HAUSER CHEMICAL RESEARCH, INC.
5555 Airport Boulevard
Boulder, CO 80301
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
To Be Held November 14, 1996
SOLICITATION OF PROXIES
This Proxy Statement is furnished in connection with the
solicitation of proxies by the Board of Directors of Hauser
Chemical Research, Inc., a Delaware corporation (the
"Company"), for use at the Annual Meeting of Shareholders of
the Company to be held at 3:00 p.m. Mountain Time, on November
14, 1996, at The Boulder Broker Inn Hotel, 30th & Baseline
Rd., Boulder, CO 80303, and at any and all adjournments of
such meeting.
If the enclosed Proxy Card is properly executed and
returned in time to be voted at the meeting, the shares of
Common Stock represented will be voted in accordance with the
instructions contained therein. Executed proxies that contain
no instructions will be voted for each of the nominees for
director indicated herein and for the proposal to
reincorporate the Company in Colorado (the "Reincorporation
Proposal"). It is anticipated that this Proxy Statement and
the accompanying Proxy Card and Proxy Notice will be mailed to
the Company's shareholders on or about October 3, 1996.
Shareholders who execute proxies for the Annual Meeting
may revoke their proxies at any time prior to their exercise
by delivering written notice of revocation to the Company, by
delivering a duly executed Proxy Card bearing a later date, or
by attending the meeting and voting in person.
The costs of the meeting, including the costs of
preparing and mailing the Proxy Statement, Proxy Notice and
Proxy Card, will be borne by the Company. The Company may, in
addition, use the services of its directors, officers and
employees to solicit proxies, personally or by telephone, but
at no additional salary or compensation. The Company will also
request banks, brokers, and others who hold shares of Common
Stock of the Company in nominee names to distribute annual
reports and proxy soliciting materials to beneficial owners,
and will reimburse such banks and brokers for reasonable out-
of-pocket expenses which they may incur in so doing.
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS
Only shareholders of record at the close of business on
September 30, 1996, will be entitled to vote at the Annual
Meeting. Each issued share of Common Stock entitles its record
owner to one vote on each matter to be voted upon at the
meeting. As of July 31, 1996, there were 10,327,020 shares of
the Company's $0.001 par value Common Stock outstanding. The
Company has authorized 800,000 shares of Preferred Stock,
$1.00 par value, none of which were outstanding as of the
record date. The presence in person or by proxy of the holders
of forty percent (40%) of the total issued and outstanding
shares of Common Stock of the Company which are entitled to be
voted at the Annual Meeting is necessary in order to
constitute a quorum for the meeting. If a quorum is present,
directors will be elected by a plurality of the votes present
in person or by proxy. APPROVAL OF PROPOSAL 1, THE
REINCORPORATION PROPOSAL, REQUIRES AN AFFIRMATIVE VOTE OF AT
LEAST A MAJORITY OF THE TOTAL SHARES OF COMMON STOCK
OUTSTANDING. The aggregate number of votes cast by all
shareholders present in person or by proxy will be used to
determine whether a proposal will carry. Thus, in the case of
the election of directors, an abstention from voting has no
effect on the item on which the shareholder abstained from
voting. However, an abstention will, pursuant to Rule 16b-3
under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), be counted as a "No" vote on the
Reincorporation Proposal. In addition, although broker "non-
votes" will be counted for purposes of attaining a quorum,
they will be considered "No" votes for purposes of the
Reincorporation Proposal.
COLORADO REINCORPORATION
The Company's Board of Directors has unanimously approved
and, for the reasons described below, unanimously recommends
that the Company's shareholders approve a proposal which
provides, among other things, for the change of the Company's
state of incorporation from Delaware to Colorado (the
"Reincorporation Proposal"). Approval of the Reincorporation
Proposal will result in a change in the name of Old Hauser to
Hauser Corporation ("Hauser-Colorado"). It will not result in
any change in the business, management, board of directors,
assets or liabilities of the Company. In particular, persons
elected as directors of the Company at the 1996 Annual Meeting
will serve as directors of Hauser-Colorado.
Purposes of the Reincorporation Proposal
Change of State of Domicile
The Company's Board of Directors believes that the best
interests of the Company and its shareholders will be served
by changing the Company's place of incorporation from Delaware
to Colorado. The Company was incorporated in Delaware in 1985
as a result of a merger with Nittany Ventures, Inc.
The Board of Directors believes that the franchise tax
imposed by the state of Delaware in an unnecessary burden upon
the Company. During fiscal 1996, the Company paid
approximately $75,000 in franchise tax to the state of
Delaware. There is no corresponding franchise tax in the state
of Colorado. While a large number of public corporations
maintain their domicile in Delaware, the newly enacted changes
to the Colorado Business Corporation Act (the "Colorado law")
provides for favorable business corporation laws in Colorado,
similar to the laws of the state of Delaware. For the
foregoing reasons, the Board of Directors believes that the
activities of the Company can be carried on to better
advantage if the Company is able to operate under the laws of
Colorado. It should be noted, also, that shareholders in some
instances have greater rights and hence more protection under
the Colorado Business Corporation Act than under the Delaware
Law. See "Comparison of Shareholders' Rights Under Colorado
and Delaware Law."
The following discussion summarizes certain aspects of
the Reincorporation Proposal. This summary does not purport to
be a complete description of the Reincorporation Proposal.
Copies of the existing Certificate of Incorporation of the
Company, the Articles of Incorporation of Hauser-Colorado, the
Bylaws of Hauser-Colorado and the Merger Agreement are
available for inspection at the Company's offices and copies
will be sent to shareholders on request. For purposes of the
following discussion, the Company is hereinafter sometimes
referred to as "Old Hauser."
General
Hauser-Colorado is a wholly-owned subsidiary of Old
Hauser which was recently organized for the sole purpose of
effecting the reincorporation of the Company in Colorado. The
reincorporation transaction will involve the merger of Old
Hauser with and into Hauser-Colorado (the "Merger"). At the
Effective Time (as defined in the Merger Agreement), the
separate existence of Old Hauser will cease and
Hauser-Colorado will succeed, to the extent permitted by law,
to all the business, properties, assets and liabilities of Old
Hauser. Each common share of Old Hauser, $.001 par value
("Delaware Common Stock" or "Common Stock") issued immediately
prior to the Effective Time will, by virtue of the
Reincorporation Proposal, be converted into one fully paid
share of Common stock, par value $.01 per share, of
Hauser-Colorado ("Colorado Common Stock"). At the Effective
Time, certificates which immediately prior to the Effective
Time represented Delaware Common Stock will be deemed for all
corporate purposes to represent the same number of shares of
Colorado Common Stock into which such Delaware Common Stock
has been converted. IT WILL NOT BE NECESSARY FOR SHAREHOLDERS
TO EXCHANGE THEIR EXISTING STOCK CERTIFICATES FOR STOCK
CERTIFICATES OF HAUSER-COLORADO.
It is anticipated that the Merger will become effective
on or about November 15, 1996. However, the Merger Agreement
provides that the Merger may be abandoned by the Board of
Directors of either Hauser-Colorado or Old Hauser prior to the
Effective Time thereof, either before or after shareholder
approval. In addition, the Merger Agreement may be amended
prior to the Effective Time of the Merger, either before or
after shareholder approval thereof; provided, however, that
the Merger Agreement may not be amended after shareholder
approval if such amendment would (1) alter or change the
amount or kind of shares or other consideration to be received
by shareholders in the Merger, (2) alter or change any term of
the Hauser-Colorado Articles, (3) alter or change any of the
terms and conditions of the Merger Agreement if such
alteration or change would adversely affect the shareholders,
or (4) otherwise violate applicable law.
The affirmative vote of the holders of a majority of the
outstanding Delaware Common Stock is required for approval of
the Reincorporation Proposal. A vote for approval of the
Reincorporation Proposal will constitute specific approval of
the Merger as well as other matters included in the
Reincorporation Proposal described in this Proxy Statement.
Shareholders of the Company whose shares are not voted in
favor of the Reincorporation Proposal will not have statutory
dissenter's rights under Delaware law because Old Hauser is
listed on the NASDAQ National Market System.
Other Effects of the Reincorporation
Approval of the Merger Agreement and the Reincorporation
Proposal by the Company's shareholders will also constitute
approval of the provisions of the Hauser-Colorado Articles and
the Hauser-Colorado Bylaw Provisions. For a description of the
differences between the Hauser-Colorado Articles and Hauser-
Colorado Bylaw Provisions and the Old Hauser Certificate and
Bylaws, see "Differences in Charter Document Provisions." In
addition, as shareholders of a Colorado corporation, the
rights of shareholders of Hauser-Colorado will be governed by
Colorado rather than Delaware law. See "Comparison of Share-
holders' Rights Under Colorado and Delaware Law."
Differences in Charter Document Provisions
There are no differences between the Old Hauser and
Hauser-Colorado Articles and Bylaws. The Articles of
Incorporation of Old Hauser presently authorize the issuance
of 50,000,000 shares Common Shares, $.001 par value and
800,000 shares of Preferred Stock. The terms of the Colorado
Common Stock will be identical to those of the Delaware Common
Shares. For example, neither shares have preemptive rights or
cumulative voting rights. In addition, similar to Delaware
law, Colorado law permits the Board of Directors to issue the
Preferred Shares in one or more series, and to fix, among
other things, the designation and number of shares to
constitute each series and the relative rights and preferences
of shares of each series. In addition, the Board of Directors
of Hauser-Colorado would be entitled to set the voting rights
for the Preferred Shares. As permitted by Delaware law and
Colorado law, both the Articles and the Bylaws eliminate or
limit the personal liability of a director. Colorado law and
Delaware law contain generally similar provisions for the
indemnification of directors and officers. Insofar as
indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors or officers under
the Hauser-Colorado Bylaw Provisions, it is the position of
the Securities and Exchange Commission that such
indemnification would be against public policy as expressed in
the Act and therefore unenforceable. The Company has not
decided whether to enter into separate indemnity contracts
with its directors and officers.
Comparison of Shareholders' Rights Under Colorado and Delaware
Law
Although it is impracticable to compare all of the
aspects in which the general corporation laws of Colorado and
Delaware differ, the following is a summary of certain
significant differences between the provisions of these laws.
Action by Shareholder Consent. Colorado law provides that
shareholder action may be taken without a meeting if a written
consent is signed by all shareholders entitled to vote.
Delaware also permits consent action by shareholders, but the
action may be taken by shareholders holding the number of
shares necessary to authorize the action at a meeting (usually
a majority of a quorum).
Call of Shareholders Meetings. Special meetings of
shareholders of Colorado corporations may be called at any
time by shareholders entitled to cast at least one-tenth of
the votes which all shareholders are entitled to cast at the
particular meeting. Delaware law has no such provision.
Charter Amendments. Colorado law permits shareholders
holding at least ten percent (10%) of the outstanding shares
to propose an amendment to the Company's articles of
incorporation without board of director approval of the
proposed amendment. Delaware has no such provision and
amendments to a Delaware certificate of incorporation must be
approved by the board of directors before they are presented
to the stockholders.
Class Voting. Under Colorado law, holders of a particular
class of shares are entitled to vote as a separate class if
the rights of such class are affected in certain respects by
mergers, consolidations or amendments to the articles of
incorporation. The Delaware General Corporation Law requires
voting by separate classes only with respect to amendments to
the certificate of incorporation which adversely affect the
holders of such classes or which increase or decrease the
aggregate number of authorized shares or the par value of the
shares of any such classes.
Appraisal Rights. Under Colorado law, dissenting
shareholders are entitled to appraisal rights in connection
with the lease, sale, exchange, transfer or other disposition
of all or substantially all of the assets of a corporation
made in the usual or regular course of its business. In
addition, shareholders of a Colorado corporation being merged
into a surviving corporation or being consolidated into a new
corporation are also entitled to appraisal rights. Under the
Delaware General Corporation Law, appraisal rights are
available only in connection with statutory mergers or
consolidations. Even in such case, unless the certificate of
incorporation otherwise provides, (that of Hauser-Delaware
does not so provide) the Delaware General Corporation Law does
not recognize dissenters' rights if the shares of the merged
corporation are listed on a national securities exchange or
held of record by more than 2,000 shareholders (as long as the
shareholders receive in the merger shares of the surviving
corporation or of any other corporation the shares which are
listed on a national securities exchange or held of record by
more than 6,000 shareholders). Upon consummation of the
Reincorporation, there will be approximately 1,500
shareholders of Hauser-Colorado.
Federal Income Tax Consequences of the Merger
The Company has been advised by its counsel, Chrisman,
Bynum & Johnson, P.C., that for federal income tax purposes
the Merger will constitute a reorganization under Section 368
of the Internal Revenue Code of 1954, as amended, and that
consequently the holders of the Delaware Common Stock will not
recognize any gain or loss as a result of the Merger. For
federal income tax purposes, each shareholder of the Company
will retain the same tax basis in this Delaware Common Stock
as he had in the corresponding Colorado Common Stock held by
him immediately prior to the Effective Time of the Merger, and
his holding period of the Colorado Common Stock will include
the period during which he held the corresponding Delaware
Common Stock, provided that such corresponding Delaware Common
Stock was held by him as a capital asset at the Effective Time
of the Merger.
Although it is not anticipated that state or local income
tax consequences to shareholders will vary from the federal
income tax consequences described above, holders should
consult their own tax advisors as to the effect of the
reorganization under state, local or foreign income tax laws.
The Company further has been advised by counsel that it will
not recognize any gain, loss or income for federal income tax
purposes as a result of the Merger, and that Hauser-Colorado
will succeed, without adjustment, to the tax attributes of Old
Hauser.
Vote Required; Board Recommendation
The affirmative vote of a majority of the outstanding
Common Shares of the Company is required for approval of the
Reincorporation Proposal. A vote for the Reincorporation
Proposal will constitute approval of all transactions and
proceedings which are included in the Reincorporation Proposal
described in this Proxy Statement. THE BOARD OF DIRECTORS HAS
UNANIMOUSLY APPROVED THE REINCORPORATION PROPOSAL AND
UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE REINCORPORATION
PROPOSAL. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE
VOTED FOR THE REINCORPORATION PROPOSAL UNLESS A VOTE AGAINST
THE PROPOSAL OR ABSTENTION IS SPECIFICALLY INDICATED.
ELECTION OF DIRECTORS
(Proxy Item #2)
The Company's Board of Directors has nominated the nine
persons listed below for election as directors for the ensuing
year, each to hold office until the 1997 Annual Meeting of
Shareholders and until their successors are duly elected and
qualified, or until their death, resignation or removal. Each
of the nominees is a member of the present Board of Directors
of the Company and has served in that capacity since
originally elected. A shareholder using the enclosed proxy
form can vote for all or any of the nominees of the Board of
Directors or such shareholder may withhold his or her vote
from all or any of such nominees. If the proxy card is
properly executed but not marked, it will be voted for all of
the nominees. Each of the nominees has agreed to serve as a
director if elected; however, should any nominee become unable
or unwilling to accept nomination or election, the persons
named in the proxy will exercise their voting power in favor
of such other person or persons as the Board of Directors of
the Company may recommend. There are no family relationships
among these nominees. The following table sets forth the
directors of the Company, their ages as of April 30, 1996, all
positions and offices held with the Company and the period
from which served:
<TABLE>
First
All Positions and Elected
Offices Held with As A
Name Age the Company Director
<S> <C> <S> <C>
Dean P. Stull, Ph.D. 46 Chairman, Chief Executive 1983
Officer, President and Director
Randall J. Daughenbaugh, Ph.D. 48 Executive Vice President, 1983
Chief Technical Officer and Director
William E. Coleman, Ph.D.<F1><F3> 62 Director 1988
Stanley J. Cristol, Ph.D.<F1> 80 Director 1983
Ray L. Hauser, Ph.D.<F2> 68 Director 1983
Willem A. Maas 65 Director 1995
Christopher W. Roser<F2><F3> 38 Director 1990
Robert F. Saydah<F1><F2><F3> 69 Director 1994
Bert M. Tolbert, Ph.D.<F1> 75 Director 1983
- ---------------------
<FN>
<F1> Member of Compensation Committee.
<F2> Member of Audit Committee.
<F3> Member of Nominating Committee.
</FN>
</TABLE>
The principal occupation and business experience of each
Director is set forth below:
Dean P. Stull, Ph.D. is one of the founders of the
Company. He has been a Director, Chairman of the Board of
Directors and Chief Executive Officer since November 1983
and President since May 1995. He is a Director of the
Boulder Chamber of Commerce and a past founder and Board
member of the Boulder Valley Rotary Foundation. Dr. Stull
is also a member of the Colorado Institute for Research
in Biotechnology. In 1992, Dr. Daughenbaugh and Dr. Stull
received the Entrepreneur of the Year award for the Rocky
Mountain Region and the national Emerging Entrepreneur of
the Year award from Inc. Magazine. Dr. Stull received a
Bachelor of Science Degree in Chemistry from Colorado
State University in 1972, and a Master of Science and Ph.D.
in Physical Organic Chemistry from the University of Colorado,
Boulder, in 1974 and 1976, respectively.
Randall J. Daughenbaugh, Ph.D. is one of the founders of
the Company. He has been a Director of the Company since
November 1983, and served as President until November 1992,
when he became Executive Vice President and Chief Technical
Officer. Prior to forming the Company, Dr. Daughenbaugh served
as research chemist for Chemical Exchange Industries, Inc., a
chemical company, from November 1980 and research director
from August 1983 to October 1983. Dr. Daughenbaugh received a
Bachelor of Science Degree from South Dakota School of Mines
and Technology in 1970 and a Ph.D. in Physical Organic
Chemistry from the University of Colorado in 1975.
William E. Coleman, Ph.D. has served as a Director of the
Company since February 1988. Dr. Coleman has served as
President of Colorado Venture Management, Inc., Boulder,
Colorado, an investment and project management firm from 1980
to 1990 and as Chairman since 1990. He also serves as
President of Cogen Technology, Inc., a privately held company
developing cogeneration projects; Chairman of Econalytic
Systems, Inc., a privately held company which markets fuel
additive products; director of B.I., Inc., a publicly-held
company which designs, manufactures, markets and supports
electronic monitoring systems; Chairman of Colorado
Greenhouse, LLC, a privately held company producing and
marketing hydroponically grown produce on a national scale;
and Director of Telemark Industries, Inc., a privately-held
company that manufactures and sells a photoprinter for color
digital photography and short-run printing applications. Dr.
Coleman received a Bachelor of Science Degree in Chemistry in
1956 from the University of Illinois, and a Ph.D. in Organic
Chemistry in 1960 from the University of California, Berkeley.
Stanley J. Cristol, Ph.D. is one of the founders of the
Company and has been a Director of the Company since November
1983. Dr. Cristol has been on the faculty of the University of
Colorado since 1946 and was appointed the Joseph Sewell
Distinguished Professor of Chemistry in 1979. Dr. Cristol has
held the administrative positions of Chairman of the
Department of Chemistry, Acting Dean of the Graduate School
and Acting Associate Vice Chancellor for Graduate Affairs at
the University of Colorado. Dr. Cristol has acted as
consultant to many large U.S. government and industrial
organizations and companies. Dr. Cristol received a Bachelor
of Science Degree in Chemistry from Northwestern University in
1937, and Master of Arts and Ph.D. Degrees in Organic
Chemistry from the University of California at Los Angeles in
1939 and 1943, respectively.
Ray L. Hauser, Ph.D. is one of the founders of the
Company and has been a Director of the Company since November
1983. Dr. Hauser was the owner and sole shareholder of Hauser
Laboratories, Inc. prior to its acquisition by the Company in
1990. Since 1961, Dr. Hauser has worked with the formulation,
development, processing and evaluation of plastics and other
non-metallic materials. Dr. Hauser is an internationally
recognized expert in materials science and technology and, as
an individual or through the performance of his laboratories,
has supplied consulting and contract services to a large
number of U.S. and international organizations and companies.
Dr. Hauser is a director of Image Guided Technologies, Inc.,
Avalon Imaging Corp. and Surface Solutions, Inc., three
technology firms in Boulder, Co. He is a registered
professional engineer in Colorado and California. Dr. Hauser
received a Bachelor of Science Degree in Chemical Engineering
from the University of Illinois in 1950, a Master of Science
Degree in Chemical Engineering from Yale University in 1952,
and a Ph.D. in Chemical Engineering from the University of
Colorado in 1957.
Willem A. Maas has served as President and a Director of
Hauser Northwest, Inc., since May 1994. From February 1990 to
May 1994, he was President of Ironwood Evergreens, Inc., an
Oregon corporation engaged in the floral greens business. From
August 1980 until July 1989, he was the Chief Executive
Officer and Executive Vice President for Florist Transworld
Delivery Association ("FTD"). He is a director and Chairman of
Toll Free Cellular Inc., an emerging communications company
and a director of Floral Communications Inc., a telemarketing
company with an intercity floral trade. Mr. Maas serves as a
National Trustee of the Leukemia Society of America.
Christopher W. Roser has served as a Director of the
Company since December 1990. Mr. Roser is a general partner of
The Roser Partnership, Ltd., and The Roser Partnership II,
Ltd., privately held venture capital funds, and is a Director
on the Board of Directors of North America Technology Group,
Inc., a public company, and various privately-held companies.
From 1984 to 1987, Mr. Roser was employed as a technology
research analyst and an associate in corporate finance for
Ladenburg Thalmann & Co., Inc., an investment banking firm.
From 1981 to 1984, Mr. Roser was a staff public accountant for
Main Hurdman KMG in New York City. Mr. Roser received a
Bachelor of Arts Degree in Economics from The University of
Colorado in 1981 and an M.B.A. in Finance from New York
University Graduate School of Business Administration in 1985.
Robert F. Saydah has served as a Director of the Company
since January 1994. Mr. Saydah has been Managing Partner and a
Director of Heidrick & Struggles, a privately-held
international executive search consulting firm, since May
1992. Heidrick & Struggles is the oldest of four major
executive search firms in the United States. Before joining
Heidrick & Struggles in 1988, Mr. Saydah worked for the
Lederle Laboratories Division of American Cyanamid Company for
39 years. He held general management positions, including
responsibility for strategic planning and marketing and sales,
culminating as Vice President in charge of branded
pharmaceuticals, generic, and consumer health products
businesses in the United States. He also had operational
responsibility for pharmaceutical divisions in Latin America
and Europe. Mr. Saydah received a Bachelor of Arts Degree in
Biology from Lehigh University in 1948, and a Master of
Science Degree in Bacteriology from Lehigh University in 1949.
Bert M. Tolbert, Ph.D. is one of the founders of the
Company and has been a Director of the Company since November
1983. Dr. Tolbert serves as managing partner of a ranching
complex in Idaho. He has served as an expert witness in
pharmaceutical litigation and has served as Project Manager in
Biology and Medicine for the Department of Energy. From 1957
to 1989, Dr. Tolbert served as Professor, Department of
Chemistry and Biochemistry at the University of Colorado at
Boulder. Dr. Tolbert received a Bachelor of Science (cum
laude) Degree from the University of California at Berkeley in
1942 and a Ph.D. in Physical-Organic Chemistry from the
University of California at Berkeley in 1945.
Compensation Committee Interlocks and Insider Participation
Directors Coleman, Cristol, Saydah and Tolbert comprise
the Company's Compensation Committee. All are nonemployee
directors. None of the members of the Compensation Committee
have ever been officers of the Company.
Director Compensation
During fiscal 1996, the Company's non-employee directors
were granted options to purchase a total of 17,400 shares of
Common Stock for services rendered to the Company at an
average price of $5.44 per share (100% of fair market value on
the date of grant). Directors receive an option to purchase
300 shares for Board service and options to purchase 150
shares for attendance at each meeting of the Board or each
committee thereof. The options are exercisable for a five-year
period.
In May 1992, the Board of Directors approved a two-step
plan to compensate outside Directors. The plan includes
options for Board and committee service as discussed above,
and an annual cash payment of $10,000 per outside Director
plus an annual payment of $2,500 for committee chairman.
During fiscal 1996, the Company's six outside directors
received cash compensation of approximately $55,650 in the
aggregate pursuant to this plan, plus reimbursement of travel
expenses.
During the fiscal year ended April 30, 1996, the
Company's Board of Directors held ten meetings. The
Compensation Committee, consisting of directors Coleman,
Cristol, Saydah and Tolbert held ten meetings during the
fiscal year. The function of the Compensation Committee is to
recommend raises and bonuses, if any, for the Company's
officers and to grant stock option awards to Company
employees. The Audit Committee consisting of Directors Hauser,
Saydah and Roser held three meetings during the fiscal year.
The function of the Audit Committee is to oversee management's
internal audit controls, review periodic filings with the
Securities and Exchange Commission, and review any
transactions between the Company and its officers, directors
or affiliated entities. The Nominating Committee consisting of
Directors Saydah, Coleman and Roser held three meetings during
the fiscal year. The function of the Nominating Committee is
to investigate succession planning for the Company's
executives and nominations to the Board of Directors. The
Nominating Committee will not consider shareholder
nominations.
Compliance With Section 16(a)
Section 16(a) of the Securities Exchange Act of 1934, as
amended, requires the Company's directors, executive officers
and holders of more than 10% of the Company's Common Stock to
file with the Securities and Exchange Commission initial
reports of ownership and reports of changes in ownership of
Common Stock of the Company. Based solely upon a review of
Forms 3 and 4 and amendments thereto furnished to the Company
during the fiscal year ended April 30, 1996 and Forms 5 and
amendments thereto furnished to the Company with respect to
the fiscal year ended April 30, 1996, to the best of the
Company's knowledge, the Company's directors, officers and
holders of more than 10% of its Common Stock complied with all
Section 16(a) filing requirements, except as follows: Drs.
Cristol and Tolbert filed one last Form 4 report reporting an
exercise of warrants during the fiscal year ended April 30,
1996.
EXECUTIVE OFFICERS
The following sets forth the names of the executive
officers of the Company not named previously, their respective
positions with the Company and business experience and
background.
David I. Rosenthal was named Chief Financial Officer and
Treasurer of the Company in May 1996. He also serves as
Corporate Treasurer for the Company's wholly-owned
subsidiaries, Hauser Northwest, Inc. d/b/a Ironwood, and
Shuster Laboratories, Inc. From the time of his employment at
the Company in June 1994 until April 1996, Mr. Rosenthal
served as the Company's Corporate Controller. Mr. Rosenthal
has over fifteen years experience in senior level financial
positions in both private and public high technology
companies, including Tandem Computers, Inc., and Octel
Communications Corporation, and three years employment at
Arthur Andersen & Company. Mr. Rosenthal earned his Bachelor
of Sciences Degree in Business Administration from the
University of California at Berkeley in 1976 and his M.B.A. in
Finance from California State University in 1977.
Patricia A. Roberts is Corporate Secretary for the
Company. She has been employed by Hauser since its founding,
serving as manager of Corporate Affairs and Secretary to the
Board of Directors. She also serves as Corporate Secretary for
the Company's wholly-owned subsidiaries, Hauser Northwest,
Inc. d/b/a Ironwood, and Shuster Laboratories, Inc. Ms.
Roberts is an alumnus of the University of Colorado at
Boulder.
Neil A. Jans is currently Vice President and General
Manager of Natural Ingredients. He joined the Company as
Director of Business Development in May 1988. From 1985 to May
1988, Mr. Jans was a consultant and project manager for
Western Consulting Corporation, The Meyer Group, a management
consulting group specializing in business planning and
strategy. Mr. Jans received a Bachelor of Science Degree in
Chemistry in 1973 from Rutgers University and an M.B.A. from
the University of Colorado in 1984.
Timothy D. Ziebarth, Ph.D. is Senior Vice President/Director
of Technical Services of the Company. From July 1995 to January
1996, he was also President and a director of Shuster Laboratories,
Inc., a wholly-owned subsidiary of the Company. Prior to joining
the Company, he served as Chief Chemist, General Manager and
President of Hauser Laboratories, Inc. from 1974 to 1978 and again
from 1987 to 1990. Dr. Ziebarth received a Bachelor of Science
Degree in Chemistry from Montana State University in 1969 and a
Ph.D. in Organic Chemistry from Oregon State University in 1973.
Simon G. Maas has served as Executive Vice President and
General Manager of Hauser Northwest, Inc., since May 1994.
From February 1990 to May 1994, he was the Vice President and
General Manager of Ironwood Evergreens, Inc. From June 1987 to
February 1990, he was a partner in Pyramid Construction. From
1992 to the present, he has also been President of Nahanni
River Trading Co., Inc. Mr. Maas received a Bachelors of Arts
Degree in Art History from Trent University in 1985 and
attended Oxford University in 1986.
Philip H. Katz has served as President of Shuster
Laboratories, Inc., where he is responsible for the day-to-day
operations of the subsidiary, development of strategic
business plans, client service initiatives and coordination of
services with Hauser Laboratories. Prior to joining Shuster in
1973, Mr. Katz held the position of Plant Manager for
Brilliant Seafood, after serving as the company's Quality
Control Manager. Previously, he worked in the Best Foods
division of CPC International, handling new product
conceptualization and development through plant start-up. Mr.
Katz received his Bachelor of Science degree in Food Science
and Food Technology from the University of Massachusetts in
1964.
Eugene W. Damon is Senior Vice President of Shuster
Laboratories, Inc., where he is responsible for the
development and growth of Shuster's business groups, which
include foods, pharmaceuticals, consumer goods, chemical
specialties and retail. Mr. Damon joined Shuster in July 1966.
Mr. Damon is a member of the Private Label Manufacturers
Association, Council for Responsible Nutrition, National
Association of Chain Drug Stores, Chemical Specialties
Manufacturers Association and Regulatory Affairs Professional
Society. Mr. Damon receive a Bachelor of Science degree in
Chemistry and Biology from St. Anselm's College in 1964.
Kenneth P. Gordon is Senior Vice President of Shuster
Laboratories, Inc., where he manages Shuster's manufacturing
and distribution accounts; handles technical consultations,
product composition analyses and product quality attributes;
oversees Shuster's planning, research and development
functions; and serves as a regulatory liaison on behalf of
clients. Prior to joining Shuster in l967, Mr. Gordon was a
food technologist for General Foods and earlier was a food
technologist with the Nestle Company. Mr. Gordon is a member
of the Institute of Food Technologists. He received his
Bachelor of Science degree in Food Technology and his Master
of Science in Food Technology from the University of
Massachusetts at Amherst in 1963 and 1966, respectively.
The following table sets forth as of April 30, 1996, the
number of shares of the Company's Common Stock owned by any
person who is known by the Company to be the beneficial owner
of more than 5% of the Company's voting securities, by all
individual Directors, by all Named Executive Officers and by
all Officers and Directors as a group:
<TABLE>
Amount and
Nature of
Title Beneficial Percent
Name of Class Ownership <F1><F2> of Class
Directors:
<S> <S> <C> <C>
Dean P. Stull<F2> Common 284,400 2.7
Randall J. Daughenbaugh<F2> Common 149,862 1.5
William E. Coleman<F3> Common 36,455 *
Stanley J. Cristol<F4> Common 121,393 1.2
Ray L. Hauser<F2> Common 342,437 3.3
Bert M. Tolbert<F5> Common 94,877 *
Christopher W. Roser<F6> Common 70,170 *
Robert F. Saydah<F7> Common 13,800 *
Willem A. Maas<F8> Common 3,200 *
Named Executive Officers:
Philip H. Katz<F9> Common 1,000 *
Kenneth P. Gordon<F9> Common 0 *
Eugene W. Damon<F9> Common 0 *
All Officers and Common 1,254,402 12.1
Directors as a Group:
(20 persons)<F1>
5% Shareholders:
Fidelity Management Common 919,500 8.9
& Research Company<F10>
T. Rowe Price Associates, Inc.<F11> Common 1,055,000 10.2
- -----------------------------------
* Less than one percent.
<FN>
<F1> Includes the following number of shares which could be acquired within 60 days
through the exercise of stock options: Dr. Stull, 99,653 shares; Dr. Daughenbaugh, 67,434 shares; Dr.
Cristol, 11,400 shares; Dr. Hauser, 3,000 shares; Mr. Saydah, 9,300 shares; Dr. Tolbert, 11,700 shares; Mr.
Maas 1,200 shares; and all directors and officers as a group, 245,926 shares.
<F2> Their business address is 5555 Airport Boulevard, Boulder, CO 80301.
<F3> Includes 14,359 shares owned by Dr. Coleman directly, 1 share owned by CVM
Equity Fund II, Ltd., of which Dr. Coleman is a general partner; 4,695 shares owned by Colorado Venture
Management, Inc., of which Dr. Coleman is Chairman; and shares which could be acquired within 60 days through
the exercise of options to purchase 17,400 shares held by CVM, Inc.
<F4> Dr. Cristol's address is University of Colorado, Department of Chemistry, Campus Box
215, Boulder, CO 80309.
<F5> Dr. Tolbert's address is 444 Kalmia Street, Boulder, CO 80304.
<F6> Mr. Roser's address is Roser Ventures, 1105 Spruce Street, Boulder, CO 80302.
<F7> Mr. Saydah's address is Heidrick & Struggles, Four Embarcadero Center, Suite 3570,
San Francisco, CA 94111.
<F8> Mr. Maas' address is 2896 29th Avenue SW, Tumwater, WA 98512.
<F9> The business address for Messrs. Katz, Gordon and Damon is Shuster Laboratories,
Inc., Quincy Research Park, 5 Hayward St., Quincy, MA 02171.
<F10> The business address for Fidelity Management & Research Company is P.O. Box
1182, Boston, MA 02103.
<F11> The business address for T. Rowe Price Associates, Inc., is Financial Center, 10080
Red Run Blvd., Owings Mills, MD 21117.
</FN>
</TABLE>
Arrangements Affecting Control of the Company
As of April 30, 1996, the Officers and Directors of the
Company beneficially owned 1,254,402 shares of Common Stock
(approximately 12.1%) of the Company's Common Stock (assuming
exercise of all warrants and options deemed to be beneficially
owned by these persons).
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON COMPENSATION OF EXECUTIVE
OFFICERS OF THE COMPANY
The Compensation Committee of the Board of Directors and
the Company's Chief Executive Officer have furnished the
following joint report on executive compensation. The specific
responsibility of the Chief Executive Officer to furnish
information to the Compensation Committee has been outlined
below. During fiscal 1996, the Compensation Committee set the
salaries and bonus compensation for the Chief Executive
Officer, three Vice Presidents, the Chief Financial Officer
and the Corporate Secretary. The salaries and bonus plans for
three Named Executives, Messrs. Katz, Damon and Gordon are set
by contracts which the Company assumed as a result of the
acquisition of Shuster Laboratories, Inc., in July 1995. See
"Certain Transactions".
Executive Officer Compensation
The Committee has responsibility for making
recommendations for compensation and compensation policy. In
carrying out this responsibility, the Committee's first
objective is to provide a strong and direct link among
shareholder value, Company performance and executive
compensation. The second objective is to structure
compensation programs that will promote long-term stable
growth and development within the Company. The Committee
believes that corporate development at Hauser, an innovative
technology company, is dependent on its ability to attract and
retain high quality people and operates to ensure that goal.
The Chief Executive Officer's responsibility is to evaluate
for the Compensation Committee the individual performance of
the executive officers, other than himself, and their
contribution to the Company's business goals and objectives.
He is also asked to report on the performance reviews of these
officers to the Compensation Committee and make suggestions of
the percentage of discretionary cash and discretionary stock
bonuses to be awarded.
The Company's compensation program for executive officers
consists of four key elements: base salary, short term
discretionary bonuses and profit sharing, long term
discretionary incentive and annual stock option awards and
annual grants of non-qualified stock options. The Committee
believes that this approach serves the interests of
shareholders by ensuring that executive officers are
compensated in a manner that advances both the short- and
long-term interests of the shareholders. Thus, compensation
for the Company's executive officers involves a high
proportion of pay which is at risk, a variable bonus based on
individual performance, and stock options, which directly
relate a portion of the officer's compensation to the long-
term stock price appreciation realized by the Company's
shareholders. To further these objectives, the Committee
regularly meets to evaluate the Company's compensation and
benefits programs. The executive officers also participate in
a 401(k) retirement plan, a medical plan, and the non-
qualified stock option plan available to employees generally.
Base Salary. The Compensation Committee's policy is to
provide compensation for executive officers competitive within
the Denver/Boulder metropolitan area while giving
consideration to national compensation paid by technology
companies. Salaries paid to the Company's executive officers
are based upon an assessment of the nature of the position,
and the contribution, experience and Company tenure of the
executive officer and salary survey results. The Committee
also considers the recommendations for pay treatment and
performance reviews submitted by the Chief Executive Officer
as well as giving consideration to the needs of the Company
for product line expansion. In evaluating the performance of
the executive officers other than himself, the Chief Executive
Officer measured individual leadership skills, business
development skills, management skills, external relations and
communication skills. The executive officers' individual
contribution to corporate financial results for the fiscal
year, including revenue growth and changes in net income and
earnings per share, were also evaluated. In addition,
extraordinary management and supervisory responsibilities
assumed during the fiscal year were taken into consideration.
During fiscal 1993, base salaries were adjusted based
upon Wyatt Data Service's national survey of executive
salaries in Chemical Group Services companies with less than
$200 million in sales and a Company survey of local high
technology companies in the Boulder-Denver area with less than
$100 million in sales which are most likely to compete with
the Company for the services of its executive officers. At
that time, the Company's executive base salaries were adjusted
to the 10th to 20th percentile of the salaries represented by
the Wyatt Data Service's survey. During fiscal 1994, the
Committee reviewed the base salaries of the Chief Executive
Officer, President, Executive Vice President, Secretary and
Treasurer and made no adjustments. During fiscal 1995, the
base salaries of the Chief Executive Officer, President,
Executive Vice President, Senior Vice President, Vice
President, and Treasurer were adjusted down by ten percent
(10%), and the Secretary by five percent (5%) because of
financial exigencies within the Company and were not based on
inadequate performance. During fiscal 1996 about half of this
decrease was restored. No changes in base salaries are planned
for the first half of fiscal 1997. At the end of the second
quarter, financial progress of the Company will be reviewed
for possible increases. A special increase for Vice President
Neil Jans was made effective May 1, 1996, corresponding to a
significant promotion and increase in responsibility.
During fiscal 1995, the Compensation Committee developed
a series of specific goal oriented compensation awards for the
named executives for fiscal 1996. Fiscal 1996 awards for these
executives were based on achieving budgeted sales goals which
were not met. During fiscal 1996, the Compensation Committee
developed a series of specific goal oriented compensation
awards for the named executives for fiscal 1997. On June 26,
1996 the Committee approved the plan for these executives for
fiscal 1997. Fiscal 1997 awards for these executives are based
on achieving budgeted gross income goals. The Committee
expects that for fiscal 1997 and future years, award goals for
all named executives will be directed toward a combination of
gross income goals for the Company as a whole and specific
divisions. In addition, base compensation of the named
executives will be restored to competitive levels as the
Company returns to a profitable status.
Discretionary Cash Bonuses Paid in Fiscal 1996. After
reviewing the Company's annual report and audited financial
statements for the fiscal year ended April 30, 1996, the
Compensation Committee awarded no cash bonuses for fiscal
1996.
The Compensation Committee conducts an annual performance
review of the Company's executive officers. To satisfy this
objective, the Compensation Committee instructs the Chief
Executive Officer to complete performance evaluations for each
of the executive officers. The Chief Executive Officer's
evaluation is an informal oral report to the Compensation
Committee along with informal suggestions of the percentage
stock and cash bonuses to be awarded. There were no individual
bonuses awarded to named executives during fiscal 1996. In
evaluating the performance of the executive officers other
than himself, the Chief Executive Officer measures leadership,
strategic planning, financial results, business development,
management skills, external relations and communication
skills. The Compensation Committee does not adopt the
suggestions of the Chief Executive Officer but rather adjusts
those suggestions to fit the parameters of their overall
knowledge and experience with the executive officers. The
Compensation Committee evaluates these performance reviews.
Factors, other than the report of the Chief Executive Officer,
reviewed by the Compensation Committee include increased
management or supervisory responsibilities and the direct
impact of the departments supervised by those executive
officers on the net sales, income and earnings per share of
the Company.
Stock Options. It is the Compensation Committee's policy
that a significant portion of the total compensation package
for its executive officers will be derived from stock options
and other forms of compensation that are directly related to
the performance of the Company and the value of shareholder
investments. This motivation is extended to all employees and
the Board of Directors through the Company's Non-Qualified
Stock Option Plan approved by shareholders in 1987 and the
1992 Plan approved by shareholders in 1992. A system of stock
option awards for patentees has been developed for technical
achievement.
During any fiscal year, the named executive officers of
the Company may receive the following types of stock option
awards: 1) along with all employees of the Company, non-
qualified stock options awarded on the employee's anniversary
date and based upon a percentage of the employee's salary; 2)
incentive stock options awarded by the Compensation Committee
for technical achievement, usually related to the filing
and/or award of a patent invented by the individual; and 3)
incentive stock options awarded by the Compensation Committee
based on performance. Discretionary stock options distributed
to the named executive officers were determined by the
Compensation Committee and were based upon the same
performance review criteria previously stated. The number of
options granted were based upon the individual executive's
performance during the fiscal year, anticipated future
contributions based on that performance, and the officer's
ability to impact corporate financial results. Additional
factors considered by the Committee included increased
management or supervisory responsibilities and the direct
impact of the departments supervised by those executive
officers on the net sales, income and earnings per share of
the Company.
In addition, stock options and share grants may be part
of hiring packages for key executives and professional
personnel. Options typically are granted at market value at
the time of award, vest over three to five years and are
exercisable for a five-year period. During fiscal 1996,
executive officers received incentive stock options to
purchase 123,200 shares at an average price of $5.27 and non-
qualified options to purchase 10,028 shares at an average
price of $4.12. Of the 123,200 options granted to executive
officers during fiscal 1996, 37,500 shares never vested as
performance goals for fiscal 1996 were not met. Discretionary
stock option awards granted to the named executives during
fiscal 1996, for fiscal 1995 performance, were determined
based upon the Chief Executive Officer's evaluation report to
the Committee of individual performances plus the Compensation
Committee's own knowledge and experience with these same
senior executive officers. The Committee observes that the
executive officers continue to own a relatively low percentage
of total outstanding stock and deems it beneficial to
shareholders as a whole to increase the equity ownership of
the executive officers.
The Compensation Committee regularly reviews other
possible forms of incentive compensation and modifies or
supplements the existing programs when appropriate. The stock
awards continue the Committee's policy that officers of the
Company should have a strong motivation to develop performance
of the Company and enhance the Company's stock value. At
present and in future years, successful development of current
and diversified projects and further growth will be important
considerations in discretionary bonuses, both cash and stock.
Chief Executive Officer Compensation
As Chief Executive Officer, Dr. Stull is compensated
based on a review of his performance by the Compensation
Committee. The key factors measured by the Committee in
determining Dr. Stull's compensation package was its
assessment of his ability and dedication to enhancing the
long-term value of the Company by continuing to provide the
leadership and vision that he has provided throughout his
tenure as Chief Executive Officer. The base salary paid to the
Chief Executive Officer is based upon an assessment of the
nature of the position, the leadership exercised by, and the
contribution, experience and Company tenure of, Dr. Stull.
During fiscal 1993, Dr. Stull's base salary was reviewed
and compared with Wyatt Data Service's national survey of
executive salaries in Chemical Group Services companies with
less than $200 million in sales and a Company survey of local
high technology companies in the Boulder-Denver area with less
than $100 million in sales which are most likely to compete
with the Company for the services of Dr. Stull. At that time,
Dr. Stull's base salary was adjusted to the 10th to 20th
percentile of the salaries represented by the Wyatt Data
Service's survey. During fiscal 1994, the Committee reviewed
the base salary of the Chief Executive Officer and made no
adjustment. During fiscal 1995, the Committee reviewed the
base salary of the Chief Executive Officer and adjusted the
base salary downward by ten percent (10%). During fiscal 1996,
his base salary was increased by 5%, but restoration of a
competitive salary awaits improvement in the financial
condition of the Company. As stated previously, decreases in
salaries were made by the Committee because of financial
exigencies within the Company and were not based on inadequate
performance.
Dr. Stull's compensation is substantially related to the
Company's performance because his compensation package
includes a discretionary cash bonus determination and
discretionary incentive stock options which are granted at
100% of fair market value, based upon the Committee's review
of Dr. Stull's individual performance during the prior year in
the following areas: leadership, strategic planning, business
development, management skills, external relations and
communication skills. During fiscal 1996, Dr. Stull received
incentive stock options to purchase 70,000 shares and non-
qualified options to purchase 2,365 shares. Of the 70,000
incentive stock options, options to purchase 60,000 shares
never vested because performance goals for fiscal 1996 were
not met. In granting the fiscal 1996 incentive stock option
awards to Dr. Stull, the Compensation Committee measured the
Company's financial performance during fiscal 1996 with
respect to revenue growth, net income, and earnings per share
as compared to fiscal 1995.
During fiscal 1995, the Compensation Committee developed
a series of specific goal oriented compensation awards for Dr.
Stull for fiscal 1996. Fiscal 1996 awards for Dr. Stull were
based on achieving budgeted sales goals which were not met. On
June 26, 1996 the Committee approved the plan for the Chief
Executive for fiscal 1997. Fiscal 1997 awards for the Chief
Executive Officer are based on achieving budgeted sales goals
and to a lesser extent achieving a positive corporate income.
The Committee expects that for fiscal 1997 and future years,
award goals will be directed toward a combination of increased
sales and profitability. In addition, the base compensation of
the Chief Executive Officer will be restored to competitive
levels.
SUMMARY
The Compensation Committee will continue to review the
Company's executive compensation programs to assure that such
programs are consistent with the objective of providing a
strong and direct link among shareholder value, Company
performance, and executive compensation.
By the Compensation Committee
Dr. Bert M. Tolbert, Chairman
Dr. William E. Coleman, Director
Dr. Stanley J. Cristol, Director
Mr. Robert F. Saydah, Director
and by Dr. Dean P. Stull, Chief Executive Officer
for the limited purposes stated above
SHAREHOLDER RETURN
The chart on page 15 compares the cumulative total return
to shareholders over the past five years for a holder of the
Company's Common Stock against the cumulative total return of
the NASDAQ Stock Market-US Index and the S & P Chemicals
(Specialty) Index. The chart depicts the value on April 30,
1996, of a $100 investment made on April 30, 1991.
The value of a stock over time is affected by many
factors, including the Company's earnings. From April 1991 to
April 1993, the growth in the Company's earnings was
substantially due to the Supply Agreement with Bristol Myers
Squibb Company for the production of paclitaxel. The decline
in the stock price in August 1993 occurred after Bristol
failed to renew the Company's contract. A primary objective of
the Company since August 1993 has been to diversify into
specialty natural products, including natural food
ingredients. Although the Company's sales have been heavily
concentrated in the paclitaxel pharmaceuticals market,
Management intends to diversify and evolve into a more
balanced mix, including pharmaceuticals, natural ingredients
products, technical services and secondary forestry products.
<TABLE>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
Among Hauser Chemical Research, Inc., NASDAQ Stock Market
- - US, and S & P Chemicals (Specialty)
[Caption]
Measurement S&P
Period Hauser Nasdaq- US Specialty
<S> <C> <C> <C>
4/31/91 100 100 100
4/31/92 257 121 117
4/31/93 267 139 129
4/31/94 155 155 131
4/31/95 83 180 144
4/31/96 121 257 176
</TABLE>
The following table sets forth the cash compensation paid
by the Company for services to the Chief Executive Officer and
to each of the four most highly compensated executive officers
of the Company whose cash compensation exceeded $100,000
during the fiscal year ended April 30, 1996:
<TABLE>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards
Name Restricted Securities All
and Stock Underlying Other
Principal Fiscal Award(s) Options/ Compensation
Positions Year Salary($)<F1> Bonus($) ($) (#) ($)<F2>
<S> <C> <C> <C> <C> <C> <C>
Dean P. Stull 1996 $152,000 - - 72,365<F3> 0
Chief Executive 1995 156,000 - - 74,566 4,125
Officer 1994 165,000 50,000 - 13,298 6,738
Randy J. Daughenbaugh 1996 136,000 - - 10,206<F3> 0
Executive Vice Pres./ 1995 140,000 - - 53,228 4,440
Chief Technical Officer 1994 149,000 30,000 - 9,164 7,099
Philip A. Katz 1996 111,000<F4> 32,356<F5> - - 18,891<F6>
President 1995 - - - - -
Shuster Laboratories, Inc. 1994 - - - - -
Kenneth A. Gordon 1996 111,000<F4> 32,356<F5> - - 15,883<F6>
Senior Vice President 1995 - - - - -
Shuster Laboratories, Inc. 1994 - - - - -
Eugene W. Damon 1996 111,000<F4> 32,356<F5> - - 18,079<F6>
Senior Vice President 1995 - - - - -
Shuster Laboratories, Inc. 1994 - - - - -
_________________________
<FN>
<F1> During fiscal 1995, the base salaries of Drs. Stull and Daughenbaugh were adjusted
down by ten percent (10%) due to financial exigencies.
<F2> The amounts included in All Other Compensation represent the cash and stock
contribution made by the Company on behalf of the named executives to the Company's 401(k) Plan. The Company's
Board of Directors may elect to match an employee's contribution in stock or cash. During fiscal 1996,
no discretionary match was made by the Company. During fiscal 1995, the Company contributed
an aggregate of 1,671 shares of the Company's Common Stock on behalf of the named executive officers, as a
result of an 80% discretionary Company match in Common Stock. The fair market value of the shares of
Common Stock contributed was $4.315 per share as of April 30, 1995. Accordingly, the value received by Drs.
Stull and Daughenbaugh was $3,316 and $3,897, respectively. During fiscal 1994, the Company
contributed an aggregate of 1,231 shares of the Company's Common Stock on behalf of the named executive
officers, as a result of the Company's 80% match in Common Stock. The fair market value of the shares of
Common Stock contributed was $8.50 per share as of April 30, 1994. Accordingly, the value received by
Messrs. Stull and Daughenbaugh $5,138 and $5,323, respectively.
<F3> Of these shares, 60,000 and 6,000 never vested since the Company sales objectives
for fiscal 1996 were not met.
<F4> Messrs. Katz, Gordon and Damon became employees of the Company's
wholly-owned subsidiary, Shuster Laboratories, Inc., on July 20, 1995, pursuant to existing employment agreements which
were in effect when the acquisition took place. The employment agreements provide for the annual
salaries set forth above and expire on July 20, 1998.
<F5> The bonuses represent phantom stock payments made to the three executives for their
phantom stock in Shuster Laboratories, Inc.. The payments were made in July and October 1996 as part
of the acquisition of Shuster. The named executives are also entitled to receive additional phantom
stock payments in future years and share in an earnout which may be paid to shareholders of Shuster.
See "Certain Transactions".
<F6> The amounts represent distributions from Shuster's Employee Stock Ownership Plan
as a result of the acquisition by the Company and matching contributions from Shuster's 401(k) Plan. See
"Certain Transactions".
</FN>
</TABLE>
Stock Option Plans
1987 Non-Statutory Stock Option Plan
In 1987, the Company adopted a non-statutory stock option
plan (the "Non-Statutory Plan") under which 718,720 shares of
its Common Stock have been reserved for issuance. As of April
30, 1996, there were 672,682 shares of Common Stock committed
under the Non-Statutory Plan. The Non-Statutory Plan provides
for the grant of non-statutory stock options to officers,
directors and key employees of the Company, or to independent
contractors providing services to the Company, as determined
by the Board. The Non-Statutory Plan is administered by the
Compensation Committee of the Board. Subject to the
limitations set forth in the Non-Statutory Plan, the
Compensation Committee of the Board has the authority to
select the persons to whom grants are to be made, to designate
the number of shares to be covered by and the terms of each
option, including exercise price and vesting, and to determine
the terms of option agreements and other agreements relating
to each option granted. Options granted under the Non-
Statutory Plan are generally non-transferrable and expire upon
the termination of an optionee's employment relationship with
the Company. In general, if an optionee is permanently
disabled during his or her employment by or service to the
Company, such person's option may be exercised up to one year
following the date of termination of employment. The Non-
Statutory Plan will terminate in November 1997, unless
terminated sooner by the Board.
During fiscal 1996, the Compensation Committee of the
Board of Directors (consisting of Drs. Tolbert, Coleman,
Cristol and Saydah) recommended the distribution of 83,655
stock options pursuant to the Non-Statutory Plan to employees
and directors who had been employed over one-half time for one
full year. The options are exercisable for periods ranging
from one to five years after grant, at an exercise price
ranging from 80% - 100% of market price on the date of grant.
The amount of the award was determined by using a percentage
of that employee's annual salary as of the employee's
anniversary date with the Company. During fiscal 1996, options
to purchase 32,566 shares were exercised and options to
purchase 13,920 shares expired.
1992 Incentive Stock Option Plan
The 1992 Plan provides for the granting of incentive
stock options to Executive Officers and key employees of the
Company and its subsidiaries to purchase a maximum of 700,000
shares of the Company's Common Stock. As of April 30, 1996,
269,263 shares were committed under the 1992 Plan. The 1992
Plan provides for the grant of incentive stock options
intended to qualify as such under Section 422 of the Internal
Revenue Code of 1986, as amended. The exercise price of
options granted under the 1992 Plan may not be less than 100%
of the fair market value of the Common Stock at the time of
the grant. Options are not transferrable and may not be
exercised more than 10 years from the date of grant. The
aggregate fair market value of the stock with respect to which
incentive stock options are first exercisable in any calendar
year may not exceed $100,000. The 1992 Plan is administered by
the Compensation Committee of the Company's Board of
Directors, which has the authority to determine the persons to
whom options will be granted, the number of shares to be
covered by each option, the time or times at which options
will be granted or exercised, and the term and provisions of
the options. During fiscal 1996, options to purchase 145,600
shares were granted, options to purchase 4,634 shares were
exercised and options to purchase 127,369 shares expired.
The following table shows with respect to the Company's
Non-Statutory Plan and the 1992 Plan, for each of the
Executive Officers named in the compensation table: (a) the
number of shares subject to options granted from May 1, 1995
to April 30, 1996, (b) the percentage of total options granted
to employees during the same period, (c) the exercise price
per share, (d) the expiration date of the options, and (e) the
potential realizable value of the options.
<TABLE>
Option Grants in Last Fiscal Year
Potential Realizable
Number of Percentage of Value at Assumed
Securities Total Options Market Annual Rates of Stock
Underlying Granted to Price Price Appreciation for
Options Employees in Exercise on Date Expiration Option Term<F2>
Granted(#)<F1> Fiscal Year Price ($/sh) of Grant Date 5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C> <C>
Dean P. Stull 10,000<F3> 5% $5.22 $5.22 06/14/06 37,059 96,672
60,000<F3><F5> 3% 5.22 5.22 04/30/96 196,856 498,833
2,365<F4> 1% 4.14 4.87 11/30/00 4,971 8,908
Randall J. Daughenbaugh 2,000<F3> 1% 5.34 5.34 06/30/05 6,721 17,033
6,000<F3><F5> 3% 5.34 5.34 04/30/96 20,157 51,078
100<F3> 1% 5.43 5.34 07/19/00 150 332
2,106<F4> 4.14 4.87 11/30/00 4,427 7,933
- -------------------------------
<FN>
<F1> Does not include options which were repriced on October 27, 1994.
<F2> No gain to an executive officer is possible without an appreciation in stock value,
which will benefit all shareholders commensurately.
<F3> Incentive Stock Option grants.
<F4> Non-Statutory Stock Option grants which are granted at 80% of the fair market value
on the date of grant.
<F5> These performance options never vested since Company performance goals for fiscal
1996 were not met.
</FN>
</TABLE>
The following table shows with respect to the Company's
Executive Officers, (a) the number of shares exercised during
the fiscal year, (b) the dollar value realized upon exercise
(c) the total number of unexercised stock options and (d) the
aggregate dollar value of in-the-money, unexercised options
held at the end of the fiscal year.
<TABLE>
Aggregated Option Exercised in Last Fiscal Year and Fiscal Year End Value
Table
Number of Securities Value of
Underlying Unexercised Unexercised In-the-Money
Shares Acquired Value Options at FY End (#) Options at FY End($)<F1>
on Exercise (#) Realized ($)<F1> Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Dean P. Stull 10,000 35,025 80,910<F2> 76,021<F2> 60,217 73,869
_________________________
<FN>
<F1> Represents the difference between the price paid and the fair market value of the
shares underlying options on the exercise date with respect to options exercised during the fiscal year or the fair market value of
the shares underlying options on April 30, 1996, ($6.25 per share) with respect to unexercised options.
<F2> Of these shares, 60,000 shares never vested since Company performance goals for
fiscal 1996 were not met.
</FN>
</TABLE>
Employee Benefit Plan
Effective July 1992, the Company established a 401(k)
plan (the "401(k) Plan") for all employees who have completed
six months of service. Participants may contribute up to 15%
of their annual compensation subject to dollar limitations of
Section 402(g) of the Internal Revenue Code. The 401(k) Plan
is subject to the provisions of the Employee Retirement Income
Security Act of 1974.
Certain Transactions
There were no transactions with officers, directors and
their affiliates and the Company other than the acquisition of
Shuster Laboratories, Inc. Effective July 21, 1995, the
Company acquired all of the stock of Shuster for approximately
$4,700,000 in cash and notes plus a performance based earnout
for meeting certain milestones over the next five years. Mr.
Philip Katz, President of Shuster, was a shareholder of
Shuster and as such received consideration for his shares as
part of the acquisition. Mr. Katz, together with Messrs.
Gordon and Damon, are entitled to phantom stock payments as
part of the acquisition. The phantom payments made in fiscal 1996
are included in the Compensation Table. Messrs, Katz, Gordon and Damon
are entitled to share in the performance based earnout in future
years.
OTHER MATTERS
Management of the Company knows of no other matter which
may come before the meeting. However, if any additional
matters are properly presented at the meeting, it is intended
that the persons named in the enclosed Proxy, or their
substitutes, will vote such Proxy in accordance with their
judgment on such matters.
Shareholder proposals intended for presentation at the
Company's 1996 Annual Meeting of Shareholders must be received
by the Company at its principal offices in Boulder, Colorado,
not later than July 31, 1996.
ANNUAL REPORT TO SHAREHOLDERS
The Annual Report of the Company for the fiscal year
ended April 30, 1996, including audited Financial Statements
for the year then ended, was mailed to Shareholders on October
3, 1996, and is not incorporated into these proxy materials.
IN ORDER THAT YOUR SHARES MAY BE REPRESENTED IF YOU
DO NOT PLAN TO ATTEND THE MEETING, PLEASE SIGN, DATE
AND RETURN YOUR PROXY PROMPTLY. IN THE EVENT YOU ARE
ABLE TO ATTEND, WE WILL, IF YOU REQUEST, CANCEL THE
PROXY.
SIGNATURE
By Order of the Board of Directors
/s/ Dean P. Stull, Chairman
Boulder, Colorado
October 3, 1996
