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
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or 14a-12
ORTHOLOGIC CORP.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
[x] No fee required.
[ ] Fee computed on table below per Exchange Act rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities 2) Aggregate number of securities
to which transaction applies: to which transaction applies:
--------------------------------- -------------------------------
3) Per unit price or other underlying 4) Proposed maximum aggregate
value of transaction computed pursuant value of transaction
to Exchange Act Rule 0-11:*
---------------------------------- -------------------------------
5) Total fee paid:_____________________
* Set forth the amount on which the filing fee is calculated and state how it
was determined.
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: 2) Form, Schedule or Registration
Statement No.:
--------------------------------- -------------------------------
3) Filing Party: 4) Date Filed:
--------------------------------- -------------------------------
<PAGE>
[OrthoLogic Logo]
1275 West Washington
Tempe, Arizona 85281
_____________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 15, 1998
_____________________
TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders of OrthoLogic Corp., a Delaware
corporation (the "Company"), will be held on Friday, May 15, 1998 at 8:30 a.m.
local time, at the offices of the Company at 1275 West Washington, Tempe,
Arizona 85281, for the following purposes:
(1) To elect two directors as Class I directors to serve until the
Annual Meeting of Stockholders to be held in the year 2001 or until their
respective successors are elected;
(2) To consider and act upon a proposal to amend the Company's 1997
Stock Option Plan to increase the number of shares of Common Stock available for
grant thereunder by 375,000 shares;
(3) To consider and act upon a proposal to ratify the appointment of
Deloitte & Touche LLP as independent auditors of the Company for the fiscal year
ending December 31, 1998; and
(4) To transact such other business as may properly come before the
Annual Meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Stockholders of record at the close of business on March 25, 1998 are
entitled to vote at the meeting and at any adjournment or postponement thereof.
Shares can be voted at the meeting only if the holder is present or represented
by proxy. A list of stockholders entitled to vote at the meeting will be open
for inspection at the Company's corporate headquarters for any purpose germane
to the meeting during ordinary business hours for ten days prior to the meeting.
A copy of the Company's 1997 Annual Report to Stockholders, which
includes certified financial statements, is enclosed. All stockholders are
cordially invited to attend the Annual Meeting in person.
By order of the Board of Directors,
Thomas R. Trotter
Chief Executive Officer
Tempe, Arizona
April 7, 1998
- --------------------------------------------------------------------------------
IMPORTANT: It is important that your stockholdings be represented at this
meeting. Whether or not you expect to attend the meeting, please complete, date
and sign the enclosed Proxy and mail it promptly in the enclosed envelope to
assure representation of your shares. No postage need be affixed if mailed in
the United States.
- --------------------------------------------------------------------------------
<PAGE>
OrthoLogic Corp.
PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 15, 1998
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
SOLICITATION, EXECUTION AND REVOCATION OF PROXIES.................................................. 1
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF.................................................... 2
Security Ownership of Certain Beneficial Owners and Management................................ 2
PROPOSAL 1: ELECTION OF DIRECTORS................................................................... 4
Board Meetings and Committees.................................................................. 6
Compensation of Directors...................................................................... 6
Certain Legal Proceedings...................................................................... 7
Executive Compensation......................................................................... 8
Report of the Compensation Committee of the Board of Directors............................ 8
Compensation Committee Interlocks and Insider Participation.............................. 10
Certain Transactions..................................................................... 10
Summary Compensation Table............................................................... 11
Option/SAR Grants in Last Fiscal Year.................................................... 12
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values......... 13
Employment Contracts, Termination of Employment, and Change-in-Control Arrangements...... 13
Performance Graph............................................................................. 14
Section 16(a) Beneficial Ownership Reporting Compliance....................................... 15
PROPOSAL 2: APPROVAL OF AN AMENDMENT TO THE 1997
STOCK OPTION PLAN INCREASING SHARES AVAILABLE
FOR GRANT BY 375,000 SHARES........................................................................ 16
Summary of 1997 Plan.......................................................................... 16
Certain Federal Income Tax Consequences....................................................... 18
Valuation..................................................................................... 19
Option Grants................................................................................. 19
Recommendation................................................................................ 19
PROPOSAL 3: APPOINTMENT OF INDEPENDENT AUDITORS.................................................... 19
OTHER MATTERS...................................................................................... 19
STOCKHOLDER PROPOSALS.............................................................................. 19
</TABLE>
i
<PAGE>
[OrthoLogic Logo]
1275 West Washington
Tempe, Arizona 85281
_____________________
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 15, 1998
_____________________
SOLICITATION, EXECUTION AND REVOCATION OF PROXIES
Proxies in the accompanying form are solicited on behalf, and at the
direction, of the Board of Directors of OrthoLogic Corp. (the "Company") for use
at the Annual Meeting of Stockholders to be held on May 15, 1998 or any
adjournment thereof (the "Annual Meeting") at the offices of the Company at 1275
West Washington, Tempe, Arizona 85281. All shares represented by properly
executed proxies, unless such proxies have previously been revoked, will be
voted in accordance with the direction on the proxies. If no direction is
indicated, the shares will be voted in favor of the proposals to be acted upon
at the Annual Meeting. The Board of Directors is not aware of any other matter
which may come before the meeting. If any other matters are properly presented
at the meeting for action, including a question of adjourning the meeting from
time to time, the persons named in the proxies and acting thereunder will have
discretion to vote on such matters in accordance with their best judgment.
When stock is in the name of more than one person, the proxy is valid
if signed by any of such persons unless the Company receives written notice to
the contrary. If the stockholder is a corporation, the proxy should be signed in
the name of such corporation by an executive or other authorized officer. If
signed as attorney, executor, administrator, trustee, guardian or in any other
representative capacity, the signer's full title should be given and, if not
previously furnished, a certificate or other evidence of appointment should be
furnished.
This Proxy Statement and the form of proxy which is enclosed are being
mailed to the Company's stockholders commencing on or about April 7, 1998.
A stockholder executing and returning a proxy has the power to revoke
it at any time before it is voted. A stockholder who wishes to revoke a proxy
can do so by executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of the Company prior to the vote at the Annual
Meeting, by written notice of revocation received by the Secretary prior to the
vote at the Annual Meeting or by appearing in person at the Annual Meeting,
filing a written notice of revocation and voting in person the shares to which
the proxy relates.
In addition to the use of the mails, proxies may be solicited by
personal conversations or by telephone, telex, facsimile or telegram by the
directors, officers and regular employees of the Company. Such persons will
receive no additional compensation for such services. The Company has also
retained Corporate Investor Communications, Inc. ("CIC"), 111 Commerce Road,
Carlstadt, New Jersey 07072-2586, to aid in solicitation of proxies. For these
services, the Company will pay CIC a fee of $5,000 and reimburse it for certain
out-of-pocket disbursements and expenses. Arrangements will also be made with
certain brokerage firms and certain other custodians, nominees and fiduciaries
for the forwarding of solicitation materials to the beneficial owners of Common
Stock held of record by such persons, and such brokers, custodians, nominees and
fiduciaries will be reimbursed for their reasonable out-of-pocket expenses
incurred in connection therewith. All expenses incurred in connection with this
solicitation will be borne by the Company.
The mailing address of the principal corporate office of the Company is
1275 West Washington, Tempe, Arizona 85281.
<PAGE>
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Only stockholders of record at the close of business on March 25, 1998
(the "Record Date") will be entitled to vote at the Annual Meeting. On the
Record Date, there were issued and outstanding 25,276,890 shares of Common
Stock. Each holder of Common Stock is entitled to one vote, exercisable in
person or by proxy, for each share of the Company's Common Stock held of record
on the Record Date. The presence of a majority of the shares of Common Stock
entitled to vote, in person or by proxy, is required to constitute a quorum for
the conduct of business at the Annual Meeting. The Inspector of Election
appointed by the Chairman of the Board of Directors shall determine the shares
represented at the meeting and the validity of proxies and ballots and shall
count all proxies and ballots. The two nominees for director receiving the
highest number of affirmative votes (whether or not a majority) cast by the
shares represented at the Annual Meeting and entitled to vote thereon, a quorum
being present, shall be elected as directors. The affirmative vote of a majority
of the shares present in person or by proxy and entitled to vote is required
with respect to the approval of the other proposals set forth herein.
Abstentions and broker non-votes are each included in the determination
of the number of shares present for quorum purposes. Because abstentions
represent shares entitled to vote, the effect of an abstention will be the same
as a vote cast against a proposal. A broker non-vote, on the other hand, will
not be regarded as representing a share entitled to vote on the proposal and,
accordingly, will have no effect on the voting for such proposal. Only
affirmative votes are relevant in the election of directors.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock at March 1, 1998 with respect to (i)
each person known to the Company to own beneficially more than five percent of
the outstanding shares of the Company's Common Stock, (ii) each director of the
Company, (iii) each of the executive officers listed in the Summary Compensation
Table set forth herein and (iv) all directors and executive officers of the
Company as a group.
Shares Beneficially
Owned (1)
------------------------------
Identity of Stockholder or Group Number Percent
- --------------------------------------- ------------ -------------
Thomas R. Trotter 20,000 *
Frank P. Magee (2) 366,559 1.4
William C. Rieger 0 -
Terry D. Meier 0 -
MaryAnn G. Miller (3) 26,000 *
Allen R. Dunaway (4) 137,632 *
Fredric J. Feldman (5) 100,000 *
John M. Holliman III (6) 89,000 *
Elwood D. Howse (7) 119,644 *
Augustus A. White III (8) 108,000 *
Stuart H. Altman 1,000 *
Allan M. Weinstein (9) 582,897 2.3
Franklin Resources, Inc. 2,853,240 11.3
777 Mariner's Island Blvd.
San Mateo, California 94404 (10)
2
<PAGE>
Shares Beneficially
Owned (1)
------------------------------
Identity of Stockholder or Group Number Percent
- --------------------------------------- ------------ -------------
Heartland Advisors, Inc. 2,316,400 9.2
790 North Milwaukee Street
Milwaukee, Wisconsin 53202 (11)
All executive officers and directors as a 967,835 3.7
group (11 persons) (12)
_______________________
* Less than one percent
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission ("SEC") and generally includes
voting or investment power with respect to securities. In accordance
with SEC rules, shares which may be acquired upon exercise of stock
options which are currently exercisable or which become exercisable
within 60 days of the date of the table are deemed beneficially owned
by the optionee. Except as indicated by footnote, and subject to
community property laws where applicable, the persons or entities named
in the table above have sole voting and investment power with respect
to all shares of Common Stock shown as beneficially owned by them.
(2) Includes 256,559 shares Dr. Magee has a right to acquire upon exercise
of stock options.
(3) Includes 17,600 shares Ms. Miller has a right to acquire upon exercise
of stock options.
(4) Includes 117,632 shares Mr. Dunaway has a right to acquire upon
exercise of stock options.
(5) Includes 59,000 shares Dr. Feldman has a right to acquire upon exercise
of stock options. Voting and investment power shared with spouse.
(6) Includes 71,000 shares Mr. Holliman has a right to acquire upon
exercise of stock options.
(7) Includes 71,000 shares Mr. Howse has a right to acquire upon exercise
of stock options.
(8) Includes 26,000 shares Dr. White has a right to acquire upon exercise
of stock options and 10,269 shares held by Dr. White's children.
(9) Includes 236,351 shares Dr. Weinstein has a right to acquire upon
exercise of stock options, 273,746 shares held by Dr. Weinstein's
Family Trust and 7,800 shares held by Dr. Weinstein's child.
(10) Derived from a Schedule 13G, Amendment No. 2, dated February 6, 1998
filed by the stockholder pursuant to the Securities Exchange Act of
1934, as amended (the "1934 Act"). The Schedule 13G, as amended, states
that the securities "are beneficially owned by one or more open or
closed-end investment companies or other managed accounts which are
advised by direct and indirect investment advisory subsidiaries (the
"Advisor Subsidiaries") of Franklin Resources, Inc. ("FRI"). Such
advisory contracts grant to such Advisor Subsidiaries all investment
and/or voting power over the securities owned by such advisory clients.
Therefore, such Advisory Subsidiaries may be deemed to be, for purposes
of Rule 13d- 3 under the Securities Exchange Act of 1934, the
beneficial owner of the securities covered by this statement. Charles
B. Johnson and Rupert H. Johnson, Jr. (the "Principal Shareholders")
each own in excess of 10% of the outstanding Common Stock of FRI and
are the principal shareholders of FRI. FRI and the Principal
Shareholders may be deemed to be, for purposes of Rule 13d-3 under the
1934 Act, the beneficial owner of securities held by persons and
entities advised by FRI subsidiaries. FRI, the Principal Shareholders
and each of the Advisor Subsidiaries disclaim any economic interest or
beneficial ownership in any of the securities covered by" the Schedule
13G.
(11) Derived from a Schedule 13G dated February 6, 1998 filed by the
stockholder pursuant to the 1934 Act. The Schedule 13G states that the
securities "may be deemed beneficially owned within the meaning of Rule
13d-3 of the Securities Exchange Act of 1934 by Heartland Advisors,
Inc."
(12) Includes 618,791 shares executive officers and directors have a right
to acquire upon exercise of stock options.
3
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
Two directors are to be elected at the Annual Meeting to serve as Class I
directors until the Annual Meeting of Stockholders to be held in the year 2001
and until their respective successors are elected. Unless otherwise instructed,
the proxy holders will vote the Proxies received by them FOR the Company's
nominees, Fredric J. Feldman and Thomas R. Trotter. Dr. Feldman and Mr. Trotter
are currently directors of the Company.
Pursuant to the Company's Certificate of Incorporation, as amended, the
Board of Directors is classified into three classes, with each class holding
office for a three-year period. To provide for the expiration of the terms of
the members of one of the classes of directors each year, the initial term for
the Class I Directors was one year, the initial term for the Class II Directors
was two years, and the initial term for the Class III Directors was three years.
Thereafter, the terms of all directors are three years. The Certificate of
Incorporation restricts the removal of directors under certain circumstances.
The number of directors may be increased to a maximum of nine.
If any nominee of the Company is unable or declines to serve as a director
at the time of the Annual Meeting, the proxies will be voted for any nominee who
shall be designated by the present Board of Directors to fill the vacancy. It is
not expected that any nominee will be unable or will decline to serve as a
director.
Any stockholder entitled to vote for the election of directors at a meeting
may nominate persons for election as directors only if written notice of such
stockholder's intent to make such nomination is given, either by personal
delivery at 1275 West Washington, Tempe, Arizona or by United States mail,
postage prepaid to Secretary, OrthoLogic Corp., 1275 West Washington, Tempe,
Arizona 85281, not later than: (i) with respect to the election to be held at an
annual meeting of stockholders, 20 days in advance of such meeting; and (ii)
with respect to any election to be held at a special meeting of stockholders for
the election of directors, the close of business on the fifteenth (15th) day
following the date on which notice of such meeting is first given to
stockholders. Each such notice must set forth: (a) the name and address of the
stockholder who intends to make the nomination and of the person or persons to
be nominated; (b) a representation that such stockholder is a holder of record
of stock of the corporation entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice; (c) a description of all arrangements or understandings
between such stockholder and each nominee and any other person or persons
(naming such person or persons) pursuant to which the nomination or nominations
are to be made by such stockholder; (d) such other information regarding each
nominee proposed by such stockholder as would have been required to be included
in a proxy statement filed pursuant to the proxy rules of the SEC if such
nominee had been nominated, or intended to be nominated, by the Board of
Directors; and (e) the consent of each nominee to serve as a director of the
corporation if elected. The chairman of a stockholder meeting may refuse to
acknowledge the nomination of any person not made in compliance with the
foregoing procedure. However, if the Company were to issue stock having a
dividend or liquidation preference over the Company's Common Stock, the
nomination and other features of directorships may be affected by the
resolutions establishing such preferred stock.
The names of the nominees for director and of the directors whose terms
continue beyond the Annual Meeting, and certain information about them, are set
forth below.
Nominees for Class I Directors Whose Terms Will Expire at the Annual Meeting
Held in the Year 2001:
Fredric J. Feldman, Ph.D.(1)(3) Director since 1991
Fredric J. Feldman, Ph.D., 57. Since February 1992, Dr. Feldman has been the
President of FJF Associates, a consultant to health care venture capital and
emerging companies. From September 1995 to June 1996, he was the Chief Executive
Officer of Biex, Inc. a women's healthcare company. He served as Chief Executive
Officer of Oncogenetics, Inc., a cancer genetics reference laboratory from 1992
to 1995. Between 1988 and 1992, Dr. Feldman was the President and Chief
Executive Officer of Microgenics Corporation, a medical diagnostics company. He
is
4
<PAGE>
a director of Sangstat Medical Corp., a publicly held biotech transplant drug
company, and of Ostex International, Inc., a publicly held developer of
diagnostics and therapeutics for skeletal and connective tissue diseases.
Thomas R. Trotter Director since 1997
Thomas R. Trotter, 50, joined the Company as President and Chief Executive
Officer and a Director in October 1997. From 1988 to October 1997, Mr. Trotter
held various positions at Mallinckrodt, Inc. in St. Louis, Missouri, most
recently as President of the Critical Care Division and a member of the
Corporate Management Committee. From 1984 to 1988, he was President and Chief
Executive Officer of Diamond Sensor Systems, a medical device company in Ann
Arbor, Michigan. From 1976 to 1984, he held various senior management positions
at Shiley, Inc. (a division of Pfizer, Inc.) in Irvine, California.
Directors Continuing in Office:
Class III Directors Whose Terms Will Expire at the 2000 Annual Meeting:
Stuart H. Altman, Ph.D. Director since 1998
Stuart H. Altman, 60, has been a Professor of National Health Policy at the
Florence Heller Graduate School for Social Policy, Brandeis University since
1977. He was Dean of the Florence Heller Graduate School from 1977 to 1993. For
twelve years (1984 to 1996), he was Chairman of the Congressional Prospective
Payment Assessment Commission responsible for advising Congress and the
Administration on Medicare Payment Policies for Hospitals, Nursing Homes, Home
Health Agencies and other health care providers. Dr. Altman has served as the
Chair of the Advisory Board to the Institute of Medicine of the National Academy
of Sciences and serves as a member of the Board of Trustees of Beth Israel
Hospital in Boston, Massachusetts. From 1971 to 1976, Dr. Altman was Deputy
Assistant Secretary for Planning and Evaluation/Health at Health, Education and
Welfare under President Nixon. Dr. Altman is a director of IDX Systems
Corporation, a publicly held provider of healthcare information systems.
Elwood D. Howse, Jr.(1)(2)(3) Director since 1987
Elwood D. Howse, Jr., 58, became a director of the Company in September 1987. He
has been a general partner of CH Partners IV, a venture capital fund, and has
been a founder and the President of Cable & Howse Ventures, Inc., a venture
capital firm, since 1977. Mr. Howse is a member of the board of Applied
Microsystems Corporation, a publicly held electronics testing company.
Class II Directors Whose Terms Will Expire at the 1999 Annual Meeting:
John M. Holliman III(1)(2) Director since 1987
John M. Holliman III, 43, has served as a director of the Company since
September 1987 and as a Chairman of the Board of Directors since August 1997.
Since February 1993, he has been a general partner of an entity which is the
general partner of Valley Ventures, L.P. (formerly known as Arizona Growth
Partners, L.P.), a venture capital fund. From 1985 to 1993, he was the Managing
Director and Senior Managing Director of Valley Ventures' predecessor, Valley
National Investors, Inc., a venture capital subsidiary of The Valley National
Bank of Arizona. Mr. Holliman is a director of Pilgrim America Capital Corp., a
publicly held mutual fund management company, VOXEL, Inc., a publicly held
medical imaging company, and Den America Restaurant Company, a publicly held
restaurant operating company.
5
<PAGE>
Augustus A. White III, M.D.(2) Director since 1993
Dr. White, 60, became a director of the Company in July 1993. He has been a
Professor of Orthopaedic Surgery at Harvard Medical School since 1978. He is
also a director of American Shared Hospital Services, a publicly held imaging
equipment leasing company. Dr. White serves as chairman of the Company's
Scientific and Medical Advisory Board.
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
Board Meetings and Committees
The Board of Directors held a total of 15 meetings during the fiscal year
ended December 31, 1997. No director attended fewer than 75% of the aggregate of
all meetings of the Board of Directors and any committee on which such director
served during the period of such service.
The Board presently has an Executive Committee, an Audit Committee and a
Compensation Committee. The Executive Committee, which acts on Board matters
that arise between meetings of the full Board of Directors, consists of Dr.
Feldman, Mr. Holliman and Mr. Howse and did not meet during 1997.
The Audit Committee, which consists of Mr. Holliman, Mr. Howse and Dr.
White, met once in 1997. The Audit Committee meets independently with
representatives of the Company's independent auditors and with representatives
of senior management. The Committee reviews the general scope of the Company's
annual audit, the fee charged by the independent auditors and other matters
relating to internal control systems. In addition, the Audit Committee is
responsible for reviewing and monitoring the performance of non-audit services
by the Company's auditors. The Committee is also responsible for recommending
the engagement or discharge of the Company's independent auditors.
The Compensation Committee, which consists of Mr. Howse and Dr. Feldman, met
twice during 1997. The Compensation Committee reviews salaries and benefit
programs designed for senior management, officers and directors and administers
certain grants under the Company's stock option plans with a view to ensure that
the Company is attracting and retaining highly qualified managers through
competitive salary and benefit programs and encouraging extraordinary effort
through incentive rewards.
The Company does not have a nominating committee or a committee performing
the functions of a nominating committee. Nominations of persons to be directors
are considered by the full Board of Directors.
Compensation of Directors
Beginning June 1, 1997, the Company began paying non-employee directors an
annual retainer of $12,000. Previously, the Company had paid $1,000 plus
reasonable expenses per Board meeting attended. In addition, the Company engaged
Dr. White as a consultant beginning on May 1, 1990 for a base fee currently set
at $25,000 per annum plus $2,500 per day for each day he performs services for
the Company and reimbursement for all reasonable expenses incurred by him when
performing services for the Company. During 1997, Dr. White received $25,000
pursuant to this arrangement.
All directors are eligible for the grant of nonqualified stock options
pursuant to the Company's 1997 Stock Option Plan. Additionally, the Company
issued options to acquire 5,000 shares to each non-employee director on January
1, 1998 and reserved options on 20,000 shares under the 1997 Stock Option Plan
for each of these non-employee directors. All such options vest in full one year
after grant date and are granted at the market price on the date of grant. The
reserved options will be granted ratably over four years, commencing January 1,
1999,
6
<PAGE>
provided that the non-employee director remains a director of the Company. For
information regarding options granted to employee-directors during 1997 (Mr.
Trotter and Dr. Weinstein), see the table captioned "Option/SAR Grant in Last
Fiscal Year" below.
The following table summarizes options granted to non-employee directors
during the year ended December 31, 1997:
Date of Number of Option
Name Option Shares Price
- ------------------------ ------------- ---------------- ------------
Fredric J. Feldman 05/16/97 12,000 $5.25
10/17/97 13,000 $5.37
John M. Holliman III 05/16/97 12,000 $5.25
10/17/97 13,000 $5.37
Elwood D. Howse, Jr. 05/16/97 12,000 $5.25
10/17/97 13,000 $5.37
Augustus A. White III 05/16/97 12,000 $5.25
10/17/97 13,000 $5.37
The options in the above table have a 10-year term, vested as to 4,000
shares on the grant date and, as to the remainder, become exercisable as to
1,000 shares at the end of each three-month period following the date of grant
while the optionee remains a director of the Company.
Certain Legal Proceedings
On or about July 16, 1996, Jacob B. Rapoport filed a Shareholder Derivative
Complaint for Breach of Fiduciary Duty and Misappropriation of Confidential
Corporation Information in the Superior Court of the State of Arizona, Maricopa
County, No. CV 96-12406, naming the directors and certain officers of the
Company as defendants and the Company as nominal defendant. On October 29, 1996
the defendants removed the case to the United States District Court for the
District of Arizona (Phoenix Division), No. CIV 96-2451 PHX RCB on grounds of
diversity pursuant to 28 U.S.C. ss. 1332. The action is based on allegations
that the individual defendants breached duties to the Company and/or
misappropriated confidential information related to a May 31, 1996 letter
received by the Company from the U.S. Food and Drug Administration regarding the
Company's OrthoLogic(R) 1000 Bone Growth Stimulator, and the matters set forth
therein, and the fact that the Company has been named a defendant in twelve
purported shareholder class actions now consolidated in the United States
District Court for the District of Arizona, as well as a purported shareholder
class action now pending before the Superior Court of Maricopa County, Arizona.
This action has been stayed by agreement among the parties pending resolution of
the class action litigation.
The Company believes that the allegations in the lawsuits are without merit.
7
<PAGE>
EXECUTIVE COMPENSATION
The following Report of the Compensation Committee of the Company's Board of
Directors (the "Committee") and the performance graph included elsewhere in this
proxy statement shall not be deemed soliciting material or otherwise deemed
filed and shall not be deemed to be incorporated by reference by any general
statement incorporating by reference this proxy statement into any other filing
under the Securities Act of 1933 or the Securities Exchange Act of 1934, except
to the extent the Company specifically incorporates this Report or the
performance graph by reference therein.
Report of the Compensation Committee of the Board of Directors
The Committee recommends the compensation of the Chief Executive Officer to
the Board and reviews and approves the design, administration and effectiveness
of compensation programs for other key executive officers, including salary,
cash bonus levels, other perquisites and certain option grants under the
Company's stock option plans (the "Plans").
Compensation Philosophy
The objectives of the Company's executive compensation policies are to
attract, retain and reward executive officers who contribute to the Company's
success, to align the financial interests of executive officers with the
performance of the Company, to strengthen the relationship between executive pay
and shareholder value, to motivate executive officers to achieve the Company's
business objectives and to reward individual performance. During 1997, the
Company used base salary, executive officer cash bonuses and stock options to
achieve these objectives. In carrying out these objectives, the Committee
considers the following:
(1) The level of compensation paid to executive officers in positions
of companies similarly situated in size and products. To ensure
that pay is competitive, the Committee, from time to time, compares
the Company's executive compensation packages with those offered by
other companies in the same or similar industries or with other
similar attributes. The Company typically surveys publicly
available information regarding companies listed on the Nasdaq
National Market which are comparable in size, products or industry
with the Company.
(2) The individual performance of each executive officer. Individual
performance includes any specific accomplishments of such executive
officer, demonstration of job knowledge and skills and teamwork.
(3) Corporate performance. Corporate performance is evaluated both
subjectively and objectively. Subjectively, the Compensation
Committee discusses and makes its own determination of how the
Company performed relative to the opportunities and difficulties
encountered during the year and relative to the performance of
competitors and business conditions. Objectively, corporate
performance is measured by predetermined operating and financial
standards for purposes of cash bonuses under applicable Management
Bonus Plans as described below.
(4) The responsibility and authority of each position relative to the
other positions within the Company.
The Committee does not quantitatively weigh these factors but considers all
factors as a whole, using its discretion, best judgment and the experiences of
its members, in establishing executive compensation. The application given each
of these factors in establishing the components of executive compensation are as
follows:
Base Salary. In establishing base salaries, the Committee believes that it
tends to give greater weight to factors 1, 2 and 4 above. The Company seeks to
pay salaries to executive officers that are commensurate with their
qualifications, duties and responsibilities and that are competitive in the
market. In conducting annual salary reviews, the Committee considers each
individual executive officer's achievements during the prior fiscal year in
meeting the Company's financial and business objectives, as well as the
executive officer's performance of individual responsibilities and the Company's
financial position and overall performance. The Committee
8
<PAGE>
considers the low, midpoint and upper ranges of base salaries publicly disclosed
by companies that OrthoLogic believes are comparable to it and generally targets
base salary to the mid-point of the ranges.
Performance Bonuses. In establishing performance bonuses, the Committee
believes that it tends to give greater weight to factors 2 and 3 above and
further believes that such performance bonuses are a key link between executive
pay and stockholder value. The Company has adopted a Management Bonus Plan which
is based upon the financial performance of the Company and other specific
company-wide objectives established by the Committee and approved by the full
Board of Directors. For 1997, executive bonuses were targeted at between 30% and
50% of the executive officers' base salaries if the goals were achieved, with
the more senior executive officers having a higher percentage of total
compensation from annual cash bonuses. The measures chosen by the Committee to
evaluate the Company's performance may vary from year to year depending on the
particular facts and circumstances at the time. For 1997, the Committee
determined to measure the Company's performance by net sales, net income and
completion of acquisitions.
Option Grants. In establishing option grants or recommendations to the
entire Board, the Committee believes it tends to give greater weight to factors
2 and 4 above. The Committee believes that equity ownership by executive
officers provides incentives to build stockholder value and aligns the interests
of officers with the stockholders. The Committee typically recommends or awards
a grant under a Plan upon hiring executive officers, subject to a four-year
vesting schedule. After the initial stock option grant, the Committee considers
additional grants, usually on an annual basis, under the Plan. Options are
granted at the current market price for the Company's Common Stock and,
consequently, have value only if the price of the Common Stock increases over
the exercise price for the period during which the option is exercisable. The
size of the initial grant is usually determined with reference to the seniority
of the officer, the contribution the officer is expected to make to the Company
and comparable equity compensation offered by others in the industry. In
determining the size of the periodic grants, the Committee considers prior
option grants to the officer, independent of whether the options have been
exercised, the executive's performance during the year and his or her expected
contributions in the succeeding year. The Committee believes that periodic
option grants provide incentives for executive officers to remain with the
Company.
The Omnibus Budget Reconciliation Act of 1993 includes potential limitations
on tax deductions for compensation in excess of $1,000,000 paid to the Company's
five highest-paid executive officers. The Compensation Committee has analyzed
the impact of this change in the tax law on the compensation policies of the
Company, has determined that historically the effect of this provision on the
taxes paid by the Company has and would not have been significant and has
decided for the present to not modify the compensation policies of the Company
based on such changes in the tax law. In the event that the Committee determines
that a material amount of compensation might potentially not be deductible, it
will consider what actions, if any, should be taken to seek to make such
compensation deductible without compromising its ability to motivate and reward
excellent performance.
Chief Executive Officer Compensation
The Committee reviews the performance of the Chief Executive Officer, and
other executive officers of the Company, at least annually. In February 1997,
the Committee conducted a review of Dr. Weinstein's compensation. The Committee
reviewed salary survey data available for other companies comparable in size,
products or industry, and the Company's earnings and financial position in
comparison to preceding years. Based upon this review and Dr. Weinstein's
assumption of additional duties following the resignation of Mr. Oram, the
Committee recommended to the Board, and the Board approved, an increase in Dr.
Weinstein's base annual compensation from $203,000 to $218,000. Dr. Weinstein's
performance goals for 1997 were the same as those for all other members of
management as outlined in the "Performance Bonuses" paragraph above. The
Committee applied the same criteria in setting compensation and performance
goals for Mr. Trotter in October 1997 and set his annual salary at $260,000 and
bonus percentage (prorated for the portion of the year employed) within the
range previously approved for all executive officers.
9
<PAGE>
In February 1998, the Committee met to determine bonuses under the 1997
Management Bonus Plan and, in connection with these, reviewed the achievement of
performance objectives by management, including Dr. Weinstein. The Committee
determined that it would not grant a bonus for Dr. Weinstein but that it would
grant a bonus of $27,000 to Mr. Trotter.
Compensation Committee During 1997:
Fredric J. Feldman Elwood D. Howse, Jr.
Compensation Committee Interlocks and Insider Participation
During 1997, Fredric J. Feldman and Elwood D. Howse, Jr. served on the
Compensation Committee of the Board of Directors.
Certain Transactions
The Company has entered into indemnity agreements with all of its directors
and officers for the indemnification of and advancing of expenses to such
persons to the full extent permitted by law. The Company intends to execute such
indemnity agreements with its future officers and directors.
Pursuant a July 1996 Employment Agreement, the Company loaned George A.
Oram, Jr. $200,000 at 8.25% per year to purchase a home upon his relocation to
the Company's executive offices in Phoenix. The Company entered into a Severance
Agreement with Mr. Oram in February 1997, and Mr. Oram repaid the loan in 1997.
The Severance Agreement entitled Mr. Oram to six months' base salary, a
pro-rated bonus payment based on the Company's 1996 performance, 90 days of
medical benefits, up to $10,000 for outplacement services and up to $10,000 in
moving expenses in exchange for certain confidentiality, non-compete and release
agreements. For six months after the severance, Mr. Oram agreed to provide
consulting services to the Company at a rate of $2,000 per day. No amounts were
paid under this arrangement.
10
<PAGE>
Summary Compensation Table
The following table sets forth, with respect to the years ended December 31,
1997, 1996 and 1995, compensation awarded to, earned by or paid to the Company's
Chief Executive Officer and the four other most highly compensated executive
officers who were serving as executive officers at December 31, 1997.
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Annual Compensation Awards
----------------------------------- ------------
Securities
Other Annual Underlying All Other
Compensation Options/SARs Compensation
Name and Principal Position Year Salary($) Bonus($) ($)(1) (#)(2) ($)(3)
- --------------------------- ---- --------- -------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas R. Trotter(4) 1997 50,225 27,000 --- 350,000 302
President and Chief
Executive Officer
Allan M. Weinstein(5) 1997 218,000 -- 5,400 75,100 5,659
1996 203,000 64,000 5,400 --- 11,684
1995 184,000 77,280 5,400 140,000 9,499
Frank P. Magee 1997 187,000 63,112 --- 100,100 ---
Executive Vice President, 1996 174,000 48,000 --- --- ---
Research and Development 1995 158,000 58,065 --- 105,000 ---
Allen R. Dunaway 1997 125,000 --- --- 10,100 ---
Vice President, Chief 1996 116,000 27,600 --- 60,000 ---
Financial Officer and 1995 105,000 39,075 --- 40,000 ---
Secretary
MaryAnn G. Miller 1997 109,000 32,700 --- 10,100 ---
Vice President, 1996 24,702 5,000 --- 30,000 ---
Human Resources
</TABLE>
- --------------------
(1) Automobile allowance.
(2) Consist entirely of stock options.
(3) Term life and disability insurance payments.
(4) Mr. Trotter joined the Company as President and Chief Executive Officer on
October 20, 1997.
(5) Dr. Weinstein served as Chief Executive Officer of the Company until October
1997 and as President from inception through July 1996 and from February
1997 to October 1997.
11
<PAGE>
Option/SAR Grants in Last Fiscal Year(1)
The following table sets forth information about stock option grants during
the last fiscal year to the executive officers named in the Summary Compensation
Table.
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term(2)
--------------------------------------- ---------------------------
Number of % of Total
Securities Option/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date 5%($) 10%($)
- ------------------ ------------- ------------ ---------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Thomas R. Trotter 350,000 30.94 $5.6250 10/20/01 $424,278 $913,697
Allan M. Weinstein 50,000 4.42 5.0000 03/26/07 157,224 398,436
100 0.01 4.9375 08/15/02 136 301
25,000 2.21 5.3750 10/17/07 84,508 214,159
Frank P. Magee 50,000 4.42 5.0000 03/26/07 25,625 52,500
100 0.01 4.9375 08/15/02 136 301
50,000 4.42 5.3750 10/17/02 74,251 164,075
Allen R. Dunaway 100 0.01 4.9375 08/15/02 136 301
10,000 0.88 5.3750 10/17/07 33,803 85,664
MaryAnn G. Miller 100 0.01 4.9375 08/15/02 136 301
10,000 0.88 5.3750 10/17/07 33,803 85,664
</TABLE>
(1) Consist entirely of stock options.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock appreciation of 5% or 10% compounded
annually from the date the respective options were granted to their
expiration date and are not presented to forecast possible future
appreciation, if any, in the price of the Common Stock. The potential
realizable value of the foregoing options is calculated by assuming that the
market price of the underlying security appreciates at the indicated rate
for the entire term of the option and that the option is exercised at the
exercise price and sold on the last day of its term at the appreciated
price.
12
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End
Option/SAR Values (1)
The following table sets forth information with respect to the executive
officers named in the Summary Compensation Table concerning option exercises
during the last fiscal year and the number and value of options outstanding at
the end of the last fiscal year.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at FY-End (#) at FY-End ($)(3)
-------------------------- -------------------------
Shares Acquired Value Realized
Name on Exercise (#) ($)(2) Exercisable Unexercisable Exercisable Unexercisable
- ------------------- --------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas R. Trotter --- --- --- 350,000 --- ---
Allen M. Weinstein --- --- 178,434 191,666 187,436 157,111
Frank P. Magee --- --- 145,725 204,375 99,228 255,685
Allen R. Dunaway 20,000 84,000 88,434 76,666 74,209 42,389
MaryAnn G. Miller --- --- 3,434 36,666 689 1,253
</TABLE>
(1) No SARs are outstanding. All figures in this table are adjusted to reflect
the Company's 2-for-1 stock split effected in the form of a 100% stock
dividend on June 25, 1996.
(2) Calculated based on the closing price as reported on the Nasdaq National
Market for the date of exercise, minus the exercise price, multiplied by the
number of shares acquired on exercise.
(3) Value is based upon closing bid price of $5.56 as reported on the Nasdaq
National Market for December 31, 1997, minus the exercise price, multiplied
by the number of shares underlying the option.
Employment Contracts, Termination of Employment, and
Change-in-Control Arrangements
The Company has entered into employment agreements with Mr. Trotter
(effective October 20, 1997), Dr. Weinstein (effective March 16, 1998, as
revised) and Dr. Magee effective October 17, 1997. In addition, the Company has
entered into an employment agreement with Ms. Miller (effective December 1,
1996), with Mr. Rieger (effective January 5, 1998) and with Mr. Meier (effective
March 16, 1998). The Employment Agreements provide that salaries and bonuses
shall be determined annually by the Compensation Committee of the Board of
Directors. The Company may terminate each employee's employment with cause, in
which case the Company shall be obligated to pay such employee's salary through
the date of termination (through October 19, 1999 for Dr. Weinstein). If the
Company terminates the employee's employment without cause, Mr. Trotter, Ms.
Miller, Mr. Rieger and Mr. Meier are entitled to 12 months salary and Dr. Magee
is entitled to 24 months salary. Pursuant to his revised agreement, Dr.
Weinstein resigned as a member of the Board of Directors on March 23, 1998 but
continues as an employee through October 17, 1999. The Company may not terminate
Dr. Weinstein's employment without cause. Mr. Dunaway serves the Company under a
Transitional Employment Agreement effective February 2, 1998. If the Company
terminates Mr. Dunaway's employment without cause, Mr. Dunaway is entitled to
salary through the end of the term of the agreement.
Under the Company's stock option plans, upon the occurrence of a merger in
which the Company is not the surviving entity, a sale of substantially all of
the assets of the Company, an acquisition by a third party of 100% of the
Company's outstanding equity securities or a similar reorganization of the
Company, 75% of all unvested options will vest, with the balance vesting equally
over 12 months or according to the individual's vesting schedule, whichever is
earlier. Additionally, the Company's 1997 Stock Option Plan provides that, upon
a merger, consolidation or reorganization with another corporation in which the
Company is not the surviving corporation, outstanding options shall be
substituted on an equitable basis for options for appropriate shares of the
surviving corporation, or optionees shall receive cash in exchange for
cancellation of outstanding options.
13
<PAGE>
The Compensation Committee of the Board of Directors has approved a 1998
bonus plan for the Company's executive officers which provides for bonuses of up
to 50% of base salary, depending on Company and individual performance.
Performance Graph
Set forth below is a graph comparing the cumulative total shareholder return
on the Company's Common Stock to the cumulative total return of (i) the Standard
& Poors Healthcare Medical Products and Supplies Index and (ii) the Russell 2000
Index from the date that the Company's Common Stock was registered under Section
12 of the Securities Exchange Act of 1934 through December 31, 1997. The graph
is generated by assuming that $100 was invested on January 28, 1993 (the day on
which the Company's Common Stock was registered under Section 12 of the
Securities Exchange Act of 1934, as amended) in each of the Company's Common
Stock, the Standard & Poors Healthcare Medical Products and Supplies Index and
the Russell 2000 Index, and that all dividends were reinvested.
<TABLE>
<CAPTION>
1/28/93 6/30/93 12/31/93 6/30/94 12/31/94 6/30/95 12/31/95 6/30/96 12/31/96 6/30/97 12/31/97
------- ------- -------- ------- -------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OrthoLogic Corp. 100 60 62 90 56 83 223 392 173 169 171
S&P Healthcare 100 82 80 78 92 117 151 155 173 201 215
Russell 2000 100 103 114 106 110 125 139 153 160 174 192
</TABLE>
14
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Under the securities laws of the United States, the Company's directors, its
executive officers, and any persons holding more than 10% of the Company's
Common Stock are required to report their initial ownership of the Company's
Common Stock and any subsequent changes in that ownership to the SEC. Specific
due dates for these reports have been established, and the Company is required
to disclose any failure to file by these dates. The Company believes that all of
these filing requirements were satisfied during the year ended December 31,
1997, except that Dr. Magee reported an October 17, 1997 grant of stock options
on an amended Form 5 on March 24, 1998. In making these disclosures, the Company
has relied solely on written representations of those persons it knows to be
subject to the reporting requirements and copies of the reports that they have
filed with the SEC.
15
<PAGE>
PROPOSAL 2: APPROVAL OF AN AMENDMENT TO THE 1997
STOCK OPTION PLAN INCREASING SHARES AVAILABLE
FOR GRANT BY 375,000 SHARES
The summary of the material features of the 1997 Plan in this Proxy
Statement does not purport to be complete and is qualified in its entirety by
reference to the 1997 Plan. A copy of the 1997 Plan is available upon request to
the Secretary of the Company.
Stock options play a key role in the Company's ability to recruit, reward
and retain executives and key employees. The Company believes that equity-based
incentive programs help insure a tight link between the interests of its
stockholders and employees and enhance the Company's ability to continue
recruiting and retaining top talent. The Board believes that stockholders should
adopt Proposal 2 to help the Company continue to meet these objectives.
Summary of 1997 Plan
The 1997 Plan was originally adopted by the Board of Directors on March 26,
1997. A total of 1,040,000 shares of Common Stock was reserved for issuance
under the 1997 Plan at that time.
Purposes. The purposes of the 1997 Plan are to attract and retain the best
available employees and directors of the Company or any parent or subsidiary or
affiliate of the Company which now exist or hereafter is organized or acquired
by or acquires the Company, as well as appropriate third parties who can provide
valuable services to the Company, to provide additional incentive to such
persons and to promote the success of the business of the Company.
The 1997 Plan provides for the grant of options which qualify as "incentive
stock options" (sometimes referred to herein as "ISOs") under Section 422 of the
Internal Revenue Code (the "Code") and nonstatutory stock options which do not
specifically qualify for favorable income tax treatment under the Code
(sometimes referred to herein as "NSOs"). The 1997 Plan is administered by the
Board of Directors or by a committee of directors appointed by the Board and
constituted so as to permit the Plans to comply with the provisions of Rule
16b-3 ("Rule 16b-3") under the 1934 Act. The administering body is referred to
herein as the "Committee."
Share Reserve. The aggregate number of shares which may be issued pursuant
to the exercise of options granted under the 1997 Plan (before amendment) is
1,040,000 shares of the Company's Common Stock, subject to adjustments in
certain circum stances, including reorganizations, recapitalizations, stock
splits, reverse stock splits, stock dividends and the like. As of March 13,
1998, a total of 266,000 shares were subject to outstanding options under the
1997 Plan, and no shares had been issued upon exercise of options under the 1997
Plan. If any outstanding option grant under the 1997 Plan for any reason expires
or is terminated, the shares of Common Stock allocable to the unexercised
portion of the option grant shall again be available for options under the 1997
Plan as if no options had been granted with respect to those shares.
Eligibility. Any employee of the Company or any of its subsidiaries is
eligible to receive options under the 1997 Plan. Nonemployee directors are
eligible to receive only NSOs under the 1997 Plan while employee directors are
eligible for both ISOs and NSOs. As of March 26, 1998, approximately 497
employees (including seven executive officers) and five non-employee directors
were eligible to participate in the 1997 Plan.
In addition, any other individual whose participation the Committee
determines is in the best interests of the Company is eligible to receive only
NSOs under the 1997 Plan. The Committee has complete discretion to determine
which eligible individuals are to receive option grants. In general, the only
consideration received by the Company for the grant of an award will be past
services or the expectation of future services, or both. The 1997 Plan does not
confer on any optionee in the 1997 Plan any right with respect to continued
employment or other services to the Company and will not interfere in any manner
with the right of the Company to terminate an optionee's employment or other
services.
Limitations on Awards. No grants are required to be made during any calendar
year. In any calendar year, no individual may receive grants of options covering
more than 200,000 shares. No ISO may be exercised more than ten years from the
date of grant (five years in the case of a grant to an optionee owning more than
10% or more of the total combined voting power of all classes of stock to the
Company or any ISO Group member), three months after
16
<PAGE>
the date the optionee ceases to perform services for the Company or any ISO
Group member (for reasons other than death, disability or cause), one year after
the date the optionee ceases to perform services for the Company or any other
ISO Group member if cessation is due to death or disability, or the date the
optionee ceases to perform services for the Company or any ISO Group member if
cessation is for cause. No NSO may be exercised more than ten years from the
date of grant, two years after the date the optionee ceases to perform services
for the Company or any Affiliated Group member (for reasons other than death,
disability, retirement or cause), three years after the date the optionee ceases
to perform services for the Company or any Affiliated Group member if cessation
is due to death, disability or retirement, or the date the optionee ceases to
perform services for the Company or any Affiliated Group member if cessation is
for cause.
Pricing and Payment of Options. The per share exercise price of each stock
option granted under the 1997 Plan is established by the Committee at the time
of grant. In the case of an ISO, the per share exercise price may be no less
than 100% of the fair market value of a share of Common Stock on the date of
grant (110% in the case of an optionee who owns, directly or indirectly, 10% or
more of the outstanding voting power of all classes of stock of the Company).
The per share exercise price of an NSO may be any amount determined in good
faith by the Committee. With respect to ISOs, the aggregate fair market value of
the Common Stock for which one or more options granted to an optionee may become
exercisable during any one calendar year may not exceed $100,000. The fair
market value of the Common Stock equals the closing price on the date in
question as reported on the Nasdaq National Market.
Under the 1997 Plan, the purchase price of an option is payable upon
exercise: (i) in cash; (ii) by check; (iii) to the extent permitted by the
particular option grant, by transferring to the Company shares of Common Stock
of the Company at their fair market value as of the option exercise date
(provided that the optionee held the shares of stock for at least six months);
or (iv) if permitted by the Company, through a sale and remittance procedure by
which an optionee delivers concurrent written instructions to a brokerage firm
to sell immediately the purchased Common Stock and remit to the Company
sufficient funds to pay for the options exercised and by which the certificates
for the purchased Common Stock are delivered directly to the brokerage firm. The
Company may also extend and maintain, or arrange for the extension and
maintenance of, credit to an optionee to finance the purchase of shares pursuant
to the exercise of options, on such terms as may be approved by the Board of
Directors or the Committee, subject to applicable regulations of the Federal
Reserve board and any other applicable laws or regulations in effect at the time
such credit is extended.
The Committee may require, as a condition to exercise of an option, that the
optionee pay to the Company the entire amount of taxes which the Company is
required to withhold by reason of such exercise, in such amount as the Committee
or the Board of Directors may determine.
Subject to certain limitations, the Committee may modify, extend or renew
outstanding options. The Committee may not reduce the exercise price of
outstanding options or accept the surrender of outstanding options and grant new
options in substitution. Each option may have additional terms and conditions
consistent with the Plan as determined by the Committee.
Exercise. The Committee has the authority to determine the vesting and
exercise provisions of all grants under the 1997 Plan. In general under the 1997
Plan, no option shall be exercisable during the lifetime of an optionee by any
person other than the optionee, or a guardian or legal representative.
Accelerating Events. Unless otherwise provided in the grant letter, 75% of
each optionee's unvested options under the 1997 Plan will become immediately
exercisable in full upon the acquisition by a third party of 100% of the
Company's outstanding equity securities, a merger in which the Company is not
the surviving corporation, a sale of all or substantially all of the Company's
assets, or a similar reorganization of the Company. (If the optionee loses his
position with the Company as a result of or subsequent to such an event, 100% of
the optionee's unvested options will immediately become exercisable.) The
unvested balance will vest in 12 equal monthly installments following the event
or according to the optionee's individual vesting schedule, whichever is
earlier.
Merger, Consolidation or Reorganization. In the event of a merger
consolidation or reorganization with another corporation in which the Company is
not the surviving corporation, the Board of Directors, the Committee (subject to
approval of the Board) or the board of directors of any corporation assuming the
obligations of the Company shall
17
<PAGE>
either (a) protect each outstanding and unexercised option by the substitution
on an equitable basis of appropriate shares of the surviving corporation or (b)
cancel each such option and make a cash payment to the optionee.
Termination or Amendment of the 1997 Plan. The Board of Directors may amend
or modify the 1997 Plan at any time; provided, that shareholder approval shall
be obtained for any action for which shareholders approval is required in order
to comply with Rule 16b-3, the Code, or other applicable laws or regulatory
requirements within such time periods prescribed. The 1997 Plan will terminate
on March 25, 2007, unless sooner terminated by the Board of Directors.
Certain Federal Income Tax Consequences
The discussion that follows is a summary, based upon current law, of some of
the significant federal income tax considerations relating to awards under the
1997 Plan. The following discussion does not address state, local or foreign tax
consequences.
An optionee will not recognize taxable income upon the grant or exercise of
an ISO. However, upon the exercise of an ISO, the excess of the fair market
value of the share received on the date of exercise over the exercise price of
the shares will be treated as a tax preference item for purposes of the
alternative minimum tax. In order for the exercise of an ISO to qualify for the
foregoing tax treatment, the optionee generally must be an employee of the
Company from the date the ISO is granted through the date three months before
the date of exercise, except in the case of death or disability, where special
rules apply. The Company will not be entitled to any deduction with respect to
the grant or exercise of an ISO.
If shares acquired upon exercise of an ISO are not disposed of by the
optionee within two years from the date of grant or within one year after the
transfer of such shares to the optionee (the "ISO Holding Period"), then (i) no
amount will be reportable as ordinary income with respect to such shares by the
optionee and (ii) the Company will not be allowed a deduction in connection with
such ISO or the Common Stock acquired pursuant to the exercise of the ISO. If a
sale of such Common Stock occurs after the ISO Holding Period has expired, then
any amount recognized in excess of the exercise price will be reportable as a
long-term capital gain, and any amount recognized below the exercise price will
be reportable as a long-term capital loss. The exact amount of tax payable on a
long-term capital gain will depend upon the tax rates in effect at the time of
the sale. The ability of an optionee to utilize a long-term capital loss will
depend upon the statutory limitations on capital loss deductions not discussed
herein.
A "disqualifying disposition" will generally result if Common Stock acquired
upon the exercise of an ISO is sold before the ISO Holding Period has expired.
In such case, at the time of a disqualifying disposition, the optionee will
recognize ordinary income in the amount of the difference between the exercise
price and the lesser of (i) the fair market value on the date of exercise or
(ii) the amount realized on disposition. Any amount realized on the sale in
excess of the fair market value of the date of exercise will be treated as a
capital gain. If the amount realized on the sale is less than the exercise
price, the optionee will recognize no ordinary income, and the loss will be
reportable as a capital loss. The Company will be allowed a tax deduction in the
year of any disqualifying disposition equal to the amount of ordinary income
recognized by the optionee.
In general, an optionee to whom an NSO is granted will recognize no taxable
income at the time of the grant. Upon exercise of an NSO, the optionee will
recognize ordinary income in an amount equal to the amount by which the fair
market value of the Common Stock on the date of exercise exceeds the exercise
price of the NSO, and the Company will generally be entitled to a deduction
equal to the ordinary income recognized by the optionee in the year the optionee
recognizes ordinary income, subject to the limitations of Section 162(m) of the
Code.
18
<PAGE>
Valuation
As of March 25, 1998, the closing sale price for the Company's Common Stock,
as reported on the Nasdaq National Market, was $7.00 per share.
Option Grants
As of the date of this proxy statement, there has been no determination by
the Committee with respect to future awards under the 1997 Plan.
Recommendation
The Board of Directors unanimously recommends that the stockholders vote FOR
approval of this Proposal to amend the 1997 Plan.
PROPOSAL 3
APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Deloitte & Touche LLP as independent
auditors to audit the financial statements of the Company for the fiscal year
ending December 31, 1998 and recommends that stockholders vote FOR ratification
of such appointment. In the event of a negative vote on such ratification, the
Board will reconsider its selection.
Deloitte & Touche LLP has audited the Company's financial statements
annually since 1987. Its representatives are expected to be present at the
Annual Meeting with the opportunity to make a statement if they desire to do so
and are expected to be available to respond to appropriate questions.
OTHER MATTERS
The Company knows of no other matters to be submitted at the Annual Meeting.
If any other matter properly comes before the Annual Meeting, it is the
intention of the persons named in the enclosed proxy card to vote the shares
they represent as the Board of Directors may recommend.
STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company which are intended to be presented
by such stockholders at the Company's Annual Meeting for the fiscal year ending
December 31, 1998 must be received by the Company no later than December 8, 1998
in order that they may be considered for inclusion in the proxy statement and
form of proxy relating to that meeting.
April 7, 1998 THE BOARD OF DIRECTORS
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ORTHOLOGIC CORP.
P R O X Y
1998 ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Thomas R. Trotter and Frank P. Magee,
and each or either of them, as Proxies, with full power of substitution, to
represent and to vote, as designated below, all shares of Stock which the
undersigned is entitled to vote at the Annual Meeting of Stockholders of
OrthoLogic Corp. to be held on May 15, 1998, or any adjournment thereof, hereby
revoking any proxy previously given.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE NOMINEES AND FOR PROPOSALS 2 AND 3.
(Continued and to be dated and signed on the reverse side.)
ORTHOLOGIC CORP.
P.O. BOX 11365
NEW YORK, N.Y. 10203-0365
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1. ELECTION OF CLASS 1 DIRECTORS FOR all nominees listed below (except WITHHOLD AUTHORITY to vote
for terms expiring in the year 2001 as marked to the contrary below [ ] for all nominees listed below [ ]
Nominees: Fredric J. Feldman Ph.D. and Thomas R. Trotter
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark the "For" box and write the nominee's name on the
exceptions line below.)
Exceptions_____________________________________________________________________________________________________________________
2. PROPOSAL TO APPROVE AN AMENDMENT TO THE COMPANY'S 1997 STOCK 3. PROPOSAL TO RATIFY AND APPROVE THE APPOINTMENT OF
OPTION PLAN TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK DELOITTE & TOUCHE LLP.
AVAILABLE FOR GRANT UNDER THE PLAN BY 375,000 SHARES.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment
thereof, all as set forth in the Notice and Proxy Statement relating to
this meeting, receipt of which is hereby acknowledged.
Change of Address and
or Comments Mark Here [ ]
Please sign exactly as name appears to the
left. Where shares are held by more than one
owner, all should sign. When signing as an
attorney, executor, administrator, trustee or
guardian, please give full title as such. If
a corporation, please sign in corporate name
by President or authorized officer. If a
partnership, please sign in partnership name
by authorized person.
Dated:________________________________ , 1998
_____________________________________________
Signature
Votes must be indicated
(x) Black or Blue ink. |X|
(Please sign, date and return this proxy in the enclosed postage prepaid envelope.)
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