize an
earnings charge equal to the difference between the fair market value of the
shares issuable upon exercise of the option and the exercise price.
OPTION GRANTS UNDER THE PLANS
No options have been granted by the Company from December 1, 1997
through January 26, 1998. Options may be granted under the 1997 Option Plan at
the Committee's Discretion, subject to shareholder approval of the 1997 Option
Plan Amendment, if options are granted in excess of the 295,000 Common Shares
currently authorized and before such approval. The following table sets forth,
as to Bruce J. Barrett, Raymond W. Gunn, all current executive officers as a
group, all current directors who are not executive officers as a group, all
employees (including officers) who are not executive officers, as a group, and
all other consultants and advisors, as a group, the options granted under the
1997 Option Plan, the 1983 Plan, the 1991 Plan, the Directors Plan and
independent of any option plan (collectively, the "Plans") during the fiscal
year ended November 30, 1997:
33
<PAGE> 36
NEW PLAN BENEFITS
Somanetics Corporation 1983 Stock Option Plan
Somanetics Corporation 1991 Incentive Stock Option Plan
Somanetics Corporation 1997 Stock Option Plan
Somanetics Corporation Stock Options Granted Independent of Any Plan
Somanetics Corporation 1993 Director Stock Option Plan
<TABLE>
<CAPTION>
Number of Common
Shares Subject to Options
Granted Under the Plans
In the Fiscal Year Ended
Name and Position November 30, 1997 (1)
----------------- ------------------------
<S> <C>
Bruce J. Barrett, President and Chief Executive Officer............................. 135,000
Raymond W. Gunn, Executive Vice President and Chief Financial Officer............... 45,000
All current executive officers as a group (2 persons) .............................. 180,000
All current directors who are not executive officers as a group (3 persons)......... -0-
All employees (including officers) who are not executive officers as a
group (45 persons)................................................................ 116,350
All other consultants and advisors as a group (2 persons)........................... 10,500
</TABLE>
The dollar values of such options cannot be determined because they
depend on the market value of the underlying shares on the date of exercise. No
associate of any director, nominee or executive officer has been granted options
under the Plans. In addition, no person not named above has received five
percent or more of the options authorized under the Plans, in the aggregate.
Subject to approval by the shareholders at the Annual Meeting of the
1997 Option Plan Amendment, the Board of Directors has (i) terminated the
Directors Plan, which means that no future grants of stock options will be made
under the Directors Plan, (ii) determined to grant Outside Directors who
continue to serve as directors of the Company after the annual meeting of
shareholders (beginning with the 1998 Annual Meeting), 10-year options to
purchase 2,000 Common Shares each year on the date of the annual meeting of
shareholders, exercisable at the fair market value of the Common Shares on the
date of grant, and (iii) effective as of the date of the 1998 Annual Meeting, in
exchange for the cancellation of certain outstanding stock options, granted
ten-year stock options under the 1997 Stock Option Plan to Mr. Follis, Dr.
Ausman and Mr. Wallace to purchase 7,500, 5,511, and 5,511 Common Shares,
respectively, at an exercise price equal to the closing sale price of the Common
Shares as of the date of the Annual Meeting (the "Replacement Options"). If the
proposed 1997 Option Plan Amendment is not approved, the Directors Plan will not
be terminated, the annual option grants to Outside
34
<PAGE> 37
Directors under the 1997 Stock Option Plan will not be made (although grants
under the Directors Plan will continue) and the Replacement Options will not be
granted.
The Replacement Options cover the same number of shares and are subject
to the same terms and conditions as the options previously granted to such
directors under the Directors Plan or under the 1991 Incentive Stock Option
Plan, except that the exercise price of the Replacement Options will be the fair
market value of the Common Shares as of the date of the 1998 Annual Meeting. The
Replacement Options are effective only when the director cancels all options
previously granted to him under the Directors Plan and the 1991 Incentive Stock
Option Plan. Dr. Ausman also has an option to purchase 2,000 Common Shares at
$5.00 a share granted independent of the Company's plans that is not being
canceled. The Board determined to replace the stock options previously granted
to the Outside Directors under the Directors Plan and the 1991 Incentive Stock
Option Plan because it determined that options with exercise prices equal to the
then current market price of the Company's Common Shares would provide better
incentives to the directors. The Board believes that such options would better
motivate the Company's directors and give them increased incentive to remain
with the Company and make contributions to the long-term performance and growth
of the Company. The Board also believes that such options would more closely
join the interests of such directors with the interests of shareholders of the
Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSED
1997 OPTION PLAN AMENDMENT, AND YOUR PROXY WILL BE SO VOTED UNLESS YOU SPECIFY
OTHERWISE.
35
<PAGE> 38
IV. OTHER MATTERS
ANNUAL REPORT
A COPY OF THE ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR ENDED
NOVEMBER 30, 1997 ACCOMPANIES THIS PROXY STATEMENT. THE COMPANY FILES AN ANNUAL
REPORT ON FORM 10-K WITH THE SECURITIES AND EXCHANGE COMMISSION. THE COMPANY
WILL PROVIDE, WITHOUT CHARGE, TO EACH PERSON BEING SOLICITED BY THIS PROXY
STATEMENT, UPON THE WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF THE COMPANY's
Annual Report on Form 10-K for the FISCAL YEAR ENDED NOVEMBER 30, 1997 (AS FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION, EXCLUDING EXHIBITS FOR WHICH A
REASONABLE CHARGE SHALL BE IMPOSED). ALL SUCH REQUESTS SHOULD BE DIRECTED TO
SOMANETICS CORPORATION, 1653 EAST MAPLE ROAD, TROY, MICHIGAN 48083-4208,
ATTENTION: INVESTOR RELATIONS DEPARTMENT.
INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP are the independent accountants for the Company
and have reported on the Company's financial statements in the Company's 1997
Annual Report to Shareholders which accompanies this proxy statement. The
Company's independent accountants are appointed by the Board of Directors after
receiving the recommendation of its Audit Committee. The Company will not select
its independent accountants for the fiscal year ended November 30, 1998 until
later in its fiscal year.
A representative of Deloitte & Touche LLP is expected to be present at
the Annual Meeting of Shareholders and will have the opportunity to make a
statement at the meeting if he desires to do so. The representative will also be
available to respond to appropriate questions.
SHAREHOLDER PROPOSALS
Proposals of shareholders that are intended to be presented at the
Company's 1999 Annual Meeting of Shareholders must be received by the Company's
Secretary at the Company's offices, 1653 East Maple Road, Troy, Michigan
48083-4208, no later than October 7, 1998 to be considered for inclusion in the
Proxy Statement and Proxy relating to that meeting. Such proposals should be
sent by certified mail, return receipt requested.
OTHER BUSINESS
Neither the Company nor the members of its Board of Directors intend to
bring before the Annual Meeting any matters other than those set forth in the
Notice of Annual Meeting of Shareholders, and they have no present knowledge
that other matters will be presented for action at the Annual Meeting by others.
However, if other matters are properly presented to the meeting, the persons
named in the enclosed Proxy intend to vote the shares represented thereby in
accordance with their best judgment.
By order of the Board of Directors
Bruce J. Barrett
President and Chief Executive Officer
Troy, Michigan
February 4, 1998
36
<PAGE> 39
EXHIBIT A
- - --------------------------------------------------------------------------------
MICHIGAN DEPARTMENT OF CONSUMER AND INDUSTRY SERVICES
CORPORATION, SECURITIES AND LAND DEVELOPMENT BUREAU
- - --------------------------------------------------------------------------------
Date Received (FOR BUREAU USE ONLY)
- - --------------------------------------------------------------------------------
NAME Robert J. Krueger
Honigman Miller Schwartz and Cohn
- - --------------------------------------------------------------------------------
ADDRESS 2290 First National Building
- - --------------------------------------------------------------------------------
CITY STATE ZIP CODE
Detroit, Michigan 48226-3583
- - --------------------------------------------------------------------------------
EFFECTIVE DATE:
DOCUMENT WILL BE RETURNED TO THE NAME AND ADDRESS YOU ENTER ABOVE
RESTATED ARTICLES OF INCORPORATION
FOR USE BY DOMESTIC PROFIT CORPORATIONS
(Please read information and instructions on the last page)
Pursuant to the provisions of Act 284, Public Acts of 1972, the undersigned
corporation executes the following Articles:
1. The present name of the corporation is: Somanetics Corporation
2. The identification number assigned by the Bureau is: 261-155
3. All former names of the corporation are: N/A
4. The date of filing the original Articles of Incorporation was:
January 15, 1982
The following Restated Articles of Incorporation supersede the Articles of
Incorporation as amended and shall be the Articles of Incorporation for the
corporation:
ARTICLE I
The name of the corporation is: Somanetics Corporation
ARTICLE II
The purpose or purposes for which the corporation is formed is to engage in any
activity within the purposes for which corporations may be organized under the
Business Corporation Act of Michigan.
<PAGE> 40
ARTICLE III
The total authorized shares:
1. Common Shares 20,000,000, par value $0.01 per share
--------------------------------------------
Preferred Shares 1,000,000, par value $0.01 per share
--------------------------------------------
2. A statement of all or any of the relative rights, preferences and
limitations of the shares of each class is as follows:
a. Preferred Shares. The Board of Directors may cause the
Corporation to issue Preferred Shares in one or more series, each
series to bear a distinctive designation and to have such relative
rights and preferences as shall be prescribed by resolution of the
Board. Such resolutions, when filed, shall constitute amendments to
these Articles of Incorporation.
ARTICLE IV
1. The address of the current registered office is:
1653 East Maple Road, Troy, Michigan 48083-4208
------------------------------- ---------------------------
(Street Address) (City) (ZIP Code)
2. The mailing address of the current registered office, if different than
above:
Michigan
----------------------------------------- -------------------
(Street Address or P.O. Box) (City) (ZIP Code)
3. The name of the current resident agent is: Bruce J. Barrett
-------------------------
ARTICLE V
When a compromise or arrangement or a plan of reorganization of this corporation
is proposed between this corporation and its creditors or any class of them or
between this corporation and its shareholders or any class of them, a court of
equity jurisdiction within the state, on application of this corporation or of a
creditor or shareholder thereof, or on application of a receiver appointed for
the corporation, may order a meeting of the creditors or class of creditors or
of the shareholders or class of shareholders to be affected by the proposed
compromise or arrangement or reorganization, to be summoned in such manner as
the court directs. If a majority in number representing 3/4 in value of the
creditors or class of creditors, or of the shareholders or class of shareholders
to be affected by the proposed compromise or arrangement or a reorganization,
agree to a compromise or arrangement or a reorganization of this corporation as
a consequence of the compromise or arrangement, the compromise or arrangement
and the reorganization, if sanctioned by the court to which the application has
been made, shall be binding on all the creditors or class of creditors, or on
all the shareholders or class of shareholders and also on this corporation.
<PAGE> 41
ARTICLE VI
A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages for breach of the
director's fiduciary duty. However, this Article VI shall not eliminate or limit
the liability of a director for any of the following:
(1) A breach of the director's duty of loyalty to the
Corporation or its shareholders.
(2) Acts or omissions not in good faith or that involve
intentional misconduct or knowing violation of law.
(3) A violation of Section 551(1) of the Michigan Business
Corporation Act.
(4) A transaction from which the director derived an improper
personal benefit.
(5) An act or omission occurring before the effective date of
this Article VI.
Any repeal or modification of this Article VI by the shareholders of the
Corporation shall not adversely affect any right or protection of any director
of the Corporation existing at the time of, or for or with respect to, any acts
or omissions occurring before such repeal or modification.
<PAGE> 42
ARTICLE VII
The business and affairs of the Corporation shall be managed by or
under the direction of a Board of Directors consisting of not less than three or
more than fifteen directors, the exact number of directors to be determined from
time to time solely by a resolution adopted by an affirmative vote of a majority
of the directors then in office. The directors shall be divided into three
classes, designated Class I, Class II and Class III. Each class shall consist,
as nearly as may be possible, of one-third of the total number of directors
constituting the entire Board of Directors. At the 1992 Annual Meeting of
Shareholders, Class I directors shall be elected for a one-year term, Class II
directors for a two-year term and Class III directors for a three-year term. At
each succeeding annual meeting of shareholders, commencing in 1993, successors
to the class of directors whose term expires at that annual meeting shall be
elected for a three-year term.
If the number of directors is changed, any increase or decrease shall
be apportioned among the classes of directors so as to maintain the number of
directors in each class as nearly equal as possible, but in no case will a
decrease in the number of directors shorten the term of any incumbent director.
When the number of directors is increased by the Board of Directors and any
newly-created directorships are filled by the Board, the additional directors
shall be classified as provided by the Board.
A director shall hold office until the meeting for the year in which
his or her term expires and until his or her successor shall be elected and
shall qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office. Newly created directorships resulting
from an increase in the number of directors and any vacancy on the Board of
Directors may be filled by an affirmative vote of a majority of the directors
then in office. If the number of directors then in office is less than a quorum,
such newly created directorships and vacancies may be filled by a majority of
the directors then in office, although less than a quorum, or by the sole
remaining director. A director elected by the Board of Directors to fill a
vacancy shall hold office until the next election of the class for which the
director shall have been chosen and until his or her successor shall be elected
and shall qualify. A director or the entire Board of Directors may be removed
only for cause.
Notwithstanding the foregoing, whenever the holders of any one or more
classes of Preferred Shares or series thereof issued by the Corporation shall
have the right, voting separately by class or series, to elect directors at an
annual or special meeting of shareholders, the election, term of office, filling
of vacancies and other features of such directorship shall be governed by the
terms of these Restated Articles of Incorporation applicable thereto, and such
directors so elected shall not be divided into classes pursuant to this Article.
This Article VII may only be amended by the affirmative vote of
holders of 90% of the outstanding Common Shares of the Corporation, in addition
to the vote otherwise required by the Michigan Business Corporation Act.
<PAGE> 43
(ADDITIONAL PROVISIONS, IF ANY, MAY BE INSERTED HERE; ATTACH ADDITIONAL
PAGES IF NEEDED.)
5. COMPLETE SECTION (a) IF THE RESTATED ARTICLES WERE ADOPTED BY THE UNANIMOUS
CONSENT OF THE INCORPORATOR(S) BEFORE THE FIRST MEETING OF THE BOARD OF
DIRECTORS; OTHERWISE, COMPLETE SECTION (b). DO NOT COMPLETE BOTH.
a. / / These Restated Articles of Incorporation were duly adopted on the
____ day of ___________, 19 _______, in accordance with the
provisions of Section 642 of the Act by the unanimous consent of
the incorporator(s) before the first meeting of the Board of
Directors.
Signed this _________ day of ____________________, 19 _______.
_________________________________ ________________________________________
_________________________________ ________________________________________
(Signatures of incorporators; Type or Print Name Under Each Signature)
b. /X/ These Restated Articles of Incorporation were duly adopted on the
17th day of March, 1998 in accordance with the provisions of
Section 642 of the Act and: (check one of the following)
/ / were duly adopted by the Board of Directors without a vote of the
shareholders. These Restated Articles of Incorporation only restate
and integrate and do not further amend the provisions of the
Articles of Incorporation as heretofore amended and there is no
material discrepancy between those provisions and the provisions of
these Restated Articles.
/X/ were duly adopted by the shareholders. The necessary number of
shares as required by statue were voted in favor of these Restated
Articles.
/ / were duly adopted by the written consent of the shareholders having
not less than the minimum number of votes required by statue in
accordance with Section 407(1) of the Act. Written notice to
shareholders who have not consented in writing has been given.
(Note: Written consent by less than all of the shareholders is
permitted only if such provision appears in the Articles of
Incorporation.)
/ / were duly adopted by the written consent of all the shareholders
entitled to vote in accordance with section 407(2) of the Act.
Signed this ______ day of March, 1998
By _____________________________________________________
(Signature of President, Vice-President,
Chairperson, or Vice-Chairperson)
Bruce J. Barrett, President
________________________________________________________
(Type or Print Name) (Type or Print Title)
<PAGE> 44
Name of person or organization Preparer's name and business
remitting fees: telephone number:
Somanetics Corporation Robert J. Krueger
- - -------------------------------- --------------------------------
(313) 256-7675
- - -------------------------------- --------------------------------
INFORMATION AND INSTRUCTIONS
1. The articles of incorporation cannot be restated until this form, or a
comparable document, is submitted.
2. Submit one original of this document. Upon filing, the document will be
added to the records of the Corporation, Securities and Land Development
Bureau. The original will be returned to the address appearing in the box
on the front as evidence of filing.
Since this document will be maintained on optical disk media, it is
important that the filing be legible. Documents with poor black and white
contrast, or otherwise illegible, will be rejected.
3. This document is to be used pursuant to sections 641 through 643 of the Act
for the purpose of restating the articles of incorporation of a domestic
profit corporation. Restate articles of incorporation are an integration
into a single instrument of the current provisions of the corporation's
articles of incorporation, along with any desired amendments to those
articles.
4. Restated articles of incorporation which do not amend the articles of
incorporation may be adopted by the board of directors without a vote of the
shareholders. Restated articles of incorporation which amend the articles
of incorporation require adoption by the shareholders. Restated articles of
incorporation submitted before the first meeting of the board of directors
require adoption by all of the incorporators.
5. Item 2 - Enter the identification number previously assigned by the
Bureau. If this number is unknown, leave it blank.
6. The duration of the corporation should be stated in the restated articles of
incorporation only if it is not perpetual.
7. This document is effective on the date endorsed "filed" by the Bureau. A
later effective date, no more than 90 days after the date of delivery, may
be stated as an additional article.
8. If the restated articles are adopted before the first meeting of the board
of directors, item 5(a) must be completed and signed in ink by a majority
of the incorporators. Other restated articles must be signed by the
president, vice-president, chairperson or vice-chairperson of the
corporation.
9. FEES: Make remittance payable to the State of Michigan. Include
corporation name and identification number on check or money order.
<TABLE>
<S> <C>
NONREFUNDABLE FEE ........................................................................................$10.00
TOTAL MINIMUM FEE ........................................................................................$10.00
ADDITIONAL FEES DUE FOR INCREASED AUTHORIZED SHARES ARE:
each additional 20,000 authorized shares of portion thereof ...................................$30.00
maximum fee per filing for first 10,000,000 authorized shares ..............................$5,000.00
each additional 20,000 authorized shares or portion thereof in excess of 10,000,000 shares ....$30.00
maximum fee per filing for authorized shares in excess of 10,000,000 shares ..............$200,000.00
</TABLE>
<TABLE>
<S> <C>
10. Mail form and fee to: The office is located at:
Michigan Department of Consumer and Industry Services 6546 Mercantile Way
Corporation, Securities and Land Development Bureau Lansing, MI 48910
Corporation Division (517) 334-6302
P.O. Box 30054
Lansing, MI 48909-7554
</TABLE>
<PAGE> 45
EXHIBIT B
<AMENDED AND RESTATED>
SOMANETICS CORPORATION
1997 STOCK OPTION PLAN
1. Definitions: As used herein, the following terms shall have the
following meanings:
(a) "Code" shall mean the Internal Revenue Code of 1986, as
amended, and the applicable rules and regulations thereunder.
(b) "Committee" shall mean, (i) with respect to administration
of the Plan regarding Participants who are subject to Section 16(a) and
(b) of the Exchange Act, a committee meeting the standards of Rule
16b-3 of the Rules and Regulations under the Exchange Act, or any
similar successor rule, appointed by the Board of Directors of the
Company to perform any of the functions and duties of the Committee
under the Plan, or the Board of Directors as a whole, and (ii) with
respect to administration of the Plan regarding all other Participants,
such committee or the Board of Directors of the Company, as described
in clause (i), or such other committee or entity appointed by the Board
of Directors of the Company to perform any of the functions and duties
of the Committee under the Plan.
(c) "Common Shares" shall mean the Common Shares, par value
$.01 per share, of the Company.
(d) "Company" shall mean Somanetics Corporation, a Michigan
corporation, or any successor thereof.
(e) "Discretion" shall mean the sole discretion of the
Committee, with no requirement whatsoever that the Committee follow
past practices, act in a manner consistent with past practices, or
treat any key employee, director, consultant or advisor in a manner
consistent with the treatment afforded other key employees, directors,
consultants or advisors with respect to the Plan or otherwise.
(f) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder.
(g) "Incentive Option" shall mean an option to purchase Common
Shares which meets the requirements set forth in the Plan and also is
intended to be, and qualifies as, an incentive stock option within the
meaning of Section 422 of the Code.
(h) "Nonqualified Option" shall mean an option to purchase
Common Shares which meets the requirements set forth in the Plan but is
not intended to be, or does not qualify as, an incentive stock option
within the meaning of the Code.
<PAGE> 46
(i) "Participant" shall mean any individual designated by the
Committee under Paragraph 6 for participation in the Plan.
(j) "Plan" shall mean this Somanetics Corporation 1997 Stock
Option Plan.
(k) "Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations thereunder.
(l) "Subsidiary" shall mean any corporation or other entity in
which the Company has a direct or indirect ownership interest of 50% or
more of the total combined voting power of all classes of outstanding
voting equity interests.
2. Purpose of Plan: The purpose of the Plan is to provide key employees
(including officers), directors, consultants and advisors of the Company and its
Subsidiaries (collectively, "key employees") with an increased incentive to make
significant and extraordinary contributions to the long-term performance and
growth of the Company and its Subsidiaries, to join the interests of key
employees, directors, consultants and advisors with the interests of the
shareholders of the Company, and to facilitate attracting and retaining key
employees, directors, consultants and advisors of exceptional ability.
3. Administration: The Plan shall be administered by the Committee.
Subject to the provisions of the Plan, the Committee shall determine, from those
eligible to be Participants under the Plan, the persons to be granted stock
options, the amount of stock to be optioned to each such person, the time such
options shall be granted and the terms and conditions of any stock options. Such
terms and conditions may, in the Committee's Discretion, include, without
limitation, provisions providing for termination of the option, forfeiture of
the gain on any option exercises or both if the Participant competes with the
Company or otherwise acts contrary to the Company's interests, and provisions
imposing restrictions, potential forfeiture or both on shares acquired upon
exercise of options granted pursuant to this Plan. The Committee may condition
any grant on the potential Participant's agreement to such terms and conditions.
Subject to the provisions of the Plan, the Committee is authorized to
interpret the Plan, to promulgate, amend and rescind rules and regulations
relating to the Plan and to make all other determinations necessary or advisable
for its administration. Interpretation and construction of any provision of the
Plan by the Committee shall, unless otherwise determined by the Board of
Directors of the Company, be final and conclusive. A majority of the Committee
shall constitute a quorum, and the acts of a majority of the members present at
any meeting at which a quorum is present, or acts approved in writing by a
majority of the Committee, shall be the acts of the Committee.
4. Indemnification: In addition to such other rights of indemnification
as they may have, the members of the Committee shall be indemnified by the
Company in connection with any claim, action, suit or proceeding relating to any
action taken or failure to act under or in connection with the Plan or any
option granted hereunder to the full extent provided for under
-2-
<PAGE> 47
the Company's articles of incorporation or bylaws with respect to
indemnification of directors of the Company.
5. Maximum Number of Shares Subject to Plan: The maximum number of
shares with respect to which stock options may be granted under the Plan shall
be an aggregate of (295,000) <745,000> Common Shares, which may consist in
whole or in part of authorized and unissued or reacquired Common Shares. Unless
the Plan shall have been terminated, shares covered by the unexercised portion
of canceled, expired or otherwise terminated options under the Plan shall again
be available for option and sale.
Subject to Paragraph 16, the number and type of shares subject to each
outstanding stock option, the option price with respect to outstanding stock
options, the aggregate number and type of shares remaining available under the
Plan, and the maximum number and type of shares that may be granted to any
Participant in any fiscal year of the Company pursuant to Paragraph 6, shall be
subject to such adjustment as the Committee, in its Discretion, deems
appropriate to reflect such events as stock dividends, stock splits,
recapitalizations, mergers, statutory share exchanges or reorganizations of or
by the Company; provided that no fractional shares shall be issued pursuant to
the Plan, no rights may be granted under the Plan with respect to fractional
shares, and any fractional shares resulting from such adjustments shall be
eliminated from any outstanding option.
6. Participants: The Committee shall determine and designate from time
to time, in its Discretion, those key employees (including officers), directors,
consultants and advisors of or to the Company or any Subsidiary to whom options
are to be granted and who thereby become Participants under the Plan; provided,
however, that (a) Incentive Options shall be granted only to employees (as
defined in the Code) of the Company or a corporate Subsidiary, to the extent
required by Section 422 of the Code, or any successor provision, and (b) no
Participant may be granted stock options to purchase more than 200,000 Common
Shares in the aggregate in any fiscal year of the Company, subject to any
adjustments provided in the final paragraph of Paragraph 5 and in Paragraph 16.
7. Allotment of Shares: The Committee shall determine and fix the
number of Common Shares to be offered to each Participant; provided that no
Incentive Option may be granted under the Plan to any one Participant which
would result in the aggregate fair market value, determined as of the date the
option is granted, of the underlying stock with respect to which Incentive
Options are exercisable for the first time by such individual during any
calendar year (under all of such plans of the Company and its parent and
Subsidiary corporations) exceeding $100,000.
8. Option Price: Subject to the rules set forth in this Paragraph 8,
the Committee, in its Discretion, shall establish the option price at the time
any option is granted. With respect to an Incentive Option, such option price
shall not be less than 100% of the fair market value of the stock on the date on
which such option is granted; provided that with respect to an Incentive Option
granted to an employee who at the time of the grant owns (after applying the
-3-
<PAGE> 48
attribution rules of Section 424(d) of the Code) more than 10% of the total
combined voting stock of the Company or of any parent or Subsidiary, the option
price shall not be less than 110% of the fair market value of the stock subject
to the Incentive Option on the date such option is granted. With respect to a
Nonqualified Option, the option price shall be not less than the par value, if
any, of the Common Shares. Fair market value of a share shall be determined by
the Committee and may be determined by using the closing sale price of the
Company's stock on any exchange or other market on which the Common Shares shall
be traded on such date, or if there is no sale on such date, on the next
following date on which there is a sale, or the average of the closing bid and
asked prices in any market or quotation system in which the Common Shares shall
be listed or traded on such date. The option price will be subject to adjustment
in accordance with the provisions of Paragraphs 5 and 16 of the Plan.
9. Granting and Exercise of Options: The granting of options under the
Plan shall be effected in accordance with determinations made by the Committee
pursuant to the provisions of the Plan, by execution of instruments in writing
in form approved by the Committee. Such instruments shall constitute binding
contracts between the Company and the Participant.
Subject to the terms of the Plan, the Committee, in its Discretion, may
grant to Participants Incentive Options, Nonqualified Options or any combination
thereof. Each option granted under the Plan shall designate the number of shares
covered thereby, if any, with respect to which the option is an Incentive Option
and the number of shares covered thereby, if any, with respect to which the
option is a Nonqualified Option.
Subject to the terms of the Plan, each option granted under the Plan
shall be exercisable at any such time or times or in any such installments as
may be determined by the Committee in its Discretion; provided that the
aggregate fair market value (determined as of the date the option is granted) of
the underlying stock with respect to which Incentive Options are exercisable for
the first time by such individual during any calendar year (under all of such
plans of the Company and its parent and Subsidiary corporations) shall not
exceed $100,000. Except as provided in Paragraph 13, options may be exercised
only while the Participant is an employee, director, consultant or advisor of
the Company or a Subsidiary.
Notwithstanding any other term or provision of this Plan, but subject
to the requirements of the Code with respect to Incentive Options that are
intended to remain Incentive Options, in connection with a Participant ceasing
to be an employee of the Company or a Subsidiary for any reason, the stock
option agreement may provide for the acceleration of, or the Committee may
accelerate, in its Discretion (exercised at the date of the grant of the stock
option or after the date of grant), in whole or in part, the time or times or
installments with respect to which any option granted under this Plan shall be
exercisable in connection with termination of a Participant's employment with
the Company or a Subsidiary, subject to any restrictions, terms and conditions
fixed by the Committee either at the date of the award or at the date it
exercises such Discretion.
Successive stock options may be granted to the same Participant,
whether or not the option or options previously granted to such Participant
remain unexercised. A Participant may exercise
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<PAGE> 49
any option granted under the Plan, if then exercisable, notwithstanding that
options granted to such Participant prior to the option then being exercised
remain unexercised.
10. Payment of Option Price: At the time of the exercise in whole or in
part of any option granted under this Plan, payment in full in cash, or with the
consent of the Committee, in its Discretion, in Common Shares or by a promissory
note payable to the order of the Company which is acceptable to the Committee,
shall be made by the Participant for all shares so purchased. Such payment may,
with the consent of the Committee, in its Discretion, also consist of a cash
down payment and delivery of such a promissory note in the amount of the unpaid
exercise price. In the Discretion of, and subject to such conditions as may be
established by, the Committee, payment of the option price may also be made by
the Company retaining from the shares to be delivered upon exercise of the stock
option that number of shares having a fair market value on the date of exercise
equal to the option price of the number of shares with respect to which the
Participant exercises the option. In the Discretion of the Committee, a
Participant may exercise an option, if then exercisable, in whole or in part, by
delivery to the Company of written notice of the exercise in such form as the
Committee may prescribe, accompanied by irrevocable instructions to a stock
broker to promptly deliver to the Company full payment for the shares with
respect to which the option is exercised from the proceeds of the stock broker's
sale of or loan against some or all of the shares. Such payment may also be made
in such other manner as the Committee determines is appropriate, in its
Discretion. No Participant shall have any of the rights of a shareholder of the
Company under any option until the actual issuance of shares to such
Participant, and prior to such issuance no adjustment shall be made for
dividends, distributions or other rights in respect of such shares, except as
provided in Paragraphs 5 and 16.
11. Transferability of Option: Except as otherwise provided in this
Paragraph 11, (i) to the extent required by Section 422 of the Code, or any
successor section, but only with respect to Incentive Options, or (ii) to the
extent determined by the Committee in its Discretion (either by resolution or by
a provision in, or amendment to, the option), (a) no option granted under the
Plan to a Participant shall be transferable by such Participant otherwise than
(1) by will, or (2) by the laws of descent and distribution or, (3) with respect
to Nonqualified Options only (unless permitted by Section 422 of the Code or any
successor section), pursuant to a qualified domestic relations order as defined
in the Code or Title I of the Employee Retirement Income Security Act, or the
rules thereunder, and (b) such option shall be exercisable, during the lifetime
of the Participant, only by the Participant.
The Committee may, in its Discretion, authorize all or a portion of the
options to be granted to an optionee to be on terms which permit transfer by
such optionee to, and the exercise of such option by, (i) the spouse, children
or grandchildren of the optionee ("Immediate Family Members"), (ii) a trust or
trusts for the exclusive benefit of such Immediate Family Members, (iii) a
partnership in which such Immediate Family Members are the only partners, or
(iv) such other persons or entities as determined by the Committee, in its
Discretion, on such terms and conditions as the Committee, in its Discretion,
may determine; provided that (y) the stock option agreement pursuant to which
such options are granted must be approved by the Committee and
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<PAGE> 50
must expressly provide for transferability in a manner consistent with this
Paragraph 11, and (z) subsequent transfers of transferred options shall be
prohibited except for transfers the original optionee would be permitted to make
(if he or she were still the owner of the option) in accordance with this
Paragraph 11.
Following transfer, any such options shall continue to be subject to
the same terms and conditions as were applicable immediately before transfer,
provided that for purposes of Paragraphs 9, 10, 14, 16 and 18 the term
"Participant" shall be deemed to refer to the transferee. The events of
termination of employment of Paragraph 13 shall continue to be applied with
respect to the original optionee, following which the options shall be
exercisable by the transferee only to the extent, and for the periods, specified
in Paragraph 13. The original optionee shall remain subject to withholding taxes
and related requirements upon exercise provided in Paragraph 15. The Company
shall have no obligation to provide any notice to any transferee, including,
without limitation, notice of any termination of the option as a result of
termination of the original optionee's employment with, or other service to, the
Company.
12. Continuance of Employment; No Right to Continued Employment: The
Committee may require, in its Discretion, that any Participant under the Plan to
whom an option shall be granted shall agree in writing as a condition of the
granting of such option to remain in his or her position as an employee,
director, consultant or advisor of the Company or a Subsidiary for a designated
minimum period from the date of the granting of such option as shall be fixed by
the Committee.
Nothing contained in the Plan or in any option granted pursuant to the
Plan, nor any action taken by the Committee hereunder, shall confer upon any
Participant any right with respect to continuation of employment, consultation
or other service by or to the Company or a Subsidiary nor interfere in any way
with the right of the Company or a Subsidiary to terminate such person's
employment, consultation or other service at any time.
13. Termination of Employment; Expiration of Options: Subject to the
other provisions of the Plan, including, without limitation, Paragraphs 9 and 16
and this Paragraph 13, all rights to exercise options shall terminate when a
Participant ceases to be an employee, director, consultant or advisor of or to
the Company or a Subsidiary for any cause, except that the Committee may, in its
Discretion, permit the exercise of all or any portion of the options granted to
such Participant
(i) for a period not to exceed three months following such
termination with respect to Incentive Options that are intended to
remain Incentive Options if such termination is not due to death or
permanent disability of the Participant,
(ii) for a period not to exceed one year following termination
of employment with respect to Incentive Options that are Intended to
remain Incentive Options if termination of employment is due to the
death or permanent disability of the Participant, and
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<PAGE> 51
(iii) for a period not to extend beyond the expiration date
with respect to Nonqualified Options or Incentive Options that are not
intended to remain Incentive Options,
all subject to any restrictions, terms and conditions fixed by the Committee
either at the date of the award or at the date it exercises such Discretion. In
no event, however, shall an option be exercisable after its expiration date,
and, unless the Committee in its Discretion determines otherwise (pursuant to
Paragraph 9 or Paragraph 16), an option may only be exercised after termination
of a Participant's employment, consultation or other service by or to the
Company to the extent exercisable on the date of such termination or to the
extent exercisable as a result of the reason for such termination. The Committee
may evidence the exercise of its Discretion under this Paragraph 13 in any
manner it deems appropriate, including by resolution or by a provision in, or
amendment to, the option.
If not sooner terminated, each stock option granted under the Plan
shall expire not more than 10 years from the date of the granting thereof;
provided that with respect to an Incentive Option granted to a Participant who,
at the time of the grant, owns (after applying the attribution rules of Section
424(d) of the Code) more than 10% of the total combined voting stock of all
classes of stock of the Company or of any parent or Subsidiary, such option
shall expire not more than 5 years after the date of granting thereof.
14. Investment Purpose: If the Committee in its Discretion determines
that as a matter of law such procedure is or may be desirable, it may require a
Participant, upon any exercise of any option granted under the Plan or any
portion thereof and as a condition to the Company's obligation to deliver
certificates representing the shares subject to exercise, to execute and deliver
to the Company a written statement, in form satisfactory to the Committee,
representing and warranting that the Participant's purchase of Common Shares
upon exercise thereof shall be for such person's own account, for investment and
not with a view to the resale or distribution thereof and that any subsequent
sale or offer for sale of any such shares shall be made either pursuant to (a) a
Registration Statement on an appropriate form under the Securities Act, which
Registration Statement has become effective and is current with respect to the
shares being offered and sold, or (b) a specific exemption from the registration
requirements of the Securities Act, but in claiming such exemption the
Participant shall, prior to any offer for sale or sale of such shares, obtain a
favorable written opinion from counsel for or approved by the Company as to the
availability of such exemption. The Company may endorse an appropriate legend
referring to the foregoing restriction upon the certificate or certificates
representing any shares issued or transferred to the Participant upon exercise
of any option granted under the Plan.
15. Withholding Payments: If upon the exercise of any Nonqualified
Option or a disqualifying disposition (within the meaning of Section 422 of the
Code) of shares acquired upon exercise of an Incentive Option, there shall be
payable by the Company or a Subsidiary any amount for income tax withholding, in
the Committee's Discretion, either the Participant shall pay such amount to the
Company, or the amount of Common Shares delivered by the Company to the
Participant shall be appropriately reduced, to reimburse the Company or such
Subsidiary
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<PAGE> 52
for such payment. The Company or any of its Subsidiaries shall have the right to
withhold the amount of such taxes from any other sums or property due or to
become due from the Company or any of its Subsidiaries to the Participant upon
such terms and conditions as the Committee shall prescribe. The Company may also
defer issuance of the stock upon exercise of such option until payment by the
Participant to the Company of the amount of any such tax. The Committee may, in
its Discretion, permit Participants to satisfy such withholding obligations, in
whole or in part, by electing to have the amount of Common Shares delivered or
deliverable by the Company upon exercise of a stock option appropriately
reduced, or by electing to tender Common Shares back to the Company subsequent
to exercise of a stock option to reimburse the Company or such Subsidiary for
such income tax withholding, subject to such rules and regulations, if any, as
the Committee may adopt. The Committee may make such other arrangements with
respect to income tax withholding as it shall determine.
16. Extraordinary Transactions: In case the Company (i) consolidates
with or merges into any other corporation or other entity and is not the
continuing or surviving entity of such consolidation or merger, or (ii) permits
any other corporation or other entity to consolidate with or merge into the
Company and the Company is the continuing or surviving entity but, in connection
with such consolidation or merger, the Common Shares are changed into or
exchanged for stock or other securities of any other corporation or other entity
or cash or any other assets, or (iii) transfers all or substantially all of its
properties and assets to any other corporation or other person or entity, or
(iv) dissolves or liquidates, or (v) effects a capital reorganization or
reclassification in such a way that holders of Common Shares shall be entitled
to receive stock, securities, cash or other assets with respect to or in
exchange for the Common Shares, then, and in each such case, proper provision
shall be made so that, each Participant holding a stock option upon the exercise
of such option at any time after the consummation of such consolidation, merger,
transfer, dissolution, liquidation, reorganization or reclassification (each
transaction, for purposes of this Paragraph 16, being herein called a
"Transaction"), shall be entitled to receive (at the aggregate option price in
effect for all Common Shares issuable upon such exercise immediately prior to
such consummation and as adjusted to the time of such Transaction), in lieu of
Common Shares issuable upon such exercise prior to such consummation, the stock
and other securities, cash and assets to which such Participant would have been
entitled upon such consummation if such Participant had so exercised such stock
option in full immediately prior thereto (subject to adjustments subsequent to
such Transaction provided for in Paragraph 5).
Notwithstanding anything in the Plan to the contrary, in connection
with any Transaction and effective as of a date selected by the Committee, which
date shall, in the Committee's judgment, be far enough in advance of the
Transaction to permit Participants holding stock options to exercise their
options and participate in the Transaction as a holder of Common Shares, the
Committee, acting in its Discretion without the consent of any Participant, may
effect one or more of the following alternatives with respect to all of the
outstanding stock options (which alternatives may be made conditional on the
occurrence of the applicable Transaction and which may, if permitted by law,
vary among individual Participants): (a) accelerate the time at which stock
options then outstanding may be exercised so that such stock options may be
exercised in full for a limited period of time on or before a specified date
fixed by the Committee after which
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<PAGE> 53
specified date all unexercised stock options and all rights of Participants
thereunder shall terminate; (b) accelerate the time at which stock options then
outstanding may be exercised so that such stock options may be exercised in full
for their then remaining term; or (c) require the mandatory surrender to the
Company of outstanding stock options held by such Participants (irrespective of
whether such stock options are then exercisable) as of a date, before or not
later than sixty days after such Transaction, specified by the Committee, and in
such event the Company shall thereupon cancel such stock options and shall pay
to each Participant an amount of cash equal to the excess of the fair market
value of the aggregate Common Shares subject to such stock option, determined as
of the date such Transaction is effective, over the aggregate option price of
such shares, less any applicable withholding taxes; provided, however, the
Committee shall not select an alternative (unless consented to by the
Participant) such that, if a Participant exercised his or her accelerated stock
option pursuant to alternative (a) or (b) and participated in the Transaction or
received cash pursuant to alternative (c), the alternative would result in the
Participant's owing any money by virtue of the operation of Section 16(b) of the
Exchange Act. If all such alternatives have such a result, the Committee shall,
in its Discretion, take such action to put such Participant in as close to the
same position as such Participant would have been in had alternative (a), (b) or
(c) been selected but without resulting in any payment by such Participant
pursuant to Section 16(b) of the Exchange Act. Notwithstanding the foregoing,
with the consent of affected Participants, each with respect to such
Participant's option only, the Committee may in lieu of the foregoing make such
provision with respect to any Transaction as it deems appropriate.
17. Effectiveness of Plan: This Plan shall be effective on the date the
Board of Directors of the Company adopts this Plan, provided that the
shareholders of the Company approve the Plan within 12 months before or after
its adoption by the Board of Directors. Options may be granted before
shareholder approval of this Plan, but each such option shall be subject to
shareholder approval of this Plan. No option granted under this Plan shall be
exercisable unless and until this Plan shall have been approved by the Company's
shareholders.
18. Termination, Duration and Amendments to the Plan: The Plan may be
abandoned or terminated at any time by the Board of Directors of the Company.
Unless sooner terminated, the Plan shall terminate on the date ten years after
the earlier of its adoption by the Board of Directors or its approval by the
shareholders of the Company, and no stock options may be granted under the Plan
thereafter. The termination of the Plan shall not affect the validity of any
option which is outstanding on the date of termination.
For the purpose of conforming to any changes in applicable law or
governmental regulations, or for any other lawful purpose, the Board of
Directors shall have the right, with or without approval of the shareholders of
the Company, to amend or revise the terms of this Plan or any option agreement
under this Plan at any time; provided, however, that (i) to the extent required
by Section 162(m) of the Code and related regulations, or any successor rule,
but only with respect to amendments or revisions affecting Participants whose
compensation is subject to Section 162(m) of the Code, and to the extent
required by Section 422 of the Code, or any successor section, but only with
respect to Incentive Options, no such amendment or revision
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<PAGE> 54
shall increase the maximum number of shares in the aggregate which are subject
to this Plan (subject, however, to the provisions of Paragraphs 5 and 16)
without the approval or ratification of the shareholders of the Company, and
(ii) no such amendment or revision shall change the option price (except as
contemplated by Paragraphs 5 and 16) or alter or impair any option which shall
have been previously granted under this Plan, in a manner adverse to a
Participant, without the consent of such Participant.
As adopted by the Board of Directors on January 15, 1997<, AND AMENDED
ON JANUARY 15, 1998.>
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<PAGE> 55
PROXY
SOMANETICS CORPORATION
BOARD OF DIRECTORS PROXY FOR ANNUAL MEETING MARCH 17, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF SOMANETICS CORPORATION
The undersigned hereby appoints Bruce J. Barrett and Raymond W. Gunn, and each
of them, attorneys and proxies with full power of substitution in each of them,
in the name, place and stead of the undersigned to vote as proxy all the Common
Shares,par value $.01 per share, of the undersigned in Somanetics Corporation
(the "Company") which the undersigned is entitled to vote at the Annual Meeting
of Shareholders of the Company to be held on March 17, 1998, and at any and all
adjournments thereof.
(To be Signed on Reverse Side)
See Reverse
Side
<TABLE>
<S><C>
/X/ Please mark your
votes as in this
example.
FOR THE NOMINEE WITHHOLD
LISTED (EXCEPT AUTHORITY
AS MARKED TO VOTE FOR
TO THE CONTRARY THE NOMINEE
BELOW) LISTED
1. Election of Directors [ ] [ ]
Nominee: Bruce J. Barrett
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
FOR AGAINST ABSTAIN
2. Approval of the amendment and restatement of the Company's [ ] [ ] [ ]
Restated Articles of Incorporation to (i) increase the Company's
authorized Common Shares from 6,000,000 to 20,000,000 shares, and
(ii) remove provisions relating to the reverse stock split effected
April 10, 1997.
3. Approval of an amendment to the Somanetics Corporation 1997 Stock Option [ ] [ ] [ ]
Plan to increase the number of Common Shares reserved for issuance pursuant to
the exercise of options granted under the 1997 Plan by 450,000 shares,
from 295,000 to 745,000 shares.
4. In their discretion with respect to any other matters that may properly come before the meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATIONS MADE HEREIN. THE SHARES REPRESENTED BY
THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE DIRECTOR NAMED IN PROPOSAL 1 AND FOR PROPOSALS 2 AND 3 IF NO INSTRUCTIONS TO THE
CONTRARY ARE INDICATED OR IF NO INSTRUCTION IS GIVEN.
PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE.
SIGNATURE(S) DATE: , 1998
--------------------------------------------------------------------------------- -----------------------
SIGNATURE(S) DATE: , 1998
--------------------------------------------------------------------------------- -----------------------
(NOTE: PLEASE SIGN EXACTLY AS NAME APPEARS HEREON, EXECUTORS, ADMINISTRATORS, ATTORNEYS, GUARDIANS, TRUSTEES, ETC. SHOULD SO
INDICATE WHEN SIGNING, GIVING FULL TITLE AS SUCH. IF SIGNER IS A CORPORATION, EXECUTE IN FULL CORPORATE NAME BY AUTHORIZED OFFICER
IF SHARES ARE HELD IN THE NAME OF TWO OR MORE PERSONS, ALL SHOULD SIGN.)
</TABLE>
