SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, For Use of the Commission only
(as permitted by Rule 14a-6(e)(2))
EXACTECH, INC.
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(Name of Registrant as Specified in Its Charter)
EXACTECH, INC.
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(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on the 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:
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] 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:
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(4) Date Filed:
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<PAGE>
EXACTECH, INC.
2320 N.W. 66TH COURT
GAINESVILLE, FLORIDA 32653
-------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 22, 1999
-------------------
To the Shareholders of
EXACTECH, INC.:
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Shareholders
(the "Annual Meeting") of Exactech, Inc., a Florida corporation (the "Company"),
will be held at the Company's new headquarters, 2320 N.W. 66th Court,
Gainesville, Florida, on Thursday, April 22, 1999, at 9:00 a.m., local time, for
the following purposes:
(1) To elect seven members to the Company's Board of Directors to hold
office until the Company's 2000 Annual Meeting of Shareholders or
until their successors are duly elected and qualified;
(2) To consider and vote upon a proposal to increase by 185,000 shares
the number of shares of Common Stock reserved for issuance pursuant
to the Company's Employee Stock Option and Incentive Plan, as
amended;
(3) To consider and vote upon a proposal to increase by 45,000 shares
the number of shares of Common Stock reserved for issuance pursuant
to the Company's Directors Stock Option Plan;
(4) To consider and vote upon a proposal to approve the Company's 1999
Employee Stock Purchase Plan;
(5) To ratify the selection of Deloitte & Touche LLP to serve as the
Company's independent auditors for the fiscal year ending December
31, 1999; and
(6) To transact such other business as may properly come before the
Annual Meeting and any adjournments or postponements thereof.
All shareholders are cordially invited to attend; however, only
shareholders of record at the close of business on March 18, 1999 are entitled
to vote at the Annual Meeting or any adjournments thereof.
By Order of the Board of Directors
BETTY PETTY
SECRETARY
Gainesville, Florida
March 22, 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE COMPLETE, SIGN
AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED RETURN
ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. SHAREHOLDERS
WHO EXECUTE A PROXY CARD MAY NEVERTHELESS ATTEND THE MEETING, REVOKE THEIR PROXY
AND VOTE THEIR SHARES IN PERSON.
<PAGE>
1999 ANNUAL MEETING OF SHAREHOLDERS
OF
EXACTECH, INC.
---------------------
PROXY STATEMENT
---------------------
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of Exactech, Inc., a Florida corporation (the
"Company"), of proxies from the holders of the Company's Common Stock, par value
$.01 per share (the "Common Stock"), for use at the 1999 Annual Meeting of
Shareholders of the Company to be held at the Company's new headquarters, 2320
N.W. 66th Court, Gainesville, Florida, on Thursday, April 22, 1999, at 9:00
a.m., local time, or at any adjournment(s) or postponement(s) thereof (the
"Annual Meeting"), pursuant to the foregoing Notice of Annual Meeting of
Shareholders.
The approximate date that this Proxy Statement and the enclosed form of
proxy are first being sent to shareholders is March 22, 1999. Shareholders
should review the information provided herein in conjunction with the Company's
1998 Annual Report, which accompanies this Proxy Statement. The Company's
principal executive offices are located at 2320 N.W. 66th Court, Gainesville,
Florida 32653, and its telephone number is (352) 377-1140.
INFORMATION CONCERNING PROXY
The enclosed proxy is solicited on behalf of the Company's Board of
Directors. The giving of a proxy does not preclude the right to vote in person
should any shareholder giving the proxy so desire. Shareholders have an
unconditional right to revoke their proxy at any time prior to the exercise
thereof, either in person at the Annual Meeting or by filing with the Company's
Secretary at the Company's headquarters a written revocation or duly executed
proxy bearing a later date; however, no such revocation will be effective until
written notice of the revocation is received by the Company at or prior to the
Annual Meeting.
The cost of preparing, assembling and mailing this Proxy Statement, the
Notice of Annual Meeting of Shareholders and the enclosed proxy is to be borne
by the Company. In addition to the use of mail, employees of the Company may
solicit proxies personally and by telephone. The Company's employees will
receive no compensation for soliciting proxies other than their regular
salaries. The Company may request banks, brokers and other custodians, nominees
and fiduciaries to forward copies of the proxy material to their principals and
to request authority for the execution of proxies. The Company may reimburse
such persons for their expenses in so doing.
PURPOSES OF THE MEETING
At the Annual Meeting, the Company's shareholders will consider and
vote upon the following matters:
(1) The election of seven members to the Company's Board of Directors
to serve until the Company's 2000 Annual Meeting of Shareholders or
until their successors are duly elected and qualified;
(2) A proposal to increase by 185,000 shares the number of shares of
Common Stock reserved for issuance pursuant to the Company's
Employee Stock Option and Incentive Plan, as amended;
(3) A proposal to increase by 45,000 shares the number of shares of
Common Stock reserved for issuance pursuant to the Company's
Directors Stock Option Plan;
(4) A proposal to approve the Company's 1999 Employee Stock Purchase
Plan;
(5) Ratification of the selection of Deloitte & Touche LLP to serve as
the Company's independent auditors for the fiscal year ending
December 31, 1999; and
(6) Such other business as may properly come before the Annual Meeting,
including any adjournments or postponements thereof.
<PAGE>
Unless contrary instructions are indicated on the enclosed proxy, all
shares represented by valid proxies received pursuant to this solicitation (and
which have not been revoked in accordance with the procedures set forth above)
will be voted (a) FOR the election of the seven nominees for director named
below; (b) FOR the proposal to increase by 185,000 shares the number of shares
of Common Stock reserved for issuance pursuant to the Company's Employee Stock
Option and Incentive Plan, as amended; (c) FOR the proposal to increase by
45,000 shares the number of shares reserved for issuance pursuant to the
Company's Directors Stock Option Plan; (d) FOR the proposal to approve the
Company's 1999 Employee Stock Purchase Plan; and (e) FOR the ratification of the
selection of Deloitte & Touche LLP to serve as the Company's independent
auditors for the fiscal year ending December 31, 1999. In the event a
shareholder specifies a different choice by means of the enclosed proxy, his
shares will be voted in accordance with the specification so made. The Board
does not know of any other matters that may be brought before the Annual Meeting
nor does it foresee or have reason to believe that proxy holders will have to
vote for substitute or alternate nominees. In the event that any other matter
should come before the Annual Meeting or any nominee is not available for
election, the persons named in the enclosed Proxy will have discretionary
authority to vote all proxies not marked to the contrary with respect to such
matters in accordance with their best judgment.
OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS
The Board of Directors has set the close of business on March 18, 1999
as the record date (the "Record Date") for determining shareholders of the
Company entitled to notice of and to vote at the Annual Meeting. As of the
Record Date, there were 4,920,979 shares of Common Stock issued and outstanding,
all of which are entitled to be voted at the Annual Meeting. Each share of
Common Stock is entitled to one vote on each matter submitted to shareholders
for approval at the Annual Meeting. Shareholders do not have the right to
cumulate their votes for directors.
The attendance, 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 is
necessary to constitute a quorum. Directors will be elected by a plurality of
the votes cast by the shares of Common Stock represented in person or by proxy
at the Annual Meeting. The affirmative vote of a majority of the shares of
Common Stock present and voting at the Annual Meeting is required to (i) approve
the proposal to increase by 185,000 shares the number of shares of Common Stock
reserved for issuance pursuant to the Company's Employee Stock Option and
Incentive Plan, as amended; (ii) approve the proposal to increase by 45,000
shares the number of shares of Common Stock reserved for issuance under the
Company's Directors Stock Option Plan; (iii) approve the Company's 1999 Employee
Stock Purchase Plan and (iv) ratify the selection of Deloitte & Touche LLP to
serve as the Company's independent auditors for the fiscal year ending December
31, 1999. If less than a majority of outstanding shares entitled to vote are
represented at the Annual Meeting, a majority of the shares so represented may
adjourn the Annual Meeting to another date, time or place, and notice need not
be given of the new date, time or place if the new date, time or place is
announced at the meeting before an adjournment is taken.
Prior to the Annual Meeting, the Company will select one or more
inspectors of election for the meeting. Such inspector(s) shall determine the
number of shares of Common Stock represented at the meeting, the existence of a
quorum and the validity and effect of proxies, and shall receive, count and
tabulate ballots and votes and determine the results thereof.
Pursuant to Florida law, abstentions and broker non-votes are counted
as present for purposes of determining the presence of a quorum. However,
abstentions are treated as present and entitled to vote, but are not counted as
votes cast "for" or "against" any matter. A broker non-vote on a matter is
considered not entitled to vote on that matter and thus is not counted in
determining whether a matter requiring approval of a majority of the shares
present and entitled to vote has been approved or whether a plurality of the
shares present and entitled to vote has been voted.
A list of shareholders entitled to vote at the Annual Meeting will be
available at the Company's offices, 2320 N.W. 66th Court, Gainesville, Florida
32653, for a period of ten days prior to the Annual Meeting and at the Annual
Meeting itself for examination by any shareholder.
2
<PAGE>
SECURITY OWNERSHIP
The following table sets forth, as of March 1, 1999, the number of
shares of Common Stock of the Company which were owned beneficially by (i) each
person who is known by the Company to own beneficially more than 5% of its
Common Stock, (ii) each director and nominee for director, (iii) the Named
Executive Officers (as defined in "Executive Compensation") and (iv) all
directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENTAGE OF OUTSTANDING
BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP(2)(3) SHARES OWNED(2)
------------------- -------------------------- -------------------------
<S> <C> <C>
William Petty, M.D.................................. 2,042,119(4) 41.3%
Betty Petty......................................... 2,042,119(4) 41.3%
Timothy J. Seese.................................... 114,916(5) 2.3%
Gary J. Miller, Ph.D................................ 312,317(6) 6.3%
Marc Olarsch........................................ 21,184(7) *
David W. Petty...................................... 18,094(8) *
Albert H. Burstein, Ph.D............................ 11,000(9) *
R. Wynn Kearney, Jr., M.D........................... 222,930(10) 4.5%
E. Ronald Pickard................................... 11,000(11) *
Paul Metts.......................................... 5,000(12) *
Petty Family Investments, Limited Partnership....... 2,004,499 40.8%
Millerworks, Limited Partnership.................... 279,697 5.7%
All directors and executive officers as a group
(11 persons)..................................... 2,774,244(13) 54.0%
</TABLE>
- ------------
* Less than 1%.
(1) Unless otherwise indicated, the address of each beneficial owner is
Exactech, Inc., 2320 N.W. 66th Court, Gainesville, Florida 32653.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date hereof upon exercise
of options, warrants and convertible securities. Each beneficial owner's
percentage ownership is determined by assuming that options, warrants and
convertible securities that are held by such person (but not those held by
any other person) and that are exercisable within 60 days from the date
hereof have been exercised.
(3) Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them.
(4) Includes 2,004,499 shares of Common Stock held by Petty Family
Investments, Limited Partnership, a Nevada limited partnership (the "Petty
Partnership"). Petty Investments, Inc., a Nevada corporation wholly-owned
by Dr. and Mrs. Petty, is the general partner of Petty Partnership. Dr.
and Mrs. Petty along with their children hold limited partnership
interests in Petty Partnership. Also includes (i) 20,000 shares of Common
Stock issuable upon the exercise of options granted to William Petty and
(ii) 17,620 shares of Common Stock issuable upon the exercise of options
granted to Betty Petty which are currently exercisable.
(5) Includes 37,416 shares of Common Stock issuable upon the exercise of
options granted to Mr. Seese which are currently exercisable.
(6) Includes 279,697 shares of Common Stock held by Millerworks, Limited
Partnership, a Nevada limited partnership ("Miller Partnership").
Millerworks, Inc., a Nevada corporation wholly-owned by Dr. Miller, is the
general partner of Miller Partnership. Dr. Miller along with is wife hold
partnership interests in Miller Partnership. Also includes 32,620 shares
of Common Stock issuable upon the exercise of options granted to Dr.
Miller which are currently exercisable.
(7) Includes 16,644 shares of Common Stock issuable upon the exercise of
options granted to Mr. Olarsch which are currently exercisable.
(8) Includes 17,620 shares of Common Stock issuable upon the exercise of
options granted to Mr. Petty which are currently exercisable.
(9) Consists of 11,000 shares of Common Stock issuable upon the exercise of
options granted to Dr. Burstein which are currently exercisable.
(10) Includes (i) 9,000 shares of Common Stock issuable upon the exercise of
options granted to Dr. Kearney which are currently exercisable, (ii)
25,755 shares of Common Stock issuable upon the exercise of warrants held
by Dr. Kearney and (iii) 1,262 shares of Common Stock held by Dr.
Kearney's spouse. See "Certain Transactions."
(11) Consists of 11,000 shares of Common Stock issuable upon the exercise of
options granted to Mr. Pickard which are currently exercisable.
(12) Consists of 5,000 shares of Common Stock issuable upon the exercise of
options granted to Mr. Metts which are currently exercisable.
(13) Includes (i) 200,706 shares of Common Stock issuable upon the exercise of
options which are currently exercisable and (ii) 25,755 shares of Common
Stock issuable upon the exercise of outstanding warrants.
3
<PAGE>
ELECTION OF DIRECTORS
The Company's Bylaws provide that the number of directors shall be
seven, which number may be increased or decreased only by amendment to the
Bylaws duly adopted by the Board of Directors. Each director elected at the
Annual Meeting will serve for a term expiring at the Company's 2000 Annual
Meeting of Shareholders or when his successor has been duly elected and
qualified.
The Company has nominated each of William Petty, M.D., Timothy J.
Seese, Gary J. Miller, Ph.D., Albert Burstein, Ph.D., R. Wynn Kearney, Jr.,
M.D., E. Ronald Pickard and Paul Metts (the "Nominees") to be elected as a
director at the Annual Meeting; each of whom now serves as a director of the
Company. The Board of Directors has no reason to believe that any nominee will
refuse or be unable to accept election; however, in the event that one or more
nominees are unable to accept election or if any other unforeseen contingencies
should arise, each proxy that does not direct otherwise will be voted for the
remaining nominees, if any, and for such other persons as may be designated by
the Board of Directors.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
William Petty, M.D............................... 56 Chairman of the Board and Chief Executive Officer
Timothy J. Seese................................. 52 President, Chief Operating Officer and Director
Gary J. Miller, Ph.D............................. 51 Vice President, Research and Development and Director
David W. Petty................................... 32 Vice President, Marketing
Marc Olarsch..................................... 37 Vice President, Sales
Joel C. Phillips................................. 31 Chief Financial Officer
Betty Petty...................................... 56 Secretary
Albert Burstein, Ph.D............................ 61 Director
R. Wynn Kearney, Jr., M.D........................ 55 Director
E. Ronald Pickard................................ 51 Director
Paul E. Metts.................................... 56 Director
</TABLE>
WILLIAM PETTY, M.D. was a founder and has been Chairman of the Board
and Chief Executive Officer of the Company since its inception. Dr. Petty was a
Professor at the University of Florida College of Medicine from July 1975 to
September 1998. Dr. Petty also served as Chairman of the Department of
Orthopaedic Surgery at the University of Florida College of Medicine from July
1981 to January 1996. Dr. Petty has also served as a member of the Hospital
Board of Shands Hospital, Gainesville, Florida, as an examiner for the American
Board of Orthopaedic Surgery, as a member of the Orthopaedic Residency Review
Committee of the American Medical Association, on the Editorial Board of the
JOURNAL OF BONE AND JOINT SURGERY, and on the Executive Board of the American
Academy of Orthopaedic Surgeons. He holds the Kappa Delta Award for Outstanding
Research from the American Academy of Orthopaedic Surgeons. His book, TOTAL
JOINT REPLACEMENT, was published in 1991. Dr. Petty received his B.S., M.S., and
M.D. from the University of Arkansas. He completed his residency in Orthopaedic
Surgery at the Mayo Clinic in Rochester, Minnesota. Dr. Petty continues a
limited practice in the field of total joint arthroplasty.
4
<PAGE>
TIMOTHY J. SEESE has been President and Chief Operating Officer of the
Company since March 1991 and a director since April 1991. From October 1987 to
December 1990, Mr. Seese served as President and Chief Executive Officer of
Meritech, Inc., a development stage company involved with infection control
products. From December 1986 to October 1987, he served as President of the
Critical Care Monitoring Division of Becton Dickinson and Company, a
manufacturer and marketer of medical devices, upon the acquisition of Deseret
Medical, Inc. by Becton Dickinson and Company. From January 1983 to December
1986, he served as Business Unit Director and Director, Marketing and Sales for
the Critical Care Business of Deseret Medical, Inc. Division of Warner Lambert,
a medical device, pharmaceutical and consumer products company. He received his
B.S. in Metallurgical Engineering from the University of Cincinnati and his
M.B.A. from Harvard University.
GARY J. MILLER, PH.D. was a founder and has been the Vice President,
Research and Development of the Company since October 1986 and a director since
March 1989. Dr. Miller was Associate Professor of Orthopaedic Surgery and
Director of Research and Biomechanics at the University of Florida College of
Medicine from July 1986 until August 1996. Dr. Miller received his B.S. from the
University of Florida, his M.S. (Biomechanics) from Massachusetts Institute of
Technology, and his Ph.D. in Mechanical Engineering (Biomechanics) from the
University of Florida. He has held an Adjunct Associate Professorship in the
College of Veterinary Medicine's Small Animal Surgical Sciences Division since
1982 and was appointed as an Adjunct Associate Professor in the Department of
Aerospace, Mechanics and Engineering Sciences in 1995. He was a consultant to
the United States Food and Drug Administration ("FDA") from 1989 to 1992 and has
served as a consultant to such companies as Johnson & Johnson Orthopaedics,
Dow-Corning Wright and Orthogenesis.
DAVID W. PETTY has been Vice President, Marketing of the Company since
April 1993. He has been employed by the Company in successive capacities in the
area of Operations and Sales and Marketing for the past approximately ten years,
including as Vice President, Operations from April 1991 until April 1993. Mr.
Petty received his B.A. from the University of Virginia in 1988.
Mr. Petty is the son of Dr. and Ms. Petty.
MARC OLARSCH has been Vice President, Sales since July 1993. From 1984
to July 1993, he was employed by Carapace, the United States subsidiary of
Lohmann GmbH & Co., KB, Neuwied, Germany, a manufacturer of orthopaedic casting
material, surgical wound dressings and bandages. During his tenure with
Carapace, he held the positions of Regional Sales Manager and National Sales
Manager. He has extensive experience with group purchasing organizations,
independent manufacturers' representatives, as well as company-employed
territory managers and sales representatives.
JOEL C. PHILLIPS, CPA has been Chief Financial Officer of the Company
since July 1998 and Treasurer since March 1996. Mr. Phillips was Manager,
Accounting and Management Information Systems from April 1993 to June 1998. From
January 1991 to April 1993, Mr. Phillips was employed by Arthur Andersen. Mr.
Phillips received a B.S. and a Masters in Accounting from the University of
Florida and is a certified public accountant.
BETTY PETTY has been Secretary of the Company since its inception and
served as Treasurer and a director from its inception until March 1996. Ms.
Petty is responsible for the development of all of the Company's literature,
advertising and corporate events and also serves as Human Resources Coordinator
for the Company. Ms. Petty received her B.A. from the University of Arkansas at
Little Rock and her M.A. in English from Vanderbilt University. Ms. Petty is the
wife of Dr. Petty.
ALBERT BURSTEIN, PH.D. has been a director of the Company since March
1996. From 1976 to 1996, Dr. Burstein was Senior Scientist, Department of
Research and Associate Attending Orthopaedic Surgeon (Biomechanical Engineering)
at the Hospital for Special Surgery, New York, New York and Adjunct Associate
Professor of Mechanical Engineering at the Sibley School of Mechanical and
Aerospace Engineering, Cornell University, Ithaca, New York. In addition, he was
Professor of Applied Biomechanics (in surgery) at Cornell University Medical
College, New York, New York from 1978 through 1996. From 1976 until 1992, he
served as Director, Department of Biomechanics, Research Division, at the
Hospital for Special Surgery. Since 1980, he has served as Deputy Editor for
Research, THE JOURNAL OF BONE AND JOINT SURGERY. Dr. Burstein is an author of
six textbooks on Orthopaedic Biomechanics. He holds the Shands Award of the
Orthopaedic Research Society for outstanding career contributions to orthopaedic
research and is a Past President of the American Society of Biomechanics. Dr.
Burstein holds thirteen patents for orthopaedic devices.
5
<PAGE>
R. WYNN KEARNEY, JR., M.D. has been a director of the Company since
September 1989. He is the senior partner of the Orthopaedic and Fracture Clinic,
P.A. a medical group with locations in southern Minnesota. He has been a member
of the group since 1972 and a partner of the group since 1976. He received his
B.S. degree from Northwestern University and M.D. degree through the Honors
Program of Northwestern Medical School in Chicago. He completed an orthopaedic
surgery post-graduate residency at the Mayo Clinic in Rochester, Minnesota and
was a member of the team that implanted the first total knee replacement in the
United Stated in 1970. He is also an Assistant Clinical Professor of the
University of Minnesota Medical School. Dr. Kearney has served as President of
the Minnesota Orthopaedic Society, the Southern Minnesota Medical Association
and the Orthopaedic Practice Society. He recently completed a term as President
of the Foundation Board of Minnesota State University, Mankato. Dr. Kearney is a
member of the board of directors of Hickory Tech Corporation and is a minority
owner of the Minnesota Timberwolves NBA basketball team.
E. RONALD PICKARD has been a director of the Company since March 1996.
He has served as Chairman of the Board and Chief Executive Officer of Sofamor
Danek Group, Inc. since May 1994. He was President and Chief Operating Officer
of that company from August 1991 until April 1994 when he became President and
Chief Executive Officer and a director. From 1986 until joining Sofamor Danek,
he was employed by Richards Medical Company in various capacities including
Director of Manufacturing (1975-78), Group Director of Manufacturing (1979-81),
Vice President, Manufacturing (1982-85), and President, Orthopedics Division
(1986-90).
PAUL METTS, CPA has been a director of the Company since April 1998.
Mr. Metts was the Chief Executive Officer of Shands Hospital at the University
of Florida from 1987 to 1997. Shands Hospital is a 1300-bed, seven-hospital
system with approximately 10,000 employees, and a statewide homecare network.
Mr. Metts has served as a board member of many local civic and business
organizations including Barnett Bank, the University of Florida Foundation and
University Medical Center in Jacksonville. Mr. Metts has also chaired or served
as a member on state and national industry organizations such as the Florida
Institute of CPAs Healthcare Industry Committee, the Florida Hospital
Association Board, the Association of Voluntary Hospitals of Florida Board, the
University HealthSystem Consortium Board, and several committees for the
Association of American Medical Colleges. Mr. Metts, a Certified Public
Accountant, received his undergraduate degree in Accounting from the University
of South Florida and his Masters Degree in Health Care Administration from the
University of Minnesota.
ELECTION OF EXECUTIVE OFFICERS AND DIRECTORS
The Company's officers are elected annually by the Board of Directors
and serve at the discretion of the Board of Directors. The Company's directors
hold office until the next annual meeting of shareholders and until their
successors have been duly elected and qualified.
In connection with the Company's initial public offering (the "IPO"),
the Company agreed with First Equity Corporation, who acted as the
representative of the underwriters (the "Representative"), for a period of three
years, to nominate and use its best efforts to elect a designee of the
Representative as a director of the Company.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
During the fiscal year ended December 31, 1998, the Company's Board of
Directors held two meetings, and took action one additional time by unanimous
written consent. Each director of the Company attended at least 75% of the
aggregate of (i) the number of the meetings of the Board which were held during
the period that such person served on the Board and (ii) the number of meetings
of committees of the Board of Directors held during the period that such person
served on such committee, other than E. Ronald Pickard.
The Company has two committees: the Audit Committee and the
Compensation and Stock Option and Incentive Plan Committee (the "Compensation
Committee"). The Company does not have a nominating committee.
6
<PAGE>
The Audit Committee is currently composed of William Petty, Albert
Burstein and Paul Metts. The Audit Committee's functions include reviewing with
the Company's independent public accountants their reports and audits, and
reporting their findings to the full Board. The Audit Committee met one time
during the year ended December 31, 1998.
The Compensation Committee is currently comprised of Timothy J. Seese,
R. Wynn Kearney, Jr. and E. Ronald Pickard. The Compensation Committee's
functions consist of administering the Company's Employee Stock Option and
Incentive Plan (the "Stock Option Plan"), recommending and approving grants of
stock options under the Stock Option Plan, and recommending, reviewing and
approving the salary and fringe benefits policies of the Company, including
compensation of executive officers of the Company. The Compensation Committee
met two times during the year ended December 31, 1998.
ADDITIONAL INFORMATION CONCERNING DIRECTORS
The Company reimburses all directors for their expenses in connection
with their activities as directors of the Company. Directors of the Company do
not receive additional compensation for their services as directors.
Non-employee directors are eligible to receive options under the
Company's Directors Stock Option Plan (the "Directors Plan"). The Directors Plan
provides for an automatic grant of an option to purchase 5,000 shares of Common
Stock upon a person's election as a director of the Company and an automatic
grant of an option to purchase 3,000 shares of Common Stock upon such persons
re-election as a director of the Company.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of the Company's outstanding Common Stock, to file with the Securities
and Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership of Common Stock. Such persons are required by SEC
regulation to furnish the Company with copies of all such reports they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports are required, during the fiscal year ended December 31, 1998, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners have been timely filed.
7
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following compensation table sets forth, for the fiscal years ended
December 31, 1996, 1997 and 1998, the cash and certain other compensation paid
or accrued by the Company to the Company's Chief Executive Officer, and each of
the Company's other four most highly compensated executive officers whose total
1998 salary and bonus exceeded $100,000 (collectively, the "Named Executive
Officers"). One other executive officer had an annual salary and bonus in excess
of $100,000 during 1998.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------ -------------
OTHER ANNUAL ALL OTHER
NAME AND COMPENSATION OPTIONS/SARS COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) (#) ($)
------------------ ---- ---------- ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
William Petty 1998 $143,538 $17,283 $71,410(1) -- $1,029(5)
Chairman of the Board and 1997 $ 44,417 $ 3,750 $48,657(1) -- $ 281(5)
Chief Executive Officer 1996 $ 28,500 $ -- $28,796(1) 50,000(2) --
Timothy J. Seese 1998 $152,155 $17,283 $ --(4) -- $1,093(5)
President and Chief 1997 $147,492 $12,367 $ --(4) -- $1,199(5)
Operating Officer 1996 $141,868 $11,451 $ --(4) 62,500(3) $ 859(5)
Gary J. Miller 1998 $107,097 $12,308 $73,102(1) -- $ 718(5)
Vice President Research 1997 $ 82,962 $ 7,542 $58,134(1) -- --
and Development 1996 $ 69,170 $ -- $31,909(1) 50,000(3) --
Marc Olarsch 1998 $108,726 $14,744 $ --(4) -- $ 778(5)
Vice President, Sales 1997 $106,052 $ 8,838 $ --(4) -- $ 754(5)
1996 $ 95,298 $17,680 $ --(4) 15,000(3) $ 821(5)
David W. Petty 1998 $106,725 $12,123 $ --(4) -- $ 767(5)
Vice President, Marketing 1997 $103,458 $ 8,675 $ --(4) -- $ 841(5)
1996 $ 94,783 $ 8,088 $ --(4) 20,000(3) $ 602(5)
</TABLE>
- ------------
(1) Consists of royalties paid pursuant to consulting agreements between the
Company and Drs. Petty and Miller which were superseded by their employment
agreements which provide for the continuation of such royalties. See
"Certain Transactions."
(2) Represents options granted under the Company's Employee Stock Option and
Incentive Plan at an exercise price of $8.80 per share, 110% of the initial
public offering price of the Common Stock.
(3) Represents options granted under the Company's Employee Stock Option and
Incentive Plan at an exercise price of $8.00 per share, the initial public
offering price of the Common Stock.
(4) The aggregate amount of perquisites and other personal benefits provided to
each Named Executive Officer is less than 10% of the total annual salary and
bonus of such officer.
(5) Represents matching contributions made by the Company under its 401(k) plan.
OPTIONS/SAR GRANTS TABLE
There were no options granted to the Named Executive Officers during
the fiscal year ended December 31, 1998.
8
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE
TABLE
The following table sets forth certain information concerning (i) the
exercise of stock options by the Named Executive Officers during the fiscal year
ended December 31, 1998 and (ii) unexercised stock options held by the Named
Executive Officers as of December 31, 1998. No stock appreciation rights were
granted or are outstanding.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1998 DECEMBER 31, 1998(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William Petty.............. -- -- 20,000 30,000 $ 84,000 $126,000
Timothy J. Seese........... 2,500 $ 12,688 37,416 37,500 250,383 187,500
Marc Olarsch............... -- -- 16,644 7,500 95,382 37,500
David W. Petty............. -- -- 17,620 10,000 124,066 50,000
Gary J. Miller............. -- -- 32,620 25,000 199,066 125,000
</TABLE>
- ------------
(1) The closing sale price of the Common Stock on December 31, 1998 as reported
by Nasdaq was $13.00 per share. Value is calculated by multiplying (a) the
difference between $13.00 and the option exercise price by (b) the number of
shares of Common Stock underlying the option.
(2) Value is calculated by multiplying the difference between the market price
and exercise price on the date of the exercise of the option and the number
of shares of Common Stock acquired upon exercise of the option.
EMPLOYMENT AGREEMENTS
In May 1996, the Company entered into five-year employment agreements
with each of William Petty, Timothy J. Seese and Gary J. Miller, which provide
for initial annual base salaries of $38,000, $137,415 and $66,000, respectively,
and, in the case of Timothy J. Seese, an annual bonus of $11,451. The employment
agreements with Dr. Petty and Dr. Miller provide for the termination of their
consulting agreements with the Company and the continuation by the Company of
the royalty payments required under such consulting agreements. Pursuant to the
terms of their employment agreements, Dr. Petty and Dr. Miller are not required
to devote their full business time to the affairs of the Company. If any of
these executives is terminated for cause, as defined in his employment
agreement, the executive is not entitled to receive severance pay. If the
executive is terminated without cause, he is entitled to receive his then
current salary for the remaining term of the employment agreement. The
employment agreements contain a provision that the executive will not compete or
engage in a business competitive with the current or anticipated business of the
Company for the term of the agreement and for one year thereafter if the
executive is terminated for cause or the executive terminates his employment. In
addition, pursuant to the employment agreements, each executive agreed not to
disclose confidential information of the Company during the term of his
employment or thereafter and agreed that all work, research and results thereof,
including inventions, processes or formulas conceived or developed by the
executive during the term of employment which are related to the business,
research and development work, or field of operation of the Company is the
property of the Company, other than in the case of Drs. Petty and Miller to the
extent that such rights belong to the University of Florida by virtue of their
relationship with such University.
401(K) PLAN
Effective January 1, 1996, the Company implemented a 401(k) pension
plan. The Company currently intends to match employee contributions at the rate
of $.25 for each dollar of employee contributions up to 3% of the employee's
salary subject to the availability of funds. The Company is not required to
match employee contributions in the future. The plan is administered by and
offers the funds of a national mutual fund company.
9
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is responsible for determining salaries,
incentives and other forms of compensation for officers of the Company. Timothy
J. Seese, President of the Company, is a member of such committee.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is generally responsible for determining the
compensation of the Company's executive officers. The Compensation Committee is
comprised of the Company's President and Chief Operating Officer, Timothy J.
Seese, and two outside directors, R. Wynn Kearney, Jr. and E. Ronald Pickard.
The Compensation Committee's general philosophy with respect to the
compensation of the Company's executive officers is to offer competitive
compensation programs designed to (i) attract and retain key executives critical
to the Company's long-term success, (ii) reward an individual's contribution and
personal performance and (iii) align the interests of the Company's executives
with the Company's shareholders. The three components of the Company's executive
compensation program are base salary, bonus and stock options.
William Petty, the Company's Chairman of the Board and Chief Executive
Officer, Timothy J. Seese and Gary J. Miller, the Company's Vice President of
Research and Development, receive compensation pursuant to employment agreements
which have been approved by the Company's Board of Directors. See "Employment
Agreements." The Compensation Committee may also grant discretionary salary
increases and bonuses to Dr. Petty, Mr. Seese and Dr. Miller.
In determining the 1998 base salary of the Company's executive
officers, the Compensation Committee took into account a number of factors,
including the executive's position and responsibilities, compensation levels at
other companies generally and the Company's performance. Increases in base
salary are based primarily on individual performances as well as competitive
conditions and Company performance.
The Company has a bonus program pursuant to which it pays its executive
officers and employees a semi-annual bonus equal to one-half of such officer's
or employee's monthly base salary. During 1998, the Company implemented a profit
sharing plan for all employees under which it distributes a portion of earnings
after the Company's financial targets are achieved.
The Company believes that stock options are an important long-term
incentive to its executive officers to remain with the Company and to improve
performance. The Company maintains the Employee Stock Option and Incentive Plan
which is designed to attract and retain executive officers and other employees
of the Company and to reward them for delivering long-term value to the Company.
Stock options permit executive officers to share, to a certain extent, in the
shareholders' return on equity.
The Company's Employee Stock Option and Incentive Plan provides for the
granting of both "incentive stock options" (as defined in Section 422A of the
Internal Revenue Code) and non-statutory stock options. Options may be granted
under the Employee Stock Option and Incentive Plan at such prices as the
Committee may determine, provided that the per share exercise price of incentive
stock options may not be less than the fair market value of the Common Stock on
the date of the grant. Options typically vest in staggered amounts over a period
of five years. In determining grants of stock options, the Compensation
Committee considers a number of factors, including the employee's position,
responsibilities and performance, the number of outstanding options held by the
employee and competitive practices of other companies generally.
Timothy J. Seese
R. Wynn Kearney, Jr.
E. Ronald Pickard
10
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on
the Company's Common Stock since May 30, 1996, the date the Common Stock began
trading on the Nasdaq National Market, with (i) the Nasdaq Stock Market index
prepared by the Center for Research in Security Prices ("CRSP"), and (ii) CRSP's
index for companies with similar Standard Industry Codes ("SIC") as the Company.
[GRAPH OMITTED]
- --------------------------------------------------------------------------
5/30/96 12/31/98
- --------------------------------------------------------------------------
Exactech, Inc. 100.0 136.84
- --------------------------------------------------------------------------
Nasdaq Stock Index 100.0 151.25
- --------------------------------------------------------------------------
Nasdaq Stock SIC Index 100.0 177.52
- --------------------------------------------------------------------------
NOTES:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the
previous tracking day.
C. If the monthly interval, based on the fiscal year-end, is not a trading
day, the preceding trading day is used.
D. The index level for all series was set to $100.0 on 5/30/96.
11
<PAGE>
CERTAIN TRANSACTIONS
CONSULTING AGREEMENTS WITH PRINCIPALS OF THE COMPANY
The Company had entered into seven-year consulting agreements with each
of William Petty, M.D., the Chairman of the Board, Chief Executive Officer and a
principal shareholder of the Company, and Gary J. Miller, Ph.D., a Vice
President, director and principal shareholder of the Company, pursuant to which
Drs. Petty and Miller agreed to provide consulting services to the Company in
connection with the design of knee implantation systems and associated
instrumentation to be utilized by the Company. The consulting agreements were
terminated pursuant to the employment agreements entered into in May 1996 by the
Company and each of Drs. Petty and Miller. The employment agreements provide for
the continuation by the Company of the royalty payments required under such
consulting agreements. As compensation for the consulting services provided to
the Company by Drs. Petty and Miller, during the term of the agreements, Drs.
Petty and Miller were each entitled to receive royalties equal to one-half of
one percent of the Company's net sales of implanted knee prostheses in the
United States and one-quarter of one percent of the Company's sales of such
products outside of the United States. For the year ended December 31, 1998, the
Company paid Drs. Petty and Miller royalties of $71,410 and $73,102,
respectively. The Company believes that the terms of the consulting agreements
were no less favorable to the Company than those available from unaffiliated
third parties.
PURCHASE ARRANGEMENT WITH BRIGHTON PARTNERS
The Company has entered into a purchase agreement with Brighton
Partners, Inc. ("Brighton Partners"), to purchase raw materials used in the
ongoing production of its products. The agreement requires the purchase of
tooling dies in the amount of $159,000 and provides for special purchasing terms
for the Company. Brighton Partners is deemed to be 30% beneficially owned by
Albert H. Burstein, Ph.D., a director of the Company. Additionally, Timothy J.
Seese, the President, Chief Operating Officer and a director of the Company,
beneficially owns 10% of Brighton Partners. William Petty, Chairman of the Board
and Chief Executive Officer of the Company, and Betty B. Petty, Secretary of the
Company, jointly own 8 1/3% of Brighton Partners. Gary J. Miller, Vice President
and a director of the Company, beneficially owns 5% of Brighton Partners. Other
directors and executive officers of the Company own less than 5% of Brighton
Partners, Inc.
CONSULTING AGREEMENT WITH ALBERT BURSTEIN, PH.D.
The Company has also entered into a consulting agreement with director
Albert Burstein, Ph.D, a director of the Company. The agreement provides for the
rendering of Dr. Burstein's services with respect to many facets of the
orthopaedic industry, including product design rationale, manufacturing and
development techniques and product sales and marketing. During the year ended
December 31, 1998, the Company paid Dr. Burstein $135,000 as compensation under
the consulting agreement.
PROPOSAL TO INCREASE BY 185,000 SHARES THE NUMBER
OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE UNDER
THE COMPANY'S EMPLOYEE STOCK OPTION AND INCENTIVE PLAN
BACKGROUND AND PURPOSE. The terms of the Company's Employee Stock
Option and Incentive Plan (the "Incentive Plan") provide for grants of incentive
stock options ("ISOs") and nonqualified stock options (collectively, with the
ISOs, the "Options") and restricted stock awards (the "Stock Awards") (Stock
Awards, collectively, with Options, the "Awards"). The purpose of the Incentive
Plan is to provide an incentive to key employees of the Company or its
subsidiary corporations, which employees are in a position to contribute
materially to the long-term success of the Company and to aid in attracting and
retaining employees of outstanding ability.
12
<PAGE>
The following is a summary of certain principal features of the
Incentive Plan. This summary is qualified in its entirety by reference to the
complete text of the Incentive Plan, which is attached to this Proxy Statement
as Appendix A. Shareholders are urged to read the actual text of the Incentive
Plan in its entirety.
ADMINISTRATION. The Incentive Plan is to be administered by the
Compensation Committee of the Board of Directors or such other committee as may
be designated by the Board of Directors consisting of at least two directors
(the "Committee"), each of whom shall be a "disinterested person" as defined
under Rule 16b-3 under the Securities Exchange Act of 1934, as amended. The
Compensation Committee of the Board of Directors has been appointed as the
Committee for the Incentive Plan. Subject to the terms of the Incentive Plan,
the Committee is authorized to determine the employees of the Company and its
subsidiaries (from the class of employees eligible under the Incentive Plan to
receive Options and Stock Awards under the Incentive Plan) to whom the Options
and Stock Awards shall be granted, the time or times at which Options or Stock
Awards shall be granted, the number of shares subject to each Option or Stock
Award, the Option price of the shares subject to each Option in accordance with
the terms of the Incentive Plan, the time or times when each Option shall become
exercisable and the duration of the exercise period, and the applicable terms
and conditions of each Option or Stock Award.
SHARES AVAILABLE FOR AWARDS. Assuming approval of the proposed
amendment, 750,000 shares of Common Stock will be reserved for the grant of
Awards under the Incentive Plan. As of March 1, 1999, Options to purchase
356,814 shares of Common Stock have been issued and are outstanding under the
Incentive Plan and no Stock Awards are outstanding. Shares of Common Stock
acquired upon the exercise of Awards granted under the Incentive Plan will be
authorized and unissued shares of Common Stock. The Company's shareholders do
not have any preemptive rights to purchase or subscribe for the shares reserved
for issuance under the Incentive Plan. If any Award granted under the Incentive
Plan should be surrendered, terminate, expire or be forfeited, the shares of
Common Stock subject thereto shall be released and shall again be available for
the grant of new Awards under the Incentive Plan.
The Committee is authorized to adjust outstanding Awards (including
adjustments to exercise prices of options and other affected terms of Awards) in
the event that a dividend or other distribution (whether in cash, shares of
Common Stock or other property), recapitalization, stock split, reorganization,
merger, consolidation, combination, repurchase, share exchange or other similar
corporate transaction or event affects the Common Stock so that an adjustment is
appropriate in order to prevent dilution or enlargement of the rights of the
participants in the Incentive Plan (the "Participants"). The Committee is also
authorized to adjust performance conditions and other terms of Awards in
response to these kinds of events or in response to changes in applicable laws,
regulations or accounting principles.
ELIGIBILITY. The persons eligible to receive Awards under the Incentive
Plan are the key employees of the Company or any subsidiary as the Committee
shall select from time to time; provided, however, that no ISO may be granted
under the Incentive Plan to any person who owns, at the time an Option is
granted, more than 10% of the total combined voting power of all classes of
stock the Company or any of its subsidiaries unless the exercise price of the
ISO is at least 110% of the fair market value (as defined below) of the stock
subject to the ISO and such ISO by its terms is not exercisable after the
expiration of five years from the date such ISO is granted. As of March 1, 1999,
approximately 61 persons were eligible to participate in the Incentive Plan.
STOCK OPTIONS. The Committee is authorized to grant stock options,
including both ISOs, which can result in potentially favorable tax treatment to
the Participant, and non-qualified stock options. The exercise price per share
subject to an option is determined by the Committee, but must not be less than
the fair market value of a share of Common Stock on the date of grant in the
case of ISOs or less than the par value per share of Common Stock in the case of
non-qualified stock options. For purposes of the Incentive Plan, the term "fair
market value" shall mean the "Closing Price" (as defined below) of the Common
Stock on the business day immediately preceding such date, unless the Committee
in its sole discretion shall determine otherwise in a fair and uniform matter.
For the purposes of determining fair market value, the "Closing Price" of the
Common Stock on any business day shall be (i) if the Common Stock is listed or
admitted for trading on any United States national securities exchange, or if
actual transactions are otherwise reported on a consolidated transaction
reporting system, the last reported sale price of
13
<PAGE>
Common Stock on such exchange or reporting system, as reported in any newspaper
of general circulation, (ii) if the Common Stock is quoted on the National
Association of Securities Dealers Automated Quotation System ("Nasdaq"), or any
similar system of automated dissemination of quotations of securities prices in
common use, the mean between the closing high bid and low asked quotations for
such day of Common Stock on such system, or (iii) if neither clause (i) or (ii)
is applicable, the mean between the high bid and low asked quotations for the
Common Stock as reported by the National Quotation Bureau, Incorporated if at
least two securities dealers have inserted both bid and asked quotations for
Common Stock on at least five of the ten preceding days. The maximum term of
each option, the times at which each option will be exercisable, and provisions
requiring forfeiture of unexercised options at or following termination of
employment generally are fixed by the Committee, except that no option may have
a term exceeding ten years. Options may be exercised by payment of the exercise
price in cash, by check or, at the sole discretion of the Committee, by a
promissory note.
RESTRICTED STOCK. The Committee is authorized to grant Awards of
restricted stock. Restricted stock is a grant of shares of Common Stock which
may not be sold or disposed of, and which may be forfeited in the event of
certain terminations of employment, prior to the end of a restricted period
specified by the Committee. A Participant granted restricted stock generally has
all of the rights of a stockholder of the Company, unless otherwise determined
by the Committee. Participants granted Awards of restricted stock are entitled
to dividends payable on Common Stock, even during the restricted period,
although the Company may withhold payment of the dividends until the expiration
of the restricted period.
AMENDMENT AND TERMINATION. The Board may, insofar as permitted by law,
from time to time, with respect to any Shares at the time not subject to Options
or Stock Awards, suspend or discontinue the Plan or revise or amend it in any
respect whatsoever except that, without the approval of the shareholders, no
such revision or amendment shall change the number of Shares subject to the Plan
or change the designation of the class of employees eligible to receive Options
or Stock Awards. No Option or Stock Award may be granted after April 26, 2001.
FEDERAL INCOME TAX CONSEQUENCES OF AWARDS OF OPTIONS. The following is
a brief description of the federal income tax consequences generally arising
with respect to Awards of options under the Incentive Plan.
The grant of an option gives rise to no tax consequences for the
Participant or the Company. The exercise of an option has different tax
consequences depending on whether the option is an ISO or a non-qualified
option. On exercising an ISO, the Participant recognizes no income for regular
income tax purposes, but the option spread is taken into account in computing
liability for the alternative minimum tax. On exercising a non-qualified option,
the Participant recognizes ordinary income equal to the excess, on the date of
exercise, of the fair market value of the Common Stock acquired on exercise of
the option and the exercise price. If, however, the Participant is an officer or
director of the Company or any other person to whom the short-swing profit
recovery provisions of Section 16(b) of the Exchange Act applies, the
Participant generally will not recognize ordinary income, and the amount of
ordinary income will not be determined until the earlier of the expiration of
the six month period after exercise of the option and the first day on which a
sale at a profit of the shares of Common Stock acquired on exercise of the
option would not subject the Participant to suit under those provisions. Such a
Participant, however, may elect to recognize ordinary income on the date of
exercise of the option.
The disposition of shares of Common Stock acquired on exercise of an
option may have different tax consequences depending on whether the option is an
ISO or a non-qualified option. On a disposition of shares of Common Stock
acquired on exercise of an ISO before the Participant has held those shares for
at least two years from the date the option was granted and at least one year
from the date the option was exercised (the "ISO holding periods"), the
Participant recognizes ordinary income equal to the lesser of (i) the excess of
the fair market value of the shares on the date of exercise of the ISO over the
exercise price and (ii) the excess of the amount realized on the disposition of
those shares over the exercise price. On a disposition of shares of Common Stock
acquired on the exercise of a non-qualified option or on exercise of an ISO when
the ISO holding periods have been met, the Participant will recognize capital
gain or loss equal to the difference between the sales price and the
Participant's tax basis in the shares of Common Stock. That gain or loss will be
long-term if the shares of Common Stock have been
14
<PAGE>
held for more than one year as of the date of disposition. The Participant's tax
basis in the shares of Common Stock generally will be equal to the exercise
price of the option plus the amount of any ordinary income recognized in
connection with the option.
The Company generally will be entitled to a tax deduction equal to the
amount that the Participant recognizes as ordinary income in connection with an
option. The Company is not entitled to a tax deduction relating to any amount
that constitutes a capital gain for a Participant. Accordingly, the Company will
not be entitled to any tax deduction with respect to an ISO if the Participant
holds the shares of Common Stock for the ISO holding periods prior to disposing
of the shares.
Section 162(m) to the Code generally disallows a public company's tax
deduction for compensation in excess of $1 million paid in any taxable year to
the Company's chief executive officer or any of its other four highest
compensated officers (a "covered employee"). Compensation that qualifies as
"performance-based compensation", however, is excluded from the $1.0 million
deductibility cap and therefore remains fully deductible by the Company. The
Company intends that options and certain other Awards granted to employees whom
the Committee expects to be covered employees at the time a deduction arises in
connection with the Awards qualify as "performance-based compensation" so that
deductions with respect to options and such other Awards will not be subject to
the $1.0 million cap under Section 162(m) of the Code. Future changes in Section
162(m) of the Code or the regulations thereunder may adversely affect the
ability of the Company to ensure that options or other Awards under the
Incentive Plan will qualify as "performance based compensation" so that
deductions are not limited by Section 162(m) of the Code.
Section 280G of the Code provides special rules in the case of golden
parachute payments. Those rules could apply if, on a change in control of the
Company, the acceleration of options or other Awards held by a Participant that
is an officer, director or highly-compensated individual with respect to the
Company, and any other compensation paid to the Participant that is contingent
on a change in control of the Company or a substantial portion of the Company's
assets and have a present value of at least three times the Participant's
average annual compensation from the Company over the prior five years (the
"average compensation"). In that event, the contingent compensation that exceeds
the Participant's average compensation, adjusted to take account of any portion
thereof shown to be reasonable compensation, is not deductible by the Company
and is subject to a nondeductible 20% excise tax, in addition to regular income
tax, in the hands of the Participant.
The foregoing discussion, which is general in nature and is not
intended to be a complete description of the federal income tax consequences of
the Incentive Plan, is intended for the information of stockholders considering
how to vote at the Annual Meeting and not as tax guidance to Participants in the
Incentive Plan. This discussion does not address the effects of other federal
taxes or taxes imposed under state, local or foreign tax laws. Participants in
the Incentive Plan should consult a tax adviser as to the tax consequences of
participation.
15
<PAGE>
PRIOR GRANTS OF OPTIONS
As of March 1, 1999, Options to purchase an aggregate of 356,814 shares
of Common Stock were outstanding under the Incentive Plan to 44 employees of the
Company. The Options granted under the Incentive Plan have exercise prices
ranging from $3.28 to $8.80 and have terms of 10 years.
The following table indicates, as of March 1, 1999, certain information
regarding Options which have been granted under the Incentive Plan to the
persons and groups indicated:
<TABLE>
<CAPTION>
NUMBER OF SHARES EXERCISE PRICE VALUE OF OPTIONS AT
NAME AND POSITION SUBJECT TO OPTIONS PER SHARE MARCH 1, 1999(1)
----------------- ------------------ --------------- --------------------
<S> <C> <C> <C>
William Petty 50,000 $ 8.80 $ 69,375
Chairman of the Board and Chief
Executive Officer
Timothy J. Seese 70,120 $ 3.28 - $ 8.00 $ 189,348
President and Chief Operating Officer
Gary J. Miller 57,620 $ 3.28 - $ 8.00 $ 162,004
Vice President Research
and Development
Marc Olarsch 24,144 $ 6.67 - $ 8.00 $ 65,008
Vice President, Sales
David W. Petty 27,620 $ 3.28 - $ 8.00 $ 96,379
Vice President, Marketing
All current executive officers as a group 283,910 $ 3.28 - $ 8.80 $ 739,123
(7 persons)
All current directors who are not -- -- --
executive officers as a group
All employees as a group, other than 72,904 $ 3.28 - $ 8.00 $ 240,214
executive officers (37 persons)
</TABLE>
- ------------
(1) The closing sale price of the Common Stock on March 1, 1999 was $10.19
per share. Value is calculated by multiplying (i) the difference between
$10.19 and the option exercise price by (ii) the number of shares of
Common Stock underlying the option.
The Company believes that Awards granted under the Incentive Plan will be
granted primarily to those persons who possess a capacity to contribute
significantly to the successful performance of the Company. Because persons to
whom Awards may be made are to be determined from time to time by the Committee
in its discretion, it is impossible at this time to indicate the precise number,
names or positions of persons who will hereafter receive Awards or the nature
and terms of such Awards.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
APPROVAL OF THE PROPOSAL TO INCREASE BY 185,000 SHARES THE NUMBER OF SHARES OF
COMMON STOCK RESERVED FOR ISSUANCE UNDER THE COMPANY'S EMPLOYEE STOCK OPTION AND
INCENTIVE PLAN.
16
<PAGE>
PROPOSAL TO INCREASE BY 45,000 SHARES THE NUMBER
OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE
UNDER THE COMPANY'S DIRECTORS STOCK OPTION PLAN
BACKGROUND AND PURPOSE. The terms of the Company's Directors Stock
Option Plan (the "Directors Plan") provide for each non-employee director to
receive an initial grant of an option to purchase 5,000 shares of Common Stock
upon his or her election to the Board of Directors, and an Option to purchase
3,000 shares on each annual meeting date subsequent to his or her election as a
director of the Company or commencement of the Directors Plan. The purpose of
the Directors Plan is to advance the interests of the Company by providing an
additional incentive to attract and retain non-employee directors through the
encouragement of stock ownership in the Company by such persons.
The following is a summary of certain principal features of the
Directors Plan. This summary is qualified in its entirety by reference to the
complete text of the Directors Plan, which is attached to this Proxy Statement
as Appendix B. Shareholders are urged to read the actual text of the Directors
Plan in its entirety.
ADMINISTRATION. The Directors Plan shall be administered by the Board
of Directors, which shall have the authority to adopt such rules and regulations
and to make such determinations as are not inconsistent with the Plan and as are
necessary or desirable for the implementation and administration of the
Directors Plan.
SHARES AVAILABLE FOR AWARDS. Assuming approval of the proposed
amendment, 80,000 shares of Common Stock will be reserved for the grant of
options under the Directors Plan. As of March 1, 1999, options to purchase
36,000 shares of Common Stock have been issued by the Company's shareholders and
are outstanding under the Directors Plan. The Company's shareholders do not have
any preemptive rights to purchase or subscribe for the shares reserved for
issuance under the Directors Plan. If any options granted under the Directors
Plan should be surrendered, terminate, expire or be forfeited, the shares of
Common stock subject thereto shall be released and shall again be available for
the grant of new options under the Directors Plan.
If there shall be any increase or decrease in the number of issued and
outstanding shares of Common Stock through the declaration of a stock dividend
or through any recapitalization resulting in a stock split-up, combination or
exchange of shares, then the Committee is authorized to adjust the maximum
number of shares available for grant under the Directors Plan.
ELIGIBILITY. The persons eligible to receive options under the
Directors Plan are persons who are members of the Board, and not employees, full
or part-time, of the Company. A director who does not receive regular
compensation from the Company or its subsidiaries, other than directors' fees
and reimbursement for expenses, shall not be considered to be an employee of the
Company, even if such director is an officer of a subsidiary of the Company.
AMENDMENT AND TERMINATION. The Board, without further approval of the
Company's shareholders, may at any time terminate or suspend the Directors Plan;
provided, however, that any such termination or suspension of the Directors Plan
shall not affect Options already granted and such Options shall remain in full
force and effect as if the Directors Plan had not been terminated or suspended.
The Board may from time to time amend the Directors Plan or any Option granted
thereunder; provided, however, that, without the approval of the shareholders,
no such amendment shall (i) materially increase the benefits accruing to
participants under the Plan, (ii) materially increase the number of shares or
other securities reserved for issuance upon the exercise of Options, (iii)
materially modify the requirements as to eligibility for participation under the
Directors Plan or (iv) otherwise involve any other change or modification
requiring shareholder approval under applicable law.
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FEDERAL TAX ASPECTS. The following discussion is for general
information only and does not purport to be a complete description of federal
tax aspects of the Directors Plan.
The grant of a non-qualified stock option under the Directors Plan will
not result in the recognition of taxable income to the director or in a
deduction to the Company. Upon exercise, a director will recognize income in an
amount equal to the excess of the fair market value of the Common Stock received
upon exercise of the option over the exercise price of the option. The Company
is entitled to a tax deduction equal to the amount of such income. Gain or loss
upon a subsequent sale of any Common Stock received upon the exercise of a
non-qualified stock option is taxed as capital gain or loss (long-term or
short-term, depending upon the holding period of the stock sold).
If a director exercises an option by surrendering previously acquired
stock, no gain or loss is recognized on the exchange for an equivalent number of
new shares. The director will realize ordinary income, and the Company will be
entitled to a corresponding deduction equal to the fair market value of any new
shares received in excess of the number of previously acquired shares
surrendered in the exchange, less any cash paid.
PRIOR GRANTS OF OPTIONS
As of March 1, 1999, options to purchase an aggregate of 36,000 shares
of Common Stock had been granted under the Directors Plan, including options to
purchase 1,000 shares granted subject to approval of an increase in the number
of shares reserved for issuance under the Directors Plan.. The options granted
under the Directors Plan have exercise prices ranging from $7.13 to $8.00 and
have terms of 5 years.
The following table indicates, as of the Record Date, certain
information regarding options which have been granted under the Directors Plan
to the persons and groups indicated:
<TABLE>
<CAPTION>
NUMBER OF SHARES EXERCISE PRICE VALUE OF OPTIONS AT
NAME AND POSITION SUBJECT TO OPTIONS PER SHARE MARCH 1, 1999(1)
----------------- ------------------ -------------- -------------------
<S> <C> <C> <C>
R. Wynn Kearney 9,000 $7.13 - $8.00 $ 23,814
Albert Burstein 11,000 $7.13 - $8.00 $ 28,189
E. Ronald Pickard 11,000 $7.13 - $8.00 $ 28,189
Paul Metts 5,000 $7.13 - $8.00 $ 15,313
</TABLE>
- ------------
(1) The closing sale price of the Common Stock on March 1, 1999 was $10.19
per share. Value is calculated by multiplying (i) the difference between
$10.19 and the option exercise price by (ii) the number of shares of
Common Stock underlying the option.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
APPROVAL OF THE PROPOSAL TO INCREASE BY 45,000 SHARES THE NUMBER OF SHARES OF
COMMON STOCK RESERVED FOR ISSUANCE UNDER THE COMPANY'S DIRECTORS STOCK OPTION
PLAN.
PROPOSAL TO APPROVE THE COMPANY'S
1999 EMPLOYEE STOCK PURCHASE PLAN
The Company's Board of Directors has adopted and is submitting to the
shareholders for approval, the 1999 Employee Stock Purchase Plan (the "Purchase
Plan"). The proposed effective date of the Purchase Plan is July 1, 1999 and is
designed to qualify as an employee stock purchase plan under Section 423 of the
Internal Revenue Code of 1986, as amended (the "Code"). The Company has reserved
125,000 shares of the Company's Common Stock for issuance over the term of the
Purchase Plan, subject to periodic adjustment for changes in the
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outstanding Common Stock occasioned by stock splits, stock dividends,
recapitalizations or other similar changes. The material features of the
Purchase Plan are discussed below, but the description is subject to, and is
qualified in its entirety by, the full text of the Purchase Plan, which is
attached hereto as Exhibit C.
The purpose of the Purchase Plan is to encourage stock ownership in the
Company by employees of the Company and those subsidiaries of the Company
designated by the Company's Board of Directors as eligible to participate,
thereby enhancing employee interest in the continued success and progress of the
Company.
GENERAL TERMS AND CONDITIONS
The Purchase Plan is currently administered by the Board of Directors;
however, under the Purchase Plan's terms, the Board may appoint a Committee to
administer the Purchase Plan. The Purchase Plan gives broad powers to the Board
or the Committee to administer and interpret the Purchase Plan.
The Purchase Plan permits employees to purchase stock of the Company at
a favorable price and possibly with favorable tax consequences to the
participants. All employees of the Company or of those subsidiaries designated
by the Board who are regularly scheduled to work at least 20 hours per week and
more than five months per year are eligible to participate in any of the
purchase periods of the Purchase Plan after completing 90 days of continuous
employment. However, any participant who would own (as determined under the
Code), immediately after the grant of an option, stock possessing 5% or more of
the total combined voting power or value of all classes of the stock of the
Company will not be granted an option under the Purchase Plan. As of the March
1, 1999, the Company had approximately 57 eligible participants.
Under the Purchase Plan, eligible employees may elect to participate in
the Purchase Plan on January 1, April 1, July 1 or October 1 of each year. On
the date he becomes a participant, subject to certain limitations determined in
accordance with calculations set forth in the Purchase Plan, an eligible
employee is granted a right to purchase shares of Common Stock (up to a maximum
of 750 shares) on the last business day on or before each quarterly exercise
date during which he is a participant. Upon enrollment in the Purchase Plan, the
participant authorizes a payroll deduction, on an after-tax basis, in an amount
of not less than 1% and not more than 25% of the participant's compensation on
each payroll date. Unless the participant withdraws from the Purchase Plan, the
participant's option for the purchase of shares will be exercised automatically
on each exercise date, and the maximum number of full shares subject to such
option shall be purchased for the participant at the applicable exercise price
with the accumulated Purchase Plan contributions then credited to the
participant's account under the Purchase Plan. The option exercise price per
share may not be less than 85% of the lower of the market price on the first day
of the offering period or the market price on the exercise date, unless the
participant's entry date is not the first day of the offering period, in which
case the exercise price may not be lower than 85% of the market price of the
Common Stock on the entry date.
As required by tax law, no participant may receive an option under the
Purchase Plan for shares which have a fair market value in excess of $25,000 for
any calendar year, determined at the time such option is granted. Any funds not
used to purchase shares will remain credited to the participant's bookkeeping
account and applied to the purchase of shares of Common Stock in the next
succeeding purchase period. No interest is paid by the Company on funds
withheld, and such funds are used by the Company for general operating purposes.
No plan contributions or options granted under the Purchase Plan are
assignable or transferable, other than by will or by the laws of descent and
distribution or as provided under the Purchase Plan. During the lifetime of a
participant, an option is exercisable only by such participant. The expiration
date of the Purchase Plan will be determined by the Board and may be made any
time following the close of any six-month exercise period, but may not be longer
than ten years from the date of the grant. Under circumstances of dissolution or
liquidation, the offering period will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the Board. In
the event of merger or a sale of all or substantially all of the Company's
assets, each option under the Purchase Plan shall be assumed or an equivalent
option substituted by the successor corporation, unless the Board, in its sole
discretion, accelerates the date on which the options may be exercised. No
option may
19
<PAGE>
be granted under the Purchase Plan after June 30, 2009. The unexercised portion
of any portion granted to an employee under the Purchase Plan shall be
automatically terminated immediately upon the termination of the employee's
employment for any reason, including retirement or death.
The Purchase Plan provides for adjustment of the number of shares for
which options may be granted, the number of shares subject to outstanding
options and the exercise price of outstanding options in the event of any
increase or decrease in the number of issued and outstanding shares as a result
of one or more reorganizations, restructurings, recapitalizations,
reclassifications, stock splits, reverse stock splits, or stock dividends.
The Board or the Committee may amend, suspend or terminate the Purchase
Plan at any time, provided that such amendment may not change any option which
adversely affects the rights of the holder of the option and the Purchase Plan
may not be amended if such amendment would in any way cause rights issued under
the Purchase Plan to fail to meet the requirements for employee stock purchase
plans as defined in Section 423 of the Code, or would cause the Purchase Plan to
fail to comply with Rule 16b-3 of the Securities Exchange Act of 1934, as
amended.
As of March 1, there have been no shares of Common Stock purchased
under the Purchase Plan. The Company's shareholders will not have any preemptive
rights to purchase or subscribe for the shares reserved for issuance under the
Purchase Plan. If any option granted under the Purchase Plan expires or
terminates for any reason other than having been exercised in full, the
unpurchased shares subject to that option will again be available for purposes
of the Purchase Plan.
FEDERAL INCOME TAX EFFECTS
Options granted under the Purchase Plan are intended to qualify for
favorable tax treatment to the employees under Sections 421 and 423 of the Code.
Employee contributions are made on an after-tax basis. A capital gain or capital
loss on Common Stock purchased under the Purchase Plan would not be realized
until the participant would sell the shares of Common Stock. If a participant
disposes of shares two years or more after the date of the beginning of the
purchase period when the shares were acquired, and more than one year after the
shares are purchased, the participant would recognize as ordinary income the
lesser of: (i) the excess of the fair market value of the shares on the date of
sale over the price paid or (ii) the discount (currently 15%) of the fair market
value of the shares at the beginning of the purchase period(s). Additionally,
the participant would recognize a long-term capital gain or loss (within the
meaning of the Code) equal to the difference between the amount realized from
the sale of the shares and the basis (the basis would be the purchase price plus
any amount taxed as ordinary compensation income). If a participant disposes of
shares within two years of the date of the beginning of the purchase period when
the shares were acquired, or within one year after the shares are purchased, the
participant would recognize ordinary compensation income equal to the excess of
the fair market value of the shares on the purchase date(s) over the price paid
for the shares. Additionally, the participant would recognize a capital gain or
loss (within the meaning of the Code) equal to the difference between the amount
realized from the sale of the shares and the basis (the basis would be the
purchase price plus the amount taxed as ordinary compensation income). If the
participant held the shares for more than one year, the capital gain or loss
would be a long-term gain or loss. The Company would not receive an income tax
deduction upon either the grant or exercise of the option by the participant,
but generally would receive a deduction equal to the ordinary compensation
income required to be recognized by the participant as a result of the
disposition of the shares if the shares are disposed of by the participant
within two years of the date of the beginning of the purchase period when the
shares were acquired, or within one year after the shares are purchased.
As of the Record Date, there have been no shares purchased under the
Purchase Plan by any eligible employees.
20
<PAGE>
The Committee believes that shares granted under the Purchase Plan have
been and will be awarded to all employees presently meeting the existing
eligibility requirements, except no one plan participant may be granted an
aggregate number of shares with a fair market value exceeding $25,000 in any
calendar year as determined at the beginning of each purchase period as defined
under the Purchase Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE PROPOSAL
TO RATIFY THE COMPANY'S 1999 EMPLOYEE STOCK PURCHASE PLAN.
21
<PAGE>
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors of the Company has recommended the firm of
Deloitte & Touche LLP as the independent auditors of the Company for the current
fiscal year. Although the appointment of Deloitte & Touche LLP as the
independent auditor of the Company does not require ratification by the
Company's shareholders, the Board of Directors considers it appropriate to
obtain such ratification. Accordingly, the vote of the Company's shareholders on
this matter is advisory in nature and has no effect upon the Board of Directors'
appointment of an independent auditor, and the Board of Directors may change the
Company's auditor at any time without the approval or consent of the
shareholders. The Board proposes and unanimously recommends that the
shareholders ratify the selection of Deloitte & Touche LLP.
If the shareholders do not ratify the selection of Deloitte & Touche
LLP by the affirmative vote of the holders of a majority of the shares of Common
Stock represented in person or by proxy at the Annual Meeting, the selection of
another independent auditor will be considered by the Board of Directors.
Representatives of Deloitte & Touche LLP are expected to be present at
the Annual Meeting and will be afforded the opportunity to make a statement if
they so desire and to respond to appropriate questions.
SHAREHOLDER PROPOSALS
Shareholder proposals intended to be presented at the Company's 2000
Annual Meeting of Shareholders pursuant to the provisions of Rule 14a-8 of the
Securities and Exchange Commission promulgated under the Securities Exchange Act
of 1934, as amended, must be received by the Company at its executive offices by
November 18, 1999 for inclusion in the Company's proxy statement and form of
proxy relating to such meeting. Any Shareholder proposal submitted other than
for inclusion in the Company's proxy materials for that meeting must be
delivered to the Company no later than February 5, 2000, or such proposal will
be considered untimely. If a shareholder proposal is received after February 5,
2000, the Company may vote in its discretion as to the proposal all of the
shares for which it has received proxies for the 2000 Annual Meeting of
Shareholders.
By Order Of The Board of Directors
BETTY PETTY
SECRETARY
Gainesville, Florida
March 22, 1999
22
<PAGE>
APPENDIX A
EXACTECH, INC.
EMPLOYEE STOCK OPTION AND INCENTIVE PLAN
1. PURPOSE.
The purpose of the Exactech, Inc. Employee Stock Option and Incentive
Plan (the "Plan") is to provide an incentive to key employees of Exactech, Inc.,
a Florida corporation (the "Corporation"), or its subsidiary corporations (the
"Subsidiary" or "Subsidiaries"), as defined in Section 425(f) of the Internal
Revenue Code of 1986, as amended (the "Code"), who are in a position to
contribute materially to the long-term success of the Corporation, to increase
their proprietary interest in the success of the Corporation and to aid in
attracting and retaining employees of outstanding ability. The above aims will
be effectuated through the granting of (a) options to purchase common stock, par
value $.01 per share (the "Common Stock") of the Company, intended to qualify as
incentive stock options under Section 422A of the Code (the "Incentive Stock
Option"); (b) nonqualified stock options (the "nonqualified option" which,
collectively with the Incentive Stock Option shall be referred to herein as the
"Options"); and (c) restricted stock awards (the "Stock Awards").
2. ADMINISTRATION.
2.1 The Plan shall be administered by a committee, to be known as the
Stock Option and Incentive Plan Committee (the "Committee"), appointed by the
Board of Directors of the Corporation (the "Board"). The Committee shall consist
of not less than three (3) members of the Corporation's Board of Directors who
are not employees of the Corporation. The Board may from time to time remove
members from or add members to the Committee. Vacancies on the Committee shall
be filled by the Board. The Committee shall select one of its members as
Chairman and shall hold meetings at such times and places as it may determine.
The action of a majority of the Committee at a meeting, at which a quorum is
present, or acts reduced to or so approved in writing by all of the members of
the Committee, shall be the valid acts of the Committee.
2.2 The Committee shall from time to time in its sole and absolute
discretion determine:
(a) the employees of the Company and its subsidiaries (from the
class of employees eligible under Section 3 to receive Options and Stock Awards
under the Plan) to whom Options and Stock Awards shall be granted;
(b) the time or times at which Options or Stock Awards shall be
granted;
(c) the number of shares subject to each Option or Stock Award;
(d) the Option price of the shares subject to each option which
shall be in accordance with the terms of Section 6.1(b) herein;
(e) the time or times when each Option shall become exercisable and
the duration of the exercise period; and
(f) the applicable terms and conditions of each Option or Stock
Award.
2.3 The Committee shall have the discretion to interpret the Plan and
to prescribe, amend and rescind rules and regulations relating to it. The
interpretation and construction by the Committee of any provisions of the Plan
or of any Option or Stock Award granted under it shall be final. No member of
the Board or the Committee
<PAGE>
shall be liable for any action or determination made in good faith with respect
to the Plan or any Option or Stock Award granted under it.
3. ELIGIBILITY.
3.1 The persons who shall be eligible to receive Options (an
"Optionee") or Stock Awards (a "Recipient") shall be such key employees of the
Corporation or its Subsidiaries as the Committee shall select from time to time;
provided, however, that except as set forth in Plan Section 3.3, no Incentive
Stock Option may be granted under the Plan to any person who owns, at the time
an Option is granted, more than 10% of the total combined voting power of all
classes of stock of the Corporation or any of the Subsidiaries.
3.2 An Optionee may hold more than one Option, a Recipient may receive
more than one Stock Award, and an eligible employee may hold both Options and
Stock Awards, but only on the terms and subject to the restrictions set forth in
the Plan.
3.3 Persons who own, at the time an Incentive Stock Option is granted,
more than 10% of the total combined voting power of all classes of stock of the
Corporation or any of the Subsidiaries shall be eligible to receive Incentive
Stock Options under the Plan only if at the time the Incentive Stock Option is
granted the Incentive Stock Option price is at least 110% of the Fair Market
Value (as defined below) of the stock subject to the Incentive Stock Option and
such Incentive Stock Option by its terms is not exercisable after the expiration
of five years from the date such Incentive Stock option is granted.
4. STOCK.
4.1 The stock subject to the Options and Stock Awards shall be the
shares of the Corporation's authorized and unissued or reacquired $.01 par value
Common Stock ("Shares"). The aggregate number of Shares that may be issued under
Options and Stock Awards pursuant to the Plan shall not exceed 565,000 Shares.
The limitations established by each of the preceding sentence" shall be subject
to adjustment as provided in Plan Section 6.1(f).
4.2 In the event that (a) any outstanding Option under the Plan for any
reason expires or is terminated, or (b) any Shares transferred under a Stock
Award are forfeited to the Company, the Shares that are subject to that Option
("Optioned Shares") or that Stock Award ("Award Shares") may again be subjected
to an Option or Stock Award under the Plan.
5. ANNUAL LIMITATION ON INCENTIVE STOCK OPTION.
(a) The aggregate fair market value of Shares (determined as
of the date of grant of the Incentive Stock Options related to such Shares as
provided by Plan Section 6.1(b)) with respect to which Incentive Stock Options
are granted under this Plan that are exercisable for the first time during any
calendar year shall not exceed $100,000.
(b) Notwithstanding any other provision of this Plan, and in
addition to any other requirements of this Plan, the aggregate number of Options
granted to any one officer or employee may not exceed 50% of the total number of
options available for grant under the Plan.
6. TERMS AND CONDITIONS FOR OPTIONS.
6.1 Options granted pursuant to the Plan shall be authorized by the
Committee and shall be evidenced by agreements in such form as the Committee
shall from time to time approve, which agreements shall contain or shall be
subject to the following terms and conditions, except to the extent otherwise
expressly limited in the applicable Option Agreement, whether or not such terms
and conditions are specifically included therein:
(a) NUMBER OF SHARES. Each Option shall state the number of
Shares to which it pertains.
A-2
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(b) OPTION PRICE. Each Option shall state the Option price;
provided, however, that the exercise price of any Incentive Stock Option granted
under the Plan shall be not less than 100% (or 110% in the case of Options
granted pursuant to Plan Section 3.3) of the Fair Market Value of the Shares
subject to the Incentive Stock Option on the date such Incentive Stock Option is
granted. "Fair Market Value" of a share on any date of reference shall be the
"Closing Price" (as defined below) of the Common Stock on the business day
immediately preceding such date, unless the Committee in its sole discretion
shall determine otherwise in a fair and uniform manner. For the purposes of
determining Fair Market Value, the "Closing Price" of the Common Stock on any
business day shall be (i) if the Common Stock is listed or admitted for trading
on any United States national securities exchange, or if actual transactions are
otherwise reported on a consolidated transaction reporting system, the last
reported sale price of Common Stock on such exchange or reporting system, as
reported in any newspaper of general circulation, (ii) if the Common Stock is
quoted on the National Association of Securities Dealers Automated Quotations
Systems ("NASDAQ"), or any similar system of automated dissemination of
quotations of securities prices in common use, the mean between the closing high
bid and low asked quotations for such day of Common Stock on such system, or
(iii) if neither clause (i) or (ii) is applicable, the mean between the high bid
and low asked quotations for the Common Stock as reported by the National
Quotation Bureau, Incorporated if at least two securities dealers have inserted
both bid and asked quotations for Common Stock on at least five of the ten
preceding days.
(c) MEDIUM AND TIME OF PAYMENT. The Option price shall be
payable on the exercise of the Option and shall be paid in United States Dollars
in cash, by check or, at the sole discretion of the Committee, by a promissory
note. If the exercise price is paid in whole or in part with the Optionee's
promissory note, such note shall (i) provide for full recourse to the maker,
(ii) be collateralized by the pledge of the Shares that the Optionee purchases
upon exercise of such option, (iii) bear interest at a rate no less than the
rate of interest payable by the Company to its principal lender, and (iv)
contain such other terms as the Committee in its sole discretion shall require.
(d) CONDITIONS TO EXERCISE OF OPTIONS.
(i) No Option granted pursuant to this Plan shall be
exercised in whole or in part more than ten years after it is granted,
and each such Option shall be subject to such further terms and
conditions as to the time of its exercise as a the Committee may
prescribe.
(ii) In order to exercise an Option granted
hereunder, in whole or in part, all of the following conditions must be
fulfilled at the time of exercise:
(A) At all times during the period beginning
on the date of the grant of the Option and ending on (1) the
day 3 months before the date the Option is exercised, (2) in
the case of an employee who is disabled within the meaning of
Code Section 37(e) (3), one year before the date the Option is
exercised or (3) in the case of the death of an Optionee, one
year before the date the Option is exercised, the Optionee
must have been in the employ of the Corporation or one of the
Subsidiaries. Whether authorized leave of absence or absence
for military or governmental service shall constitute
termination of employment for the purposes of this Plan shall
be determined by the Committee, whose determination shall be
final and conclusive.
(B) The Optionee shall have met any
additional specific conditions imposed by the Committee at the
time of the granting of the Option; provided, however, that
such additional conditions shall not contain any restrictions,
provisions or limitations that shall prevent any Incentive
Stock Option from being an incentive stock option, as defined
in Section 422A of the Code (a "Code Incentive Stock Option").
The imposition of such conditions shall be in the sole
discretion of the Committee; and such conditions may differ
between individual employees of the Corporation or any
Subsidiary or Subsidiaries, and between classes of employees
of the Corporation, or any Subsidiary, and between the
employees of the Corporation as a class and the employees of a
Subsidiary or Subsidiaries as a class.
A-3
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(e) TRANSFER OF OPTION. No Option shall be transferable by the
Optionee otherwise than by will or the laws of descent and distribution.
(f) RECAPITALIZATION.
(i) Subject to any required action by the Company's
stockholders, the number of Shares covered by each outstanding Option,
and the price per Optioned Share, shall be proportionately adjusted for
any increase or decrease in the number of issued shares of the
Corporation resulting from a subdivision or consolidation of shares or
the payment of a stock dividend (but only on the Shares) or any other
increase or decrease in the number of such Shares affected without
receipt of adequate consideration by the Corporation. For purposes of
this Plan Section 6(f) (i), the issuance of Shares to employees for
services and shares issued upon exercise of Options granted pursuant to
this Plan shall be deemed to have been issued for consideration.
(ii) Subject to any required action by the
stockholders, if the Corporation shall be the surviving corporation in
any merger or consolidation, each outstanding Option shall pertain to
and apply to the securities to which a holder of the number of Shares
subject to the Option would have been entitled.
(iii) In the event of a change in the Shares of the
Corporation as presently constituted that is limited to a change of all
of its authorized Shares with par value into the same number of Shares
with a different par value or without par value, the Shares resulting
from any such change shall be deemed to be the Shares within the
meaning of the Plan.
(iv) To the extent that the foregoing adjustments
relate to stock or securities of the Corporation, such adjustments
shall be made by the Committee, whose determination in that respect
shall be final, binding and conclusive, provided that no Incentive
Stock Option granted pursuant to the Plan shall be adjusted in a manner
that causes the Option to fail to continue to qualify as a Code
incentive Stock Option.
(v) Except as hereinbefore expressly provided in this
Section 6, the Optionee shall have no rights by reason of any
subdivision or consolidation of Shares of stock of any class or the
payment of any stock dividend or any other increase or decrease in the
number of Shares of stock of any class or by reason of any dissolution,
liquidation, merger, or consolidation or spin-off of assets or stock of
another corporation, and any issue by the Corporation of shares of
stock of any class, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of Shares
subject to the Option.
(vi) The grant of any Option pursuant to the Plan
shall not affect in any way the right or power of the Corporation to
make adjustments, reclassifications, reorganizations or changes in its
capital or business structure or to merge or to consolidate or to
dissolve or liquidate or to sell or transfer all or any part of its
business or assets; provided, however, that if any such adjustment
shall result in a fractional share for any Optionee under any Option
hereunder, such fraction shall be completely disregarded and the
Optionee shall only be entitled to the whole number of Shares resulting
from such adjustment.
(g) RIGHTS AS A STOCKHOLDER. An Optionee shall have no rights
as a stockholder with respect to any Optioned Shares until the date of the
issuance of a stock certificate to him for such Shares. No adjustment shall be
made for dividends (ordinary or extraordinary, whether in cash, securities or
other property) or distributions or other rights for which the record date is
prior to the date such stock certificate is issued, except as provided in this
Plan Section 6.
(h) INVESTMENT PURPOSE. Notwithstanding anything in the Plan
to the contrary, each Option under the Plan shall be granted on the condition
that the purchases of Shares thereunder shall be for investment
A-4
<PAGE>
purposes and not with a view for resale or distribution except that in the event
the Shares subject to such Option are registered under the Securities Act of
1933, as amended, or in the event of a resale of such Shares without such
registration that would otherwise be permissible, such condition shall be
inoperative if in the opinion of counsel for the Corporation such condition is
not required under the Securities Act of 1933 or any other applicable law,
regulation, or rule of any governmental agency.
(i) OTHER PROVISIONS. Options authorized under the Plan shall
contain such other provisions, including, without limitation, restrictions upon
the exercise of the Option and provisions establishing the Company's right of
first refusal with respect to stock received upon the exercise of an option, as
the Committee or the Board shall deem advisable subject to any limitation on the
discretion of the Board required by law. Any such Incentive Stock Option
agreement shall contain such limitations and restrictions upon the exercise of
the Incentive Stock option as shall be necessary in order that such Incentive
Stock Option will be a Code Incentive Stock Option or to conform to any change
in the law and shall not contain any provisions, restrictions or limitations
that shall prevent such Incentive Stock Option from being a Code Incentive Stock
Option.
7. TERMS AND CONDITIONS FOR STOCK AWARDS.
7.1 Stock Awards granted pursuant to the Plan shall be authorized by
the Committee and shall be evidenced by agreements in such form as the Committee
shall from time to time approve, which agreements shall contain or shall be
subject to the following terms and conditions, except to the extent otherwise
expressly limited in the applicable Stock Award agreement, whether or not such
terms and conditions are specifically included therein:
(a) THE NUMBER OF SHARES. Each Stock Award shall state the
number of shares to which it pertains.
(b) SHAREHOLDER RIGHTS. Upon issuance of the Award Shares, the
Recipient shall thereupon be a shareholder with respect to all of the Shares
represented by such certificate or certificates and shall have all the rights of
a shareholder with respect to all such shares, including the right to vote such
shares and to receive all dividends and other distributions (subject to the
provisions of 7.1 (c) hereof paid with respect to such shares, provided,
however, that such Shares shall be subject to the restrictions hereinafter
described in Section 7.1 (e). Certificates representing Award Shares shall be
imprinted with a legend to the effect that the Shares represented thereby may
not be sold, exchanged, transferred, pledged, hypothecated or otherwise disposed
of except in accordance with the terms of this Plan.
(c) RECAPITALIZATION. In the event that, as a result of a
stock split or stock dividend or a combination of shares or any other change, or
exchange for other securities by reclassification, reorganization, merger,
consolidation, recapitalization or otherwise, the recipient shall, as owner of
the Award Shares subject to restrictions hereunder, be entitled to new or
additional or different shares of stock or securities, the certificate or
certificates for, or other evidences of, such new or additional or different
shares or securities together with a stock power or other instrument of transfer
appropriately endorsed, shall be imprinted with the legend as provided in
Sections 7.1 (b).
(d) RESTRICTED PERIOD. The term "Restricted Period" with
respect to Award Shares (after which restrictions shall elapse) shall mean a
period commencing on the date of issuance of such Shares to the Recipient ending
on such date not less than 10 years after the date of issuance, as the Committee
may establish at the allocation or issuance of shares hereunder.
(e) RESTRICTIONS. The restrictions to which Award Shares shall
be subject shall be as follows:
(i) During the Restricted Period applicable to such
Award Shares and except as otherwise specifically provided in the Plan,
none of such Award Shares shall be sold, exchanged, transferred,
pledged, hypothecated or otherwise disposed of.
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(ii) If the employment of a Recipient shall be
terminated for any reason, including such Recipient's death or
disability, at any time prior to the end of the Restricted Period, the
Award Shares shall be forfeited and shall be returned to the
Corporation and all rights of the Recipient to such Award Shares shall
terminate without any payment or consideration by the Corporation.
However, nothing in this Plan shall preclude the transfer of Award
Shares on the death of the Recipient following the termination of the
Restricted Period, to the Recipient's legal representatives or estate
or preclude such representative from transferring such Shares or any of
them to the person or persons entitled thereto by will or by the laws
of descent and distribution.
(iii) Any additional restrictions that the Committee
determines are necessary or appropriate.
(f) LAPSE AT THE DISCRETION OF THE COMMITTEE. The Committee
shall have the authority to accelerate the time at which the restrictions will
lapse or to remove any of such restrictions whenever it may decide in its
absolute discretion, that, by reason of changes in applicable tax or other laws
or changes in circumstances arising after the date of the Stock Award, such
action is in the best interest of the Corporation.
(g) COMPLIANCE WITH SEC REQUIREMENTS. No certificate for Award
Shares distributed pursuant to the Plan shall be issued until the Corporation
shall have taken such action, if any, as has been required to comply with the
provisions of the Securities Act of 1933, as amended, the Securities Act of
1934, as amended, any other applicable laws and the requirements of any exchange
in which the Shares may, at the time, be listed. The Corporation may require
that, in acquiring any Award Shares, the Recipient agree with, and represent to,
the Corporation that he is acquiring such Award Shares for the purpose of
investment and with no present intention to transfer, sell or otherwise dispose
such Shares except such distribution by a legal representative as shall be
required by will or the laws of any jurisdiction winding up the estate of any
Recipient.
(h) INCOME TAX PROVISIONS. Each Recipient shall agree at the
time his Stock Award is granted, and as a condition thereof, that the
Corporation or participating subsidiary shall, to the extent permitted by law,
deduct from any payment of any kind otherwise due to such Recipient, the
aggregate amount of any federal, state or local taxes of any kind required by
law to be withheld with respect to the Award Shares or, if no such payments are
due or to become due to such Recipient, that such Recipient will pay to the
Corporation, or make arrangements satisfactory to the Corporation regarding
payment by the Corporation of, the aggregate amount of any such taxes. Until
such amount has been paid or arrangements satisfactory to the Corporation have
been made, no stock certificates free of a legend reflecting the restrictions
under this Plan shall be issued to Recipient. If the Recipient refuses to make
the payments or arrangements required by the Corporation, the Committee may
cause the Award Shares to be forfeited.
(i) 83(B) ELECTION FORBIDDEN. Each Recipient shall agree at
the time his Stock Award is granted, and as a condition thereof, that he will
not make an election under Section 83(b) of the Internal Revenue Code of 1954,
as amended, with respect to such Stock Award. If a Recipient subsequently makes
such an election, all Award Shares shall be forfeited to the Corporation.
8. INDEMNIFICATION OF COMMITTEE.
In addition to such other rights of indemnification as they may have as
Directors or as members of the Committee, the members of the Committee shall be
indemnified by the Corporation against the reasonable expenses, including
attorneys' fees, actually incurred in connection with the defense of any
pending, threatened or possible action, suit or proceeding, or in connection
with any pending, threatened or possible appeal therein, to which they or any of
them may be a party by reason of any actual or alleged action taken or failure
to act under or in connection with the Plan or any Option or Stock Award granted
thereunder, and against all amounts paid by them in settlement thereof (provided
such settlement is approved by the Corporation) or paid by them in satisfaction
of a judgment in any such action, suit or proceeding, except in relation to
matters as to which it shall be adjudged in such action, suit or proceeding that
such Committee member in liable for gross negligence or willful misconduct in
the performance of his duties; provided that within sixty (60) days after
institution of any such action, suit or
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proceeding a Committee member shall in writing offer the Corporation the
opportunity, at its own expense, to handle and defend the same.
9. AMENDMENT TO THE PLAN.
The Board may, insofar as permitted by law, from time to time, with
respect to any Shares at the time not subject to Options or Stock Awards,
suspend or discontinue the Plan or revise or amend it in any respect whatsoever
except that, without approval of the stockholders, no such revision or amendment
shall change the number of Shares subject to the Plan or change the designation
of the class of employees eligible to receive Options or Stock Awards.
10. APPLICATION OF FUNDS.
The proceeds received by the Corporation from the sale of Optioned
Shares will be used for general corporate purposes.
11. NO OBLIGATION TO EXERCISE OPTION.
The granting of an Option shall impose no obligation upon the
Optionee to exercise such Option.
12. EFFECTIVE DATE; DURATION OF THE PLAN.
12.1 The Plan shall become effective on the date on which both the
Board and the Corporation's shareholders approved the Plan.
12.2 No Option or Stock Award may be granted after the tenth
anniversary of the effective date of the Plan.
13. EFFECT OF PLAN.
The granting of an Option or Stock Award pursuant to the Plan shall not
give the Optionee or Recipient any right to similar grants in future years or
any right to be retained in the employ of the Corporation or a Subsidiary, but
an Optionee or Recipient shall remain subject to discharge to the same effect as
if the Plan were not in effect.
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APPENDIX B
EXACTECH, INC.
-----------------------------------
DIRECTORS STOCK OPTION PLAN
------------------------------------
1. PURPOSE. The purpose of this Plan is to advance the interests of
EXACTECH, INC., a Florida corporation (the "Company"), by providing an
additional incentive to attract and retain nonemployee directors through the
encouragement of stock ownership in the Company by such persons.
2. DEFINITIONS. As used herein, the following terms shall have the
meaning indicated:
(a) "Annual Meeting Date" shall mean the date of the annual meeting
of the Company's shareholders at which the Directors are elected.
(b) "Board" shall mean the Company's Board of Directors.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(d) "Common Stock" shall mean the Common Stock, par value $.01 per
share, of the Company.
(e) "Company" shall refer to EXACTECH, INC., a Florida corporation.
(f) "Director" shall mean a member of the Board.
(g) "Eligible Director" means any person who is a member of the
Board and who is not an employee, full time or part time, of the Company. For
purposes of this Plan, a director who does not receive regular compensation from
the Company or its subsidiaries, other than directors' fees and reimbursement
for expenses, shall not be considered to be an employee of the Company, even if
such director is an officer of a subsidiary of the Company.
(h) "Fair Market Value" of the Common Stock on any date of reference
shall be the Closing Price on the business day immediately preceding such date
of the Common Stock; provided, that for purposes of grants made on the Initial
Grant Date to persons who are Eligible Directors on the Effective Date, the term
"Fair Market Value" shall mean the initial public offering price per share of
Common Stock. For this purpose, the Closing Price of the Common Stock on any
business day shall be (i) if such Common Stock is listed or admitted for trading
on any United States national securities exchange, or if actual transactions are
otherwise reported on a consolidated transaction reporting system, the last
reported sale price of Common Stock on such exchange or reporting system, as
reported in any newspaper of general circulation, (ii) if the Common Stock is
quoted on the National Association of Securities Dealers Automated Quotations
System, or any similar system of automated dissemination of quotations of
securities prices in common use, the mean between the closing high bid and low
asked quotations for such day of the Common Stock on such system, or (iii) if
neither clause (i) or (ii) is applicable, the mean between the high bid and low
asked quotations for the Common Stock as reported by the National Quotation
Bureau, Incorporated if at least two securities dealers have inserted both bid
and asked quotations for the Common Stock on at least five of the ten preceding
days.
(i) "Initial Grant Date" means (i) in the case persons who are or
become Eligible Directors of the Company on the effective date of the Company's
Registration Statement on Form S-1 (the "Effective Date")
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to be filed with the Securities and Exchange Commission in connection with the
Company's initial public offering, the Effective Date and (ii) in all other
cases, the date on which a person is elected as a member of the Board.
(j) "Option" (when capitalized) shall mean any option granted under
this Plan.
(k) "Option Agreement" means the agreement between the Company and
the Optionee for the grant of an option.
(l) "Optionee" shall mean a person to whom a stock option is granted
under this Plan or any person who succeeds to the rights of such person under
this Plan by reason of the death of such person.
(m) "Parent" means a "parent corporation" as defined in Section
425(e) and (g) of the Code.
(n) "Plan" shall mean this Directors Stock Option Plan for the
Company.
(o) "Share(s)" shall mean a share or shares of the Common Stock.
(p) "Subsidiary" shall mean any corporation (other than the Company)
in any unbroken chain of corporations beginning with the Company if, at the time
of the granting of the Option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50 percent or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.
3. SHARES AND OPTIONS. Subject to Section 9 of this Plan, the Company
may grant to Optionees from time to time Options to purchase an aggregate of up
to Thirty-Five Thousand (35,000) Shares from authorized and unissued Shares. If
any Option granted under the Plan shall terminate, expire, or be canceled or
surrendered as to any Shares, new Options may thereafter be granted covering
such Shares.
4. GRANTS OF OPTIONS.
(a) On the Initial Grant Date, each Eligible Director shall receive
the grant of an Option to purchase 5,000 Shares.
(b) Each Eligible Director shall receive an annual grant of an
Option to purchase 3,000 Shares on each Annual Meeting Date subsequent to his
election as a director of the Company or commencement of the Plan, beginning
with the first Annual Meeting Date after the Initial Grant Date for each such
Eligible Director.
(c) Upon the grant of each Option, the Company and the Eligible
Director shall enter into an Option Agreement, which shall specify the grant
date and the exercise price and shall include or incorporate by reference the
substance of this Plan and such other provisions consistent with this Plan as
the Board may determine.
5. EXERCISE PRICE. The exercise price per Share of any Option shall be
the Fair Market Value of the Shares underlying such Option at the close of
business on the date such Option is granted.
6. EXERCISE OF OPTIONS. An Option shall be deemed exercised when (i)
the Company has received written notice of such exercise in accordance with the
terms of the Option, (ii) full payment of the aggregate exercise price of the
Shares as to which the Option is exercised has been made, and (iii) arrangements
that are satisfactory to the Board in its sole discretion have been made for the
Optionee's payment to the Company of the amount that is necessary for the
Company or Subsidiary employing the Optionee to withhold in accordance with
applicable Federal or state tax withholding requirements. The exercise price of
any Shares purchased shall be paid in cash, by certified or official bank check
or personal check, by money order, with Shares or by a combination of the above.
If the exercise price is paid in whole or in part with Shares, the value of the
Shares surrendered shall be their Fair Market Value on the date the Option is
exercised. No Optionee shall be deemed to be a holder of any Shares subject to
an Option unless and until a stock certificate or certificates for such Shares
are issued to such person(s) under the terms of the Plan. No adjustment shall be
made for dividends (ordinary or extraordinary,
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whether in cash, securities or other property) or distributions or other rights
for which the record date is prior to the date such stock certificate is issued,
except as expressly provided in Section 9 hereof.
7. EXERCISE SCHEDULE FOR OPTIONS. Each Option granted hereunder shall
not be exercisable until after one year following its grant to an eligible
director. Thereafter, such option shall be exercisable in full. The expiration
date of an Option shall be five years from the date of grant of the Option.
8. TERMINATION OF OPTION PERIOD.
(a) The unexercised portion of any Option shall automatically
and without notice terminate and become null and void at the time of the
earliest to occur of the following:
(i) three months after the date on which the
Optionee ceases to be a Director for any reason other than by reason of (A)
"Cause" (which, for purposes of this Plan, shall mean the removal of the
Optionee as a Director by reason of any act of (a) fraud or intentional
misrepresentation, or (b) embezzlement, misappropriation, or conversion of
assets or opportunities of the Company or any Subsidiary), or (B) death;
(ii) immediately upon the removal of the
Optionee as a Director for Cause;
(iii) one year after the date the Optionee ceases
to be a Director by reason of death of the Optionee;
(b) The Board in its sole discretion may, by giving written
notice ("Cancellation Notice"), cancel any Option that remains unexercised on
the date of the consummation of any corporate transaction:
(i) if the shareholders of the Company shall
approve a plan of merger, consolidation, reorganization, liquidation or
dissolution in which the Company does not survive (unless the approved merger,
consolidation, reorganization, liquidation or dissolution is subsequently
abandoned); or
(ii) if the shareholders of the Company shall
approve a plan for the sale, lease, exchange or other disposition of all or
substantially all the property and assets of the Company (unless such plan is
subsequently abandoned).
Any Cancellation Notice shall be given a reasonable period of time
prior to the proposed date of such cancellation and may be given either before
or after shareholder approval of such corporate transaction.
9. ADJUSTMENT OF SHARES.
(a) If at any time while the Plan is in effect or unexercised
Options are outstanding, there shall be any increase or decrease in the number
of issued and outstanding Shares through the declaration of a stock dividend or
through any recapitalization resulting in a stock split-up, combination or
exchange of Shares, then and in such event:
(i) appropriate adjustment shall be made in the
maximum number of Shares available for grant under the Plan, so that the same
percentage of the Company's issued and outstanding Shares shall continue to be
subject to being so optioned; and
(ii) appropriate adjustment shall be made in the
number of Shares and the exercise price per Share thereof then subject to any
outstanding Option, so that the same percentage of the Company's issued and
outstanding Shares shall remain subject to purchase at the same aggregate
exercise price.
(b) Subject to the specific terms of any Option, the Board may
change the terms of Options outstanding under this Plan, with respect to the
exercise price or the number of Shares subject to the Options, or
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both, when, in the Board's sole discretion, such adjustments become appropriate
by reason of a corporate transaction described in Subsections 8(b)(i) or (ii)
hereof.
(c) Except as otherwise expressly provided herein, the
issuance by the Company of shares of its capital stock of any class, or
securities convertible into shares of capital stock of any class, either in
connection with a direct sale or upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number or
exercise price of the Shares then subject to outstanding Options granted under
the Plan.
(d) Without limiting the generality of the foregoing, the
existence of outstanding Options granted under the Plan shall not affect in any
manner the right or power of the Company to make, authorize or consummate (i)
any or all adjustments, recapitalizations, reorganizations or other changes in
the Company's capital structure or its business; (ii) any merger or
consolidation of the Company; (iii) any issue by the Company of debt securities,
or preferred or preference stock that would rank above the Shares subject to
outstanding Options; (iv) the dissolution or liquidation of the Company; (v) any
sale, transfer or assignment of all or any part of the assets or business of the
Company; or (vi) any other corporate act or proceeding, whether of a similar
character or otherwise.
10. TRANSFERABILITY OF OPTIONS. Each Option shall provide that such
Option shall not be transferable by the Optionee otherwise than by will or the
laws of descent and distribution, and each Option shall be exercisable during
the Optionee's lifetime only by the Optionee.
11. ISSUANCE OF SHARES. As a condition of any sale or issuance of
Shares upon exercise of any Option, the Board may require such agreements or
undertakings, if any, as the Board may deem necessary or advisable to assure
compliance with any such law or regulation including, but not limited to, the
following:
(a) a representation and warranty by the Optionee to the
Company, at the time any Option is exercised, that he is acquiring the Shares to
be issued to him for investment and not with a view to, or for sale in
connection with, the distribution of any such Shares; and
(b) a representation, warranty and/or agreement to be bound by
any legends that are, in the opinion of the Board, necessary or appropriate to
comply with the provisions of any securities law deemed by the Board to be
applicable to the issuance of the Shares and are endorsed upon the Share
certificates.
12. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Board, which shall have the authority to adopt such rules and regulations and to
make such determinations as are not inconsistent with the Plan and as are
necessary or desirable for the implementation and administration of the Plan.
13. INTERPRETATION. If any provision of the Plan should be held invalid
or illegal for any reason, such determination shall not affect the remaining
provisions hereof, but instead the Plan shall be construed and enforced as if
such provision had never been included in the Plan. The determinations and the
interpretation and construction of any provision of the Plan by the Board shall
be final and conclusive. This Plan shall be governed by the laws of the State of
Florida. Headings contained in this Plan are for convenience only and shall in
no manner be construed as part of this Plan. Any reference to the masculine,
feminine, or neuter gender shall be a reference to such other gender as is
appropriate.
14. TERM OF PLAN; AMENDMENT AND TERMINATION OF THE PLAN.
(a) This Plan shall become effective upon its adoption by the
Board, and shall continue in effect until all Options granted hereunder have
expired or been exercised, unless sooner terminated under the provisions
relating thereto. No Option shall be granted after ten years from the date of
the Board's adoption of this Plan.
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(b) The Board may from time to time amend the Plan or any
Option; provided, however, that, without approval by the Company's shareholders,
no such amendment shall (i) materially increase the benefits accruing to
participants under the Plan, (ii) materially increase the number of Shares or
other securities reserved for issuance upon the exercise of Options, (iii)
materially modify the requirements as to eligibility for participation under the
Plan or (iv) otherwise involve any other change or modification requiring
shareholder approval under Rule 16b-3 of the Securities Act of 1933, as amended;
and, provided, further, that, except to the extent otherwise specifically
provided in Section 8, no amendment or suspension of the Plan or any Option
issued hereunder shall substantially impair any Option previously granted to any
Optionee without the consent of such Optionee.
(c) Notwithstanding anything else contained herein, the
provisions of this Plan which govern the number of Options to be awarded to
nonemployee directors, the exercise price per share under each such Option, when
and under what circumstances an Option will be granted and the period within
which each Option may be exercised, shall not be amended more than once every
six months (even with shareholder approval), other than to conform to changes to
the Code, or the rules promulgated thereunder, and under the Employee Retirement
Income Security Act of 1974, as amended, or the rules promulgated thereunder, or
with rules promulgated by the Securities and Exchange Commission.
(d) The Board, without further approval of the Company's
shareholders, may at any time terminate or suspend this Plan. Any such
termination or suspension of the Plan shall not affect Options already granted
and such Options shall remain in full force and effect as if this Plan had not
been terminated or suspended. No Option may be granted while the Plan is
suspended or after it is terminated. The rights and obligations under any Option
granted to any Optionee while this Plan is in effect shall not be altered or
impaired by the suspension or termination of this Plan without the consent of
such Optionee.
15. RESERVATION OF SHARES. The Company, during the term of the Plan,
will at all times reserve and keep available a number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
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APPENDIX C
EXACTECH, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE. The purpose of the Plan is to provide incentive for present
and future employees of the Company and any Designated Subsidiary to
acquire a proprietary interest (or increase an existing proprietary
interest) in the Company through the purchase of Common Stock. It is
the Company's intention that the Plan qualify as an "employee stock
purchase plan" under Section 423 of the Code. Accordingly, the
provisions of the Plan shall be administered, interpreted and construed
in a manner consistent with the requirements of that section of the
Code.
2. DEFINITIONS.
(a) "APPLICABLE PERCENTAGE" means the percentage specified in
Section 8, subject to adjustment by the Committee as provided in Section 8.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as
amended, and any successor thereto.
(d) "COMMITTEE" means the committee appointed by the Board to
administer the Plan as described in Section 13 of the Plan or, if no such
committee is appointed, the Board.
(e) "COMMON STOCK" means the Company's common stock, par value
$.01 per share.
(f) "COMPANY" means EXACTECH, INC., a Florida corporation.
(g) "COMPENSATION" means, with respect to each Participant for
each pay period, the full base salary, overtime, bonuses and commissions paid to
such Participant by the Company or a Designated Subsidiary. Except as otherwise
determined by the Committee, "Compensation" does not include: (i) any amounts
contributed by the Company or a Designated Subsidiary to any pension plan; (ii)
any automobile or relocation allowances (or reimbursement for any such
expenses); (iii) any amounts paid as a starting bonus or finder's fee; (iv) any
amounts realized from the exercise of any stock options or incentive awards; (v)
any amounts paid by the Company or a Designated Subsidiary for other fringe
benefits, such as health and welfare, hospitalization and group life insurance
benefits, or perquisites, or paid in lieu of such benefits, or; (vi) other
similar forms of extraordinary compensation.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE" means the absence of
any interruption or termination of service as an Employee. Continuous Status as
an Employee shall not be considered interrupted in the case of a leave of
absence agreed to in writing by the Company or the Designated Subsidiary that
employs the Employee, provided that such leave is for a period of not more than
90 days or reemployment upon the expiration of such leave is guaranteed by
contract or statute.
(i) "DESIGNATED SUBSIDIARIES" means the Subsidiaries that have
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(j) "EMPLOYEE" means any person, including an Officer, whose
customary employment with the Company or one of its Designated Subsidiaries is
at least twenty (20) hours per week and more than five (5) months in any
calendar year.
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(k) "ENTRY DATE" means the first day of each Exercise Period.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
(m) "EXERCISE DATE" means the last Trading Day ending on or
before each March 31, June 30, September 30 and December 31.
(n) "EXERCISE PERIOD" means, for any Offering Period, each
period commencing on the Offering Date and on the day after each Exercise Date,
and terminating on the immediately following Exercise Date.
(o) "EXERCISE PRICE" means the price per share of Common Stock
offered in a given Offering Period determined as provided in Section 8.
(p) "FAIR MARKET VALUE" means, with respect to a share of
Common Stock, the Fair Market Value as determined under Section 7(b).
(q) "FIRST OFFERING DATE" means July 1, 1999.
(r) "OFFERING DATE" means the first Trading Day of each
Offering Period; provided, that in the case of an individual who becomes
eligible to become a Participant under Section 3 after the first Trading Day of
an Offering Period, the term "Offering Date" shall mean the first Trading Day of
the Exercise Period coinciding with or next succeeding the day on which that
individual becomes eligible to become a Participant. Options granted after the
first day of an Offering Period will be subject to the same terms as the options
granted on the first Trading Day of such Offering Period except that they will
have a different grant date (thus, potentially, a different exercise price) and,
because they expire at the same time as the options granted on the first Trading
Day of such Offering Period, a shorter term.
(s) "OFFERING PERIOD" means (i) with respect to the first
Offering Period, the period beginning on the First Offering Date and ending on
December 31, 1999, and (ii) with respect to each Offering Period thereafter, and
subject to adjustment as provided in Section 4, the period beginning on the
first Trading Day of the month of January in the immediately succeeding calendar
year and ending on the last Trading Day of that calendar year.
(t) "OFFICER" means a person who is an officer of the Company
within the meaning of Section 16 under the Exchange Act and the rules and
regulations promulgated thereunder.
(u) "PARTICIPANT" means an Employee who has elected to
participate in the Plan by filing an enrollment agreement with the Company as
provided in Section 5 of the Plan.
(v) "PLAN" shall mean this 1999 Employee Stock Purchase Plan.
(w) "PLAN CONTRIBUTIONS" means, with respect to each
Participant, the after-tax payroll deductions withheld from the Compensation of
the Participant and contributed to the Plan for the Participant as provided in
Section 6 of the Plan and any other amounts contributed to the Plan for the
Participant in accordance with the terms of the Plan.
(x) "SUBSIDIARY" shall mean any corporation, domestic or
foreign, of which the Company owns, directly or indirectly, 50% or more of the
total combined voting power of all classes of stock, and that otherwise
qualifies as a "subsidiary corporation" within the meaning of Section 424(f) of
the Code.
(y) "TRADING DAY" shall mean a day on which the national stock
exchanges and the NASDAQ system are open for trading.
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3. ELIGIBILITY.
(a) Any Employee who is an Employee as of the Offering Date of
a given Offering Period shall be eligible to become a Participant as of any
Entry Date within that Offering Period under the Plan, subject to the
requirements of Section 5(a) and the limitations imposed by Section 423(b) of
the Code.
(b) Notwithstanding any provision of the Plan to the contrary,
no Participant shall be granted an option under the Plan (i) to the extent that
if, immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own stock and/or hold outstanding options to purchase stock possessing 5%
or more of the total combined voting power or value of all classes of stock of
the Company or of any Subsidiary of the Company, or (ii) to the extent that his
or her rights to purchase stock under all employee stock purchase plans of the
Company and its Subsidiaries intended to qualify under Section 423 of the Code
to accrue at a rate which exceeds $25,000 of fair market value of stock
(determined at the time such option is granted) for each calendar year in which
such option is outstanding at any time.
4. OFFERING PERIODS. The Plan shall be implemented by a series of
consecutive Offering Periods. The first Offering Period shall commence
on the First Offering Date, and succeeding Offering Periods shall
commence on the first Trading Day in each succeeding calendar year (or
at such other time or times as may be determined by the Committee). The
Committee shall have the power to change the duration and/or the
frequency of Offering Periods with respect to future offerings if such
change is announced at least five (5) days prior to the scheduled
beginning of the first Offering Period to be affected.
5. ELECTION TO PARTICIPATE.
(a) An eligible Employee may elect to participate in the Plan
commencing on any Entry Date by completing an enrollment agreement on the form
provided by the Company and filing the enrollment agreement with the Company on
or prior to such Entry Date, unless a later time for filing the enrollment
agreement is set by the Committee for all eligible Employees with respect to a
given offering. The enrollment agreement shall set forth the percentage of the
Participant's Compensation that is to be withheld by payroll deduction pursuant
to the Plan.
(b) Except as otherwise determined by the Committee under
rules applicable to all Participants, payroll deductions for a Participant shall
commence on the first payroll following the Entry Date on which the Participant
elects to participate in accordance with Section 5(a) and shall end on the last
payroll in the Offering Period, unless sooner terminated by the Participant as
provided in Section 11.
(c) Unless a Participant elects otherwise prior to the last
Exercise Date of an Offering Period, such Participant shall be deemed (i) to
have elected to participate in the immediately succeeding Offering Period (and,
for purposes of such Offering Period such Participant's "Entry Date" shall be
deemed to be the first day of such Offering Period) and (ii) to have authorized
the same payroll deduction for such immediately succeeding Offering Period as
was in effect for such Participant immediately prior to the commencement of such
succeeding Offering Period.
6. PARTICIPANT CONTRIBUTIONS.
(a) Except as otherwise authorized by the Committee pursuant
to Section 6(c) below, all Participant contributions to the Plan shall be made
only by payroll deductions. At the time a Participant files the enrollment
agreement with respect to an Offering Period, the Participant may authorize
payroll deductions to be made on each payroll date during the portion of the
Offering Period that he or she is a Participant in an amount not less than 1%
and not more than 25% of the Participant's Compensation on each payroll date
during the portion of the Offering Period that he or she is a Participant (or
subsequent Offering Periods as provided in Section 5(c)). The amount of payroll
deductions shall be a whole percentage (i.e., 1%, 2%, 3%, etc.) of the
Participant's Compensation.
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The participant may not change the amount or rate of the deduction during the
Offering Period with the exception of a complete termination of participation as
described in Section 11 hereof.
(b) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
Participant's payroll deductions may be decreased to 0% at such time during any
Exercise Period which is scheduled to end during the current calendar year that
the aggregate of all payroll deductions accumulated with respect to such
Exercise Period and any other Exercise Period ending within the same calendar
year are equal to the product of $25,000 multiplied by the Applicable Percentage
for the calendar year. Payroll deductions shall recommence at the rate provided
in the Participant's enrollment agreement at the beginning of the following
Exercise Period which is scheduled to end in the following calendar year, unless
terminated by the Participant as provided in Section 11.
(c) Notwithstanding anything to the contrary in the foregoing,
the Committee may permit Participants to make after-tax contributions to the
Plan at such times and subject to such terms and conditions as the Committee may
in its discretion determine. All such additional contributions shall be made in
a manner consistent with the provisions of Section 423 of the Code or any
successor thereto, and shall be held in Participants' accounts and applied to
the purchase of shares of Common Stock pursuant to options granted under this
Plan in the same manner as payroll deductions contributed to the Plan as
provided above.
(d) All Plan Contributions made for a Participant shall be
deposited in the Company's general corporate account and shall be credited to
the Participant's account under the Plan. No interest shall accrue or be
credited with respect to a Participant's Plan Contributions. All Plan
Contributions received or held by the Company may be used by the Company for any
corporate purpose, and the Company shall not be obligated to segregate or
otherwise set apart such Plan Contributions from any other corporate funds.
7. GRANT OF OPTION.
(a) On a Participant's Entry Date, subject to the limitations
set forth in Sections 3(b) and 12(a), the Participant shall be granted an option
to purchase on each subsequent Exercise Date during the Offering Period in which
such Entry Date occurs (at the Exercise Price determined as provided in Section
8 below) up to a number of shares of Common Stock determined by dividing such
Participant's Plan Contributions accumulated prior to such Exercise Date and
retained in the Participant's account as of such Exercise Date by the Exercise
Price; provided, that the maximum number of shares an Employee may purchase
during any Exercise Period shall be 750 shares. The Fair Market Value of a share
of Common Stock shall be determined as provided in Section 7(b).
(b) The Fair Market Value of a share of Common Stock on a
given date shall be determined by the Committee in its discretion; provided,
that if there is a public market for the Common Stock, the Fair Market Value per
share shall be either (i) the closing price of the Common Stock on such date
(or, in the event that the Common Stock is not traded on such date, on the
immediately preceding trading date), as reported by the National Association of
Securities Dealers Automated Quotation (NASDAQ) National Market System, (ii) if
such price is not reported, the average of the bid and asked prices for the
Common Stock on such date (or, in the event that the Common Stock is not traded
on such date, on the immediately preceding trading date), as reported by NASDAQ,
(iii) in the event the Common Stock is listed on a stock exchange, the closing
price of the Common Stock on such exchange on such date (or, in the event that
the Common Stock is not traded on such date, on the immediately preceding
trading date), as reported in The Wall Street Journal, or (iv) if no such
quotations are available for a date within a reasonable time prior to the
valuation date, the value of the Common Stock as determined by the Committee
using any reasonable means.
8. EXERCISE PRICE. The Exercise Price per share of Common Stock offered to
each Participant in a given Offering Period shall be the lower of: (i)
the Applicable Percentage of the greater of (A) the Fair Market
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Value of a share of Common Stock on the Offering Date or (B) the Fair
Market Value of a share of Common Stock on the Entry Date on which the
Employee elects to become a Participant within the Offering Period or
(ii) the Applicable Percentage of the Fair Market Value of a share of
Common Stock on the Exercise Date. The Applicable Percentage with
respect to each Offering Period shall be 85%, unless and until such
Applicable Percentage is increased by the Committee, in its sole
discretion, provided that any such increase in the Applicable
Percentage with respect to a given Offering Period must be established
not less than fifteen (15) days prior to the Offering Date thereof.
9. EXERCISE OF OPTIONS. Unless the Participant withdraws from the Plan as
provided in Section 11, the Participant's option for the purchase of
shares will be exercised automatically on each Exercise Date, and the
maximum number of full shares subject to such option shall be purchased
for the Participant at the applicable Exercise Price with the
accumulated Plan Contributions then credited the Participant's account
under the Plan. During a Participant's lifetime, a Participant's option
to purchase shares hereunder is exercisable only by the Participant.
10. DELIVERY. As promptly as practicable after each Exercise Date, the
Company shall arrange for the delivery to each Participant (or the
Participant's beneficiary), as appropriate, or to a custodial account
for the benefit of each Participant (or the Participant's beneficiary)
as appropriate, of a certificate representing the shares purchased upon
exercise of such Participant's option. Any amount remaining to the
credit of a Participant's account after the purchase of shares by such
Participant on an Exercise Date, or which is insufficient to purchase a
full share of Common Stock, shall be carried over to the next Exercise
Period if the Participant continues to participate in the Plan or, if
the Participant does not continue to participate, shall be returned to
the Participant.
11. WITHDRAWAL; TERMINATION OF EMPLOYMENT.
(a) A Participant may withdraw from the Plan at any time by
giving written notice to the Company. All of the Plan Contributions credited to
the Participant's account and not yet invested in Common Stock will be paid to
the Participant as soon as administratively practicable after receipt of the
Participant's notice of withdrawal, the Participant's option to purchase shares
pursuant to the Plan automatically will be terminated, and no further payroll
deductions for the purchase of shares will be made for the Participant's
account. Payroll deductions will not resume on behalf of a Participant who has
withdrawn from the Plan (a "Former Participant") unless the Former Participant
enrolls in a subsequent Offering Period in accordance with Section 5(a).
(b) Upon termination of the Participant's Continuous Status as
an Employee prior to any Exercise Date for any reason, including retirement or
death, the Plan Contributions credited to the Participant's account and not yet
invested in Common Stock will be returned to the Participant or, in the case of
death, to the Participant's beneficiary as determined pursuant to Section 14,
and the Participant's option to purchase shares under the Plan will
automatically terminate.
(c) A Participant's withdrawal from an Offering Period will
not have any effect upon the Participant's eligibility to participate in
succeeding Offering Periods or in any similar plan which may hereafter be
adopted by the Company.
12. STOCK.
(a) The maximum number of shares of the Company's Common Stock
that shall be made available for sale under the Plan shall be One Hundred
Twenty-Five Thousand (125,000) shares, subject to adjustment as provided in
Section 17. Shares of Common Stock subject to the Plan may be newly issued
shares or shares reacquired in private transactions or open market purchases. If
and to the extent that any right to purchase reserved shares shall not be
exercised by any Participant for any reason or if such right to purchase shall
terminate as provided herein, shares that have not been so purchased hereunder
shall again become available for the purpose of the Plan unless the Plan shall
have been terminated, but all shares sold under the Plan, regardless of source,
shall be counted against the limitation set forth above.
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(b) A Participant will have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a Participant under the Plan
will be registered in the name of the Participant or in the name of the
Participant and his or her spouse, as requested by the Participant.
13. ADMINISTRATION.
(a) The Plan shall be administered by the Committee. The
Committee shall have the authority to interpret the Plan, to prescribe, amend
and rescind rules and regulations relating to the Plan, and to make all other
determinations necessary or advisable for the administration of the Plan. The
administration, interpretation, or application of the Plan by the Committee
shall be final, conclusive and binding upon all persons.
(b) Notwithstanding the provisions of Subsection (a) of this
Section 13, in the event that Rule 16b-3 promulgated under the Exchange Act or
any successor provision thereto ("Rule 16b-3") provides specific requirements
for the administrators of plans of this type, the Plan shall only be
administered by such body and in such a manner as shall comply with the
applicable requirements of Rule 16b-3. Unless permitted by Rule 16b-3, no
discretion concerning decisions regarding the Plan shall be afforded to any
person that is not "disinterested" as that term is used in Rule 16b-3.
14. DESIGNATION OF BENEFICIARY.
(a) A Participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
Participant's account under the Plan in the event of the Participant's death
subsequent to an Exercise Date on which the Participant's option hereunder is
exercised but prior to delivery to the Participant of such shares and cash. In
addition, a Participant may file a written designation of a beneficiary who is
to receive any cash from the Participant's account under the Plan in the event
of the Participant's death prior to the exercise of the option.
(b) A Participant's beneficiary designation may be changed by
the Participant at any time by written notice. In the event of the death of a
Participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such Participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the Participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the Participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
15. TRANSFERABILITY. Neither Plan Contributions credited to a Participant's
account nor any rights to exercise any option or receive shares of
Common Stock under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will or the laws of
descent and distribution, or as provided in Section 14). Any attempted
assignment, transfer, pledge or other distribution shall be without
effect, except that the Company may treat such act as an election to
withdraw funds in accordance with Section 11.
16. PARTICIPANT ACCOUNTS. Individual accounts will be maintained for each
Participant in the Plan to account for the balance of his Plan
Contributions and options issued and shares purchased under the Plan.
Statements of account will be given to Participants semi-annually in
due course following each Exercise Date, which statements will set
forth the amounts of payroll deductions, the per share purchase price,
the number of shares purchased and the remaining cash balance, if any.
17. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE TRANSACTIONS.
(a) If the outstanding shares of Common Stock are increased or
decreased, or are changed into or are exchanged for a different number or kind
of shares, as a result of one or more reorganizations,
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restructurings, recapitalizations, reclassifications, stock splits, reverse
stock splits, stock dividends or the like, upon authorization of the Committee,
appropriate adjustments shall be made in the number and/or kind of shares, and
the per-share option price thereof, which may be issued in the aggregate and to
any Participant upon exercise of options granted under the Plan.
(b) In the event of the proposed dissolution or liquidation of
the Company, the Offering Period will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the
Committee. In the event of a proposed sale of all or substantially all of the
Company's assets, or the merger of the Company with or into another corporation
(each, a "Sale Transaction"), each option under the Plan shall be assumed or an
equivalent option shall be substituted by such successor corporation or a parent
or subsidiary of such successor corporation, unless the Committee determines, in
the exercise of its sole discretion and in lieu of such assumption or
substitution, to shorten the Exercise Period then in progress by setting a new
Exercise Date (the "New Exercise Date"). If the Committee shortens the Exercise
Period then in progress in lieu of assumption or substitution in the event of a
Sale Transaction, the Committee shall notify each Participant in writing, at
least ten (10) days prior to the New Exercise Date, that the exercise date for
such Participant's option has been changed to the New Exercise Date and that
such Participant's option will be exercised automatically on the New Exercise
Date, unless prior to such date the Participant has withdrawn from the Plan as
provided in Section 11. For purposes of this Section 17(b), an option granted
under the Plan shall be deemed to have been assumed if, following the Sale
Transaction, the option confers the right to purchase, for each share of option
stock subject to the option immediately prior to the Sale Transaction, the
consideration (whether stock, cash or other securities or property) received in
the Sale Transaction by holders of Common Stock for each share of Common Stock
held on the effective date of the Sale Transaction (and if such holders were
offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding shares of Common Stock); provided, that
if the consideration received in the Sale Transaction was not solely common
stock of the successor corporation or its parent (as defined in Section 424(e)
of the Code), the Committee may, with the consent of the successor corporation
and the Participant, provide for the consideration to be received upon exercise
of the option to be solely common stock of the successor corporation or its
parent equal in fair market value to the per share consideration received by the
holders of Common Stock in the Sale Transaction.
(c) In all cases, the Committee shall have sole discretion to
exercise any of the powers and authority provided under this Section 17, and the
Committee's actions hereunder shall be final and binding on all Participants. No
fractional shares of stock shall be issued under the Plan pursuant to any
adjustment authorized under the provisions of this Section 17.
18. AMENDMENT OF THE PLAN. The Board or the Committee may at any time, or
from time to time, amend the Plan in any respect; provided, that (i) no
such amendment may make any change in any option theretofore granted
which adversely affects the rights of any Participant and (ii) the Plan
may not be amended in any way that will cause rights issued under the
Plan to fail to meet the requirements for employee stock purchase plans
as defined in Section 423 of the Code or any successor thereto. To the
extent necessary to comply with Rule 16b-3 under the Exchange Act,
Section 423 of the Code, or any other applicable law or regulation),
the Company shall obtain shareholder approval of any such amendment.
19. TERMINATION OF THE PLAN.
The Plan and all rights of Employees hereunder shall terminate on the
earliest of:
(a) the Exercise Date that Participants become entitled to
purchase a number of shares greater than the number of reserved shares remaining
available for purchase under the Plan;
(b) such date as is determined by the Board in its discretion;
or
(c) the last Exercise Date immediately preceding the tenth
(10th) anniversary of the Plan's effective date.
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In the event that the Plan terminates under circumstances described in
Section 19(a) above, reserved shares remaining as of the termination date shall
be sold to Participants on a pro rata basis.
20. NOTICES. All notices or other communications by a Participant to the
Company under or in connection with the Plan shall be deemed to have
been duly given when received in the form specified by the Company at
the location, or by the person, designated by the Company for the
receipt thereof.
21. EFFECTIVE DATE. Subject to adoption of the Plan by the Board, the Plan
shall become effective on the First Offering Date. The Board shall
submit the Plan to the shareholders of the Company for approval within
twelve months after the date the Plan is adopted by the Board.
22. CONDITIONS UPON ISSUANCE OF SHARES.
(a) The Plan, the grant and exercise of options to purchase
shares under the Plan, and the Company's obligation to sell and deliver shares
upon the exercise of options to purchase shares shall be subject to compliance
with all applicable federal, state and foreign laws, rules and regulations and
the requirements of any stock exchange on which the shares may then be listed.
(b) The Company may make such provisions as it deems
appropriate for withholding by the Company pursuant to federal or state tax laws
of such amounts as the Company determines it is required to withhold in
connection with the purchase or sale by a Participant of any Common Stock
acquired pursuant to the Plan. The Company may require a Participant to satisfy
any relevant tax requirements before authorizing any issuance of Common Stock to
such Participant.
23. EXPENSES OF THE PLAN. All costs and expenses incurred in administering
the Plan shall be paid by the Company, except that any stamp duties or
transfer taxes applicable to participation in the Plan may be charged
to the account of such Participant by the Company.
24. NO EMPLOYMENT RIGHTS. The Plan does not, directly or indirectly, create
any right for the benefit of any employee or class of employees to
purchase any shares under the Plan, or create in any employee or class
of employees any right with respect to continuation of employment by
the Company, and it shall not be deemed to interfere in any way with
the Company's right to terminate, or otherwise modify, an employee's
employment at any time.
25. APPLICABLE LAW. The laws of the State of Florida shall govern all
matter relating to this Plan except to the extent (if any) superseded
by the laws of the United States.
26. ADDITIONAL RESTRICTIONS OF RULE 16B-3. The terms and conditions of
options granted hereunder to, and the purchase of shares by, persons
subject to Section 16 of the Exchange Act shall comply with the
applicable provisions of Rule 16b-3. This Plan shall be deemed to
contain, and such options shall contain, and the shares issued upon
exercise thereof shall be subject to, such additional conditions and
restrictions as may be required by Rule 16b-3 to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
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EXACTECH, INC.
2320 N.W. 66TH COURT
GAINESVILLE, FLORIDA 32653
THIS PROXY IS SOLICITED ON BEHALF OF THE COMPANY'S BOARD OF DIRECTORS
COMMON STOCK
The undersigned hereby appoints William Petty and Timothy J. Seese, and
each of them, as proxies for the undersigned, each with full power of
substitution, for and in the name of the undersigned to act for the undersigned
and to vote, as designated below, all of the shares of Common Stock, $.01 par
value per share, of Exactech, Inc., a Florida corporation (the "Company"), that
the undersigned is entitled to vote at the 1999 Annual Meeting of Shareholders
of the Company, to be held on Thursday, April 22, 1999, at 9:00 a.m., local
time, at the Company's new headquarters, 2320 N.W. 66th Court, Gainesville,
Florida, and at any adjournment(s) or postponement(s) thereof.
PROPOSAL 1. Election of William Petty, Timothy J. Seese, Gary J. Miller,
Albert Burstein, R. Wynn Kearney, Jr., E. Ronald Pickard and
Paul Metts, as directors of the Company.
[ ] VOTE FOR all nominees listed above, except vote
withheld from the following nominee(s) (if any).
----------------------------------------------------
[ ] VOTE WITHHELD from all nominees.
PROPOSAL 2. To approve the increase by 185,000 shares the number of
shares of Common Stock reserved for issuance pursuant to the
Employee Stock Option and Incentive Plan.
[ ] FOR
[ ] AGAINST
[ ] ABSTAIN
PROPOSAL 3. To approve the increase by 45,000 shares the number of
shares of Common Stock reserved for issuance pursuant to the
Directors Stock Option Plan.
[ ] FOR
[ ] AGAINST
[ ] ABSTAIN
PROPOSAL 4. To approve the 1999 Employee Stock Purchase Plan.
[ ] FOR
[ ] AGAINST
[ ] ABSTAIN
PROPOSAL 5. To ratify the selection of Deloitte & Touche LLP to serve
as the Company's independent auditors for the fiscal year
ending December 31, 1999.
[ ] FOR
[ ] AGAINST
[ ] ABSTAIN
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the Annual Meeting, and any adjournments or
postponements thereof.
(SEE REVERSE SIDE)
<PAGE>
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" THE ELECTION OF ALL DIRECTOR NOMINEES LISTED IN
PROPOSAL (1) ABOVE AND "FOR" PROPOSALS (2)-(5) ABOVE.
The undersigned hereby acknowledges receipt of (i) the Notice of Annual
Meeting, (ii) the Proxy Statement and (iii) the Company's 1998 Annual Report.
Dated:______________________, 1999
__________________________________
(Signature)
__________________________________
(Signature if held jointly)
IMPORTANT: Please sign exactly as
your name appears hereon and mail
it promptly even though you may
plan to attend the meeting. 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.
PLEASE MARK, SIGN AND DATE THIS
PROXY CARD AND PROMPTLY RETURN IT
IN THE ENVELOPE PROVIDED. NO
POSTAGE NECESSARY IF MAILED IN THE
UNITED STATES.
