SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
METRA BIOSYSTEMS, INC.
----------------------
(Name of Registrant as Specified in its Charter)
--------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
__________________________________
2) Aggregate number of securities to which transaction applies:
__________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
__________________________________
4) Proposed maximum aggregate value of transaction:
__________________________________
5) Total fee paid:__________________________________
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
of its filing.
1) Amount Previously Paid:__________________________________
2) Form, Schedule, or Registration Statement No.:_____________________
3) Filing Party:__________________________________
4) Date Filed:__________________________________
<PAGE>
METRA BIOSYSTEMS, INC.
-------------------
Notice of Annual Meeting of Shareholders
To Be Held December 14, 1998
-------------------
The Annual Meeting of Shareholders (the "Annual Meeting") of Metra
Biosystems, Inc., a California corporation (the "Company"), will be held at the
principal executive offices of the Company, located at 265 North Whisman Road,
Mountain View, California, 94043 on Monday, December 14, 1998, at 10:00 a.m.,
local time, for the following purposes:
1. To elect seven (7) directors of the Company to serve until the 1998
Annual Meeting of Shareholders or until their respective successors
are elected and qualified;
2. To ratify the appointment of Ernst & Young LLP as the independent
auditors of the Company for the year ending June 30, 1999; and
3. To transact such other business as may properly come before the
Annual Meeting and any adjournment or postponement thereof.
The foregoing items of business, including the nominees for directors, are
more fully described in the Proxy Statement that is attached and made a part of
this Notice.
The Board of Directors has fixed the close of business on October 16, 1998
as the record date for determining the shareholders entitled to notice of and to
vote at the Annual Meeting and any adjournment or postponement thereof.
All shareholders are cordially invited to attend the Annual Meeting in
person. However, whether or not you expect to attend the Annual Meeting in
person, you are urged to mark, date, sign, and return the enclosed proxy card as
promptly as possible in the postage-prepaid envelope provided to ensure your
representation and the presence of a quorum at the Annual Meeting. If you send
in your proxy card and then decide to attend the Annual Meeting to vote your
shares in person, you may still do so. Your proxy is revocable in accordance
with the procedures set forth in the Proxy Statement.
By Order of the Board of Directors,
Mark B. Weeks
Secretary
Mountain View, California
October 28, 1998
- --------------------------------------------------------------------------------
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND RETURN THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE. IF A QUORUM IS NOT PRESENT AT THE MEETING, THE COMPANY WILL HAVE THE
ADDED EXPENSE OF RE-ISSUING THESE PROXY MATERIALS. IF YOU ATTEND THE MEETING AND
SO DESIRE, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.
THANK YOU FOR ACTING PROMPTLY.
- --------------------------------------------------------------------------------
<PAGE>
METRA BIOSYSTEMS
265 North Whisman Road
Mountain View, California 94043
-------------------
PROXY STATEMENT
-------------------
General
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors (the "Board") of Metra Biosystems, Inc., a California
corporation (the "Company"), of proxies in the enclosed form for use in voting
at the Annual Meeting of Shareholders (the "Annual Meeting") to be held at the
principal executive offices of the Company, located at 265 North Whisman Road,
Mountain View, California, 94043 on Monday, December 14, 1998, at 10:00 a.m.,
local time, and any adjournment or postponement thereof.
This Proxy Statement, the enclosed proxy card, and the Company's Annual
Report to Shareholders for the year ended June 30, 1998, including financial
statements, were first mailed to shareholders entitled to vote at the meeting on
or about October 28, 1998.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company (Attention:
George W. Dunbar, Jr.) a written notice of revocation, or a duly executed proxy
bearing a later date, or by attending the Annual Meeting and voting in person.
Record Date; Voting Securities
The close of business on October 16, 1998 has been fixed as the record
date (the "Record Date") for determining the holders of shares of Common Stock
of the Company entitled to notice of and to vote at the Annual Meeting. At the
close of business on the Record Date, the Company had approximately 12,689,844
shares of Common Stock outstanding and held of record by approximately 120
shareholders.
Voting and Solicitation
Each outstanding share of Common Stock on the Record Date is entitled to
one vote on all matters and is entitled to cumulate votes for the election of
directors, subject to the conditions described below.
Votes cast by proxy or in person at the Annual Meeting will be tabulated
by the Company's appointed Inspector of Elections. The Inspector of Elections
will also determine whether or not a quorum is present. Except with respect to
the election of directors and except in certain other specific circumstances,
the affirmative vote of a majority of shares represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute at least a majority of the required quorum) is required under
California law for approval of proposals presented to shareholders. In general,
California law also provides that a quorum consists of a majority of the shares
entitled to vote, represented either in person or by proxy. The Inspector of
<PAGE>
Elections will treat abstentions as shares that are present and entitled to vote
for purposes of determining the presence of a quorum but as not voting for
purposes of determining the approval of any matter submitted to the shareholders
for a vote. Thus, an abstention will have the same effect as a vote against a
particular proposal.
The shares represented by the proxies received, properly marked, dated,
signed, and not revoked, will be voted at the Annual Meeting. Where such proxies
specify a choice with respect to any matter to be acted upon, the shares will be
voted in accordance with the specifications made. Any proxy in the enclosed form
which is returned but is not marked will be voted FOR the election of directors,
FOR ratification of the appointment of the designated independent auditors, and
as the proxy holders deem advisable on other matters that may come before the
meeting as the case may be with respect to the item not marked. If a broker
indicates on the enclosed proxy or its substitute that it does not have
discretionary authority as to certain shares to vote on a particular matter
("broker non-votes"), those shares will be considered as represented for
purposes of determining a quorum, but will not be considered as voting, with
respect to that matter. While there is no definitive specific statutory or case
law authority in California concerning the proper treatment of abstentions and
broker non-votes, the Company believes that the tabulation procedures to be
followed by the Inspector of Elections are consistent with the general statutory
requirements in California concerning voting of shares and determination of a
quorum.
The solicitation of proxies will be conducted by mail and the Company will
bear all attendant costs. These costs will include the expense of preparing and
mailing proxy solicitation materials for the Annual Meeting and reimbursements
paid to brokerage firms and others for their expenses incurred in forwarding
solicitation materials regarding the Annual Meeting to beneficial owners of the
Company's Common Stock. The Company may conduct further solicitation personally,
by telephone, or by facsimile through its officers, directors, and employees,
none of whom will receive additional compensation for assisting with the
solicitation.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the Company's 1999
Annual Meeting of Shareholders must be received by George W. Dunbar, Jr., Metra
Biosystems, Inc., 265 North Whisman Road, Mountain View, California 94043, no
later than July 16, 1999.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and persons who own more than 10% of the Company's Common
Stock (collectively, "Reporting Persons") to file with the Securities and
Exchange Commission ("SEC") initial reports of ownership and changes in
ownership of the Company's Common Stock. Reporting Persons are required by SEC
regulations to furnish the Company with copies of all Section 16(a) reports they
file. To the Company's knowledge, based solely on its review of the copies of
such reports received or written representations from certain Reporting Persons
that no other reports were required, the Company believes that during its fiscal
year ended June 30, 1998, all Reporting Persons complied with all applicable
filing requirements.
-2-
<PAGE>
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information that has been provided to the
Company with respect to beneficial ownership of shares of the Company's Common
Stock as of September 30, 1998 for (i) each person who is known by the Company
to own beneficially more than 5% of the outstanding shares of Common Stock, (ii)
the Company's Chief Executive Officer and the Company's other four most highly
paid executive officers who earned in excess of $100,000 during the fiscal year
ended June 30, 1998 (collectively, the "Named Executive Officers"), (iii) each
director of the Company and (iv) all directors and executive officers of the
Company as a group.
Shares Percent of Shares
Beneficially Beneficially
Name Owned(1) Owned(1)(2)
---- ------------ -----------------
Smith Barney Holdings Inc. (3).................. 2,192,022 17.27%
Mitchell & Henry, Inc. (4)...................... 1,339,900 10.56
Wisconsin Investment Board...................... 1,170,000 9.22
Weiss, Peck, & Greer............................ 916,290 7.21
George W. Dunbar, Jr. (5)....................... 213,463 1.67
John F. Coombes (6)............................. 45,233 *
Debby R. Dean (7)............................... 23,454
Gerald J. Allen, Ph.D. (8)...................... 26,561 *
Kurt E. Amundson (9)............................ 4,099 *
Ronald T. Steckel (10).......................... 21,639 *
Claude D. Arnaud, M.D. (11)..................... 66,629 *
Mariann Byerwalter.............................. 0 *
John L. Castello (12)........................... 23,333 *
Gregory B. Lawless, Ph.D........................ 0 *
Mary Lake Polan, M.D., Ph.D. (13)............... 29,164 *
Asset Management Associates 1989, LP (14)....... 593,928 4.67
Craig C. Taylor (14)............................ 593,928 4.67
All directors and executive officers as a group
(12 persons) (5) to (14)..................... 1,047,501 8.09%
- ----------
* Less than 1%.
(1) The persons named in this table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws where applicable and except as
indicated in the other footnotes to this table.
(2) Calculations of percentage of beneficial ownership assume the exercise by
only the respective named shareholder of all options for the purchase of
Common Stock held by such shareholder which are exercisable within 60 days
of September 30, 1998.
(3) Smith Barney Holdings Inc. shares with Travelers Group Inc. voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by Smith Barney Holdings Inc.
(4) Includes 240,000 shares owned by Thomas S. Mitchell, 208,000 owned by
Thomas Mitchell & Co. LP, and 95,200 shares owned by Thomas Mitchell
Management Co., Inc. The Company believes these persons are affiliated and
has aggregated such shares as beneficially owned by Mitchell & Henry, Inc.
-3-
<PAGE>
(5) Includes 8,600 shares held by his children and 81,557 shares issuable upon
exercise of options exercisable within 60 days of September 30, 1998.
(6) Includes 40,508 shares issuable upon exercise of options exercisable
within 60 days of September 30, 1998.
(7) Includes 17,998 shares issuable upon exercise of options exercisable
within 60 days of September 30, 1998.
(8) Includes 26,561 shares issuable upon exercise of options exercisable
within 60 days of September 30, 1998.
(9) Mr. Amundson terminated employment with the Company on May 31, 1998.
(10) Mr. Steckel terminated employment with the Company on June 30, 1998.
(11) Includes 24,962 shares issuable upon exercise of options exercisable
within 60 days of September 30, 1998.
(12) Includes 23,333 shares issuable upon exercise of options exercisable
within 60 days of September 30, 1998.
(13) Includes 1,665 shares held by her children and 27,499 shares issuable upon
exercise of options exercisable within 60 days of September 30, 1998.
(14) Includes 12,500 shares issuable upon exercise of options exercisable
within 60 days of September 30, 1998 and 581,428 shares held by Asset
Management Associates 1989, LP Because Mr. Taylor is a general partner of
AMC Partners 89, LP, the general partner of Asset Management Associates
1989, LP, he may be deemed to be a beneficial owner of such shares. Mr.
Taylor disclaims beneficial ownership of such shares except to the extent
of his interest in such shares arising from his interest in AMC Partners
89, LP
-4-
<PAGE>
EXECUTIVE COMPENSATION
The following table shows the compensation received in the fiscal year
ended June 30, 1998 by the Company's Chief Executive Officer and the Named
Executive Officers, and the compensation received by certain of such individuals
for the Company's prior three fiscal years.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation
--------------------------------
Awards Payouts
------------ ---------------
Annual Compensation Securities
Fiscal -------------------- Underlying All Other
Name & Principal Position Year Salary Bonus(1) Options/SARs* Compensation(2)
- ------------------------- ---- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
George W. Dunbar, Jr................. 1998 $236,250 -- 70,000 $ 819
President and Chief Executive 1997 $225,000 -- 145,000 $ 735
Officer 1996 $200,081 $40,000 170,000 $ 1,894
John F. Coombes...................... 1998 $160,220 -- -- $ 15,243
Vice President, Sales and 1997 $145,868 -- 89,000 $ 12,828
Marketing 1996 $112,212 -- 9,000 $ 14,829
Debby R. Dean........................ 1998 $134,521 -- 12,000 $ 675
Vice President, Human Resources 1997 $136,250 -- 32,000 $ 7,432
and Administration 1996 $109,375 -- 44,000 $ 18,504
Gerald J. Allen...................... 1998 $155,000 -- -- $ 77,887
Vice President, Immunoassays 1997 $ 12,917 $32,917 75,000 41
Ronald T. Steckel (3)................ 1998 $208,097 -- 40,000 $ 819
Senior Vice President 1997 $195,000 -- 87,500 $ 735
1996 $165,081 $10,000 62,500 $ 15,121
Kurt E. Amundson (4)................. 1998 $176,534 -- 30,000 $ 819
Vice President and Chief 1997 $171,200 -- 100,000 $ 720
Financial Officer 1996 $ 71,913 $20,000 150,000 $ 245
</TABLE>
- ----------
* Includes options canceled as a result of repricing as follows: George W.
Dunbar, Jr.: 75,000 options canceled in 1996, 95,000 options canceled in
1997; John F. Coombes: 9,000 options canceled in 1997; Debby R. Dean:
22,000 options canceled in 1996, 22,000 options canceled in 1997; Ronald
T. Steckel: 25,000 options canceled in 1996, 37,500 options canceled in
1997; Kurt E. Amundson: 75,000 options canceled in 1997.
(1) These bonuses were paid based upon the individual's performance in the
prior fiscal year or as a signing bonus paid upon the commencement of
employment.
(2) Amounts reported consist of: (i) forgiveness of amounts due under loans
from the Company to assist in the purchase of homes (Mr. Steckel and Dr.
Allen), (ii) relocation expenses paid for by the Company (Dr. Allen and
Ms. Dean), (iii) premiums paid on life and accidental death and
dismemberment insurance policies for the officer's benefit, and (iv) car
allowance (Mr. Coombes only).
(3) Mr. Steckel terminated employment with the Company in June 1998.
(4) Mr. Amundson terminated employment with the Company in May 1998.
-5-
<PAGE>
Mr. Dunbar has entered into an agreement with the Company dated May 24,
1991 which provides that in the event his employment with the Company is
terminated by the Company without cause, he will be entitled to receive his
monthly base salary and benefits for each month he is unable to find suitable
employment while seeking such employment in good faith, but in no event will
such payments continue for less than three months nor more than twelve months.
Mr. Coombes has entered into an agreement with the Company dated August 2,
1994, which provides that in the event that his employment with the Company is
terminated by him or the Company a notice period of six months, plus one week
for each completed year of service to a maximum of 12 additional weeks notice,
is required.
Dr. Allen has entered into an agreement with the Company dated April 15,
1997 which provides that in the event that his employment with the Company is
terminated by the Company without cause, he will be entitled to receive his
monthly base salary and benefits for each month he is unable to find suitable
employment while seeking such employment in good faith, but in no event will
such payments continue for more than six months.
Ms. Dean has entered into an agreement with the Company dated July 15,
1997 which provides that in the event that her employment with the Company is
terminated by the Company without cause, she will be entitled to receive her
monthly base salary and benefits for each month she is unable to find suitable
employment while seeking such employment in good faith, but in no event will
such payments continue for more than six months.
Messrs. Steckel and Amundson entered into agreements with the Company
dated February 1, 1992 and January 2, 1996, respectively, that in the event that
each of their employment with the Company was terminated by the Company without
cause, they would each be entitled to receive their monthly base salary and
benefits for each month they were unable to find suitable employment while
seeking such employment in good faith, but in no event would such payments have
continued for more than six months. Mr. Steckel terminated his employment with
the Company on June 30, 1998. Mr. Amundson terminated his employment with the
Company on May 31, 1998.
During 1997, the Company entered into Change of Control Agreements with
each of Messrs. Dunbar, Coombes, Steckel, Amundson, Dr. Allen, and Ms. Dean, and
(the "Change of Control Agreements"). The Change of Control Agreements provide
that, in the event of (1) a merger or consolidation that results in more than
50% of the voting stock of the Company or its successor changing ownership
(whether or not approved by the Board) and in a change in the composition of the
Board of Directors as a result of which fewer than a majority of the incumbent
directors remain directors after the event; (2) the sale of all or substantially
all of the Company's assets; or (3) approval of a plan of complete liquidation
of the Company (a "Change of Control"), all restricted stock and stock options
outstanding on the date of the Change of Control (the "Shares") will immediately
vest to the extent of 50% of the Shares that have not otherwise vested as of the
date of the Change of Control and be freely transferable or exercisable at the
completion of the transaction, whether or not the officer's employment is
terminated by the Company or a successor corporation. If an officer is
involuntarily terminated by the Company following a Change of Control and prior
to the second anniversary of the Change of Control, such officer will receive
salary continuation and continuation of health and life insurance benefits for a
period of 12 months, pro-rated payment of such officer's target bonus for the
year and immediate and complete acceleration of vesting of the Shares.
-6-
<PAGE>
The following table provides certain information with respect to stock
options granted to the Named Executive Officers in the last fiscal year. In
addition, as required by Securities and Exchange Commission rules, the table
sets forth the hypothetical gains that would exist for the options based on
assumed rates of annual compound stock price appreciation during the option
term.
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants(1)
------------------------------------------------------ ---------------------
Potential Realizable
Percent of Total Value at Assumed
Number of Options/SARs Exercise Annual Rates of Stock
Securities Granted to or Base Price Appreciation
Underlying Employees in Price For Option Term(2)
Options/SARs (%) Per Share Expiration ---------------------
Name Granted (#) Fiscal Year ($/sh) Date 5% ($) 10% ($)
- ---- ------------ ---------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
George W. Dunbar, Jr. ... 70,000 22.64% $ 4.75 08/2007 $209,107 $529,919
John F. Coombes ......... -- -- -- -- -- --
Debby R. Dean ........... 12,000 3.88% $ 4.75 08/2007 $ 35,847 $ 90,843
Gerald J. Allen, Ph.D. .. -- -- -- -- -- --
Ronald T. Steckel ....... 40,000 12.94% $ 4.75 08/2007 $119,490 $302,811
Kurt E. Amundson ........ 30,000 9.70% $ 4.75 08/2007 $ 89,617 $227,108
</TABLE>
- ----------
(1) Options vest over four years as follows: Mr. Dunbar: 0% in year 1, 14.3%
in year 2, 14.3% in year 3, 71.4% in year 4; Mr. Steckel: 0% in year 1,
12.5% in year 2, 12.5% in year 3, 75% in year 4; Mr. Amundson and Ms.
Dean: 100% in year 4.
(2) The potential realizable value portion of the foregoing table illustrates
value that might be realized upon exercise of the options immediately
prior to the expiration of their terms, assuming the specified compounded
rates of appreciation of the market price per share from the date of grant
to the end of the option term. Actual gains, if any, on stock option
exercise are dependent upon a number of factors, including the future
performance of the Common Stock and the timing of option exercises, as
well as the optionee's continued employment through the vesting period.
There can be no assurance that the amounts reflected in this table will be
achieved.
-7-
<PAGE>
The following table sets forth certain information with respect to stock
options exercised by the Named Executive Officers during the last fiscal year.
In addition, the table sets forth the number of shares covered by stock options
as of June 30, 1998, and the value of "in-the-money" stock options, which
represents the positive spread between the exercise price of a stock option and
the market price of the shares subject to such option on June 30, 1998.
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Value of
Unexercised Unexercised
Options/SARs at In-the-Money
Shares Fiscal Year End (#) Options/SARs at
Acquired on Value Exercisable/ Fiscal Year End ($)
Name Exercise (#) Realized ($) Unexercisable Exercisable/Unexercisable(1)
- ---- ------------ ------------ ------------------ ----------------------------
<S> <C> <C> <C> <C>
George W. Dunbar, Jr. .. -- -- 66,456 / 148,544 -- / --
John F. Coombes ....... -- -- 33,838 / 68,105 13,257 / --
Debby R. Dean .......... -- -- 14,666 / 29,334 -- / --
Gerald J. Allen ........ -- -- 18,750 / 56,250 -- / --
Ronald T. Steckel (2) .. -- -- 40,013 / 0 -- / --
Kurt E. Amundson (3) ... -- -- 43,747 / 0 -- / --
</TABLE>
- ----------
(1) Based on the $2.00 per share closing price of the Company's Common Stock
on The Nasdaq National Market on June 30, 1998, less the exercise prices.
(2) Mr. Steckel's options ceased vesting upon his termination of employment on
June 30, 1998; the vested options were exercisable until July 30, 1998.
(3) Mr. Amundson's options ceased vesting upon his termination of employment
on May 30, 1998; the vested options were exercisable until July 1, 1998.
-8-
<PAGE>
Notwithstanding anything to the contrary set forth in any of the Company's
filings under the Securities Act of 1933 or the Securities Exchange Act of 1934
that might incorporate future filings, including this Proxy Statement, in whole
or in part, the following report and the Stock Performance Graph which follows
shall not be deemed to be incorporated by reference into any such filings.
Compensation Committee Report on Executive Compensation
The following is a report of the Compensation Committee of the Board of
Directors (the "Committee") describing the compensation policies applicable to
the Company's executive officers during the fiscal year ended June 30, 1998. The
Committee is responsible for establishing and monitoring the general
compensation policies and compensation plans of the Company, as well as the
specific compensation levels for executive officers. It also makes
recommendations to the Board of Directors concerning the granting of options
under the Company's 1990 Incentive Stock Plan and 1995 Stock Option Plan.
Executive officers who are also directors have not participated in deliberations
or decisions involving their own compensation.
General Policies
The Company's compensation policies are designed to link the executive
officers' compensation to the annual and long-term performance of the Company,
to provide compensation that is competitive with that paid to other executives
in the industry, and to provide compensation that will attract and retain talent
and reward performance. The compensation mix reflects a balance of annual cash
payments, consisting of annual base salary payments and incentive bonus
payments, and long-term stock-based incentives in the form of stock options. The
emphasis in incentive compensation is placed on stock-based options that more
closely align the financial interests of the Company's employees with those of
its shareholders.
Base Salaries
The salary component of executive compensation is based on the executive's
level of responsibility for meeting Company objectives and performance, and
comparable to similar positions in the Company and to comparable companies. Base
salaries for executives are reviewed and adjusted annually based on information
regarding competitive salaries, the results of industry compensation surveys,
and individual experience and performance.
Cash Bonuses
The Company's incentive program for executive officers provides direct
financial incentives in the form of cash bonuses. Specific individual
performance was taken into account in determining bonuses, including meeting
Company goals and individual performance objectives. No cash bonus payments were
made in 1997-98.
Stock Options
The Company's 1995 Stock Option Plan provides for the issuance of stock
options to officers and employees of the Company to purchase shares of the
Company's Common Stock at an exercise price equal to the fair market value of
such stock on the date of grant. The Company's stock options typically vest over
a 48-month period in increments of 12.5% after the initial six months and
approximately 2% per month thereafter. However, options granted to executives in
1997-98 had special delayed vesting provisions as follows: Mr. Dunbar: 0% in
year 1, 14.3% in year 2, 14.3% in year 3, 71.4% in year 4; Mr. Steckel: 0% in
year 1, 12.5% in year 2, 12.5% in year 3, 75% in year 4; Mr. Amundson and Ms.
Dean: 100% in year 4. A grant of 30,000 options to Mr. Coombes in 1996-97 will
begin vesting upon Mr. Coombes' relocation to the U.S.
-9-
<PAGE>
The Company's compensation policies recognize the importance of stock
ownership by senior executives and stock options are an integral part of each
executive's compensation. The Committee believes that the opportunity for stock
appreciation through stock options that vest over time promotes the relationship
between long-term interests of executive officers and shareholders. The size of
specific grants takes into account the executive officer's salary, number of
options previously granted, as well as contributions to the Company's success.
Compensation of the Chief Executive Officer
George W. Dunbar has served as the Company's President and Chief Executive
Officer since July 1991. His base salary for fiscal 1998 was $236,250. The
Company and Mr. Dunbar entered into a Change in Control Agreement in March 1997
(see "Executive Compensation" above).
The factors discussed above in "Base Salaries," "Cash Bonuses," and "Stock
Options" were also applied in establishing the amount of Mr. Dunbar's salary and
stock option grant. Factors in establishing Mr. Dunbar's compensation were the
Company's product sales growth rate and the establishment of certain business
development relationships.
Deductibility of Executive Compensation
The Committee has considered the impact of Section 162(m) of the Internal
Revenue Code adopted under the Omnibus Budget Reconciliation Act of 1993, which
section disallows a deduction for any publicly held corporation for individual
compensation exceeding $1 million in any taxable year for the CEO and four other
most highly compensated executive officers, unless such compensation meets the
requirements for the "performance-based" exception to the general rule. Since
the cash compensation paid by the Company to each of its executive officers is
expected to be well below $1 million and the Committee believes that options
granted under the Company's 1995 Stock Option Plan will meet the requirements
for qualifying as performance-based, the Committee believes that this section
will not affect the tax deductions available to the Company. It will be the
Committee's policy to qualify, to the extent reasonable, the executive officers'
compensation for deductibility under applicable tax law.
Compensation Committee
Claude D. Arnaud, M.D.
John L. Castello
Gregory B. Lawless, Ph.D.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board of Directors currently consists of
directors Arnaud, Castello, and Lawless. No member of the Compensation Committee
or executive officer of the Company has a relationship that would constitute an
interlocking relationship with executive officers or directors of another
entity.
TRANSACTIONS WITH MANAGEMENT
On December 30, 1994, the Company issued and sold an aggregate of 33,333
shares of Common Stock to George W. Dunbar with a purchase price of $1.20 per
share pursuant to a Stock Purchase Agreement under the Company's 1995 Stock
Option Plan. In connection with this purchase, on December 30, 1994, Mr. Dunbar
executed a promissory note in favor of the Company in the amount of $40,000.
This note accrues interest at a rate of 7.6% per annum and is due on the earlier
of December 30, 1998 or the date of termination of the Mr. Dunbar's employment
relationship with the Company. The Company loaned to Mr. Dunbar $290,000 in May
1998 pursuant to a 5.5% Secured Promissory Note as a short-term personal loan.
This loan is due and
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<PAGE>
payable on demand any time after May 5, 1999 or upon termination of Mr. Dunbar's
employment with the Company for any reason.
The Company loaned to John F. Coombes $75,000 in August 1996 pursuant to a
6.15% Secured Promissory Note as a short-term personal loan. This loan was paid
in full in September 1998.
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return for the
Company's stock at September 30, 1998 since June 30, 1995 (the date on which the
Company's stock was first registered under Section 12 of the Securities Exchange
Act of 1934) to the cumulative return over such period of (i) the BioCentury 100
index, (ii) the Total Return Index for The Nasdaq National Market Composite
Index, (iii) the Hambrecht & Quist Life Sciences Index, (iv) the Russell 2000
Index and (v) the SG Cowen Medtech Small Cap Index. The Russell 2000 Index and
the SG Cowen Medtech Small Cap Index were added this year to replace the
BioCentury 100 Index and the Nasdaq Index; the Company believes its medical
technology industry and small market capitalization are more comparable to the
new indices. The graph assumes that $100 was invested at the closing of business
on June 30, 1995, the date on which the Company completed its Initial Public
Offering of Common Stock, in the Common Stock of the Company and in each of the
comparative indices. The graph further assumes that such amount was initially
invested in the Common Stock of the Company at a per share price of $12.00, the
closing price on June 30, 1995, and that subsequent data points represent the
closing price of the stock or index on the last trading day of the month
represented. The stock price performance is not necessarily indicative of future
stock price performance.
[The following table was depicted as a line chart in the printed materials.]
<TABLE>
<CAPTION>
Nasdaq National H&Q Life SG Cowen Medtech
DATE Bio Century 100 Metra Biosystems Composite Sciences Index Russell 2000 Small Cap
- ---- --------------- ---------------- --------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Jun-95 100 100 100 100 100 100
Sep-95 145.4806 164.5833 111.80654 121.9801 109.4313013 118.70412
Dec-95 172.5971 143.75 112.81456 145.3889 111.4021789 117.86968
Mar-96 195.9589 118.75 117.99114 140.6534 116.6202447 127.1397
Jun-96 215.4441 45.83333 127.06812 129.7737 122.2014596 105.19921
Sep-96 208.9608 50 132.0963 138.5721 122.1238938 91.51997
Dec-96 210.4943 39.58333 138.9656 134.8744 127.8461376 79.77422
Mar-97 194.6134 35.41667 131.4091 133.7266 120.7770687 72.05892
Jun-97 197.5742 40.10417 155.8841 137.0214 139.7524944 70.34389
Sep-97 249.5306 29.16667 182.4686 145.9146 160.0042309 76.7343
Dec-97 208.2103 30.20833 170.085 133.9393 154.081021 61.7683
Mar-98 241.0954 18.75 199.5738 155.1971 169.4707894 64.66961
Jun-98 222.5648 16.66667 205.1383 147.568 161.2734901 51.22709
Sep-98 172.423 6.25 183.8262 157.609 128.1528752 35.80035
</TABLE>
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<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Nominees
At the Annual Meeting, the shareholders will elect seven directors to
serve until the 1999 Annual Meeting of Shareholders or until their respective
successors are elected and qualified. In the event any nominee is unable or
unwilling to serve as a director at the time of the Annual Meeting, the proxies
may be voted for the balance of those nominees named and for any substitute
nominee designated by the present Board or the proxy holders to fill such
vacancy, or for the balance of the nominees named without nomination of a
substitute, or the Board may be reduced in accordance with the Bylaws of the
Company. The Board has no reason to believe that any of the persons named below
will be unable or unwilling to serve as a nominee or as a director if elected.
All nominees are currently directors of the Company.
In voting for directors, each shareholder is entitled to cast that number
of votes equal to the number of directors to be elected multiplied by the number
of shares of Common Stock held by such shareholder. Such votes may be cast for
one candidate or distributed in any manner among the nominees for directors.
However, the right to cumulate votes in favor of one or more candidates may not
be exercised unless the candidate or candidates have been nominated prior to the
voting, and a shareholder has given notice at the Annual Meeting, prior to the
voting, of the shareholder's intention to cumulate such shareholder's votes. If
any one shareholder gives such notice, all shareholders may cumulate their votes
for candidates in nomination. The persons authorized to vote shares represented
by proxies in the enclosed form will (if authority to vote for the election of
directors is not withheld) have full discretion and authority to vote
cumulatively and to allocate votes among any or all of the nominees as they may
determine or, if authority to vote for a specified candidate or candidates has
been withheld, among those candidates for whom authority to vote has not been
withheld.
Assuming a quorum is present, the seven nominees receiving the highest
number of affirmative votes of shares entitled to be voted for them will be
elected as directors of the Company for the ensuing year. Unless marked
otherwise, proxies received will be voted FOR the election of each of the seven
nominees named below. In the event that additional persons are nominated for
election as directors, the proxy holders intend to vote all proxies received by
them in such a manner in accordance with cumulative voting as will ensure the
election of as many of the nominees listed below as possible, and, in such
event, the specific nominees to be voted for will be determined by the proxy
holders.
The names of the nominees, their ages as of October 31, 1998, and certain
other information about them are set forth below:
<TABLE>
<CAPTION>
Name of Nominee Age Principal Occupation Director Since
- --------------- --- -------------------- --------------
<S> <C> <C> <C>
George W. Dunbar, Jr............ 51 President, Chief Executive Officer, 1991
Chief Financial Officer, and Director
Claude D. Arnaud, M.D........... 68 Director 1990
Mariann Byerwalter.............. 38 Director 1998
John L. Castello................ 62 Director 1993
Gregory B. Lawless, Ph.D........ 58 Director 1998
Mary Lake Polan, M.D., Ph.D..... 54 Director 1992
Craig C. Taylor................. 48 Director 1991
</TABLE>
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<PAGE>
There are no family relationships among any of the directors or executive
officers of the Company.
Mr. Dunbar joined the Company as President, Chief Executive Officer and
Director in July 1991. Prior to joining the Company, he was the Vice President
of Licensing and Business Development of The Ares-Serono Group ("Ares-Serono"),
a Swiss health care company that markets pharmaceutical, diagnostic and
veterinary products worldwide, from 1988 until 1991, where he established a
licensing and acquisition group for its health care divisions. From 1974 until
1987, he held various senior management positions with Amersham International
("Amersham"), a health care and life sciences company, where he most recently
served as Vice President for its Life Sciences business in North America. Mr.
Dunbar also served as Amersham's General Manager of Pacific Rim markets and
Eastern Regional operations and, prior to that, he managed the international
marketing of Amersham's medical and industrial radioisotopes. Mr. Dunbar also
serves as a director of Sonus Pharmaceuticals Inc., LJL Biosystems Inc., Valley
Medical Center Foundation, and Metra Biosystems (U.K.) Ltd., the Company's
wholly owned subsidiary. Mr. Dunbar holds a B.S. in electrical engineering and
an M.B.A. from Auburn University, and sits on the Auburn School of Business
M.B.A. Advisory Committee.
Dr. Arnaud is a co-founder of the Company, a member of its Scientific
Advisory Board, and joined the Company's Board of Directors in July 1990. Since
1981, Dr. Arnaud has been affiliated with the University of California at San
Francisco ("UCSF") and is currently Professor of Medicine and Physiology,
Director of Programs in Osteoporosis and Bone Biology, and Director of the
Center for Osteoporosis and Metabolic Bone Disease at UCSF. Dr. Arnaud has
served on several editorial advisory boards, including the Journal of Bone and
Mineral Research, Calcified Tissue International, Bone, and Osteoporosis
International. He is a founder and former president of the American Society of
Bone and Mineral Research and is a recipient of that society's William F. Newman
Award for excellence in research and teaching. Dr. Arnaud received his B.A. in
medicine from Columbia College, his M.D. from New York Medical College, and
completed postdoctoral work at the University of Wisconsin.
Ms. Byerwalter joined the Company's Board of Directors in February 1998.
She became Stanford's vice president for business affairs and chief financial
officer in 1996. She was co-founder and partner of America First Financial
Corporation. Ms. Byerwalter was the chief operating officer and chief financial
officer of America First Holdings and from 1993 to 1996, CFO of EurekaBank. Ms.
Byerwalter holds an M.B.A. degree from Harvard University and a bachelor's
degree from Stanford. She was a director of EurekaBank from 1988 until its sale
in 1998. She is a director of America First Companies of Omaha, Nebraska, and of
Stanford Health Services.
Mr. Castello joined the Company's Board of Directors in July 1993. He is
the Chairman, President and Chief Executive Officer of XOMA Corporation
("XOMA"), a human therapeutics and biotechnology company. Prior to joining XOMA
in 1992, Mr. Castello was with Ares-Serono where he served as President and
Chief Operating Officer from 1988 to 1992. Mr. Castello is also a director of
Cholestech Corporation, a medical diagnostics company, and Alpha Therapeutics.
Mr. Castello holds a B.S. in mechanical and industrial engineering from the
University of Notre Dame.
Dr. Lawless joined the Company's Board of Directors in February 1998. He
has seventeen years' experience as a chief executive in the healthcare industry
in both pharmaceutical and diagnostic businesses in both large and small company
settings. His most recent assignment was President and CEO of Cygnus, a drug
delivery and diagnostics company in Redwood City, CA. Before joining Cygnus,
from 1989 to 1992 he was president and chief operating officer of Chiron
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<PAGE>
Corporation. Prior to joining Chiron, Dr. Lawless was affiliated with DuPont
Company in various management positions in its healthcare businesses. He holds a
B.S. degree in pharmacy from Fordham University, an M.S. degree in analytical
chemistry from St. John's University (New York), and a Ph.D. in physical
biochemistry from Temple University in Philadelphia.
Dr. Polan has served as a member of the Company's Board of Directors since
August 1992. She is the Chairman of the Department of Gynecology and Obstetrics
at Stanford University School of Medicine Previously, Dr. Polan was an Associate
Professor in the Department of Obstetrics and Gynecology at Yale University. She
has been a member of the Board of Health Sciences Policy of the Institute of
Medicine, a unit of the National Academy of Sciences, since 1992. Dr. Polan is
also a director of Quidel Corporation, a human diagnostics company, Gynecare,
Inc., a medical device company, and American Home Products, a pharmaceutical and
consumer products company. Dr. Polan received her B.A. in chemistry from
Connecticut College and from Yale University, a Ph.D. in biophysics,
biochemistry and medicine.
Mr. Taylor joined the Company's Board of Directors in August 1991. He
joined Asset Management Company in 1977 and is a general partner of Asset
Management Associates and as well as associated private venture capital
partnerships, one of which is a shareholder of the Company. Mr. Taylor serves as
a director of Lynx Therapeutics, Inc., and Pharmacyclics, Inc., which are human
therapeutics companies. Mr. Taylor received a B.S. and M.S. in physics from
Brown University and an M.B.A. from Stanford University.
Meetings and Committees of the Board of Directors
During the period from July 1, 1997 through June 30, 1998 (the "last
fiscal year"), the Board met seven times and no director nominee attended fewer
than 75% of the aggregate number of meetings of the Board and meetings of the
committees of the Board on which he or she serves. The Board has an Audit
Committee and a Compensation Committee. The Board does not have a nominating
committee or a committee performing the functions of a nominating committee.
Although there are no formal procedures for shareholders to nominate persons to
serve as directors, the Board will consider nominations from shareholders, which
should be addressed to George Dunbar at the Company's address set forth above.
The Audit Committee, which currently consists of directors Byerwalter,
Polan, and Taylor, held two meetings during the last fiscal year. The Audit
Committee recommends the engagement of the firm of certified public accountants
to audit the financial statements of the Company and monitors the effectiveness
of the audit effort, the Company's financial and accounting organization, and
its system of internal accounting controls.
The Compensation Committee which currently consists of directors Arnaud,
Castello, and Lawless, held five meetings during the last fiscal year. Its
functions are to establish and administer the Company's policies regarding
annual executive salaries, cash incentives, and long-term equity incentives. The
Compensation Committee administers the Company's 1995 Stock Option Plan, 1995
Directors' Stock Option Plan, 1995 Employee Stock Purchase Plan and 1990
Incentive Stock Plan.
Compensation of Directors
Effective March 3, 1997, non-employee directors receive cash compensation
for meeting attendance as follows: $1,000 for each meeting of the Board of
Directors attended; $500 for attending committee meetings held on days upon
which the full Board of Directors does not meet;
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<PAGE>
and $500 for telephonic meetings more than one-half hour in duration.
Additionally, directors are reimbursed for out-of-pocket expenses incurred in
connection with their attendance at meetings of the Board. The Company's 1995
Directors' Stock Option Plan (the "Directors' Plan") provides that each person
who becomes a non-employee director of the Company will be granted a
non-statutory stock option to purchase 10,000 shares of Common Stock on the date
on which the optionee first becomes a non-employee director of the Company.
Thereafter, on the date of each annual meeting of the Company's shareholders at
which such director is elected, each such non-employee director shall be granted
an additional option to purchase 5,000 shares of Common Stock if, on such date,
he or she shall have served on the Company's Board of Directors for at least six
months. Each of the nominees for director will have served for more than six
months at the time of the Annual Meeting, and so will receive options to
purchase 5,000 shares of the Company's Common Stock under the Directors' Plan if
they are reelected to the Board at the Annual Meeting.
Recommendation of the Board
THE BOARD RECOMMENDS A VOTE FOR
THE ELECTION OF ALL NOMINEES NAMED ABOVE.
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Ernst & Young LLP has served as the Company's independent auditors since
May 1997 and has been appointed by the Board to continue as the Company's
independent auditors for the year ending June 30, 1999. In the event that
ratification of this selection of auditors is not approved by a majority of the
shares of Common Stock voting at the Annual Meeting in person or by proxy, the
Board will reconsider its selection of auditors.
A representative of Ernst & Young LLP is expected to be present at the
Annual Meeting. This representative will have an opportunity to make a statement
and will be available to respond to appropriate questions.
Recommendation of the Board
THE BOARD RECOMMENDS A VOTE FOR
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE YEAR ENDING JUNE 30, 1999
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<PAGE>
OTHER MATTERS
The Board of Directors knows of no other business that will be presented
to the Annual Meeting. If any other business is properly brought before the
Annual Meeting, proxies in the enclosed form will be voted in respect thereof as
the proxy holders deem advisable.
It is important that the proxies be returned promptly and that your shares
be represented. Shareholders are urged to mark, date, execute, and promptly
return the accompanying proxy card in the enclosed envelope.
By Order of the Board of Directors,
Mark B. Weeks
Secretary
October 28, 1998
Mountain View, California
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