<PAGE>
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 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 toss. 240.14a-11(c) orss. 240.14a-12
-------------------------------
OPTICAL SENSORS INCORPORATED
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
-------------------------------
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
-------------------------------
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by 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>
[LOGO]
TO THE STOCKHOLDERS OF OPTICAL SENSORS INCORPORATED:
You are cordially invited to attend our Annual Meeting of Stockholders to
be held on Thursday, May 4, 2000, at 3:30 p.m., local time, at the Hotel
Marriott Southwest, 5801 Opus Parkway, Minnetonka, Minnesota.
At the meeting, you will be asked to approve, in addition to our standard
proposals electing directors and ratifying the appointment of our auditors, a
proposal relating to the conversion of convertible promissory notes into shares
of our common stock and warrants to purchase shares of our common stock. On
March 10, 2000, we entered into an investment agreement with two of our
principal shareholders, Circle F Ventures, LLC and Special Situations Fund III,
L.P., pursuant to which we agreed to issue convertible promissory notes in the
aggregate principal amount of up to $3,000,000 to these investors. These notes
are convertible into units, each unit consisting of 50,000 shares of our common
stock and a five-year warrant to purchase 12,500 shares of our common stock at
an exercise price of $1.00 per share, at a conversion price equal to $50,000 per
unit. Under the rules of the Nasdaq Stock Market, our stockholders must approve
the issuance of 1,600,000 of the 3,000,000 shares of our common stock and
400,000 of the 750,000 warrants issuable upon conversion of these notes in order
to maintain the listing of our common stock on the Nasdaq Stock Market.
The Board of Directors recommends the stockholders vote FOR the proposal
relating to the issuance of the shares of common stock and warrants upon
conversion of the convertible notes and FOR the other proposals relating to the
annual meeting.
The formal Notice of Meeting, Proxy Statement and form of proxy are
enclosed. The Proxy Statement contains details concerning the issuance of the
convertible notes and the other matters to come before the meeting. We urge you
to read and consider these documents carefully. 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. Your
vote is important, regardless of the number of shares that you own.
Very truly yours,
/s/ Paulita M. LaPlante
Paulita M. LaPlante
President and Chief Executive Officer
April 4, 2000
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 C
Technology Park V
Minneapolis, Minnesota 55344
------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 4, 2000
-----------------------------
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 4, 2000, at 3:30 p.m., local time, at the Hotel Marriott
Southwest, 5801 Opus Parkway, Minnetonka, Minnesota, for the following purposes:
1. To consider and act upon a proposal to approve the issuance of
1,600,000 shares of the Company's common stock and warrants to
purchase an additional 400,000 shares of the Company's common stock
upon conversion of convertible promissory notes issued pursuant to an
Investment Agreement dated as of March 10, 2000 among the Company and
the investor parties thereto.
2. 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.
3. To ratify the appointment of Ernst & Young LLP, certified public
accountants, as independent auditors for the Company for the fiscal
year ending December 31, 2000.
4. 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 29, 2000 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 4, 2000
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 C
Technology Park V
Minneapolis, Minnesota 55344
------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
May 4, 2000
------------------
INTRODUCTION
The Annual Meeting of Stockholders of Optical Sensors Incorporated (the
"Company") will be held on Thursday, May 4, 2000, 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 Statement will first be mailed to
stockholders on or about April 4, 2000.
<PAGE>
VOTING OF SHARES
Only holders of record of the Common Stock at the close of business on
March 29, 2000 will be entitled to vote at the Annual Meeting. On March 29,
2000, the Company had 8,982,461 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 (4,491,232 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. 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.
APPROVAL OF ISSUANCE OF SHARES OF COMMON STOCK AND
WARRANTS TO PURCHASE SHARES OF COMMON STOCK
PROPOSAL 1
Background
In January 2000, the Company signed a non-binding letter of intent with a
major supplier of medical products and services to negotiate a definitive
agreement for distribution of the Company's CapnoProbe product. On March 10,
2000, the Company entered into an Investment Agreement with two of the Company's
principal stockholders, Circle F Ventures, LLC, a Georgia limited liability
company, and Special Situations Fund III, L.P., a Delaware limited partnership
(collectively, the "Investors"), pursuant to which the Company agreed to issue
convertible promissory notes in the aggregate principal amount of up to
$3,000,000 (the "Notes"). The proceeds from the issuance of the Notes will
provide the Company additional funds to continue development of its CapnoProbe
technology as the Company moves forward with its continuing strategic
negotiations with this major supplier of medical products and completing
development of the CapnoProbe product.
2
<PAGE>
Investment Agreement
The Notes issued to the Investors under the Investment Agreement are
convertible into units ("Units"), each Unit consisting of 50,000 shares of the
Company's Common Stock and a five-year warrant to purchase 12,500 shares of
Common Stock at an exercise price of $1.00 per share (the "Warrants"), at a
conversion price equal to $50,000 per Unit, in accordance with the Investment
Agreement.
The Company received advances under the Notes in the aggregate amount of
$1,400,000 on March 10, 2000. The Company has the right to request additional
advances up to the aggregate principal amount of $1,600,000 at any time during
the 60 day period beginning on the first day after both of the following have
occurred: (1) the Company executes a definitive distribution agreement for the
Company's CapnoProbe product with a major medical company, and (2) the
stockholders of the Company approve this proposal. The Company's right to
request additional advances will expire on June 15, 2000.
The Company has agreed to file a registration statement with the Securities
and Exchange Commission by April 9, 2000 covering the resale of the shares of
Common Stock issuable upon conversion of the Notes and the shares of Common
Stock issuable upon exercise of the Warrants.
As a result of the issuance of shares of Common Stock to the Investors upon
conversion of the Notes and exercise of the Warrants under the Investment
Agreement, each Investor may acquire shares of Common Stock likely to cause such
Investor's beneficial ownership to exceed 15% of the issued and outstanding
shares of the Company's Common Stock. Pursuant to Section 1(a) of the Company's
Rights Agreement with Norwest Bank Minnesota N.A. dated as of December 3, 1996
("Rights Agreement"), a person who becomes the beneficial owner of 15% or more
of the issued and outstanding Common Shares (as defined in the Rights Agreement)
is an "Acquiring Person" for purposes of the Rights Agreement. The Company has
amended the Rights Agreement to provide that the threshold for determining
whether a person is an "Acquiring Person" for purposes of the Rights Agreement
will, with respect to each of the Investors and their affiliates, be 24% or more
of the Common Shares then outstanding.
Nasdaq Stockholder Approval Requirement
As an issuer of securities quoted on the Nasdaq National Market, the
Company must comply with certain rules of the National Association of Securities
Dealers, Inc. ("NASD") for continued listing on the Nasdaq National Market.
Under the NASD Rules, a company that is listed on the Nasdaq National Market or
the Nasdaq Small Cap Market must obtain stockholder approval prior to issuing
20% or more of its then outstanding voting securities at less than the market
value of such securities. Under NASD guidelines, the market value of securities
being issued is determined immediately prior to the issuance of such securities
and not at the time the contract providing for such issuance is entered into.
The closing price of the Company's Common Stock on March 29, 2000 was $2.125 per
share, and the conversion price under the Notes and the exercise price of the
Warrant are both $1.00 per share.
On March 29, 2000, the Company had 8,982,461 shares of Common Stock
outstanding. The issuance of the 1,400,000 shares of the Company's Common Stock
and warrants to purchase 350,000 shares of the Company's Common Stock upon
conversion of the $1,400,000 previously advanced under the Notes constitutes
approximately 19% of the Company's outstanding Common Stock and does not require
stockholder approval. The additional 1,600,000 shares of the Company's Common
Stock and warrants to purchase an additional 400,000 shares of the Company's
Common Stock which will become issuable if the additional advances of $1,600,000
are made (and the aggregate of 3,000,000 shares of Common Stock and the Warrants
to purchase 750,000 shares of Common Stock) constitutes more than 20% of the
Company's outstanding Common Stock.
3
<PAGE>
Accordingly, the Company is seeking stockholder approval of the issuance of
1,600,000 shares of the Company's Common Stock and warrants to purchase an
additional 400,000 shares of the Company's Common Stock upon conversion of the
Notes in the event the Company receives additional advances under the Notes in
the aggregate principal amount of up to $1,600,000.
If the Company's stockholders do not approve this proposal, the Company
will not have the right to request additional advances of up to the aggregate
principal amount of $1,600,000 under the Notes issued under the Investment
Agreement. If the Company's stockholders do not approve this Proposal, the
Company anticipates that it would still seek additional advances of up to the
aggregate principal amount of $1,600,000 under the Notes, but the investors
would have no obligation to provide the funds, and if such funds were provided,
the Company would likely lose its Nasdaq listing.
Board of Directors Recommendation
The Board of Directors recommends a vote FOR the proposal to issue
1,600,000 shares of Common Stock and warrants to purchase an additional 400,000
shares of Common Stock upon conversion of the Notes in the aggregate principal
amount of up to $1,600,000 pursuant to the Investment Agreement. 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. Under the Investment Agreement, each
Investor has agreed to vote all outstanding shares of Common Stock of the
Company beneficially owned by such Investor in favor of the proposal. As of
March 29, 2000, the Investors and their affiliates owned an aggregate of
1,772,439 shares of Common Stock, or 19.8% of the Company's outstanding Common
Stock. Unless a contrary choice is specified, proxies solicited by the Board of
Directors will be voted FOR the proposal.
ELECTION OF DIRECTORS
PROPOSAL 2
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 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.
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 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.
4
<PAGE>
Information About Nominees
The following table sets forth certain information as of March 1, 2000,
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 42 President and Chief Executive Officer of the 1998
Company
Sam B. Humphries (1)(3) 57 Private Investor and Consultant 1991
Richard B. Egen (1)(3) 61 President and Chief Executive Officer of 1997
NephRx Corporation
Richard J. Meelia (2) 50 President and Chief Executive Officer of The 1997
Kendall Company
Demetre M. Nicoloff, M.D. 66 Cardiac Surgeon and Senior Partner of Cardiac 1989
Surgical Associates
Gary A. Peterson (2) 48 President and Chief Executive Officer of BATON 1990
Development, Inc.
</TABLE>
- ------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Merger and Acquisition 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. Ms. LaPlante serves as a member of the
Board of Directors of VidaMed, Inc., a urology company.
Sam B. Humphries has been a Director of the Company since October 1991. Mr.
Humphries has been a private investor and independent consultant since April
1999. From September 1998 to April 1999, Mr. Humphries served as the President
and Chief Executive Officer of American Medical Systems, Inc., a medical device
manufacturer. Mr. Humphries served as President and Chief Executive Officer of
the Company from October 1991 to September 1998. Mr. Humphries is a member of
the Board of Directors of Universal Hospital Services, Inc.
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,
5
<PAGE>
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 Chairman 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.
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. Mr. Peterson is a director of
numerous privately held medical companies.
Information About the Board and its Committees
The Board of Directors met three times and took written action twice during
1999. All of the Directors, except Dr. Nicoloff and Mr. Peterson, attended 75%
or more of the meetings of the Board and all such committees on which they
served during 1999.
The Board has established an Audit Committee, a Compensation Committee and
a Merger and Acquisition 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 1999, the Audit
Committee consisted of Mr. Egen and Mr. Humphries and met once during 1999. Mr.
Egen and Mr. Humphries will serve as members of the Audit Committee during 2000.
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. Meelia and Mr. Peterson
and did not meet at all during 1999. Mr. Meelia and Mr. Peterson will serve as
members of the Compensation Committee during 2000. See "Executive Compensation
and Other Benefits--Compensation Committee Report on Executive Compensation."
6
<PAGE>
The Merger and Acquisition Committee assists the Company in reviewing and
evaluating strategic alternatives and making recommendations to the Board of
Directors regarding a potential transaction. The Merger and Acquisition
Committee consisted of Mr. Humphries and Mr. Egen and met 21 times during 1999.
Mr. Humphries and Mr. Egen will serve as members of the Merger and Acquisition
Committee during 2000.
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. On April 15, 1999, each
director who is not an employee of the Company was granted an option to purchase
20,000 shares of Common Stock at an exercise price of $1.25 per share, the fair
market value of the Company's Common Stock on that date. 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, and expire
on April 14, 2009.
On September 11, 1998, the Company and Sam B. Humphries entered into a
board advisory agreement ("Board Advisory Agreement") that terminated on May 6,
1999. Pursuant to the Board Advisory Agreement, Mr. Humphries provided 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 paid Mr.
Humphries $50,000 on April 1, 1999.
7
<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, 2000, 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)
- ---- --------- -----------
Special Situations Funds (3)....................... 1,821,800 18.6%
Circle F Ventures, LLC and Hayden R. Fleming (4)... 1,700,639 17.4%
Norwest Venture Capital (5)........................ 820,058 9.1%
Richard B. Egen (6)................................ 14,000 *
Sam B. Humphries (7)............................... 110,289 1.2%
Paulita M. LaPlante (8)............................ 171,391 1.9%
Richard J. Meelia (9).............................. 14,000 *
Demetre M. Nicoloff, M.D. (10)..................... 83,576 *
Gary A. Peterson (11).............................. 34,934 *
Victor Kimball (12)................................ 29,255 *
Wesley G. Peterson (13)............................ 96,468 1.1%
All directors and executive officers
as a group (eight persons) (14).................... 553,913 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 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 8,962,777 shares of Common Stock outstanding as of March 15, 2000.
(3) Based on a Schedule 13G/A filed November 8, 1999. Includes 736,800 shares
held of record by Special Situations Fund III, L.P., a limited partnership
("SSF III") and 210,000 shares held of record by Special Situations Cayman
Fund, L.P., a limited partnership ("Cayman Fund"). Also includes 700,000
shares and warrants to purchase 175,000 shares issuable upon conversion of
a convertible promissory note issued on March 10, 2000. Does not include an
additional 800,000 shares and warrants to purchase 200,000 shares issuable
upon conversion of the convertible promissory note in the event the
Company's stockholders approve Proposal 1. 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
8
<PAGE>
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.
(4) Based on Schedule 13D/A filed August 8, 1999. Includes 646,539 shares held
of record by Circle F Venture LLC ("Circle F"), 70,900 shares held by a
trust for the benefit of Hayden R. Fleming and his spouse, 88,200 shares
held by an individual retirement account for the benefit of Mr. Fleming's
spouse and 20,000 shares held by an individual retirement account for the
benefit of Mr. Fleming. Also includes 606,667 shares and warrants to
purchase 151,667 shares issuable upon conversion of a convertible
promissory note issued to Circle F on March 10, 2000 and 93,333 shares and
warrants to purchase 23,333 shares issuable upon conversion of a
convertible promissory note issued to the Hayden R. Fleming and LaDonna M.
Fleming Revocable Trust Dated 7/19/95 (the "Fleming Trust") on March 10,
2000. Does not include an additional 800,000 shares and warrants to
purchase 200,000 shares issuable to Circle F and the Fleming Trust upon
conversion of the convertible promissory notes in the event the Company's
stockholders approve Proposal 1. 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 Schedule 13G filed February 22, 2000. Includes 366,833 shares held
of record by Norwest Equity Partners IV and 453,225 shares held of record
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. Each of John E. Lindahl,
George J. Still, Jr. and John P. Whaley, 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. The
address of Norwest Venture Capital and the other named individuals is 2800
Piper Tower, 222 South Ninth Street, Minneapolis, Minnesota 55402.
(6) Includes 14,000 shares issuable upon exercise of outstanding stock options
held by Mr. Egen.
(7) Includes 5,000 shares issuable upon exercise of outstanding stock options
held by Mr. Humphries.
(8) Includes 169,304 shares issuable upon exercise of outstanding stock options
held by Ms. LaPlante.
(9) Includes 14,000 shares issuable upon exercise of outstanding stock options
held by Mr. Meelia.
(10) Includes 16,219 shares issuable upon exercise of outstanding stock options
held by Dr. Nicoloff. Also includes 3,889 shares held in Dr. Nicoloff's
living trust and 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's spouse is the managing agent of
Nicoloff Properties.
(11) Includes 22,662 shares issuable upon exercise of outstanding stock options
held by Mr. Peterson. Also includes 2,222 shares issuable upon exercise of
options held by PSF Health Care Fund L.P. ("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.
(12) Includes 22,499 shares issuable upon exercise of outstanding stock options
held by Mr. Kimball.
(13) Includes 56,922 shares issuable upon exercise of outstanding stock options
held by Mr. Peterson. Also includes 15,873 shares held by Mr. Peterson's
spouse as to which Mr. Peterson shares voting and investment power.
(14) Includes 322,828 shares issuable upon exercise of outstanding stock options
held by officers and directors or their affiliates. Also includes shares
beneficially owned by affiliates of the Company's officers and directors.
See notes (10), (11) and (13) above.
9
<PAGE>
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 Chief Executive Officer
and those executive officers of the Company who received or earned cash and
non-cash salary and bonus of more than $100,000 for the fiscal year ended
December 31, 1999 (the "Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation -----------
-------------------------------------- Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary($) Bonus($) Compensation($) Options(#) Compensation
- --------------------------- ---- --------- -------- --------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Paulita M. LaPlante 1999 $186,923 $ 0 $0 0 $0
President and Chief Executive Officer 1998 136,885 75,000 0 553,889 0
1997 121,000 0 0 15,000 0
Victor Kimball (1) 1999 125,767 0 0 0 0
Vice President, Strategic Planning and 1998 96,170 0 0 0 0
Product Development
Wesley G. Peterson 1999 104,980 0 0 0 0
Chief Financial Officer, Vice 1998 97,000 0 0 0 0
President of Finance and 1997 97,000 0 0 7,000 0
Administration and Secretary
</TABLE>
- -----------------------------
(1) Mr. Kimball became an executive officer in June 1998.
Option Grants and Exercises
No options were granted to any of the Named Executive Officers during the
year ended December 31, 1999. The following table summarizes the options that
were exercised by the Named Executive Officers during the year ended December
31, 1999 and the potential realizable value of the options held by such persons
at December 31, 1999.
Aggregated Option Exercises In
Last Fiscal Year and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at December 31, 1999 at December 31, 1999(1)
-------------------------------- --------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Paulita M. LaPlante 169,304 208,473 $0 $0
Victor Kimball 22,499 46,723 0 0
Wesley G. Peterson 56,922 35,011 0 0
</TABLE>
- -----------------------------
(1) Value based on the difference between the fair market value of the Common
Stock on December 31, 1999 ($0.75) and the exercise price of the options.
Options are in-the-money if the market price of the shares exceeds the
option exercise price.
10
<PAGE>
Compensation Committee Interlocks and Insider Participation
Gary A. Peterson and Richard J. Meelia served as members of the Company's
Compensation Committee during fiscal 1999. 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 1999 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.
Compensation Committee Report on Executive Compensation
The Compensation Committee consisted of Mr. Peterson and Mr. Meelia 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.
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.
11
<PAGE>
Executive Compensation Program Components. The Company's executive
compensation program consists of base salary, annual cash performance bonuses,
long-term incentive opportunities under the Company's stock option plans and
severance benefits. Each element of the compensation program is discussed in
greater detail below.
o 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 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. Ms. LaPlante's base salary
for 1999 remained at $180,000. The base salaries for the other
executive officers increased in range from 13%-25%.
o Annual Management Performance Bonuses. The Company did not establish
an annual management performance bonus program for the Company's
executive officers for 1999. Therefore, no bonus was paid to Ms.
LaPlante or any of the other executive officers for services during
1999.
o 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 1999, the
Compensation Committee did not grant any new options to any of the
Company's employees, including its executive officers. In August 1999,
the Company's 1993 Stock Option Plan was amended to revise the
definition of "change in control" to explicitly provide that the sale,
lease, exchange or other transfer, directly or indirectly, of the
assets comprising the Company's CapnoProbe product line in one or in a
series of transactions, to any person shall constitute a change in
control under the option plan and to otherwise broaden the definition
of a change in control and to clarify the definition of
12
<PAGE>
"continuity director." In addition, all agreements evidencing
outstanding stock options of the Company were amended to provide that
if the Company terminates the optionee's employment for any reason
other than the optionee's death or cause, then (1) the option will
remain exercisable, to the extent exercisable at the time of
termination, until the expiration of the option, and (2) upon a
"change in control" (as defined in the Company's amended stock option
plan), the option will become immediately exercisable in full until
the expiration of the option, whether or not the employee is employed
by the Company at the time of such change in control. The purpose of
these amendments to the Company's stock option plan and stock option
agreements were to retain and motivate existing employees and
consultants needed to complete the Company's business objectives.
o Severance Benefits. In August 1999, the Company's Board of Directors
approved three new severance pay plans for its employees, including a
severance pay plan for the Company's executive officers. All of the
Company's executive officers are covered by the severance pay plan
that provides for the payment of certain benefits to the Company's
executive officers who experience a "Qualifying Termination of
Employment." See "Executive Compensation and Other Benefits--Change in
Control Arrangements" for a description of the material terms of this
plan.
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 1999, 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
13
<PAGE>
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, 1999, 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.
ANNUAL RETURN PERCENTAGE
Years Ending
Company Name/Index Dec96 Dec97 Dec98 Dec99
- ------------------------------------------------------------------------------
OPTICAL SENSORS INC -38.46 -32.81 -74.42 -54.55
S&P 500 INDEX 15.97 33.36 28.58 21.04
PEER GROUP -12.35 -1.77 -15.59 49.28
INDEXED RETURNS
Base Years Ending
Period
Company Name/Index 14Feb96 Dec96 Dec97 Dec98 Dec99
- ------------------------------------------------------------------------------
OPTICAL SENSORS INC 100 61.54 41.35 10.58 4.81
S&P 500 INDEX 100 115.97 154.66 198.86 240.70
PEER GROUP 100 87.65 86.10 72.68 108.50
Peer Group Companies
- ------------------------------------------------------------------------------
DATASCOPE CORP
DIAMETRICS MEDICAL INC
I-STAT CORP
PROTOCOL SYSTEMS INC
SPACELABS MED INC
[Line Graph]
14
<PAGE>
Change in Control Arrangements
In August 1999, the Company's Board of Directors approved three new
severance pay plans for its employees, including a severance pay plan (the
"Severance Pay Plan") for the Company's executive officers (the "Executives").
All of the Company's executive officers are covered by the Severance Pay Plan.
The Severance Pay Plan provides for the payment of certain benefits to
Executives of the Company who experience a "Qualifying Termination of
Employment."
A "Qualifying Termination of Employment" occurs if and only if:
o The Company terminates the Executive's employment, before or after a
Change in Control (as defined below), for any reason except "cause,"
death or disability, or
o The Executive terminates his or her employment either (1) prior to a
Change in Control if his or her termination was a condition of the
Change in Control or was requested or insisted upon by an unrelated
person involved with the Change in Control or (2) during the 12 months
after the Change in Control due to any of the following reasons:
-- A change in the Executive's title, status, position, duties,
authority or responsibilities as an employee of the Company in
effect immediately prior to the Change in Control which in the
Executive's reasonable judgment is material and adverse, other
than a change caused by an insubstantial or inadvertent action
that the Company promptly remedies after becoming aware of the
change;
-- A reduction in the Executive's base pay or an adverse change in
the form or timing of the payment of the base pay, as in effect
immediately prior to the Change in Control or as thereafter
increased;
-- Certain adverse changes to specified Company employee benefit
plans;
-- Relocation of the Executive's place of work more than 30 miles
from his or her work location immediately before to the Change in
Control;
-- The failure of the Company to obtain the assent of the Severance
Pay Plan by an acquiror at least three days before a Change in
Control occurs; or
- Termination of employment with the Company for any reason other
than death during the month of August 2000.
If an Executive has a Qualifying Termination of Employment, he or she will
continue to receive his or her regular pay and continue to participate in all
employee benefit plans until the date of termination specified in the notice of
termination. In addition, the Executive will receive the following:
o A lump sum cash payment equal to 12 times the Executive's monthly base
pay payable within ten days after the date of termination;
o A "gross up" payment for any excise tax liability; and
o Indemnification and expense advances for damages, costs and expenses
incurred in connection with all matters relating to the Executive's
service with or for the Company.
15
<PAGE>
The Executive has no duty or obligation to seek or accept other employment
in order to become or continue to be eligible for benefits under the Severance
Pay Plan.
A "Change in Control" under the Severance Pay Plan generally includes the
following:
o The acquisition by any unrelated person of:
-- at least 20% but not more than 50% of the Company's outstanding
voting stock unless the Company's Board of Directors approves the
acquisition, or
-- more than 50% of the Company's outstanding voting stock whether
or not the acquisition is approved by the Company's Board of
Directors.
o A merger or similar transaction involving the Company if, just after
the transaction, the shareholders of the Company just before the
transaction own:
-- at least 50% but not more than 80% of the surviving company's
outstanding voting stock, unless the Company's Board of Directors
approves the transaction or
-- less than 50% of the surviving company's outstanding voting stock
whether or not the transaction is approved by the Company's Board
of Directors.
o A sale of substantially all of the Company's assets to an unrelated
person, including the sale of the Company's CapnoProbe product line.
o The approval by the Company's shareholders of the liquidation or
dissolution of the Company.
o The continuity directors cease for any reason to constitute at least a
majority of the Board.
For purposes of the Severance Pay Plan, "continuity director" means any
individual who is a member of the Board of Directors on August 16, 1999, while
he or she is a member of the Board, and any individual who subsequently becomes
a member of the Board whose election or nomination for election by the Company's
stockholders was approved by a vote of at least a majority of the directors who
are continuity directors (either by a specific vote or by approval of the proxy
statement of the Company in which such individual is named as a nominee for
director without objection to such nomination).
Before a Change in Control, the Company's Board of Directors may amend the
Severance Pay Plan at any time and in any manner but the effective date of any
amendment that adversely affects a participant must be at least one year after
the amendment is approved by the Board of Directors. If a Change in Control
occurs before an amendment becomes effective, the amendment automatically
becomes null and void. On and after a Change in Control, the Severance Pay Plan
may be amended only if the participant affected by the amendment consent to the
amendment in writing.
The board of directors of the Company may terminate the Severance Pay Plan
at any time subject to the following limitations:
o Before a Change in Control, the effective date of the termination must
be at least one year after the date on which the termination is
approved by the board of directors; and
16
<PAGE>
o The Severance Pay Plan cannot be terminated, and no termination will
become effective, during the 12 month period after a Change in
Control.
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 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." The
definition of a "change in control" was amended in August 1999 to provide that
"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) any person becomes the "beneficial owner," directly or indirectly, of
(i) 20 percent or more, but not more than 50 percent, of the combined
voting power of the Company's outstanding securities ordinarily having
the right to vote at elections of directors, unless the transaction
resulting in such ownership has been approved in advance by the
"continuity directors" (as defined below), or (ii) more than 50
percent of the combined voting power of the Company's outstanding
securities ordinarily having the right to vote at elections of
directors (regardless of any approval by the continuity directors);
(d) a merger or consolidation to which the Company is a party if the
stockholders of the Company immediately prior to the effective date of
such merger or consolidation have, solely on account of ownership of
securities of the Company at such time, "beneficial ownership" (as
defined in Rule 13d-3 under the Exchange Act) immediately following
the effective date of such merger or consolidation of securities of
the surviving company representing (a) 50 percent or more, but not
more than 80 percent, of the combined voting power of the surviving
corporation's then outstanding securities ordinarily having the right
to vote at elections of directors, unless such merger or consolidation
has been approved in advance by the continuity directors, or (b) less
than 50 percent of the combined voting power of the surviving
corporation's then outstanding securities ordinarily having the right
to vote at elections of directors (regardless of any approval by the
continuity directors);
(e) the continuity directors cease for any reason to constitute at least a
majority of the Board; or
(f) a change in control of a nature that is determined by outside legal
counsel to the Company, in a written opinion specifically referencing
this provision of the Plan, to be required to be reported (assuming
such event has not been "previously reported") pursuant to section 13
or 15(d) of the Exchange Act, whether or not the Company is then
subject to such reporting requirement, as of the effective date of
such change in control.
The sale, lease, exchange or other transfer, directly or indirectly, of the
assets comprising the Company's CapnoProbe product line, in one transaction or
in a series of related transactions, to any person will constitute a change in
control under the 1993 Plan.
17
<PAGE>
For purposes of the 1993 Plan, "continuity director" means any individual
who is a member of the Board of Directors on August 16, 1999, while he or she is
a member of the Board, and any individual who subsequently becomes a member of
the Board whose election or nomination for election by the Company's
stockholders was approved by a vote of at least a majority of the directors who
are continuity directors (either by a specific vote or by approval of the proxy
statement of the Company in which such individual is named as a nominee for
director without objection to such nomination).
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.
RELATED PARTY TRANSACTIONS
On March 10, 2000, the Company entered into an Investment Agreement with
Circle F Ventures, LLC and Special Situations Fund III, L.P., both of whom are
beneficial owners of greater than 5% of the Company's Common Stock, pursuant to
which the Company agreed to issue convertible promissory notes in the aggregate
principal amount of up to $3,000,000. For more information, see "Proposal 1.
Approval of Issuance of Shares of Common Stock and Warrants to Purchase Shares
of Common Stock."
RATIFICATION OF SELECTION OF
INDEPENDENT AUDITORS
PROPOSAL 3
The Board of Directors has appointed Ernst & Young LLP, independent
certified public accountants, as auditors of the Company for the year ending
December 31, 2000. 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, 2000. 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.
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
18
<PAGE>
a review of the copies of such reports furnished to the Company during the year
ended December 31, 1999 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 during 1999, except that Messrs. Humphries, Egen and Peterson each
failed to timely file a Form 5 reporting a stock option grant received in August
1999.
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Proposals of stockholders intended to be included in the proxy statement
and proxy card relating to the 2001 Annual Meeting of Stockholders must be
received by the Company at its principal executive offices on or before December
5, 2000 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 2001 Annual Meeting of
Stockholders without including the proposal in the Company's proxy statement
must notify the Company by February 18, 2001. 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 2001 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 their best judgment on such matters.
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, 1999 TO EACH
PERSON WHO WAS A STOCKHOLDER OF THE COMPANY AS OF MARCH 29, 2000, 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 C, TECHNOLOGY PARK V, 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 4, 2000
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 29, 2000, at the Annual Meeting of
Stockholders to be held on May 4, 2000, or any adjournment, thereof.
1. PROPOSAL TO APPROVE THE ISSUANCE OF 1,600,000 SHARES OF THE COMPANY'S
COMMON STOCK AND WARRANTS TO PURCHASE AN ADDITIONAL 400,000 SHARES OF THE
COMPANY'S COMMON STOCK UPON CONVERSION OF CONVERTIBLE PROMISSORY NOTES.
[_] FOR [_] AGAINST [_] ABSTAIN
2. ELECTION OF DIRECTORS.
[_] FOR all nominees [_] AGAINST all nominees
listed below 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.)
3. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT
AUDITORS FOR THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 2000.
[_] FOR [_] AGAINST [_] ABSTAIN
4. 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 Proposals 1 and 3 and for all nominees named in Proposal 2 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:_____________, 2000
--------------------------------------
Signature
--------------------------------------
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.
