<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the registrant [X]
Filed by 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 ss. 240.14a-11(c) or ss. 240.14a-12
------------------------------
OPTICAL SENSORS INCORPORATED
(Name of Registrant as Specified In Its Charter)
OPTICAL SENSORS INCORPORATED
(Name of Person(s) Filing Proxy Statement)
------------------------------
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:
1
<PAGE>
OPTICAL SENSORS INCORPORATED
7615 Golden Triangle Drive, Suite A
Minneapolis, Minnesota 55344
TO THE STOCKHOLDERS OF OPTICAL SENSORS INCORPORATED:
You are cordially invited to attend our Annual Meeting of Stockholders
to be held on Thursday, May 6, 1999, at 3:30 p.m., local time, at the Hotel
Marriot Southwest, 5801 Opus Parkway, Minnetonka, Minnesota.
The formal Notice of Meeting, Proxy Statement and form of proxy are
enclosed.
Whether or not you plan to attend the meeting, please date, sign and
return the enclosed proxy in the envelope provided as soon as possible so that
your vote will be recorded.
Very truly yours,
/s/ Paulita M. LaPlante
Paulita M. LaPlante
President and Chief Executive Officer
April 2, 1999
PLEASE SIGN, DATE AND RETURN
THE ENCLOSED PROXY PROMPTLY
TO SAVE THE COMPANY THE EXPENSE
OF ADDITIONAL SOLICITATION.
<PAGE>
OPTICAL SENSORS INCORPORATED
7615 Golden Triangle Drive, Suite A
Minneapolis, Minnesota 55344
------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 6, 1999
-----------------------------
TO THE STOCKHOLDERS OF OPTICAL SENSORS INCORPORATED:
Notice is hereby given that the Annual Meeting of Stockholders of
Optical Sensors Incorporated, a Delaware corporation (the "Company"), will be
held on Thursday, May 6, 1999, at 3:30 p.m., local time, at the Hotel Marriott
Southwest, 5801 Opus Parkway, Minnetonka, Minnesota, for the following purposes:
1. To elect six (6) persons to serve as directors until the next
annual meeting of stockholders or until their respective
successors shall be elected and qualified.
2. To ratify the appointment of Ernst & Young LLP, certified public
accountants, as independent auditors for the Company for the
fiscal year ending December 31, 1999.
3. To consider and act upon such other matters as may properly come
before the meeting or any adjournment thereof.
Only stockholders of record at the close of business on March 22, 1999
will be entitled to notice of, and to vote at, the meeting and any adjournments
thereof.
By Order of the Board of Directors,
/s/ Wesley G. Peterson
Wesley G. Peterson
Secretary
April 2, 1999
Minneapolis, Minnesota
- --------------------------------------------------------------------------------
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. NO ADMISSION
TICKET OR OTHER CREDENTIALS WILL BE NECESSARY. IF YOU DO NOT PLAN TO ATTEND THE
MEETING, PLEASE BE SURE YOU ARE REPRESENTED AT THE MEETING BY MARKING, SIGNING,
DATING AND MAILING YOUR PROXY IN THE REPLY ENVELOPE PROVIDED.
- --------------------------------------------------------------------------------
<PAGE>
OPTICAL SENSORS INCORPORATED
7615 Golden Triangle Drive, Suite A
Minneapolis, Minnesota 55344
------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
May 6, 1999
------------------
INTRODUCTION
The Annual Meeting of Stockholders of Optical Sensors Incorporated (the
"Company") will be held on Thursday, May 6, 1999, at 3:30 p.m., local time, at
the Hotel Marriott Southwest, 5801 Opus Parkway, Minnetonka, Minnesota, or at
any adjournment or adjournments thereof (the "Annual Meeting"), for the purposes
set forth in the Notice of Meeting.
A proxy card is enclosed for your use. You are solicited on behalf of
the Board of Directors to SIGN AND RETURN THE PROXY CARD IN THE ACCOMPANYING
ENVELOPE. No postage is required if mailed within the United States. The cost of
soliciting proxies, including the preparation, assembly and mailing of proxies
and soliciting material, as well as the cost of forwarding such material to the
beneficial owners of the Company's common stock, $.01 par value (the "Common
Stock") will be borne by the Company. Directors, officers and regular employees
of the Company may, without compensation other than their regular compensation,
solicit proxies by telephone, telegraph or personal conversation. The Company
may reimburse brokerage firms and others for expenses in forwarding proxy
materials to the beneficial owners of the Common Stock.
Any stockholder giving a proxy may revoke it at any time prior to its
use at the Annual Meeting either by giving written notice of such revocation to
the Secretary of the Company, by filing a duly executed proxy bearing a later
date with the Secretary of the Company, or by appearing at the Annual Meeting
and filing written notice of revocation with the Secretary of the Company prior
to use of the proxy. Proxies will be voted as specified by stockholders. Proxies
that are signed by stockholders but that lack any such specification will be
voted in favor of the proposals set forth in the Notice of Meeting and in favor
of the election as directors of the nominees for directors listed in this Proxy
Statement.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL OF THE
PROPOSALS SET FORTH IN THE NOTICE OF MEETING.
The Company expects that this proxy material will first be mailed to
stockholders on or about April 2, 1999.
<PAGE>
VOTING OF SHARES
Only holders of the Common Stock of record at the close of business on
March 22, 1999 will be entitled to vote at the Annual Meeting. On March 22,
1999, the Company had 8,841,123 outstanding shares of Common Stock, each such
share entitling the holder thereof to one vote on each matter to be voted on at
the Annual Meeting.
The presence at the Annual Meeting, in person or by proxy, of the
holders of a majority of the outstanding shares of Common Stock entitled to vote
at the Annual Meeting (4,420,562 shares) will constitute a quorum for the
transaction of business at the Annual Meeting. In general, shares of Common
Stock represented by a properly signed and returned proxy card will be counted
as shares present and entitled to vote at the Annual Meeting for purposes of
determining a quorum, without regard to whether the card reflects abstentions
(or is left blank) or reflects a "broker non-vote" on a matter (i.e., a card
returned by a broker on behalf of its beneficial owner customer that is not
voted on a particular matter because voting instructions have not been received
and the broker has no discretionary authority to vote).
Holders of shares of Common Stock are not entitled to cumulate voting
rights.
The election of a nominee for director requires the approval of a
plurality of the shares present and entitled to vote in person or by proxy and
the approval of the other proposals described in this Proxy Statement requires
the approval of a majority of the shares present and entitled to vote in person
or by proxy on that matter (and at least a majority of the minimum number of
votes necessary for a quorum to transact business at the Annual Meeting). Shares
represented by a proxy card including any broker non-votes on a matter will be
treated as shares not entitled to vote on that matter, and thus will not be
counted in determining whether that matter has been approved. Shares represented
by a proxy card voted as abstaining on any of the proposals will be treated as
shares present and entitled to vote that were not cast in favor of a particular
matter, and thus will be counted as votes against that matter.
ELECTION OF DIRECTORS
PROPOSAL 1
Nomination
The Bylaws of the Company provide that the number of directors must be
at least one or such other number as shall be fixed from time to time by
resolution of the Board of Directors. The Board of Directors of the Company (the
"Board") has set its size at six and has nominated the six individuals named
below to serve as directors of the Company until the next annual meeting of
stockholders or until their respective successors have been elected and
qualified. All of the nominees are current members of the Board. Dr. Nicoloff
and Messrs. Humphries, Peterson, Egen and Meelia were elected at the 1998 Annual
Meeting of Stockholders, and Ms. LaPlante was elected by the Board, pursuant to
its authority under the Company's Bylaws to elect directors between stockholder
meetings, in September 1998.
Assuming a quorum is represented at the Annual Meeting, either in person
or by proxy, the election of each director requires the affirmative vote of a
plurality of the shares of Common Stock represented in person or by proxy at the
Annual Meeting. The Board recommends a vote FOR the election of each of the
nominees listed below. In the absence of other instructions, the proxies will be
voted FOR the election of each of the nominees named below. If prior to the
Annual Meeting, the Board should learn that any nominee will be unable to serve
by reason of death, incapacity or other unexpected
2
<PAGE>
occurrence, the proxies that otherwise would have been voted for such nominee
will be voted for such substitute nominee as selected by the Board.
Alternatively, the proxies, at the Board's discretion, may be voted for such
fewer number of nominees as results from such death, incapacity or other
unexpected occurrence. The Board has no reason to believe that any of the
nominees will be unable to serve.
Information About Nominees
The following table sets forth certain information as of March 1, 1999,
which has been furnished to the Company by each of the persons who has been
nominated by the Board to serve as directors for the ensuing year.
<TABLE>
<CAPTION>
Name of Nominee Age Principal Occupation Director Since
- ------------------------- ------- ------------------------------- --------------
<S> <C> <C> <C>
Paulita M. LaPlante 41 President and Chief Executive 1998
Officer of the Company
Sam B. Humphries (1) 56 President and Chief Executive 1991
Officer of American Medical
Systems, Inc.
Richard B. Egen (1) 59 President and Chief Executive 1997
Officer of NephRx Corporation
Richard J. Meelia (2) 50 President and Chief Executive 1997
Officer of The Kendall Company
Demetre M. Nicoloff, M.D. 65 Cardiac Surgeon and Senior 1989
Partner of Cardiac Surgical
Associates
Gary A. Peterson (2) 47 President and Chief Executive 1990
Officer of BATON Development,
Inc.
- --------------------
</TABLE>
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Other Information About Nominees
Paulita M. LaPlante has been the President and a Director of the Company
since September 1998, and Chief Executive Officer of the Company since December
1998. From June 1994 to September 1998, Ms. LaPlante served as the Company's
Vice President of Worldwide Sales, Marketing and Business Development and was
Director of Marketing and Business Development from April 1992 to June 1994. She
also served as the Company's interim Vice President of Research and Development
from January 1994 to September 1994. From 1986 to April 1992, Ms. LaPlante held
a variety of positions with American Medical Systems, Inc., including Manager
for Prostate Products, Manager of New Business Development and Manager of
Worldwide Technical Training.
3
<PAGE>
Sam B. Humphries has been a Director of the Company since October 1991.
Mr. Humphries has served as the President and Chief Executive Officer of
American Medical Systems, Inc., a medical device manufacturer, since September
1998. Mr. Humphries served as President and Chief Executive Officer of the
Company from October 1991 to September 1998. From January 1988 to October 1991,
he served as President and Chief Executive Officer of American Medical Systems.
Mr. Humphries also served as a member of the Board of Directors of the Hospital
Products Group at Pfizer, Inc. Mr. Humphries is a Director of Universal Hospital
Services, Inc. and American Medical Systems.
Richard B. Egen has been a Director of the Company since June 1997. Mr.
Egen is the President and Chief Executive Officer of NephRx Corporation, a
biotechnology company formed to commercialize kidney growth factor technology
developed at the University of Chicago. From January 1996 to December 1996, Mr.
Egen served as a consultant to Baxter International, Inc. ("Baxter") and Nestle,
S.A. ("Nestle") for clinical nutrition and start up medical companies. From
January 1989 to December 1995, he served as President and Chief Executive
Officer of Clintec International, Inc., a joint venture between Baxter and
Nestle that develops, manufactures, markets and distributes clinical nutrition
solutions and formulations. Prior to joining Clintec International, Inc., Mr.
Egen served in several positions at Baxter, including Senior Vice President and
a member of Baxter's Senior Management Committee. Mr. Egen is a member of the
Board of Directors of Aksys, Ltd.
Richard J. Meelia has been a Director of the Company since June 1997.
Mr. Meelia has been the President and Chief Executive Officer of The Kendall
Company, a wholly-owned subsidiary of Tyco International Ltd. that manufactures
a diverse line of healthcare and specialty products, since July 1995. From
January 1991 to July 1995, Mr. Meelia served as Group President of Kendall
Healthcare Products Company. From January 1987 to December 1990, Mr. Meelia
served as President of Infusaid, Inc., a division of Pfizer, Inc. that
manufactures and markets implantable infusion pumps and ports. From 1973 to
1987, he served in a variety of sales and marketing positions with divisions of
American Hospital Supply Corporation.
Demetre M. Nicoloff, M.D. has been a Director of the Company since July
1989. Dr. Nicoloff has been a cardiac surgeon for more than 15 years, and is
presently a Senior Partner of Cardiac Surgical Associates with practices at the
Minneapolis Heart Institute and the St. Paul Heart and Lung Institute. Dr.
Nicoloff is a member of the Board of Directors of Applied Biometrics, Inc. and
Jundt Associates Funds.
Gary A. Peterson has been a Director of the Company since June 1990. Mr.
Peterson is the President and Chief Executive Officer of BATON Development,
Inc., a virtual incubator for medical products, as well as the Managing Member
of BATON Ventures L.L.C. and the Venture Partner in Affinity Ventures II L.L.C.,
both venture capital funds. Mr. Peterson has also been the President of
Peterson-Spencer-Fansler Company, a capital sourcing and operational consulting
company, since 1991 and a General Partner of PSF Advisors, the General Partner
of PSF Health Care Fund L.P., a venture capital limited partnership. He was also
President of Peterson-Spencer-Fansler Investments, Inc., a registered
broker-dealer and a registered investment advisor. From 1986 through 1994, Mr.
Peterson served as President of Genesis Venture Development, Inc., a venture
capital fund management company. Mr. Peterson was a founder of Angiomedics
Incorporated and served in the capacities of Chief Operating Officer and
Executive Vice President from its inception in 1983 to 1986 at which time
Angiomedics was acquired by Pfizer, Inc. Mr. Peterson continues to be a director
of numerous privately held medical companies.
4
<PAGE>
Information About the Board and its Committees
The Board of Directors met or took written action 11 times during 1998.
All of the Directors, except Dr. Nicoloff, attended 75% or more of the meetings
of the Board and all such committees on which they served during 1998.
The Board has established an Audit Committee and a Compensation
Committee. The Audit Committee provides assistance to the Board in satisfying
its fiduciary responsibilities relating to accounting, auditing, operating and
reporting practices of the Company, and reviews the annual financial statements
of the Company, the selection and work of the Company's independent auditors and
the adequacy of internal controls for compliance with corporate policies and
directives. During 1998, the Audit Committee consisted of Mr. Egen and former
board member Dr. Haque and met once during fiscal 1998. Mr. Egen and Mr.
Humphries will serve as members of the Audit Committee during fiscal 1999.
The Compensation Committee makes recommendations to the Board of
Directors concerning the compensation of the Company's directors, executive
officers and key managers, and acts on such other matters relating to their
compensation as it deems appropriate. In addition, the Compensation Committee
administers the Company's stock option plans, pursuant to which incentive stock
options and non-statutory stock options may be granted to eligible key
employees, officers, directors and consultants of the Company, and the Company's
Employee Stock Purchase Plan, pursuant to which employees of the Company may
purchase shares of Common Stock directly from the Company on favorable terms
through payroll deductions. The Compensation Committee consisted of Mr. Nehra
and Mr. Peterson and met or took written action seven times during fiscal 1998.
Mr. Meelia and Mr. Peterson will serve as members of the Compensation Committee
during fiscal 1999. See "Executive Compensation and Other Benefits--
Compensation Committee Report on Executive Compensation."
Director Compensation
Directors of the Company receive no cash compensation for their services
as members of the Board of Directors, although their out-of-pocket expenses
incurred on behalf of the Company are reimbursed. Prior to October 1995, the
Company's 1993 Stock Option Plan provided for the automatic grant to each
director who is not an employee of the Company an option to purchase 888 shares
of Common Stock on each anniversary of their initial election to the Board,
which became exercisable one year after the date of the grant. On October 3,
1995, this provision in the 1993 Stock Option Plan was terminated and all of the
non-employee directors of the Company were granted an option to purchase 15,555
shares of Common Stock at a price of $2.70 per share. These options become
exercisable, on a cumulative basis, with respect to 25% of the shares covered by
the option, on each of the first four anniversary dates of the grant. In June
1997, each of Messrs. Egen and Meelia were granted an option to purchase 16,000
shares of Common Stock at a price equal to the market value on the date of the
grant. These options become exercisable, on a cumulative basis, with respect to
25% of the shares covered by the option, on each of the first four anniversary
dates of the grant.
On September 11, 1998, the Company and Sam B. Humphries entered into a
board advisory agreement ("Board Advisory Agreement") that will terminate upon
the earlier of (i) the Company's 1999 Annual Meeting of Stockholders or (ii) May
31, 1999, unless sooner terminated pursuant to the provisions of the Board
Advisory Agreement. Pursuant to the Board Advisory Agreement, Mr. Humphries
provides advice and counsel to the Board of Directors and the President and
Chief Executive Officer of the Company. In consideration for his services, the
Company has agreed to pay Mr. Humphries $50,000 on April 1, 1999.
5
<PAGE>
PRINCIPAL STOCKHOLDERS AND BENEFICIAL
OWNERSHIP OF MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Common Stock of the Company as of March 15, 1999, unless
otherwise noted, (a) by each stockholder who is known by the Company to own
beneficially more than 5% of the outstanding Common Stock; (b) by each director;
(c) by each executive officer named in the Summary Compensation Table; and (d)
by all directors and executive officers of the Company as a group.
Shares of Common Stock
Beneficially Owned (1)
----------------------
Percent of
Name Amount Class (2)
- -------------------------------------------------------- ------- ----------
Norwest Venture Capital (3)............................. 830,803 9.4%
Circle F Ventures, LLC and Hayden R. Fleming (4)........ 526,609 6.0%
Trustees of the General Electric Pension Trust (5)...... 476,190 5.4%
Special Situations Funds (6)............................ 445,700 5.0%
Coral Partners II, a limited partnership (7)............ 444,859 5.0%
Richard B. Egen (8)..................................... 4,000 *
Sam B. Humphries (9).................................... 105,289 1.2%
Paulita M. LaPlante (10)................................ 85,835 *
Richard J. Meelia (11).................................. 4,000 *
Demetre M. Nicoloff, M.D. (12).......................... 75,244 *
Gary A. Peterson (13)................................... 94,839 1.1%
Byron (Buzz) Moran (14)................................. 68,194 *
James Quackenbush (15).................................. 29,355 *
All directors and executive officers
as a group (10 persons) (16)............................ 542,880 6.0%
- ------------------
* Less than 1% of the outstanding shares.
(1) Except as otherwise indicated in the footnotes to this table, the
persons named in the table have sole voting and investment power with
respect to all shares of Common Stock. Shares of Common Stock subject to
options or warrants currently exercisable or exercisable within 60 days
are deemed outstanding for computing
6
<PAGE>
the percentage of the person or group holding such options but are not
deemed outstanding for computing the percentage of any other person or
group.
(2) Based on 8,841,123 shares of Common Stock outstanding as of March 15,
1999.
(3) Based on Schedule 13G filed February 5, 1998. Includes 366,834 shares
held of record by Norwest Equity Partners IV and 453,225 shares held of
record by Norwest Equity Partners V. Also includes 10,744 shares
issuable upon exercise of an outstanding warrant held by Norwest Equity
Partners V. Itasca Partners is the general partner of Norwest Equity
Partners IV and may be deemed to be the beneficial owner of shares held
by Norwest Equity Partners IV. Itasca Partners V is the general partner
of Norwest Equity Partners V and may be deemed to be the beneficial
owner of shares held by Norwest Equity Partners V. Daniel J. Haggerty,
by virtue of his affiliation with Norwest Equity Partners IV and Norwest
Equity Partners V, may be deemed to be the beneficial owner of shares
held by Norwest Equity Partners IV and Norwest Equity Partners V;
however he disclaims beneficial ownership of such shares, except to the
extent of his pecuniary interest therein. John E. Lindahl and George J.
Still, by virtue of their affiliation with Norwest Equity Partners V,
each may be deemed to be the beneficial owner of shares held by Norwest
Equity Partners V; however they disclaim beneficial ownership of such
shares, except to the extent of their pecuniary interest therein. The
address of Norwest Venture Capital and the other named individuals is
2800 Piper Tower, 222 South Ninth Street, Minneapolis, Minnesota 55402.
(4) Based on Schedule 13G filed February 5, 1999. Includes 494,109 shares
held of record by Circle F Venture LLC ("Circle F"), 25,000 shares held
of record by a trust for the benefit of Hayden R. Fleming and his spouse
and 7,500 shares held of record by Mr. Fleming's spouse or by an
individual retirement account for the benefit of his spouse. Mr. Fleming
is the managing member of Circle F. The address of Circle F and Mr.
Fleming is 14988 N. 78th Way, Suite 200, Scottsdale, Arizona 85260.
(5) Based on a Schedule 13G filed February 14, 1997. General Electric
Investment Corporation ("GEIC") is the investment advisor to the
Trustees of the General Electric Pension Trust ("GEPT") and may be
deemed a beneficial owner of such shares. GEPT and GEIC share voting and
investment power with respect to such shares. The address of GEPT and
GEIC is 3003 Summer Street, Stamford, Connecticut 06904-7900.
(6) Based on a Schedule 13G filed February 12, 1999. Includes 442,700 shares
held of record by Special Situations Fund III, L.P., a limited
partnership ("SSF III") and 3,000 shares held of record by Special
Situations Cayman Fund, L.P., a limited partnership ("Cayman Fund"). MGP
Advisors Limited Partnership ("MGP") is the general partner and
investment advisor of SSF III, and AWM Investment Company, Inc. ("AWM")
is the general partner of MGP and the general partner and investment
advisor of the Cayman Fund. Austin W. Marxe and David Greenhouse are
officers, directors and members of AWM and MGP, respectively, and may be
deemed to be the beneficial owner of the shares held by SSF III and
Cayman Fund. SSF III, MGP, Cayman Fund and AWM have sole voting and
investment power with respect to the shares beneficially owned by such
fund and advisor. Messrs. Marxe and Greenhouse have shared voting and
investment power with respect to the shares beneficially owned by each
of them. The address of SSF III, MGP, AWM and Messrs. Marxe and
Greenhouse is 153 East 53 Street, New York, New York 10022. The address
of Cayman Fund is c/o CIBC Bank and Trust Company (Cayman) Limited, CIBC
Bank Building, P.O. Box 694, Grand Cayman, Cayman Islands, British West
Indies.
(7) Based on a Schedule 13G filed February 8, 1999. Includes 4,034 shares
issuable upon exercise of outstanding warrants held by Coral Partners
II, a limited partnership ("Coral Partners II") and 10,109 shares
issuable upon exercise of outstanding options held by Coral Group Inc.
("Coral"). Coral Management Partners II, Limited Partnership ("CMP II"),
is the general partner of Coral Partners II. Coral is the management
company of CMP II. The address of Coral Partners II is 60 South 6th
Street, Suite 3510, Minneapolis, Minnesota 55402.
(8) Includes 4,000 shares issuable upon exercise of outstanding options held
by Mr. Egen.
(9) Includes 227 shares issuable upon exercise of an outstanding warrant
held by Mr. Humphries.
7
<PAGE>
(10) Includes 83,748 shares issuable upon exercise of outstanding options
held by Ms. LaPlante.
(11) Includes 4,000 shares issuable upon exercise of outstanding options held
by Mr. Meelia.
(12) Includes 7,885 shares issuable upon exercise of outstanding stock
options and warrants held by Dr. Nicoloff. Also includes 5,000 shares
held by Nicoloff Properties, as to which Dr. Nicoloff disclaims any
beneficial interest except to the extent of his pecuniary interest
therein. Dr. Nicoloff is the managing agent of Nicoloff Properties.
(13) Includes 14,328 shares issuable upon exercise of outstanding options
held by Mr. Peterson. Also includes 68,796 shares held of record by PSF
Health Care Fund L.P. ("PSF"), 1,665 shares issuable upon exercise of
options held by PSF, as to which Mr. Peterson disclaims any beneficial
ownership except to the extent of any pecuniary interest therein. PSF
Advisors is the general partner of PSF, and Mr. Peterson is a general
partner of PSF Advisors.
(14) Includes 54,750 shares issuable upon exercise of outstanding options
held by Mr. Moran.
(15) Includes 24,998 shares issuable upon exercise of outstanding options
held by Mr. Quackenbush.
(16) Includes 225,423 shares issuable upon exercise of outstanding options
and warrants held by officers and directors or their affiliates. Also
includes all shares beneficially owned by PSF and Nicoloff Properties.
See notes (12) and (13) above.
EXECUTIVE COMPENSATION AND OTHER BENEFITS
Summary of Cash and Certain Other Compensation
The following table provides summary information concerning cash and
non-cash compensation paid to or earned by the Company's current and former
Chief Executive Officer and those executive officers of the Company, who
received or earned cash and non-cash salary and bonus of more than $100,000 for
the fiscal year ended December 31, 1998 (the "Named Executive Officers").
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Annual Compensation Compensation
----------------------------------- ------------
Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary($) Bonus($) Compensation($) Options(#) Compensation ($)
- --------------------------- ---- --------- -------- --------------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Paulita M. LaPlante 1998 $136,885 $75,000 $0 553,889 (1) $0
President and Chief Executive 1997 121,000 0 0 15,000 0
Officer 1996 114,316 27,000 0 8,889 0
Sam B. Humphries (2) 1998 137,292 0 4,500 (3) 115,000 (4) 76,125 (5)(6)
Former President and Chief 1997 185,000 25,300 6,000 (3) 25,000 5,000 (6)
Executive Officer 1996 175,717 46,126 6,000 (3) 27,222 2,365 (6)
Byron (Buzz) Moran 1998 130,000 0 0 99,722 (8) 0
General Manager, Non-Invasive 1997 130,000 0 0 8,000 0
Systems 1996 130,000 25,000 47,122 (7) 11,722 0
James Quackenbush 1998 102,254 0 0 94,889 (9) 0
Vice President, Manufacturing 1997 91,618 0 0 2,000 0
and Operations 1996 86,462 13,000 0 2,889 0
- -----------------------------
</TABLE>
8
<PAGE>
(1) Ms. LaPlante was granted options to purchase an aggregate of 530,000
shares of Common Stock during 1998. Of this amount, an aggregate of
265,000 shares represented options originally granted in March 1998 and
September 1998, respectively, that were canceled and reissued in
November 1998. The remaining 23,889 shares represented options
originally granted in September 1996 and June 1997, respectively, that
were canceled and reissued in November 1998. See "Compensation Committee
Report on Repricing of Options."
(2) Mr. Humphries resigned as President and Chief Executive Officer on
September 11, 1998.
(3) Consists of a car allowance of $500 per month.
(4) Mr. Humphries was granted an option to purchase 115,000 shares of Common
Stock during 1998. This option expired 90 days after Mr. Humphries'
resignation on September 11, 1998.
(5) Includes $36,750 of debt forgiveness and $33,250 of gross-up payment.
See "--Executive Compensation and Other Benefits--Employment Agreement."
(6) Consists of life insurance premiums paid by the Company on behalf of Mr.
Humphries.
(7) Consists of amounts reimbursed by the Company for relocation and
temporary living expenses.
(8) Mr. Moran was granted options to purchase an aggregate of 80,000 shares
of Common Stock during 1998. Of this amount, 40,000 shares represented
options originally granted in March 1998 that were canceled and reissued
in November 1998. The remaining 19,722 shares represented options
originally granted in September 1996 and June 1997, respectively, that
were canceled and reissued in November 1998. See "Compensation Committee
Report on Repricing of Options."
(9) Mr. Quackenbush was granted options to purchase an aggregate of 90,000
shares of Common Stock during 1998. Of this amount, 20,000 shares
represented options originally granted in March 1998 that were canceled
and reissued in November 1998. The remaining 4,889 shares represented
options originally granted in September 1996 and June 1997,
respectively, that were canceled and reissued in November 1998. See
"Compensation Committee Report on Repricing of Options."
Option Grants and Exercises
The following tables summarize option grants and exercises during the
year ended December 31, 1998 to or by the Named Executive Officers and the
potential realizable value of the options held by such persons at December 31,
1998.
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
Individual Grants (1)
------------------------------------------------
Percent of
Total
Number of Options Potential Realizable Value
Securities Granted to Exercise at Assumed Annual Rates
Underlying Employees or Base of Stock Price Appreciation
Options in Fiscal Price Expiration for Option Term (2)
Name Granted (#) Year ($/Sh) Date 5% 10%
- ------------------- ----------- ----- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Paulita M. LaPlante 200,000 (3) 13.0% $2.3750 09/11/08 $298,727 $757,028
200,000 (4) 13.0% 1.6875 03/31/08 212,254 537,888
65,000 (3) 4.0% 5.1250 03/15/08 209,502 530,915
65,000 (4) 4.0% 1.6875 03/31/08 68,985 174,818
15,000 (4) 0.9% 1.6875 03/31/08 15,920 40,343
8,889 (4) 0.6% 1.6875 03/31/08 9,434 23,907
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Sam B. Humphries 115,000 (5) -- -- -- -- --
Byron (Buzz) Moran 40,000 (3) 3.0% 5.1250 03/15/08 128,924 326,708
40,000 (4) 3.0% 1.6875 03/31/08 42,452 107,580
8,000 (4) 0.5% 1.6875 03/31/08 8,490 21,516
11,722 (4) 0.7% 1.6875 03/31/08 12,440 31,526
James Quackenbush 50,000 3.0% 1.6875 11/05/08 53,065 134,475
20,000 (3) 1.0% 1.6875 03/31/08 21,226 53,790
20,000 (4) 1.0% 5.1250 03/15/08 64,462 163,354
2,000 (4) 0.1% 1.6875 03/31/08 2,123 5,379
2,889 (4) 0.2% 1.6875 03/31/98 3,066 7,770
</TABLE>
(1) All of the options granted to executives were granted under the
Company's 1993 Stock Option Plan. The foregoing options generally become
exercisable at the rate of 25% of the number of shares covered by such
option on each of the first four anniversary dates of the grant of such
option, so long as the executive remains employed by the Company or one
of its subsidiaries. However, options granted in November 1998 pursuant
to the employee repricing program vest beginning on May 6, 1999 at the
same dates as the corresponding option that was replaced. To the extent
not already exercisable, options under the plan become immediately
exercisable in full upon certain changes in control of the Company and
remain exercisable for the remainder of their term. See "Executive
Compensation and Other Benefits--Change in Control Arrangements."
(2) These amounts represent certain assumed rates of appreciation only.
Actual gains, if any, on stock option exercises are dependent upon the
future performance of the Company's Common Stock, overall market
conditions and the executive's continued employment with the Company.
The amounts represented in this table might not necessarily be achieved.
(3) This option was granted in 1998 and was subsequently canceled and
reissued in November 1998. See footnote 4 below.
(4) This option was granted in November 1998 pursuant to the employee
repricing program and replaced an identical number of previously granted
options. See "Compensation Committee Report on Repricing of Options."
(5) This option was granted in March 1998 and expired 90 days after Mr.
Humphries' resignation on September 11, 1998.
Aggregated Option Exercises In
Last Fiscal Year and Fiscal Year-End Option Values
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options
December 31, 1998 at December 31, 1998(1)
-------------------------- ---------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
Paulita M. LaPlante 75,554 302,223 $35,888 $6,334
Byron (Buzz) Moran 46,889 83,167 22,272 11,136
James Quackenbush 23,054 79,223 10,951 2,059
- --------------------
(1) Value based on the difference between the fair market value of the
Common Stock on December 31, 1998 ($1.375) and the exercise price of the
options.
10
<PAGE>
Employment Agreement
Upon his initial employment in October 1991, the Company entered into an
Employment Agreement with Sam B. Humphries providing for his employment as
President and Chief Executive Officer. During 1998, Mr. Humphries' base salary
was $185,000 per year, and he received an automobile allowance of $500 per
month. In connection with the employment agreement, the Company granted Mr.
Humphries stock options to purchase an aggregate of 121,162 shares of Common
Stock at a price of $9.00 per share, which would have vested at various times
through October 1, 1996. On August 2, 1995, the Board of Directors granted Mr.
Humphries a Non-Statutory Option to purchase 272,222 shares of Common Stock at
an exercise price of $0.90 per share expiring ten years after the grant date,
and canceled Mr. Humphries' prior options. This option was granted as part of a
grant of options to all employees of the Company at the same exercise price. On
September 1, 1995, Mr. Humphries exercised this option and paid for the shares
by executing a non-recourse promissory note in the amount of $245,000 in favor
of the Company, which was secured by a pledge of the shares acquired. Pursuant
to a letter agreement, dated September 14, 1998, Mr. Humphries terminated his
employment with the Company and resigned as an officer effective September 11,
1998. In connection with his resignation, Mr. Humphries forfeited 40,833 shares
of Common Stock of the Company which had not yet vested. The Company forgave
$36,750 of principal under the $245,000 note that Mr. Humphries had executed in
September 1995, and Mr. Humphries repaid the balance of principal and accrued
interest under the note. The Company also made a gross-up payment to Mr.
Humphries of $33,250 to cover income taxes related to the note forgiveness. Mr.
Humphries is prohibited from competing with the Company for a period of one year
following the termination of his employment.
Compensation Committee Report on Repricing Options
In November 1998, the Compensation Committee repriced existing stock
options held by all employees, including executive officers, by granting new
options at an exercise price of $1.6875 per share in exchange for the
cancellation of previously granted options covering an identical number of
shares that had an exercise price of $2.00 or more. The original options that
were repriced had exercise prices ranging from $3.625 to $13.00 per share. The
$1.6875 exercise price of the repriced options is equal to the fair market value
of one share of Common Stock on November 6, 1998, the date that the repriced
options were granted. The repriced options will expire on March 31, 2008. The
repriced options will vest on May 6, 1999 with respect to the same number of
shares that had vested under the old options on November 6, 1998 and would have
vested between November 7, 1998 and May 6, 1999. Paulita M. LaPlante, the
Company's President and Chief Executive Officer held options to purchase an
aggregate of 288,889 shares, which were repriced to an exercise price of $1.6875
per share. The Compensation Committee and the Board of Directors believed that
repricing the options was critical to retaining the Company's employees,
particularly in light of the fact that the Company was reviewing strategic
alternatives at that time. This review process led to the engagement in December
1998 of Volpe Brown Whelan & Company, LLC, to serve as financial advisor to the
Company. The Company is working with Volpe Brown Whelan to explore strategic
alternatives, including joint ventures, corporate strategic alliances, sale of
the business or product lines, or other business combinations. The Compensation
Committee and the Board believed that providing employees with the opportunity
to benefit from an increase in the equity value of the Company would be a
critical factor in executing the Company's strategic objectives.
11
<PAGE>
The following table sets forth certain information regarding the
repricing of options held by the Company's executive officers during the last
ten fiscal years.
<TABLE>
<CAPTION>
Ten-Year Option Repricings
Securities Length of
Underlying Market Price Original Option
Number of of Stock At Exercise Price Term Remaining
Options Time of At Time of New At Date of
Repriced or Repricing or Repricing or Exercise Repricing or
Name Date Amended (#) Amendment ($) Amendment ($) Price ($) Amendment
---- ---- ----------- ------------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Paulita M. LaPlante 11/06/98 200,000 $1.6875 $2.375 $1.6875 118 months
President and Chief 11/06/98 65,000 1.6875 5.125 1.6875 112 months
Executive Officer 11/06/98 15,000 1.6875 4.875 1.6875 103 months
11/06/98 8,889 1.6875 6.000 1.6875 94 months
Byron (Buzz) Moran 11/06/98 40,000 1.6875 5.125 1.6875 112 months
General Manager, 11/06/98 8,000 1.6875 4.875 1.6875 103 months
Non-Invasive Systems 11/06/98 11,722 1.6875 6.000 1.6875 94 months
Wesley G. Peterson 11/06/98 40,000 1.6875 5.125 1.6875 112 months
Chief Financial 11/06/98 7,000 1.6875 4.875 1.6875 103 months
Officer, Vice 11/06/98 6,044 1.6875 6.000 1.6875 94 months
President of Finance
and Administration
James Quackenbush 11/06/98 20,000 1.6875 5.125 1.6875 112 months
Vice President, 11/06/98 2,000 1.6875 4.875 1.6875 103 months
Manufacturing and 11/06/98 2,889 1.6875 6.000 1.6875 94 months
Operations
Victor Kimball 11/06/98 10,000 1.6875 5.125 1.6875 112 months
Vice President, 11/06/98 2,000 1.6875 4.875 1.6875 103 months
Strategic Planning 11/06/98 2,889 1.6875 6.000 1.6875 94 months
and Product
Development
</TABLE>
Compensation Committee
Richard J. Meelia
Gary A. Peterson
Compensation Committee Interlocks and Insider Participation
Gary A. Peterson and Richard J. Meelia served as members of the Company's
Compensation Committee during fiscal 1998. Mr. Meelia is the President and Chief
Executive Officer of The Kendall Company, and Mr. Peterson is a General Partner
of PSF Advisors, the General Partner of PSF Health Care Fund L.P., each of which
is an investor in the Company. See "Principal Stockholders and Beneficial
Ownership of Management." No other relationships existed during 1998 with
respect to Mr. Peterson or Mr. Meelia that would be required to be disclosed
under the rules of the Securities Act of 1933, as amended.
12
<PAGE>
Compensation Committee Report on Executive Compensation
The Compensation Committee consisted of Mr. Peterson and Mr. Meelia
during fiscal 1998. The Compensation Committee makes recommendations to the
Board of Directors concerning the compensation of the Company's directors,
executive officers and key managers, and acts on such other matters relating to
their compensation as it deems appropriate. In addition, the Compensation
Committee administers the Company's stock option plans, pursuant to which
incentive stock options and non-statutory stock options may be granted to
eligible key employees, officers, directors and consultants of the Company, and
the Company's Employee Stock Purchase Plan, pursuant to which employees of the
Company may purchase shares of Common Stock directly from the Company on
favorable terms through payroll deductions.
Compensation Philosophy and Objectives. The philosophy underlying the
decisions and recommendations of the Compensation Committee is to recognize and
reward results and achievement at the Company and individual level by linking
compensation to such achievement. Consistent with this philosophy, the
Compensation Committee has set the following objectives for the Company's
executive compensation program:
o Motivate officers to achieve desired Company performance goals
by rewarding such achievements.
o Provide a program of compensation that is competitive with
comparable companies to enable the Company to attract and retain
key executive talent.
o Align the interests of the Company's executives with the
interests of the Company's stockholders by linking compensation
to the Company's performance and by providing the Company's
executives with long-term opportunities for stock ownership.
In determining its recommendations as to the compensation of the
Company's executives, the Compensation Committee considers factors such as
Company performance, both in isolation and in comparison to companies of
comparable development, complexity and size; the individual performance of each
executive officer; historical compensation levels at the Company; the overall
competitive environment for executives and the level of compensation necessary
to attract and retain the level of key executive talent desired by the Company.
The Compensation Committee places primary emphasis on Company performance rather
than individual performance as measured against goals approved by the
Compensation Committee. In analyzing these factors, the Compensation Committee
may from time to time review competitive compensation data gathered in
comparative surveys or collected by independent consultants.
Executive Compensation Program Components. The Company's executive
compensation program consists of base salary, annual cash performance bonuses,
and long-term incentive opportunities under the Company's stock option plans.
Each element of the compensation program is discussed in greater detail below.
Base Salary. The Compensation Committee's recommendations
regarding the base salary of each executive officer of the Company,
including the compensation of Ms. LaPlante as President and Chief
Executive Officer, are based on a number of factors, including the
executive officer's experience and qualifications, the potential impact
of the individual on the Company's performance, the level of skill and
responsibility required by the individual's position and the other
factors described above. Base salaries are determined for each year
prior to the beginning
13
<PAGE>
of the year. In general, the Compensation Committee seeks to set
executive officer base salaries at moderately to aggressively
competitive levels in relation to the companies with which the Company
competes for executives. In September 1998, Ms. LaPlante's base salary
was increased from $121,000 to $180,000 in connection with her
appointment as President of the Company.
Annual Management Performance Bonuses. The Company's annual
management performance bonus program is designed to provide a direct
financial incentive to the Company's executive officers, including the
President and Chief Executive Officer, for the achievement of specific
Company performance goals. Following Ms. LaPlante's appointment in
September 1998 as the Company's President, the Compensation Committee,
with input from Ms. LaPlante, established performance goals, with a
bonus of $50,000 if the minimum objectives were met and $75,000 if the
maximum objectives were met. These objectives included achievement of
specified sales quotas, the reorganization of the Company to meet
specified spending goals, identification of potential corporate partners
and funding sources, identification and retention of leading investment
banking firms, and retention of key personnel necessary for
implementation of the CapnoProbe program. The Committee concluded that
Ms. LaPlante achieved all of the objectives. Accordingly, in the first
quarter of 1999, Ms. LaPlante was paid a bonus of $75,000 for 1998. No
bonus plan was established for, nor were any bonuses paid to, any of the
other officers of the Company for 1998.
Long-Term Incentive Compensation. The Compensation Committee
makes long-term incentive compensation available to the Company's
executive officers, as well as all other employees of the Company,
through the grant of stock options. The purpose of stock option grants
is to advance the interests of the Company and its stockholders by
enabling the Company to attract and retain persons of ability to perform
services for the Company, including persons performing services to the
Company as executive officers. By granting stock options to executive
officers and other employees, the Compensation Committee seeks to align
the long-term interests of these individuals with those of the Company's
stockholders by creating a strong and direct nexus between compensation
and stockholder return and to enable executive officers and key managers
to develop and maintain a significant ownership position in the Company.
The Compensation Committee determines the number of options and the
terms and conditions of such options based on certain factors, including
the past performance of the executive officer, the executive officer's
potential impact on the achievement of the Company's objectives, past
grants or awards of stock-based compensation and on comparative
compensation data regarding option grants by Company's within the
medical device industry as well as within a broader group of companies
of comparable size and complexity. Additionally, options may be granted
to an executive officer as an incentive at the time the executive
officer joins the Company. All options granted by the Compensation
Committee have an exercise price equal to 100% of the fair market value
of the Common Stock on the date of grant. In general, options vest at
the rate of 25% of the shares covered by the option each year over a
period of four years and remain exercisable for a period of 10 years
from the date of grant, provided the individual continues to be employed
by the Company. In 1998, the Compensation Committee granted options to
all executive officers of the Company and key managers and sales
personnel of the Company. The primary purpose of the 1998 stock option
grants was to recognize the outstanding individual contributions being
made by these individuals during a year in which the Company would
likely not meet its sales or financial objectives. In September 1998,
Ms. LaPlante was granted an option covering 200,000 shares of Common
Stock in connection with her appointment as President of the Company. In
addition, in November 1998, the Compensation Committee repriced stock
options held by all
14
<PAGE>
employees that had an exercise price of $2.00 per share or more. See
"Compensation Committee Report on Repricing of Options."
Section 162(m). Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), limits the deductibility of certain compensation paid to
the chief executive officer and each of the four other most highly compensated
executives of a publicly held corporation to $1,000,000. In 1998, the Company
did not pay "compensation" within the meaning of Section 162(m) to such
executive officers in excess of $1,000,000, and does not believe it will do so
in the near future. Therefore, the Company does not have a policy at this time
regarding qualifying compensation paid to its executive officers for
deductibility under Section 162(m), but will formulate such a policy if
compensation levels ever approach $1,000,000.
Compensation Committee
Richard J. Meelia
Gary A. Peterson
Comparative Stock Performance
The graph below compares, for the period from February 14, 1996, the
date of the Company's initial public offering, to December 31, 1998, the total
cumulative stockholder return on the Company's Common Stock to the total
cumulative return on the Standard & Poor's 500 Stock Index and a peer-group
selected in good faith by the Company consisting of the following companies:
Datascope Corporation; Diametrics Medical, Inc.; i-Stat Corporation; Marquette
Medical Systems, Inc.; Protocol Systems, Inc.; and Spacelabs Medical, Inc. The
peer group consists of public companies in the Company's industry that market
arterial blood gas measurement systems or critical care patient bedside
monitoring systems, and the peer-group companies were selected on that basis.
The graph assumes a $100 investment in the Company's Common Stock, the Standard
& Poor's 500 Stock Index and the peer-group on February 14, 1996 and the
reinvestment of all dividends.
Optical Sensors
Measurement Period Incorporated S&P 500 Index Peer Group
------------------ ------------ ------------- ----------
Measurement Point -
2/14/96 100.00 100.00 100.00
Year ended 12/31/96 61.54 115.97 87.65
Year ended 12/31/97 41.35 154.66 91.31
Year ended 12/31/98 10.58 198.86 77.07
15
<PAGE>
Change in Control Arrangements
In January 1998, the Company's Board of Directors approved a change in
control severance pay plan (the "Change in Control Plan") for the Company's
executive officers (the "Executives"). All of the Company's executive officers
are covered by the Change in Control Plan. The Change in Control Plan provides
for the payment of certain benefits to Executives of the Company upon the
occurrence of a "Partial Change in Control" or a "Full Change in Control" A
Partial Change in Control is defined as: (i) the sale of either the SensiCath
product line or the CapnoProbe product line, but not both, or (ii) cessation of
commercial activity or liquidation of the SensiCath product line. In January
1999, the Company suspended direct sales activity of the SensiCath product line
and implemented a significant workforce reduction. This action constituted a
Partial Change in Control under the Change in Control Plan. A Full Change in
Control is defined as: (i) a merger involving the Company where the pre-merger
Company's stockholders own (solely as a result of ownership before the merger of
the Company stock) at least 50% but less than 80% of the surviving Company's
voting stock (unless approved by the Board of Directors) or less than 50% of the
surviving company's voting stock (whether or not approved by the Board of
Directors); (ii) a transfer of substantially all of the Company's assets or
liquidation of the Company; (iii) ownership by any person or group of 20% to 50%
of the Company's voting stock (unless approved by the Board of Directors) or
more than 50% of the Company's voting stock (whether or not approved by the
Board of Directors); (iv) the "continuity" directors (the Company's current
directors and their future nominees) cease to constitute a majority of the Board
of Directors; and (v) any change of control that would be required by the
Securities and Exchange Commission to be reported. In either case benefits are
conditioned on termination of employment.
An Executive will become eligible for benefits under the Change in
Control Plan if the Executive is terminated by the Company without "cause"
within 12 months after a Partial Change in Control or a Full Change in Control.
In addition, an Executive will become eligible for benefits if the Executive
terminates his or her employment for "good reason" within 12 months after a Full
Change in Control. Good reason includes adverse changes in the Executive's
status or position, reduction in base salary, material adverse changes in
benefit plans and relocation. In the case of termination following a Partial
Change in Control, the Executive will receive a cash payment equal to 100% of
his or her annual base pay, payable over the twelve-month period following
termination. If a Full Change in Control occurs prior to full payment, the
remaining balance will be paid in a lump-sum at the time of the Full Change in
Control. In the case of termination following a Full Change in Control, the
Executive will receive a lump-sum cash payment equal to 100% of his or her
annual base pay. In the case of termination following a Partial or Full Change
in Control, the Executive will receive continued coverage under group health
plan for 12 months at the rate for active employees (followed by 18 months of
required "COBRA" coverage solely at the Executive's expense). In addition, if
the Executive is terminated by the Company without "cause" within 12 months
after a Partial Change in Control, all options held by the Executive will remain
exercisable, to the extent exercisable at the time of termination, until their
expiration date. In addition if a Full Change in Control occurs after the
Executive's termination, his or her options will automatically accelerate and be
exercisable in full. If any payments to the Executive in connection with a
change in control (including acceleration of stock options) are subject federal
excise tax on "excess parachute payments, the Executive will also receive a
"gross up" payment sufficient to pay any excise tax on "excess parachute
payments."
The Change in Control Plan cannot be amended or terminated in any way
adversely affecting participants within the one year period before a change in
control without the participant's consent.
Under the Company's 1993 Stock Option Plan, as amended (the "1993
Plan"), upon the occurrence of a "change in control" all outstanding options
granted under the 1993 Plan will become and remain exercisable in full during
their remaining terms regardless of whether the plan participants
16
<PAGE>
thereafter remain employees of the Company or a subsidiary. The acceleration of
the exercisability of options under the 1993 Plan may be limited, however, if
the acceleration would be subject to an excise tax imposed upon "excess
parachute payments." Under the 1993 Plan, a "change in control" has occurred in
the event of (a) the sale, lease, exchange or other transfer of all or
substantially all of the assets of the Company (in one transaction or in a
series of related transactions) to a corporation that is not controlled by the
Company; (b) the approval by the stockholders of the Company of any plan or
proposal for the liquidation or dissolution of the Company; (c) a change in
control of the Company of a nature that would be required to be reported
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, whether or not the Company is then subject to such reporting
requirement; (d) any person becomes the "beneficial owner," directly or
indirectly, of 50% or more of the combined voting power of the Company's
outstanding securities ordinarily having the right to vote at elections of
directors; or (e) individuals who constitute the board of directors of the
Company on the effective date of the 1993 Plan cease for any reason to
constitute at least a majority thereof, provided that any person becoming a
director subsequent to the effective date of the 1993 Plan whose election, or
nomination for election by the Company's stockholders, was approved by a vote of
at least a majority of the directors comprising the board of directors of the
Company on the effective date of the 1993 Plan (either by a specific vote or by
approval of the proxy statement of the Company in which such person is named as
a nominee for director, without objection to such nomination) shall be
considered as though such person were a member of the board of directors of the
Company on the effective date of the 1993 Plan. In addition, the Compensation
Committee, with the consent of any affected participant, may determine that some
or all of the participants holding outstanding options will receive cash in an
amount equal to the excess of the fair market value of such shares immediately
before the effective date of the change in control over the exercise price per
share of the options.
RATIFICATION OF SELECTION OF
INDEPENDENT AUDITORS
PROPOSAL 2
The Board of Directors has appointed Ernst & Young LLP, independent
certified public accountants, as auditors of the Company for the year ending
December 31, 1999. Such firm has acted as independent auditors of the Company
since the fiscal year ended December 31, 1989. Although it is not required to do
so, the Board wishes to submit the selection of Ernst & Young LLP to the
stockholders for ratification. If the stockholders do not ratify the appointment
of Ernst & Young LLP, another firm of independent auditors will be considered by
the Board of Directors. Representatives of Ernst & Young LLP will be present at
the Annual Meeting, will have an opportunity to make a statement if they so
desire and will be available to respond to appropriate questions.
Board of Directors Recommendation
The Board of Directors recommends a vote FOR ratification of the
appointment of Ernst & Young LLP as auditors of the Company for the year ending
December 31, 1999. The affirmative vote of the holders of a majority of shares
of Common Stock of the Company present in person or by proxy at the Annual
Meeting, assuming a quorum is present, is necessary for approval. Unless a
contrary choice is specified, proxies solicited by the Board of Directors will
be voted FOR the ratification of Ernst & Young LLP.
17
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's directors and executive officers and all
persons who beneficially own more than 10% of the outstanding shares of the
Company's Common Stock to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in ownership of the
Company's Common Stock. Executive officers, directors and greater than 10%
beneficial owners are also required to furnish the Company with copies of all
Section 16(a) forms they file. To the Company's knowledge, based upon a review
of the copies of such reports furnished to the Company during the year ended
December 31, 1998 and written representations by such persons, all of the
directors, officers and beneficial owners of greater than 10% of the Company's
Common Stock filed on a timely basis the forms required by Section 16 of the
Exchange Act, except that Gary A. Peterson, a director of the Company, filed a
Form 4 in January 1999 reporting the sale of shares of Common Stock in December
1998 after the date such report was required to be filed.
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Proposals of stockholders intended to be included in the proxy statement
and proxy card relating to the 2000 Annual Meeting of Stockholders must be
received by the Company at its principal executive offices on or before December
3, 1999 and must satisfy the requirements of the proxy rules promulgated by the
Securities and Exchange Commission.
A stockholder who wishes to make a proposal at the 2000 Annual Meeting
of Stockholders without including the proposal in the Company's proxy statement
must notify the Company by February 16, 2000. If a stockholder fails to give
notice by this date, then the persons named as proxies in the proxies solicited
by the Company for the 2000 Annual Meeting of Stockholders will have
discretionary authority to vote on the proposal.
OTHER MATTERS
The management of the Company does not intend to present other items of
business and knows of no items of business that are likely to be brought before
the Annual Meeting except those described in this Proxy Statement. However, if
any other matters should properly come before the Annual Meeting, the persons
named in the enclosed proxy will have discretionary authority to vote such proxy
in accordance with the best judgment on such matters.
18
<PAGE>
MISCELLANEOUS
THE COMPANY WILL FURNISH WITHOUT CHARGE A COPY OF ITS ANNUAL REPORT ON
FORM 10-K (EXCLUSIVE OF EXHIBITS) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 TO
EACH PERSON WHO WAS A STOCKHOLDER OF THE COMPANY AS OF MARCH 22, 1999, UPON
RECEIPT FROM ANY SUCH PERSON OF A WRITTEN REQUEST FOR SUCH AN ANNUAL REPORT.
SUCH REQUEST SHOULD BE SENT TO: OPTICAL SENSORS INCORPORATED, 7615 GOLDEN
TRIANGLE DRIVE, SUITE A, MINNEAPOLIS, MINNESOTA 55344; ATTN: STOCKHOLDER
INFORMATION.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Paulita M. LaPlante
Paulita M. LaPlante
President and Chief Executive Officer
April 2, 1999
Minneapolis, Minnesota
19
<PAGE>
OPTICAL SENSORS INCORPORATED
This Proxy is solicited on behalf of the Board of Directors
The undersigned hereby appoints Paulita M. LaPlante and Wesley G.
Peterson, and each of them, as Proxies, each with full power to appoint his
substitute, and hereby authorizes each of them to represent and to vote, as
designated below, all the shares of Common Stock of Optical Sensors Incorporated
held of record by the undersigned on March 22, 1999, at the Annual Meeting of
Stockholders to be held on May 6, 1999, or any adjournment, thereof.
1. ELECTION OF DIRECTORS.
[ ] FOR all nominees listed below [ ] AGAINST all nominees listed
below (except as marked to
the contrary below)
Paulita M. LaPlante Richard B. Egen Richard J. Meelia
Demetre M. Nicoloff, M.D. Sam B. Humphries Gary A. Peterson
(INSTRUCTION: To vote against any individual nominee, strike a line through the
nominee's name.)
2. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT
AUDITORS FOR THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned shareholder. If no direction is made, this proxy will be
voted for Proposal 2 and for all nominees named in Proposal 1 above. Please sign
exactly as name appears below. When shares are held by joint tenants, both
should sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If a corporation, please sign in full
corporate name by President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
Dated:_____________, 1999
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Signature
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Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
