SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
[X] Filed by the Registrant
[ ] Filed by a party other than the Registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only [as permitted by Exchange
Act Rule 14(a)-6(e)(2)]
[X] Definitive Proxy Statement
[ ] Definitive Additional Material
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
OSTEX INTERNATIONAL, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Payment of Filing Fee:
[X] No fee required.
[ ] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-6(i)(2),
or Item 22(a)(2) of Schedule 14A.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11:
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
filing fee is calculated and how determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with written preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing:
(1) Amount previously paid:
(2) Form, schedule or registration statement number:
(3) Filing party:
(4) Date filed:
<PAGE>
[OSTEX LOGO]
OSTEX INTERNATIONAL, INC.
2203 Airport Way South, Suite 400
Seattle, Washington 98134
April 23, 1997
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders
of Ostex International, Inc. to be held on Monday, June 2, 1997, at 9:00 a.m. at
the Bellevue Athletic Club, located at 11200 SE 6th Street, Bellevue,
Washington.
The matters to be acted upon are described in the accompanying Notice
of Annual Meeting of Shareholders and Proxy Statement. At the Annual Meeting, we
will also report on Ostex's operations and respond to any questions you may
have.
Whether or not you plan to attend the Annual Meeting, it is important
that your shares be represented and voted. THEREFORE, PLEASE COMPLETE, SIGN,
DATE AND MAIL THE ENCLOSED PROXY AS SOON AS POSSIBLE IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE. Returning the enclosed proxy will not affect your
right to revoke it later or to vote your shares in person if you attend the
Annual Meeting.
Very truly yours,
/S/ H. RAYMOND CAIRNCROSS
H. Raymond Cairncross
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
<PAGE>
OSTEX INTERNATIONAL, INC.
2203 Airport Way South, Suite 400
Seattle, Washington 98134
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 2, 1997
To the Shareholders of Ostex International, Inc.:
The Annual Meeting of the Shareholders of Ostex International, Inc.
(the "Company") will be held at the Bellevue Athletic Club, located at 11200 SE
6th Street, in Bellevue, Washington, on June 2, 1997, at 9:00 a.m. If you would
like directions, please call the Company at (206) 292-8082. The Annual Meeting
is held for the following purposes:
1. To elect two directors to the Company's Board of Directors;
2. To approve proposed amendments to the Company's 1994 Stock
Option Plan;
3. To approve proposed amendments to the Company's Directors'
Nonqualified Stock Option Plan;
4. To ratify the selection of Arthur Andersen LLP as the
Company's independent auditors for the fiscal year ending
December 31, 1997; and
5. To transact such other business as may properly come
before the Annual Meeting or any adjournment or
postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The record date for the Annual Meeting is April 16, 1997. Only
shareholders of record at the close of business on that date are entitled to
notice of, and to vote at, the Annual Meeting or any adjournment or postponement
thereof.
By Order of the Board of Directors
/S/ JEFFREY J. MILLER
Jeffrey J. Miller
SECRETARY
Seattle, Washington
April 23, 1997
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING.
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN
AND DATE THE ENCLOSED PROXY AND RETURN IT AS SOON AS POSSIBLE IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE IN ORDER TO ENSURE YOUR REPRESENTATION AT THE MEETING.
THE GIVING OF SUCH PROXY DOES NOT AFFECT YOUR RIGHT TO REVOKE IT LATER OR VOTE
YOUR SHARES IN PERSON IN THE EVENT THAT YOU SHOULD ATTEND THE ANNUAL MEETING.
<PAGE>
OSTEX INTERNATIONAL, INC.
PROXY STATEMENT
FOR THE
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 2, 1997
----------------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
This enclosed proxy is solicited on behalf of the Board of Directors of
Ostex International, Inc., a Washington corporation (the "Company"), to be voted
at the Company's 1997 Annual Meeting of Shareholders (the "Annual Meeting"), to
be held at 9:00 a.m. on Monday, June 2, 1997, at the Bellevue Athletic Club,
located at 11200 SE 6th Street, in Bellevue, Washington, or at any adjournment
or postponement thereof, for the purposes set forth in the accompanying Notice
of Annual Meeting of Shareholders. Any shareholder requiring directions to the
Bellevue Athletic Club should call the Company at (206) 292-8082.
VOTING AND OUTSTANDING SHARES
Only holders of record of Company common stock, $0.01 par value (the
"Common Stock"), at the close of business on April 16, 1997, are entitled to
notice of and to vote at the Annual Meeting. At the close of business on April
16, 1996, there were outstanding and entitled to vote 12,447,617 shares of
Common Stock. Shareholders of record on such date are entitled to one vote for
each share of Common Stock held on all matters to be voted upon at the Annual
Meeting. All votes will be tabulated by the inspector of election appointed for
the Annual Meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker nonvotes.
The presence in person or by proxy of holders of record of a majority
of the outstanding shares of Common Stock is required to constitute a quorum at
the Annual Meeting. Under Washington law and the Company's Articles of
Incorporation, assuming the presence of a quorum, the election of the Company's
directors requires a plurality of votes cast, and the other proposals described
in the accompanying Notice to Shareholders (including the approval of the
amendments to the 1994 Stock Option Plan (the "1994 Plan") and the Directors'
Nonqualified Stock Option Plan (the "Directors' Plan")) require that the votes
cast in favor exceed the votes cast against the proposal.
Abstentions and "broker nonvotes" (shares by a broker or nominee as to
which a broker or nominee indicates on the proxy that it does not have the
authority, either express or discretionary, to vote on a particular matter) are
counted for purposes of determining the presence of a quorum. For the election
of directors, an abstention from voting and broker nonvotes will not be counted
either in favor or against the nominees. For all other matters, an abstention
from voting and broker nonvotes will have the practical effect as a vote against
the respective matters because they are not affirmative votes.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power
to revoke it at any time before it is voted. It may be revoked by filing with
the Secretary of the Company at the Company's principal executive office, 2203
Airport Way South, Suite 400, Seattle, Washington 98134, a written notice of
revocation or a duly executed proxy bearing a later date, or it may be revoked
by attending the Annual Meeting and voting in person.
Attendance at the Annual Meeting will not, by itself, revoke a proxy.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies,
including preparing, printing and mailing this Proxy Statement, the proxy and
any additional information furnished to shareholders. The Company will also
<PAGE>
request brokerage firms, banks, nominees, custodians and fiduciaries to forward
proxy materials to the beneficial owners of shares of Common Stock as of the
record date. The Company will provide reimbursement for the cost of forwarding
the proxy materials in accordance with customary practice. In addition to
mailing of this Proxy Statement and the accompanying proxy, proxies may be
solicited by directors, officers and other employees of the Company, without
additional compensation, in person or by telephone, telegraph or facsimile
transmission. The Company may also use a proxy solicitation firm and will pay
commercially reasonable fees for required services not to exceed $5,000.
This Proxy Statement and accompanying proxy card are first being mailed
to shareholders on or about April 23, 1997.
PROPOSAL 1:
ELECTION OF DIRECTORS AND DIRECTOR INFORMATION
The Company's Articles of Incorporation (the "Articles") divide the
Board of Directors into three classes, each class consisting, as nearly as
possible, of one-third of the total number of directors. The members of each
class are elected to serve for a three-year term and until the election and
qualification of their successors. At each annual meeting of shareholders, one
class of the Board of Directors is elected and directors in the other classes
remain in office until their respective three-year terms expire. Under the
Company's Amended Bylaws, the Board of Directors is to be comprised of no more
than nine members and no fewer than five members, the exact number of which
shall be set by the Board of Directors from time to time. The Board of Directors
currently consists of six directors.
At the Annual Meeting, shareholders will be asked to elect two
directors to the class whose term of office will expire at the year 2000 annual
meeting of shareholders (the "Class 1" Directors). The nominees for election as
director are Dr. David R. Eyre and Dr. Fredric J. Feldman. Unless otherwise
directed, the persons named in the proxy intend to cast all proxies in favor of
Drs. Eyre and Feldman to serve as Class 1 Directors. Both nominees have agreed
to serve if elected and management has no reason to believe that they will be
unable to serve, but if either of them is not able to serve, it is intended that
the proxies will be voted for the election of such nominee as designated by the
Board of Directors to fill any such vacancy.
The nominees for director for any class will be elected by the
plurality of the votes cast in such class.
INFORMATION ABOUT THE DIRECTOR NOMINEES
DAVID R. EYRE, PH.D. (age 53) is a founder of the Company and has been
a Director since the Company's formation in May 1989. Dr. Eyre currently serves
on the Nominating Committee of the Board of Directors. His major research
interests include collagen biochemistry, inborn skeletal diseases, cartilage
pathology, biochemistry of the intervertebral disc, bone metabolism and
osteoporosis. Since 1985, Dr. Eyre has served as Burgess Professor of
Orthopedics at the University of Washington, where he is also Adjunct Professor
of Biochemistry and Oral Biology and Director of the Orthopedic Research
Laboratories. Dr. Eyre has previously served as a research scientist at
Children's Hospital Medical Center in Boston, Massachusetts, and as a faculty
member in the Department of Biological Chemistry at Harvard Medical School. In
addition, Dr. Eyre has served on the permanent scientific staff of the Kennedy
Institute of Rheumatology in London, England, and as a Research Fellow at
Massachusetts General Hospital and Harvard Medical School. Dr. Eyre has
published numerous articles on the biochemistry of connective tissue. Dr. Eyre
earned his Ph.D. and B.S. in biochemistry from the University of Leeds, England.
FREDRIC J. FELDMAN, PH.D. (age 57) has served as the President of FJF
Associates since 1992, a firm providing management and investment consulting
services to venture capital and emerging growth companies in the health care
industry. From 1995 to 1996, Dr. Feldman served as the interim Chief Executive
Officer of Biex, Inc., a biotechnology company focused on women's health care,
from 1992 to 1995 as the Chairman of the Board and Chief Executive Officer of
Oncogenetics, Inc., a genetic cancer diagnostic company, and from 1988 to 1992
<PAGE>
as President and Chief Executive Officer of Microgenic Corporation, a
biotechnology diagnostic company. Dr. Feldman received a Ph.D. and M.S. in
chemistry from the University of Maryland and a B.S. in chemistry from Brooklyn
College of City University of New York.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF
THE DIRECTOR NOMINEES.
INFORMATION ABOUT DIRECTORS WHOSE TERMS OF OFFICE CONTINUE AFTER
THE ANNUAL MEETING
DIRECTORS WHOSE TERMS EXPIRE IN 1998
ROBERT J. GLASER (age 45) has been the Company's President and Chief
Operating Officer since April 1996 and a Director of the Company since May
1995. Mr. Glaser served on the Audit Committee of the Board of Directors until
he became an officer of the Company in April 1996. Prior to joining the Company,
Mr. Glaser held a variety of U.S. and international positions at Merck & Co.
("Merck"), a pharmaceutical company, including positions as Senior Vice
President, Marketing, U.S. Human Health from January 1994 to April 1996, as Vice
President, Marketing, Merck Human Health Division from June 1993 to January
1994, as Vice President, Merck Vaccine Division, from March 1993 to June 1993,
as Vice President, Sales & Marketing, Merck Vaccine Division, from 1991 to 1993,
and as Executive Director of Marketing, Merck, Sharp & Dohme, from 1989 to 1991.
Mr. Glaser received an M.B.A. from the Kellogg School at Northwestern University
and a B.A. from Gettysburg College.
GREGORY D. PHELPS (age 48) has been a Director of the Company since
November 1995 and is serving on the Compensation and Nominating Committees of
the Board of Directors. Mr. Phelps has been Executive Vice President of Genzyme
Corporation, a biotechnology company, since 1991. Mr. Phelps served as President
and Chief Executive Officer of Viagene, Inc., a biotechnology company focusing
on development of gene therapies for viral diseases and cancers, from 1988 to
1990, and as President and Chief Executive Officer of ZymoGenetics, Inc., a
company developing biotherapeutic products, from 1986 to 1988. His career also
includes management positions with Baxter International, a general healthcare
company, from 1975 to 1986, where he was Vice President of the Hyland
Therapeutics Division. Mr. Phelps received an M.B.A. from Harvard Business
School and a B.S. from Bradley University.
DIRECTORS WHOSE TERMS EXPIRE IN 1999
THOMAS J. CABLE (age 57) has been a Director of the Company since
1989 and currently serves on the Audit, Compensation and Nominating
Committees of the Board of Directors. Mr. Cable is co-founder and partner of
Cable & Howse Ventures, Inc., a venture management company founded in 1979. Mr.
Cable was also co-founder and, from 1982 to 1985, a partner in Cable Howse &
Ragen, a Seattle investment banking and brokerage firm now known as Ragen
MacKenzie. Mr. Cable is a founder and current Chairman of the Washington
Research Foundation and serves on the board of directors of Mycogen Corporation,
an agricultural biotechnology company, Fischer Imaging, an x-ray equipment
manufacturer for mammography, EndoSonics, an intravascular ultrasound company,
Molecular Simulations, a computation chemistry software company, and Omeros
Medical Systems, Inc., a company developing orthopedic surgical devices and
products. Mr. Cable earned an M.B.A from Stanford University and a B.A. from
Harvard College.
H. RAYMOND CAIRNCROSS (age 55) is a founder of the Company and has been
Chairman of the Board of Directors since 1989 and Chief Executive Officer since
1991. From 1991 to April 1996, Mr. Cairncross also served as President of the
Company. In 1987, Mr. Cairncross founded Cairncross & Hempelmann, P.S., a
Seattle law firm of which he previously served as Managing Partner and currently
is a nonpracticing shareholder and a director. Mr. Cairncross is a member of the
board of directors of Information Optics Corporation, a company developing high
speed computer memory systems, and Omeros Medical Systems, Inc., a company
developing orthopedic surgical devices and products. Mr. Cairncross received a
J.D. and a B.A. from Stanford University.
<PAGE>
COMPENSATION OF DIRECTORS
The Company does not pay any cash compensation to directors serving in
that capacity, although directors are reimbursed actual travel expenses for
attendance at Board of Directors and committee meetings. The Company's
nonemployee directors participate in the Company's Directors Plan. The Directors
Plan, as proposed to be amended, is described below under "Proposal 3: Amendment
to the Directors Plan."
BOARD COMMITTEES
The Company's Board of Directors has standing Audit, Compensation and
Nominating Committees.
The Audit Committee currently consists of Mr. Cable. The Board of
Directors intends to appoint Dr. Feldman to the committee if elected at the
Annual Meeting by the shareholders. The Audit Committee makes recommendations to
the Board of Directors regarding the selection of independent auditors, reviews
the results and scope of the audit and other services provided by the Company's
independent auditors, and reviews and evaluates the Company's internal control
functions. The Audit Committee did not meet in 1996.
The Compensation Committee currently consists of Messrs. Cable and
Phelps. The Compensation Committee administers the Company's employee stock
option plans and makes recommendations to the Board of Directors concerning
compensation for executive officers and consultants of the Company. The
Compensation Committee met one time in 1996.
The Nominating Committee currently consists of Messrs. Cable and Phelps
and Dr. Eyre. The Nominating Committee administers the search process, if
necessary, for new members of the Company's Board of Directors and may recommend
executive officers to the Board of Directors. Shareholders intending to make
Board of Directors recommendations must provide written notice of such intent
not later than 120 days in advance of the date of an annual shareholders meeting
with information regarding such nominee. The Nominating Committee was
established in April 1997.
BOARD MEETINGS
During 1996, there were five meetings of the Board of Directors and
each director attended at least 75% of the aggregate number of Board meetings
and meetings of committees on which he served.
<PAGE>
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth certain
information regarding compensation paid during the years ended December 31,
1996, 1995 and 1994 to (i) the Company's Chief Executive Officer and (ii) each
of the Company's executive officers who earned more than $100,000 in 1996
(collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
----------------------------------------- -----------------------------
Name and Principal Other Annual Securities Underlying All Other
Position Year Salary Compensation Options (#) Compensation
- ----------------------------- ----------------------------------------- ----------------------------- -----------------
<S> <C> <C> <C> <C> <C>
H. Raymond Cairncross,
Chairman of the Board 1996 $ 250,000 - - -
and Chief Executive Officer 1995 $ 250,000 - - -
1994 $ 168,000 - 500,000 $ 40,000
Robert J. Glaser, Director,
President and Chief 1996 $ 174,000 - 200,000 -
Operating Officer 1995 - - 10,000 -
William K. Strelke, Vice 1996 $ 125,000 $ 24,000 (1) 12,500 -
President, Sales & 1995 $ 124,000 $ 36,000 (1) 20,000 -
Marketing 1994 $ 84,000 $ 5,000 (1) 37,500 -
- -------
<FN>
(1) Represents commissions earned.
</FN>
</TABLE>
OPTION GRANTS IN 1996. The following table sets forth certain information
regarding stock options granted to the Named Executive Officers during the year
ended December 31, 1996.
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF OF STOCK PRICE
UNDERLYING TOTAL OPTIONS EXCERCISE APPRECIATION FOR
OPTIONS GRANTED TO PRICE PER EXPIRATION OPTION TERM
NAME GRANTED (#) EMPLOYEES SHARE (1) DATE 5% 10%
- ---- ----------- --------- --------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
H. Raymond Cairncross - 0% - N/A - -
Robert J. Glaser 200,000 45% $ 14.00 4/15/2006 $ 1,761,000 $ 4,462,000
William K. Strelke 12,500 3% $ 10.75 7/1/2006 $ 85,000 $ 214,000
- -------
<FN>
(1) In February 1997, the Board of Directors repriced all stock options
granted during 1996 to $5.75, the fair market value of the Common Stock
as reported on the repricing date.
</FN>
</TABLE>
<PAGE>
OPTION EXERCISES AND YEAR END OPTION VALUES FOR 1996. The following table
sets forth certain information regarding options exercised during 1996 by the
Named Executive Officers and the value of such persons' unexercised options at
December 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SHARES UNEXERCISED
SHARES UNDERLYING IN-THE
ACQUIRED UNEXERCISED MONEY
ON EXERCISE VALUE OPTIONS AT OPTIONS AT
# REALIZED FISCAL FISCAL
NAME ($) YEAR END YEAR END (1)
------ ---------- ----- -------- ------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
H. Raymond Cairncross - - 545,500 250,000 $757,850 $125,000
Robert J. Glaser - - 3,333 200,000 - -
William K. Strelke - - 23,750 46,250 $9,375 $9,375
- ------
<FN>
(1) Based on the $5.50 closing price of the Company's Common Stock on
December 31, 1996, as reported on the National Market tier of the
Nasdaq Stock Market, as reported by the Wall Street Journal, minus
the per-share exercise price, multiplied by the number of shares
underlying the option.
</FN>
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996, the Company's Compensation Committee consisted of Messrs.
Cable and Phelps, both of whom were nonemployee directors. To the Company's
knowledge, no member of the Compensation Committee has a relationship that would
constitute an interlocking relationship with executive officers or directors of
another entity.
Mr. Cable is Chairman of the Board of Trustees of the Washington Research
Foundation (the "WRF"), a not-for-profit licensing agency dedicated to the
transfer to the private sector of technology developed at the University of
Washington (the "University"). During the year ended December 31, 1996, the
Company incurred approximately $154,000 in patent legal expenses on behalf of
the WRF in accordance with the Company's worldwide exclusive license agreements
with the WRF for the urinary assay for measuring bone resorption and osteoclast
colony stimulating factor technologies.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") is
responsible for determining the compensation of the executive officers of the
Company. The Committee is comprised of two nonemployee directors. In making its
determinations, the Committee relies on input from compensation consultants and
reviews appropriate decisions with all nonemployee directors who constitute a
majority of the full Board of Directors.
EXECUTIVE COMPENSATION PHILOSOPHY. The Company's executive compensation
program reflects the philosophy that executives' rewards should be structured to
closely align their interests with those of the shareholders. The program
emphasizes stock-based incentives, and extends these concepts beyond the
executive officer population to all full-time employees in the interest of
<PAGE>
motivation, teamwork, and fairness. The Company's executive compensation
programs are designed to attract and retain experienced and well qualified
executive officers who will enhance the performance of the Company and build
shareholder value. The Company's executive compensation program generally
includes two components: base salary and stock options.
In setting the compensation level for executive officers, the Committee
is guided by the following considerations:
- compensation levels should be competitive with compensation generally
being paid to executives in the biotechnology and diagnostic
industries to ensure the Company's ability to attract and retain
superior executives;
- a significant portion of executive officer compensation should be paid
in the form of equity based incentives to link closely shareholder and
executive interests and to encourage stock ownership by executive
officers; and
- each individual executive officer's compensation should reflect the
performance of the Company as a whole and the performance of the
executive officer.
BASE SALARY. An executive officer's base salary is determined by the
Company's overall performance, the responsibility of the particular position,
and an assessment of the person's performance against individual
responsibilities and objectives, including, where appropriate, the impact of
such performance on the business results of the Company. The Committee also may
consider nonfinancial indicators including, but not limited to, strategic
developments for which an executive officer has responsibility, intangible
elements of managerial performance and levels of compensation to maintain
competitive levels with similar companies in the biotechnology and diagnostic
industries. Executive officer salaries are generally reviewed annually and
adjusted each calendar year based upon these considerations.
STOCK OPTIONS. Stock options are a regular component of the executive
compensation program. The Committee sets guidelines for the number of stock
options granted or shares awarded, based on the Company's performance and the
targeted value of each executive's overall compensation package. In setting such
guidelines, the Committee evaluates the long-term incentive packages offered to
the Company's executives in relation to the long-term incentive packages offered
by other biotechnology companies which the Committee considers to be in the
Company's peer group. These option grants reflect the Committee's policy of
encouraging long-term performance and promoting executive retention while
further aligning management's and shareholders' interest in the performance of
the Company's Common Stock.
In 1996, the Committee granted an aggregate of 257,500 stock options to
seven executive officers of the Company as an incentive for future performance,
including options for 200,000 shares to Mr. Glaser and 12,500 shares to Mr.
Strelke.
EXECUTIVE BENEFITS. The Company offers the same benefits package to
executive officers as it does to all full-time employees of the Company.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER. Mr. Cairncross' 1996
compensation consisted of a base salary of $250,000.
In April 1994, Mr. Cairncross entered into an at will employment
agreement with the Company. At that time, an initial public offering was
contemplated and was ultimately completed in February 1995. The Committee set
Mr. Cairncross' 1994 base salary at $250,000, to be competitive with base
salaries paid to other executives in the biotechnology industry with similar
responsibilities and seniority. Mr. Cairncross' base salary has remained
competitive and has not changed since 1994.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M). Section 162(m) of
the Internal Revenue Code, generally disallows a tax deduction to publicly-held
companies for annual compensation in excess of $1 million earned by the chief
executive officer or any of the other four highest compensated officers. The
deduction limit does not apply, however, to performance based compensation that
satisfies certain requirements. Although the Committee has not yet determined a
<PAGE>
policy with respect to Section 162(m) and no officer of the Company is expected
to earn compensation in excess of $1 million in 1997 that would not qualify as
performance-based compensation, the Committee intends to review the implications
of Section 162(m) with respect to the Company's executive compensation policies.
Compensation Committee of the Board of Directors
------------------------------------------------
Mr. Thomas J. Cable
Mr. Gregory D. Phelps
EMPLOYMENT, TERMINATION AND CHANGE OF CONTROL AGREEMENTS
In April 1994, Mr. Cairncross entered into an at will employment
agreement with the Company which provides for an annual salary of $250,000,
subject to adjustment by the Board of Directors. The employment agreement is
terminable at will by either party.
The Company has entered into a consulting agreement with Dr. Eyre for
assistance with the urinary assay for measuring bone resorption and osteoclast
colony stimulating factor technologies which remains in effect at December 31,
1996. The agreement provides for the payment of $6,000 per month by the Company
to Dr. Eyre, plus expenses. During the year ended December 31, 1996, the Company
paid Dr. Eyre $72,000 pursuant to the agreement.
CERTAIN TRANSACTIONS
The Company has entered into two research agreements with the
University of Washington extending through March 31, 1999. Pursuant to these
agreements, the Company is obligated to fund certain research activities
conducted by Dr. Eyre and one other research group at the University. During the
year ended December 31, 1996, the Company paid the University approximately
$304,000 under these agreements. Dr. Eyre has been the Burgess Professor of
Orthopedics at the University since 1985.
During the first quarter 1996, Mr. Glaser was Senior Vice President,
Marketing, U.S. Human Health of Merck and Company, Inc. For the year ended
December 31, 1996, Merck and Merck affiliates purchased $379,000 of
OSTEOMARK-Registered Trademark- kits from the Company.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of April 1, 1997, by (i) each person
who is known by the Company to own beneficially more than 5% of the Common
Stock; (ii) each director and nominee for director; (iii) each Named Executive
Officer; and (iv) all directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE BENEFICIALLY
NAME OF BENEFICIAL OWNER SHARES (1) OWNED (2)
- -------------------------- ---------- ---------
<S> <C> <C>
David R. Eyre, Ph.D. (3) 1,448,500 11.64%
8011 East Mercer Way
Mercer Island, WA 98040
Thomas J. Cable (4) 1,029,236 8.27%
c/o Cable & Howse Ventures
777 108th Ave. N.E.
Bellevue, WA 98004
Wisconsin Investment Board 839,000 6.74%
P.O. Box 7842
Madison, WI 53707
Mochida Pharmaceutical, Co., Ltd. 736,842 5.92%
Y.S. Building
9 San-Eicho, Shinjuku-ku
Tokyo 160, Japan
H. Raymond Cairncross (5) 678,500 5.45%
Shaw Venture Partners 642,935 5.17%
400 S.W 6th Ave.
Suite 1100
Portland, OR 97204
William K. Strelke (6) 38,725 *
Robert J. Glaser (7) 3,333 *
Gregory D. Phelps (7) 3,333 *
Fredric J. Feldman - -
Gilbert S. Omenn - -
All directors and executive officers
as a group (twelve persons) (8) 3,231,302 25.96%
- -------
*Less than 1%
<PAGE>
<FN>
(1) This table is based upon information supplied by executive officers,
directors and principal shareholders. The address of each officer
identified in this table is that of the Company's executive offices.
Unless otherwise indicated in the footnotes to this table and subject to
community property laws where applicable, each of the shareholders named
in this table has sole voting and investment power with respect to the
shares shown as beneficially owned.
(2) Percentage of beneficial ownership is based on 12,447,617 shares of
Common Stock outstanding as of April 1, 1997.
(3) Includes 560,000 shares held in trust for the benefit of Dr. Eyre's
children and 37,500 shares subject to fully vested stock options.
(4) Includes 991,070 shares held by CH Partners IV Limited Partnership ("CH
IV"), a venture capital fund of which Mr. Cable is a general partner.
Under federal securities laws, Mr. Cable may be deemed to own
beneficially all of the shares held by CH IV. In addition, the number of
shares includes 6,666 shares subject to stock options that are
exercisable within 60 days of April 1, 1997.
(5) Includes 670,500 shares subject to stock options that are exercisable
within 60 days of April 1, 1997.
(6) Includes 38,125 shares subject to stock options that are exercisable
within 60 days of April 1, 1997.
(7) Represents shares subject to stock options that are exercisable within
60 days of April 1, 1997.
(8) Includes 789,000 shares subject to stock options that are exercisable
within 60 days of April 1, 1997.
</FN>
</TABLE>
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's officers and directors, and persons who own more
than 10% of the Common Stock, to file reports of ownership and change in
ownership with the Securities and Exchange Commission ("SEC") and with the
National Association of Securities Dealers, Inc. Officers, directors and greater
than 10% shareholders are required by SEC regulations to furnish the Company
with copies of all Section 16(a) reports that they file.
To the Company's knowledge, based solely on its review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten percent shareholders were compiled
during the fiscal year ended December 31, 1996.
<PAGE>
PERFORMANCE GRAPH
COMPARISON OF THE COMPANY'S CUMULATIVE TOTAL RETURN ON COMMON STOCK DURING THE
PERIOD FROM JANUARY 25, 1995 (WHEN THE COMPANY'S STOCK BEGAN PUBLIC TRADING)
TO DECEMBER 31, 1996 AMONG OSTEX INTERNATIONAL, INC., THE NASDAQ U.S.
STOCK MARKET, AND THE HAMBRECHT & QUIST HEALTHCARE INDEX.
[PERFORMANCE GRAPHIC FILED SEPARATELY]
- ------------------------------------------------------------------------------
1/25/95 3/95 6/95 9/95 12/95 3/96 6/96 9/96 12/96
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Ostex International, 100 99 245 236 203 168 111 84 58
Inc.
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Nasdaq U.S.
Stock Market 100 108 123 138 140 146 158 164 172
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Hambrecht & Quist
Healthcare Index 100 109 117 144 166 169 159 172 171
- ------------------------------------------------------------------------------
The above graph assumes $100 invested in the Common Stock, the Nasdaq Stock
Market and the Hambrecht & Quist Healthcare Index with all dividends reinvested.
The Company has not paid cash dividends on its Common Stock. Stock performance
shown in the above graph for the Common Stock is historical and not necessarily
indicative of future price performance.
PROPOSAL 2:
AMENDMENT TO THE 1994 PLAN
The Company's 1994 Plan was adopted by the Company's Board of Directors
in May 1994 and approved by the Company's shareholders in June 1994 to be
effective for a ten-year period. The Company reserved a total of 1,000,000
shares of Common Stock for issuance under both the 1994 Plan and the Company's
Directors Plan. The 1,000,000 shares reserved for issuance reflect the Company's
five-for-one stock split effected in the form of a stock dividend, paid in June
1994. As of April 1, 1997, options to purchase an aggregate of 751,625 shares
had been granted under the 1994 Plan and the Directors Plan. The Board of
Directors has amended the 1994 Plan to make it separate and apart from the
<PAGE>
Directors Plan and to establish a finite number of shares of Common Stock
reserved for issuance under the 1994 Plan. At the Annual Meeting, the
shareholders of the Company will be asked to approve an amendment to the 1994
Plan to increase the number of shares of Common Stock authorized under the 1994
Plan to 1,750,000 shares.
The proposed amendment is designed to help the Company continue to
attract and retain the best available personnel for positions of substantial
responsibility, and to provide an incentive to officers, employee directors,
employees, consultants and advisors of the Company. Set forth below is a summary
description of the 1994 Plan, as recommended to the shareholders for amendment,
and is qualified in its entirety by reference to the full text of the 1994 Plan,
a copy of which is available upon request from the Company.
DESCRIPTION OF THE 1994 PLAN
Pursuant to the 1994 Plan, options may be granted to employees,
employee directors, consultants and advisors of the Company. The 1994 Plan
provides for the granting of both incentive stock options ("ISOs") (stock
options that are intended to qualify for favorable tax treatment under Section
422 of the Internal Revenue Code of 1986, as amended (the "Code")) and
nonqualified stock options ("NSOs"). Options granted under the 1994 Plan
generally become fully vested and exercisable four years from the date of grant,
with 25% of the total option vesting on each anniversary of the date of grant.
An aggregate of 1,750,000 shares of Common Stock is authorized for issuance
under the 1994 Plan, subject to adjustment from time to time for stock dividends
and certain other changes in capitalization as provided in the 1994 Plan. As of
April 1, 1997, options for an aggregate of 711,625 shares had been granted under
the 1994 Plan, leaving 1,038,375 shares available for future issuance.
The 1994 Plan may be administered by the Board of Directors, or a
committee designated by the Board of Directors, which shall have full power and
authority to administer and interpret the 1994 Plan and to adopt, from time to
time, such guidelines, rules, regulations, agreements, and instruments for the
administration of the 1994 Plan as the Board of Directors deems necessary or
advisable. Currently, the 1994 Plan is administered by the Compensation
Committee of the Board of Directors.
The Board of Directors, acting through the Compensation Committee,
selects the participants to receive stock options and determines the number of
shares, the type of grant, the exercise price, as well as the time or times at
which options may be exercised and other terms and conditions of such grant. For
ISOs, the exercise price may not be less than the fair market value of the
Common Stock on the date of grant. For NSOs, the option price may be less than,
equal to, or greater than the fair market value of the Common Stock on the date
of grant. In the event of stock dividends, splits, and similar capital changes,
the 1994 Plan provides for appropriate adjustments in the number of shares
available for options and the number and option prices of shares subject to
outstanding options.
The term of each option granted under the 1994 Plan may be no more than
ten years from the date of grant. Options granted to employees expire one year
following termination of employment, except for ISOs which expire 90 days
following termination of employment, (but in neither event later than the date
of expiration of the term of the option as set forth in the option agreement),
and except in the case of permanent disability or death. In the case of
termination of employment due to permanent disability or death of an employee,
the option terminates one year from the date that the employee ceases work as a
result of the employee's disability or death (but in no event later than the
date of expiration of the term of such option as set forth in the option
agreement). In addition, for employees who have been continuously employed by
the Company for a minimum of two years, regardless of the vesting schedule, upon
death or disability, the option shall become fully vested and exercisable. The
Board of Directors has the authority to extend the foregoing expiration dates of
any outstanding option in circumstances it deems appropriate, provided that it
may not extend an option beyond the original term of such option (e.g., ten
years from date of grant).
The exercise price of option shares may be paid in cash, by means of a
cash equivalent, or in accordance with procedures for a "cashless exercise" as
the same may be established from time to time by the Company and, if applicable,
a brokerage firm that the Company may retain to facilitate exercises of options
and sales of shares under the 1994 Plan. For NSOs, the option holder must also
pay to the Company, at the time of purchase, the amount of federal, state, and
local withholding taxes required to be withheld by the Company. Under certain
<PAGE>
limited circumstances, shares of Common Stock may be used for payment of the
option price or satisfaction of withholding obligations.
In the event of a change of control of the Company, any outstanding
option granted under the 1994 Plan will become fully vested and immediately
exercisable. A "change of control" is defined under the 1994 Plan as (i) the
acquisition by any person of beneficial ownership of 50% or more of the voting
power of the Company's outstanding securities or (ii) the occurrence of a
transaction requiring shareholder approval and involving the sale of all or
substantially all of the assets of the Company or the merger of the Company with
or into another corporation. In addition, upon the liquidation or dissolution of
the Company, all outstanding options shall terminate; provided, however, that
prior to such liquidation or dissolution, an option holder has the right to
exercise his or her options in whole or in part whether or not the vesting
requirements set forth in the option agreement have been satisfied.
The options are assignable only (i) by will or by the laws of descent
and distribution, or (ii) in the case of an NSO, by gift to immediate family
members of the optionee, partnership of which the only partners are members of
the optionee's immediate family, and trusts established solely for the benefit
of such immediate family members.
The 1994 Plan may be modified, amended, or terminated by the Board of
Directors except with respect to options granted prior to such action.
Notwithstanding the foregoing, shareholder approval is required for any
amendment which increases the number of shares subject to the 1994 Plan (other
than in connection with automatic adjustments due to changes in capitalization
or the assumption or substitution of options in connection with mergers or
acquisitions), changes the persons eligible to receive options, or which is
otherwise subject to shareholder approval pursuant to the federal securities
laws or tax laws.
FEDERAL INCOME TAX CONSEQUENCES RELATING TO THE 1994 PLAN
The 1994 Plan is not qualified under Section 401(a) of the Code and is
not subject to the Employee Retirement Income Security Act of 1974.
The federal income tax consequences of an employee's participation in
the 1994 Plan are complex and subject to change. The following discussion, is
only a summary of the general rules applicable to options. Recipients of options
under the 1994 Plan should consult their own tax advisors since a taxpayer's
particular situation may be such that some variation of the general rules would
apply.
INCENTIVE STOCK OPTIONS
If an option granted under the 1994 Plan is treated as an ISO, the
optionee will not recognize any income upon either the grant or the exercise of
the option and the Company will not be allowed a deduction for federal tax
purposes with respect to such grant or exercise. Upon a sale of the shares
received upon exercise of the option, the tax treatment to the optionee and the
Company will depend primarily upon whether the optionee has met certain holding
period requirements at the time he or she sells the shares. In addition, as
discussed below, the exercise of an incentive stock option may subject the
optionee to alternative minimum tax liability.
If an optionee exercises an ISO and does not dispose of the shares
received within two years after the date of the grant of such option and within
one year of the date of exercise, any gain realized upon disposition will be
characterized as long-term capital gain. In such case, the Company will not be
entitled to a federal tax deduction.
If the optionee disposes of the shares either within two years after
the date that the option is granted or within one year of the date of exercise,
such disposition will be treated as a disqualifying disposition and an amount
equal to the lesser of (1) the fair market value of the shares on the date of
exercise minus the purchase price, or (2) the amount realized on the disposition
minus the purchase price, will be taxed as ordinary income to the optionee in
the taxable year in which the disposition occurs. The excess, if any, of the
amount realized upon disposition over the fair market value at the time of the
exercise of the option will be treated as long-term capital gain if the shares
have been held for more than one year following the exercise of the option. In
<PAGE>
the event of a disqualifying disposition, the Company may withhold income taxes
from the optionee's compensation with respect to the ordinary income realized by
the optionee as a result of the disqualifying disposition.
The exercise of an ISO may subject an optionee to alternative minimum
tax liability because the excess of the fair market value of the shares at the
time an incentive stock option is exercised over the purchase price of the
shares is included in income for purposes of the alternative minimum tax even
though it is not included in the taxable income for purposes of determining the
regular tax liability of an incentive stock option recipient. Consequently, an
optionee may be obligated to pay alternative minimum tax in the year he or she
exercises an ISO.
In general, there will be no federal income tax deductions allowed to
the Company upon the grant, exercise, or termination of an ISO. However, in the
event an optionee sells or disposes of stock received upon the exercise of an
ISO in a disqualifying disposition, the Company will be entitled to a deduction
for federal income tax purposes in an amount equal to the ordinary income, if
any, recognized by the optionee upon disposition of the shares, provided that
the deduction is not otherwise disallowed under the Code.
NONQUALIFIED STOCK OPTIONS
NSOs granted under the 1994 Plan do not qualify as "incentive stock
options" and will not qualify for any special tax benefits to the optionee. An
optionee will not recognize any taxable income at the time he or she is granted
an NSO. However, upon its exercise, the optionee will recognize ordinary income
for federal tax purposes measured by the excess of the then fair market value of
the shares over the option exercise price. The income realized by the optionee
will be subject to income tax withholding by the Company out of the current
earnings paid to the optionee. If such earnings are insufficient to pay the tax,
the optionee will be required to make a direct payment to the Company for the
tax liability.
The optionee's basis for determination of gain or loss upon the
subsequent disposition of shares acquired upon the exercise of an NSO will be
the amount paid for such shares plus any ordinary income recognized as a result
of the exercise of such option. Upon a disposition of any shares acquired
pursuant to the exercise of an NSO, the difference between the sale price and
the optionee's basis in the shares will be treated as a capital gain or loss and
will be characterized as long-term capital gain or loss if the shares have been
held for more than one year at the date of their disposition.
In general, there will be no federal tax consequences to the Company
upon the grant or termination of an NSO or a sale or disposition of the shares
acquired upon the exercise of an NSO. However, upon the exercise of an NSO, the
Company will be entitled to a deduction for federal income tax purposes equal to
the amount of ordinary income that an optionee is required to recognize as a
result of the exercise, provided that the deduction is not otherwise disallowed
under the Code.
VOTE REQUIRED AND BOARD RECOMMENDATION
The affirmative vote of the holders of a majority of the shares of
Common Stock represented at the Annual Meeting is required for approval of the
amendment to the 1994 Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
AMENDMENT TO THE COMPANY'S 1994 STOCK OPTION PLAN.
<PAGE>
PROPOSAL 3:
AMENDMENT TO THE DIRECTORS PLAN
The Company's Directors Plan was adopted by the Company's Board of
Directors in May 1994 and approved by the Company's shareholders in June 1994.
The Directors Plan provides for automatic grants of NSOs to nonemployee
directors of the Company upon becoming a director at an exercise price that is
equal to the fair market value per share of the Common Stock on the date of
grant. In conjunction with the adoption of the 1994 Plan, the Company reserved
an aggregate of 1,000,000 shares of Common Stock for issuance under both plans
(which shares reserved for issuance reflect the Company's five-for-one stock
split effected in the form of a stock dividend, paid in June 1994). The Board of
Directors has amended the Directors Plan to make it separate and apart from the
1994 Plan and to establish a finite number of shares reserved for issuance under
the Directors Plan.
In April 1997, the Company's Board of Directors unanimously approved an
amendment to the Directors Plan, subject to shareholder approval, to increase
the total number of shares of Common Stock authorized under the Directors Plan
to 350,000 shares. The proposed amendment is designed to help the Company
continue to attract and retain the services of experienced and knowledgeable
outside directors and to provide additional incentives for such directors to
align their proprietary interests with the Company's long-term success and
progress. Set forth below is a summary description of the Directors Plan, as
recommended to the shareholders for amendment, and is qualified in its entirety
by reference to the full text of the Directors Plan, a copy of which is
available upon request from the Company.
DESCRIPTION OF THE DIRECTORS PLAN
The Directors Plan provides for automatic grants of NSOs to nonemployee
directors of the Company at an exercise price equal to the fair market value per
share of the Common Stock on the date of grant. Upon becoming a director, any
nonemployee director initially elected or appointed will receive an initial
grant of options to purchase 25,000 shares of Common Stock. Each nonemployee
director who has been in office for a period of at least five months will
automatically receive an annual grant of options to purchase 10,000 shares,
effective as of the day following each annual meeting of shareholders at which
he or she is reelected or continues as a director. Options granted to
nonemployee directors become fully vested and exercisable three years from the
date of grant, with one-third of the total option vesting on each anniversary of
the date of grant. An aggregate of 350,000 shares of Common Stock is authorized
for issuance under the Directors Plan, subject to adjustment from time to time
for stock dividends and certain other changes in capitalization as provided in
the Directors Plan. As of April 1, 1997, options for an aggregate of 40,000
shares had been granted under the Directors Plan to nonemployee directors,
leaving 310,000 shares available for future issuance.
Options granted under the Directors Plan are nontransferable other than
by will or the laws of descent and distribution or, to the extent permitted by
Rule 16b-3 under the Exchange Act, to certain family members and family trusts.
Options expire 10 years from the date of grant or 90 days after a director's
termination of service as a director, except in the case of death or disability,
in which case the options expire one year after termination.
The administrator of the Directors Plan is the Board of Directors. The
administrator has the power to construe the provisions of the Directors Plan, to
determine all questions arising thereunder, and to adopt and amend such rules
and regulations for the administration of the Directors Plan as it may deem
necessary or desirable. No member of the Board of Directors may participate in
any vote by the Board of Directors on any matter materially affecting the rights
of any such member under the Directors Plan.
In the event of a change of control of the Company, any outstanding
option granted under the Directors Plan will become fully vested and immediately
exercisable. A "change of control" is defined under the Directors Plan as (i)
the acquisition by any person of beneficial ownership of 50% or more of the
voting power of the Company's outstanding securities or (ii) the occurrence of a
transaction requiring shareholder approval and involving the sale of all or
substantially all of the assets of the Company or the merger of the Company with
or into another corporation. In addition, upon the liquidation or dissolution of
<PAGE>
the Company, all outstanding options shall terminate; provided, however, that
prior to such liquidation or dissolution, an option holder has the right to
exercise his or her options in whole or in part whether or not the vesting
requirements set forth in the option agreement have been satisfied.
The exercise price of option shares may be paid in cash, by means of a
cash equivalent, or in accordance with procedures for a "cashless exercise" as
the same may be established from time to time by the Company and, if applicable,
a brokerage firm that the Company may retain to facilitate exercises of options
and sales of shares under the Directors Plan. The option holder must also pay to
the Company, at the time of purchase, the amount of federal, state, and local
withholding taxes required to be withheld by the Company. Under certain limited
circumstances, shares of Common Stock may be used for payment of the option
price or satisfaction of withholding obligations.
The Directors Plan may be modified, amended, or terminated by the Board
of Directors except with respect to options granted prior to such action.
Notwithstanding the foregoing, shareholder approval is required for any
amendment which increases the number of shares subject to the Directors Plan
(other than in connection with automatic adjustments due to changes in
capitalization or the assumption or substitution of options in connection with
mergers or acquisitions), changes the persons eligible to receive options, or
which is otherwise subject to shareholder approval pursuant to the federal
securities laws or tax laws.
FEDERAL INCOME TAX CONSEQUENCES
There are no tax consequences to the Company or the option holder upon
the grant of an option under the Directors Plan. Upon the exercise of an option,
the option holder recognizes ordinary income equal to the difference between the
exercise price for the shares of Common Stock and the fair market value of the
shares on the date of exercise. The Company is entitled to a corresponding tax
deduction equal to the amount of income recognized by the optionee at the time
of recognition by the option holder.
VOTE REQUIRED AND BOARD RECOMMENDATION
The affirmative vote of the holders of a majority of the shares of
Common Stock represented at the Annual Meeting is required for approval of the
amendment to the Directors Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
AMENDMENTS TO THE DIRECTORS PLAN.
PROPOSAL 4:
RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors has selected Arthur Andersen LLP as the
Company's independent auditors for the year ending December 31, 1997, and has
further directed that management submit the selection of independent auditors
for ratification by the shareholders at the Annual Meeting. Arthur Andersen LLP
has audited the Company's financial statements since the Company's inception in
1989. Representatives of Arthur Andersen LLP are expected to be present at the
Annual Meeting and will have an opportunity to make a statement if they so
desire and will be available to respond to appropriate questions.
Shareholder ratification of the selection of Arthur Andersen LLP as the
Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board of Directors is submitting the selection of Arthur
Andersen LLP to the shareholders for ratification as a matter of good corporate
practice. If the shareholders fail to ratify the selection, the Board of
Directors will reconsider whether or not to retain that firm. Even if the
selection is ratified, the Board of Directors in its discretion may direct the
appointment of a different independent accounting firm at any time during the
year if the Board of Directors determines that such a change would be in the
best interests of the Company and its shareholders.
<PAGE>
The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and entitled to vote at the meeting will be
required to ratify the selection of Arthur Andersen LLP.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
SELECTION OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS OF THE COMPANY.
PROPOSALS OF SHAREHOLDERS
Shareholder proposals to be presented at the Company's 1998 Annual
Meeting of Shareholders and included in the Company's Proxy Statement relating
to such meeting must be received by the Company no later than January 31, 1998.
Such proposals should be directed to the Secretary of the Company, 2203 Airport
Way South, Suite 400, Seattle, Washington 98134.
OTHER BUSINESS
The Board of Directors does not intend to bring any other business
before the Annual Meeting, nor is the Board aware of any other matter to be
brought before the Annual Meeting, except as specified in the Notice of Annual
Meeting of Shareholders. However, as to any other business that may properly
come before the Annual Meeting, it is intended that proxies, in the form
enclosed, will be voted in respect thereto, in accordance with the judgment of
the persons voting such proxies.
ANNUAL REPORT
A copy of the Company's 1996 Annual Report to Shareholders is enclosed.
Shareholders not receiving a copy of such annual report may obtain one, without
charge, upon request to the Company's Investor Relations at 2203 Airport Way
South, Suite 400, Seattle, Washington 98134.
By Order of the Board of Directors
/S/ JEFFREY J. MILLER
Jeffrey J. Miller
SECRETARY
Seattle, Washington
April 23, 1997
OSTEX INTERNATIONAL, INC.
AMENDED AND RESTATED DIRECTORS' NONQUALIFIED STOCK OPTION PLAN
This Nonqualified Stock Option Plan (the "Plan") provides for the grant
of options to acquire shares of Common Stock, $.01 par value (the "Common
Stock"), of Ostex International, Inc., a Washington corporation (the "Company").
1. PURPOSE. The purpose of this Plan is to compensate certain
directors of the Company (the "Optionees" or "Optionee").
2. ELIGIBILITY. Persons eligible to receive options under this Plan
shall be all directors of the Company who are not otherwise employed by the
Company or any Related Corporation, as defined below (the "Directors" or
"Director"). Options may be granted in substitution for outstanding Options of
another corporation in connection with the merger, consolidation, acquisition of
property or stock or other reorganization between such other corporation and the
Company or any subsidiary of the Company. Options also may be granted in
exchange for outstanding Options.
As used in this Plan, the term "Related Corporation," when referring to
a subsidiary corporation, shall mean any corporation (other than the Company) in
an 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 fifty percent (50%) or
more of the total combined voting power of all classes of stock of one of the
other corporations in such chain. When referring to a parent corporation, the
term "Related Corporation" shall mean any corporation (other than the Company)
in an unbroken chain of corporations ending with the Company if, at the time of
granting of the Option, each of the corporations other than the Company owns
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock of one of the other corporations in such chain.
3. STOCK.. Options to purchase an aggregate of 350,000 shares of Common
Stock (subject to adjustment as provided in Section 4.12) may be issued pursuant
to the Plan. As of the date that a person is initially elected or appointed as a
Director, the Company shall automatically grant to such person options to
purchase 25,000 shares of the Company's authorized but unissued, or reacquired,
Common Stock (subject to adjustment as provided in Section 4.12). In addition,
for each Director who is in office the day following any annual meeting of
shareholders of the Company (at which meeting such Director was re-elected or
continued in office) and who has been in office for at least five months prior
to such annual meeting, the Company will automatically grant options to purchase
10,000 shares of Common Stock (subject to adjustment as provided in Section
4.12). In the event that any outstanding Option expires or is terminated for any
reason, those shares of Common Stock allocable to the unexercised portion of
such Option may be subject to one or more other Options issued pursuant to the
Plan.
4. TERMS AND CONDITIONS OF OPTIONS. Each Option shall be
evidenced by a written agreement (the "Agreement") in the form approved by
the Company. Agreements may contain such additional provisions, not inconsistent
herewith, as the Company in its discretion may deem advisable. All Options shall
also comply with the following requirements:
4.1 NUMBER OF SHARES. Each Agreement shall state the
number of shares to which it pertains.
4.2 DATE OF GRANT. Each Option shall state the date the
Company and the Director entered into the Agreement (the "Date of Grant"), which
shall be (i) in the case of new Directors, the date the individual becomes a
Director, or (ii) the case of Directors in office the day after any annual
meeting of shareholders, the date after such meeting whichever is applicable.
4.3 OPTION PRICE. The exercise price for all Options granted
hereunder shall be the fair market value on Date of Grant. Such fair market
value shall be the closing price at which it was traded on a national securities
exchange or the last sale price quoted on the National Association of Securities
Dealers Automated Quotation System or any successor or substantially similar
market thereto on the Date of Grant. If the Common Stock shall be traded on more
than one such market, the exercise price shall be determined on the basis of the
most active market. If no such market exists, the exercise price shall be
established at fair market value based on the most recent arms-length
transaction occurring within eighteen (18) months preceding the Date of Grant by
or among the Company or any greater-than-ten-percent ( >10%) shareholders of the
Company or, if unavailable, by a qualified appraiser selected by the Company.
4.4 VESTING SCHEDULE. All Options shall vest according
to the following schedule:
Percentage of
Number of Years Total Option to
FOLLOWING DATE OF GRANT BE EXERCISABLE
1 33 1/3%
2 33 1/3%
3 33 1/3%
4.5 ACCELERATION OF VESTING. Options granted pursuant to the
Plan shall become immediately vested and fully exercisable upon the Director's
termination as a director of the Company by reason of the death or Disability
(as defined in Section 4.6 below) of the Director. The vesting of Options shall
also be accelerated under the circumstances described in Sections 4.12 and 4.13
below.
4.6 TERMINATION OF OPTION. A vested Option shall
terminate, to the extent not previously exercised, upon the occurrence of the
first of the following events:
(i) ten (10) years from the Date of Grant;
(ii) the expiration of ninety (90) days from the date
of Optionee's termination as a Director of the Company for any reason
other than death or Disability (as defined below); or
(iii) the expiration of one (1) year from the date of
death of Optionee or the cessation of Optionee's service as a Director
by reason of Disability (as defined below).
"Disability" shall mean that a person is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment that can be expected to result in death or that has lasted or
can be expected to last for a continuous period of not less than twelve (12)
months. If Optionee's service as a Director is terminated by death, any Option
held by Optionee shall be exercisable only by the person or persons to whom such
Optionee's rights under such Option shall pass by Optionee's will or by the laws
of descent and distribution of the state or country of Optionee's domicile at
the time of death. Each unvested Option granted pursuant hereto shall terminate
upon Optionee's termination as a Director for any reason whatsoever, including
death or Disability.
4.7 EXERCISE OF OPTIONS. Options shall be exercisable, either
all or in part, at any time after vesting. If less than all of the shares
included in the vested portion of any Option are purchased, the remainder may he
purchased at any subsequent time prior to the expiration of the Option term. No
portion of any Option of less than one (1) share (as adjusted pursuant to
Section 4.12 hereof) may be exercised; PROVIDED, that if the vested portion of
any Option is less than fifty (50) shares, it may be exercised with respect to
all shares for which it is vested. Only whole shares may be issued pursuant to
an Option, and to the extent that an Option covers less than one share, it is
unexercisable. Options or portions thereof may be exercised by giving to the
Company an executed notice of election to exercise, which notice shall specify
the number of shares to be purchased, and be accompanied by payment in the
amount of the aggregate option price for the Common Stock so purchased and in
the form specified in Section 4.8 below. The Company shall not be obligated to
issue, transfer or deliver a certificate of Common Stock to any Director, or to
his personal representative, until the aggregate option price has been paid for
all shares for which the Option shall have been exercised and adequate provision
has been made by the Optionee for the satisfaction of any tax withholding
obligations associated with such exercise. During the lifetime of an Optionee,
Options are exercisable only by Optionee.
4.8 PAYMENT UPON EXERCISE OF OPTION. Upon exercise of any
option, the aggregate option price shall be paid to the Company in cash or by
certified or cashier's check. Alternatively, a Director may pay for all or any
portion of the aggregate option exercise price (i) by delivering to the Company
shares of Common Stock previously held by such Director, (ii) having shares
withheld from the amount of shares of Common Stock to be received by the
Director or (iii) delivering an irrevocable subscription agreement obligating
the Director to take and pay for the shares of common Stock to be purchased
within one (1) year of the date of exercise. The shares of Common Stock received
or withheld by the Company as payment for shares of Common Stock purchased upon
the exercise of Options shall have a fair market value at the date of exercise
(as determined in accordance with Section 4.3 above equal to the aggregate
option exercise price (or portion thereof) to be paid by the Director upon
exercise.
4.9 RIGHTS AS A SHAREHOLDER. An Optionee shall have no rights
as a shareholder with respect to any shares covered by the Option until such
Optionee becomes a record holder of such shares, irrespective of whether such
Optionee has given notice of exercise. Subject to the provisions of Sections
4.12 and 4.13 below, no rights shall accrue to an Optionee and no adjustments
shall be made on account of dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights declared
on, or created in, the Common Stock for which the record date is prior to the
date the Optionee becomes a record holder of the shares of Common Stock covered
by the Option, irrespective of whether such Optionee has given notice of
exercise.
4.10 TRANSFER OF OPTION. Options granted under this Plan and
the rights and privileges conferred by this Plan may not be transferred,
assigned, pledged or hypothecated in any manner (whether by operation of law or
otherwise) other than by will or by applicable laws of descent and distribution,
as defined by the Code, or the Employee Retirement Income Security Act, or the
rules and regulations thereunder, and shall not be subject to execution,
attachment or similar process. Upon any attempt to transfer, assign, pledge,
hypothecate or otherwise dispose of any Option or of any right or privilege
conferred by this Plan contrary to the provisions hereof, or upon the sale, levy
or any attachment or similar process upon the rights and privileges conferred by
this Plan, such Option shall thereupon terminate and become null and void.
4.11 SECURITIES REGULATION AND TAX WITHHOLDING.
4.11.1 Shares shall not be issued with respect to
an Option unless the exercise of such Option and the issuance and delivery
of such shares shall comply with all relevant provisions of law, including,
without limitation, any applicable state securities laws, the Securities Act of
1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and
regulations thereunder and the requirements of any stock exchange upon which
such shares may then be listed, and such issuance shall be further subject to
the approval of counsel for the Company with respect to such compliance,
including the availability of an exemption from registration for the issuance
and sale of such shares. The inability of the Company to obtain from any
regulatory body the authority deemed by the Company to be necessary for the
lawful issuance and sale of any shares under this Plan, or the unavailability of
an exemption from registration for the issuance and sale of any shares under
this Plan, shall relieve the Company of any liability with respect to the
non-issuance or sale of such shares.
As a condition to the exercise of an Option, the Company may require
the Optionee to represent and warrant in writing at the time of such exercise
that the shares are being purchased only for investment and without any
then-present intention to sell or distribute such shares. At the option of the
Company, a stop-transfer order against such shares may be placed on the stock
books and records of the Company, and a legend indicating that the stock may not
be pledged, sold or otherwise transferred unless an opinion of counsel is
provided stating that such transfer is not in violation of any applicable law or
regulation, may be stamped on the certificates representing such shares in order
to assure an exemption from registration. The Company also may require such
other documentation as may from time to time be necessary to comply with federal
and state securities laws. THE COMPANY HAS NO OBLIGATION TO UNDERTAKE
REGISTRATION OF OPTIONS OR THE SHARES OF STOCK ISSUABLE UPON THE EXERCISE OF
OPTIONS.
4.11.2 As a condition to the exercise of any Option
granted under this Plan, the Optionee shall make such arrangements as the
Company may require for the satisfaction of any federal, state or local
withholding tax obligations that may arise in connection with such exercise.
4.11.3 The issuance, transfer or delivery of
certificates of Common Stock pursuant to the exercise of Options may be
delayed, at the discretion of the Board, until the Company is satisfied that the
applicable requirements of the federal and state securities laws and the
withholding provisions of the Code have been met.
4.12 STOCK DIVIDEND, REORGANIZATION OR LIQUIDATION.
4.12.1 If (i) the Company shall at any time be
involved in a transaction described in Section 424(a) of the Code (or any
successor provision) or any "corporate transaction" described in the regulations
thereunder; (ii) the Company shall declare a dividend payable in, or shall
subdivide or combine, its Common Stock or (iii) any other event with
substantially the same effect shall occur, the number of shares of Common Stock
and/or the exercise price per share of each outstanding Option shall be
proportionately adjusted so as to preserve the rights of the Optionee
substantially proportionate to the rights of the Optionee prior to such event,
and to the extent that such action shall include an increase or decrease in the
number of shares of Common Stock subject to outstanding Options, the number of
shares available under Section 4 of this Plan shall automatically be increased
or decreased, as the case may be, proportionately, without further action on the
part of the Company or the Company's shareholders.
4.12.2 If the Company is liquidated or dissolved,
the holders of any outstanding Options may exercise all or any part of the
unvested portion of the Options held by them; PROVIDED, that such Options must
be exercised prior to the effective date of such liquidation or dissolution. If
the Option holders do not exercise their Options prior to such effective date,
each outstanding Option shall terminate as of the effective date of the
liquidation or dissolution.
4.12.3 The grant of an Option shall not affect in
any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure, to merge, consolidate or dissolve, to liquidate or to sell or
transfer all or any part of its business or assets.
4.13 CHANGE IN CONTROL; DECLARATION OF EXTRAORDINARY DIVIDEND.
4.13.1 CHANGE IN CONTROL. If at any time there
is a Change in Control (as defined below) of the Company, all Options shall
accelerate and become fully vested and immediately exercisable for the duration
of the Option term. For purposes of this Subsection 4.13.1, "Change in Control"
shall mean either one of the following: (i) When any "person," as such term is
used in sections 13(d) and 14(d) of the Exchange Act (other than a shareholder
of the Company on the date of this Plan, the Company, a Subsidiary or an
employee benefit plan of the Company, including any trustee of such plan acting
as trustee) becomes, after the date of this Plan, the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing fifty percent (50%) or more of the
combined voting power of the Company's then outstanding securities; or (ii) the
occurrence of a transaction requiring shareholder approval, and involving the
sale of all or substantially all of the assets of the Company or the merger of
the Company with or into another corporation.
4.13.2 DECLARATION OF EXTRAORDINARY DIVIDEND. If
at any time the Company declares an Extraordinary Dividend (as defined
below), all Options shall accelerate and thereupon become fully vested and
immediately exercisable for the duration of the Option term. For purposes of
this Subsection 4.13.2, "Extraordinary Dividend" shall mean a cash dividend
payable to holders of record of the Common Stock in an amount in excess of ten
percent (10%) of the then fair market value of the Company's Common Stock. The
fair market value of the Company's Common Stock shall be determined in good
faith by the Board.
5. EFFECTIVE DATE; TERM. Subject to approval of this Plan by
shareholders of the Company, this Plan shall be effective as of the date which
is the first Date of Grant specified in Section 4.2 above, and Options may be
issued then and from time to time thereafter until this Plan is terminated by
the Company. Termination of this Plan shall not terminate any Option granted
prior to such termination.
6. NO OBLIGATIONS TO EXERCISE OPTION. The granting of an Option
shall impose no obligation upon the Optionee to exercise such Option.
7. APPLICATION OF FUNDS. The proceeds received by the Company
from the sale of Common Stock, pursuant to the exercise of Options granted
hereunder, will be used for general corporate purposes.
8. INDEMNIFICATION OF BOARD. In addition to all other rights or
indemnification they may have as directors of the Company or as members of the
Board, members of the Board shall be indemnified by the Company for all
reasonable expenses and liabilities of any type and nature, including reasonable
attorneys fees, incurred in connection with any action, suit or proceeding to
which they or any of them are a party by reason of, or in connection with, the
Plan or any Option granted hereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company), except to the extent that such expenses relate
to matters for which it is adjudged that such Board members are liable for
willful misconduct; PROVIDED, that within fifteen (15) days after the
institution of any such action, suit or proceeding, member(s) of the Board
shall, in writing, notify the Company of such action, suit or proceeding, so
that the Company may have the opportunity to make appropriate arrangements to
prosecute or defend the same.
9. AMENDMENT OF PLAN. The Company may, at any time, modify, amend or
terminate this Plan and Options granted under this Plan, including, without
limitation, such modifications or amendments as are necessary to maintain
compliance with applicable statutes, rules or regulations; PROVIDED, that no
amendment with respect to an outstanding Option shall be made over the objection
of the Optionee thereof and PROVIDED FURTHER, that: (i) the approval of the
holders of a majority of the Company's outstanding shares of voting capital
stock represented at a meeting at which a quorum is present is required within
twelve (12) months before or after the adoption by the Board of any amendment
that will permit the granting of Options to a class of persons other than those
currently eligible to receive Options under this Plan or that would cause this
Plan to no longer comply with Securities and Exchange Commission Rule 16b-3, as
amended, or any successor rule or other regulatory requirements and (ii) this
Plan shall not be amended more than once every six (6) months, other than to
comport with changes in the Code, the Employee Retirement Security Act, or the
rules thereunder.
OSTEX INTERNATIONAL, INC.
AMENDED AND RESTATED 1994 STOCK OPTION PLAN
This 1994 Stock Option Plan (the "Plan") provides for the grant of
options to acquire shares of Common Stock, $.01 par value (the "Common Stock"),
of Ostex International, Inc., a Washington corporation (the "Company"). Stock
options granted under this Plan that qualify under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), are referred to in this Plan as
"Incentive Stock Options." Incentive Stock Options and stock options that do not
qualify under Section 422 of the Code ("Non-Qualified Stock Options") granted
under this Plan are referred to as "Options."
1. PURPOSES. The purposes of this Plan are to retain the services of
valued key employees and consultants of the Company, and such other persons as
the Plan Administrator shall select in accordance with Section 3 below, to
encourage such persons to acquire a greater proprietary interest in the Company,
thereby strengthening their incentive to achieve the objectives of the
shareholders of the Company, and to serve as an aid and inducement in the hiring
of new employees, consultants and other persons selected by the Plan
Administrator.
2. ADMINISTRATION. This Plan shall be administered by the Board of
Directors of the Company (the "Board"), except that the Board may, in its
discretion, establish a committee composed of members of the Board or other
persons to administer this Plan, which committee (the "Committee") may be an
executive, compensation or other committee, including a separate committee
especially created for this purpose. The Committee shall have such of the powers
and authority vested in the Board hereunder as the Board may delegate to it
(including the power and authority to interpret any provision of this Plan or of
any Option). The members of any such Committee shall serve at the discretion of
the Board. The Board, or the Committee if one has been established by the Board,
are referred to in this Plan as the "Plan Administrator." Following registration
of any of the Company's securities under Section 12 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), no person shall serve as a member
of the Plan Administrator if his or her service would disqualify this Plan from
eligibility under Securities and Exchange Commission Rule 16b-3, as amended from
time to time, or any successor rule or regulatory requirements; PROVIDED, that
the Plan Administrator shall consist of at least the minimum number of persons
required by Securities and Exchange Commission Rule 16b-3, as amended, or any
successor rule or regulatory requirements. If, and so long as, the Company has a
class of equity securities registered under Section 12 of the Exchange Act, the
Board of Directors in determining the membership of any such committee shall,
with respect to option grants to any persons subject to or likely to become
subject to Section 16 of the Exchange Act, give due consideration to the
provisions regarding (a) "outside directors" as contemplated by Section 162(m)
of the Code and (b) "nonemployee directors" as contemplated by Rule 16b-3 under
the Exchange Act.
Subject to the provisions of this Plan, and with a view to effecting
its purpose, the Plan Administrator shall have sole authority, in its absolute
discretion, to: (a) construe and interpret this Plan; (b) define the terms used
in this Plan; (c) prescribe, amend and rescind rules and regulations relating to
this Plan; (d) correct any defect, supply any omission or reconcile any
inconsistency in this Plan; (e) determine the individuals to whom Options shall
be granted under this Plan and whether the Option is an Incentive Stock Option
or a Non-Qualified Stock Option; (f) determine the time or times at which
Options shall be granted under this Plan; (g) determine the number of shares of
Common Stock subject to each Option, the exercise price of each Option, the
duration of each Option and the times at which each Option shall become
exercisable; (h) determine all other terms and conditions of Options; and (i)
make all other determinations necessary or advisable for the administration of
this Plan. All decisions, determinations and interpretations made by the Plan
Administrator shall be binding and conclusive on all participants in this Plan
and on their legal representatives, heirs and beneficiaries.
3. ELIGIBILITY. Incentive Stock Options may be granted to any
individual who, at the time the Option is granted, is an employee of the Company
or any Related Corporation (as defined below), including employees who are
directors of the Company ("Employees"). Non-Qualified Stock Options may be
granted to Employees and to such other persons other than directors who are not
Employees as the Plan Administrator shall select. Options may be granted in
substitution for outstanding Options of another corporation in connection with
the merger, consolidation, acquisition of property or stock or other
reorganization between such other corporation and the Company or any subsidiary
of the Company. Options also may be granted in exchange for outstanding Options.
Any person to whom an Option is granted under this Plan is referred to as an
"Optionee."
As used in this Plan, the term "Related Corporation," when referring to
a subsidiary corporation, shall mean any corporation (other than the Company) in
an 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 fifty percent (50%) or
more of the total combined voting power of all classes of stock of one of the
other corporations in such chain. When referring to a parent corporation, the
term "Related Corporation" shall mean any corporation (other than the Company)
in an unbroken chain of corporations ending with the Company if, at the time of
granting of the Option, each of the corporations other than the Company owns
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock of one of the other corporations in such chain.
4. STOCK. Subject to approval of the Plan by shareholders of the
Company, options to purchase a maximum of 1,750,000 shares of the Company's
authorized but unissued, or required, Common Stock may be issued pursuant to the
Plan, subject to adjustment as provided in Section 5.13(a) below; PROVIDED, that
any shares of Common Stock received or withheld by the Company as payment for
shares of Common Stock purchased upon exercise of Options pursuant to Section
5.9 below shall be added to the number of such shares as to which Options may be
granted. The number of shares with respect to which Options may be granted
hereunder is subject to adjustment as set forth in Section 5.13 below. In the
event that any outstanding Option expires or is terminated for any reason, the
shares of Common Stock allocable to the unexercised portion of such Option may
again be subject to an Option to the same Optionee or to a different person
eligible under Section 3 above.
5. TERMS AND CONDITIONS OF OPTIONS. Each Option granted under this Plan
shall be evidenced by a written agreement approved by the Plan Administrator
(the "Agreement"). Agreements may contain such additional provisions, not
inconsistent with this Plan, as the Plan Administrator in its discretion may
deem advisable. All Options also shall comply with the following requirements:
5.1 NUMBER OF SHARES AND TYPE OF OPTION. Each Agreement shall
state the number of shares of Common Stock to which it pertains and whether the
Option is intended to be an Incentive Stock Option or a Non-Qualified Stock
Option. In the absence of action to the contrary by the Plan Administrator in
connection with the grant of an Option, all Options shall be Non-Qualified Stock
Options. The aggregate fair market value (determined at the Date of Grant, as
defined below) of the stock with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (granted
under this Plan and all other Incentive Stock Option plans of the Company, a
Related Corporation or a predecessor corporation) shall not exceed such limit as
may be prescribed by the Code as it may be amended from time to time. Any Option
which exceeds the annual limit shall not be void but rather shall be a
Non-Qualified Stock Option.
(a) LIMITATION ON NUMBER OF SHARES UNDERLYING OPTIONS.
Subject to adjustment from time to time as provided in Section 5.13 below,
the Plan Administrator shall not grant options to any person in any one fiscal
year of the Company in an amount that exceeds, in the aggregate, 200,000 shares
of Common Stock. This limitation shall be applied in a manner consistent with
the requirements of, and only to the extent required for compliance with, the
exclusion from the limitation on deductibility of compensation under Section
162(m) of the Code.
5.2 DATE OF GRANT. Each Agreement shall state the date the
Plan Administrator has deemed to be the effective date of the Option for
purposes of this Plan (the "Date of Grant").
5.3 OPTION PRICE. Each Agreement shall state the price per
share of Common Stock at which it is exercisable. The exercise price shall be
fixed by the Plan Administrator at whatever price the Plan Administrator may
determine in the exercise of its sole discretion; PROVIDED, that the per share
exercise price for any Option granted following the effective date of
registration of any of the Company's securities under Section 12 of the
Securities Exchange Act of 1934 shall not be less than the fair market value per
share of the Common Stock at the Date of Grant as determined by the Plan
Administrator in good faith; PROVIDED FURTHER, that the per share exercise price
for an Incentive Stock Option shall not be less than the fair market value per
share of the Common Stock at the Date of Grant as determined by the Plan
Administrator in good faith; PROVIDED FURTHER, that with respect to Incentive
Stock Options granted to greater-than-ten percent ( >10%) shareholders of the
Company (as determined with reference to Section 424(d) of the Code), the
exercise price per share shall not be less than one hundred ten percent (110%)
of the fair market value per share of the Common Stock at the Date of Grant;
and, PROVIDED FURTHER, that Incentive Stock Options granted in substitution for
outstanding Options of another corporation in connection with the merger,
consolidation, acquisition of property or stock or other reorganization
involving such other corporation and the Company or any subsidiary of the
Company may be granted with an exercise price equal to the exercise price for
the substituted Option of the other corporation, subject to any adjustment
consistent with the terms of the transaction pursuant to which the substitution
is to occur.
5.4 DURATION OF OPTIONS. At the time of the grant of the
Option, the Plan Administrator shall designate, subject to Section 5.7 below,
the expiration date of the Option, which date shall not be later than ten (10)
years from the Date of Grant in the case of Incentive Stock Options; PROVIDED,
that the expiration date of any Incentive Stock Option granted to a
greater-than-ten percent ( >10%) shareholder of the Company (as determined with
reference to Section 424(d) of the Code) shall not be later than five (5) years
from the Date of Grant. In the absence of action to the contrary by the Plan
Administrator in connection with the grant of a particular Option, and except in
the case of Incentive Stock Options as described above, all Options granted
under this Plan shall expire ten (10) years from the Date of Grant.
5.5 VESTING SCHEDULE. No Option shall be exercisable until it
has vested. The vesting schedule for each Option shall be specified by the Plan
Administrator at the time of grant of the Option; provided, that if no vesting
schedule is specified at the time of grant, the Option shall vest according to
the following schedule:
Percentage of
Number of Years Total Option to
FOLLOWING DATE OF GRANT BE EXERCISABLE
1 20%
2 40%
3 60%
4 80%
5 100%
5.6 ACCELERATION OF VESTING. The vesting of one or more
outstanding Options may be accelerated by the Plan Administrator at such times
and in such amounts as it shall determine in its sole discretion. If an Employee
Optionee's employment terminates by reason of death or Disability (as defined in
Section 5.7 below), any Option held by such Employee Optionee who has been
Continuously Employed by the Company or Related Corporation for a minimum of two
(2) years shall become fully vested and exercisable and may thereafter be
exercised during the term of the Option set forth in Section 5.7 below.
"Continuously Employed" shall mean the absence of any interruption or
termination of service. Continuous Employment with the Company or Related
Corporation shall not be considered interrupted in the case of sick leave,
military leave or any other leave of absence approved by the Company or Related
Corporation or in the case of transfers between locations of the Company or
between the Company, Related Corporations or their successors, provided that the
Optionee continues to be an employee of the Company or any Related Corporation.
The vesting of Options also shall be accelerated under the circumstances
described in Sections 5.13 and 5.14 below.
5.7 TERM OF OPTION. Vested Options shall terminate, to the
extent not previously exercised, upon the occurrence of the first of the
following events: (i) the expiration of the Option, as designated by the Plan
Administrator in accordance with Section 5.4 above; (ii) the expiration of
ninety (90) days from the date of an Optionee's termination of employment or
contractual relationship with the Company or any Related Corporation for any
reason whatsoever other than death or Disability (as defined below) unless, in
the case of a Non-Qualified Stock Option, the exercise period is extended by the
Plan Administrator until a date not later than the expiration date of the
Option; or (iii) the expiration of one (1) year from (A) the date of death of
the Optionee or (B) cessation of an Optionee's employment or contractual
relationship by reason of Disability (as defined below) unless, in the case of a
Non-Qualified Stock Option, the exercise period is extended by the Plan
Administrator until a date not later than the expiration date of the Option. If
an Optionee's employment or contractual relationship is terminated by death, any
Option held by the Optionee shall be exercisable only by the person or persons
to whom such Optionee's rights under such Option shall pass by the Optionee's
will or by the laws of descent and distribution of the state or county of the
Optionee's domicile at the time of death. "Disability" shall mean that a person
is unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment that can be expected to
result in death or that has lasted or can be expected to last for a continuous
period of not less than twelve (12) months. The Plan Administrator shall
determine whether an Optionee has incurred a Disability on the basis of medical
evidence acceptable to the Plan Administrator. Upon making a determination of
Disability, the Committee shall, for purposes of the Plan, determine the date of
an Optionee's termination of employment or contractual relationship.
Unless accelerated in accordance with Section 5.6 above,
unvested Options shall terminate immediately upon termination of employment of
the Optionee by the Company for any reason whatsoever, including death or
Disability.
If, in the case of an Incentive Stock Option, an Optionee's
relationship with the Company changes (e.g., from an Employee to a non-Employee,
such as a consultant), such change shall not constitute a termination of an
Optionee's employment with the Company but rather the Optionee's Incentive Stock
Option. For purposes of this Section 5.7, transfer of employment between or
among the Company and/or any Related Corporation shall not be deemed to
constitute a termination of employment with the Company or any Related
Corporation. For purposes of this Section 5.7, employment shall be deemed to
continue while the Optionee is on military leave, sick leave or other bona fide
leave of absence (as determined by the Plan Administrator). The foregoing
notwithstanding, with respect to Incentive Stock Options, employment shall not
be deemed to continue beyond the first ninety (90) days of such leave, unless
the Optionee's re-employment rights are guaranteed by statute or by contract.
5.8 EXERCISE OF OPTIONS. Options shall be exercisable, either
all or in part, at any time after vesting, until termination; PROVIDED, that
after registration of any of the Company's securities under Section 12 of the
Exchange Act, Optionee must comply with the six (6) month holding period
requirements of Section 16(b) of the Exchange Act and Rule 16b-3 thereunder. If
less than all of the shares included in the vested portion of any Option are
purchased, the remainder may be purchased at any subsequent time prior to the
expiration of the Option term. No portion of any Option for less than fifty (50)
shares (as adjusted pursuant to Section 5.13 below) may be exercised; PROVIDED,
that if the vested portion of any Option is less than fifty (50) shares, it may
be exercised with respect to all shares for which it is vested. Only whole
shares may be issued pursuant to an Option, and to the extent that an Option
covers less than one (1) share, it is unexercisable. Options or portions thereof
may be exercised by giving to the Company an executed notice of election to
exercise, which notice shall specify the number of shares to be purchased, and
be accompanied by payment in the amount of the aggregate exercise price for the
Common Stock so purchased, which payment shall be in the form specified in
Section 5.9 below. The Company shall not be obligated to issue, transfer or
deliver a certificate of Common Stock to any Optionee, or to his personal
representative, until the aggregate exercise price has been paid for all shares
for which the Option shall have been exercised and adequate provision has been
made by the Optionee for satisfaction of any tax withholding obligations
associated with such exercise. During the lifetime of an Optionee, Options are
exercisable only by the Optionee.
5.9 PAYMENT UPON EXERCISE OF OPTION. Upon the exercise of any
Option, the aggregate exercise price shall be paid to the Company in cash or by
certified or cashier's check. In addition, upon approval of the Plan
Administrator, an Optionee may pay for all or any portion of the aggregate
exercise price by (i) delivering to the Company shares of Common Stock
previously held by such Optionee, (ii) having shares withheld from the amount of
shares of Common Stock to be received by the Optionee, (iii) delivering an
irrevocable subscription agreement obligating the Optionee to take and pay for
the shares of Common Stock to be purchased within one (1) year of the date of
such exercise or (iv) complying with any other payment mechanisms as the Plan
Administrator may approve from time to time. The shares of Common Stock received
or withheld by the Company as payment for shares of Common Stock purchased upon
the exercise of Options shall have a fair market value at the date of exercise
(as determined by the Plan Administrator) equal to the aggregate exercise price
(or portion thereof) to be paid by the Optionee upon such exercise.
5.10 RIGHTS AS A SHAREHOLDER. An Optionee shall have no rights
as a shareholder with respect to any shares covered by an Option until such
Optionee becomes a record holder of such shares, irrespective of whether such
Optionee has given notice of exercise. Subject to the provisions of Sections
5.13 and 5.14 below, no rights shall accrue to an Optionee and no adjustments
shall be made on account of dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights declared
on, or created in, the Common Stock for which the record date is prior to the
date the Optionee becomes a record holder of the shares of Common Stock covered
by the Option, irrespective of whether such Optionee has given notice of
exercise.
5.11 TRANSFER OF OPTION. Options granted under this Plan and
the rights and privileges conferred by this Plan may not be transferred,
assigned, pledged or hypothecated in any manner (whether by operation of law or
otherwise) other than by will or by applicable laws of descent and distribution,
as defined by the Code, or the Employee Retirement Income Security Act, or the
rules and regulations thereunder, and shall not be subject to execution,
attachment or similar process. Upon any attempt to transfer, assign, pledge,
hypothecate or otherwise dispose of any Option or of any right or privilege
conferred by this Plan contrary to the provisions hereof, or upon the sale, levy
or any attachment or similar process upon the rights and privileges conferred by
this Plan, such Option shall thereupon terminate and become null and void.
5.12 SECURITIES REGULATION AND TAX WITHHOLDING.
5.12.1 Shares shall not be issued with respect to
an Option unless the exercise of such Option and the issuance and delivery
of such shares shall comply with all relevant provisions of law, including,
without limitation, any applicable state securities laws, the Securities Act of
1933, as amended, the Exchange Act, as amended, the rules and regulations
thereunder and the requirements of any stock exchange upon which such shares may
then be listed, and such issuance shall be further subject to the approval of
counsel for the Company with respect to such compliance, including the
availability of an exemption from registration for the issuance and sale of such
shares. The inability of the Company to obtain from any regulatory body the
authority deemed by the Company to be necessary for the lawful issuance and sale
of any shares under this Plan, or the unavailability of an exemption from
registration for the issuance and sale of any shares under this Plan, shall
relieve the Company of any liability with respect to the non-issuance or sale of
such shares.
As a condition to the exercise of an Option, the Plan Administrator may
require the Optionee to represent and warrant in writing at the time of such
exercise that the shares are being purchased only for investment and without any
then-present intention to sell or distribute such shares. At the option of the
Plan Administrator, a stop-transfer order against such shares may be placed on
the stock books and records of the Company, and a legend indicating that the
stock may not be pledged, sold or otherwise transferred unless an opinion of
counsel is provided stating that such transfer is not in violation of any
applicable law or regulation, may be stamped on the certificates representing
such shares in order to assure an exemption from registration. The Plan
Administrator also may require such other documentation as may from time to time
be necessary to comply with federal and state securities laws. THE COMPANY HAS
NO OBLIGATION TO UNDERTAKE REGISTRATION OF OPTIONS OR THE SHARES OF STOCK
ISSUABLE UPON THE EXERCISE OF OPTIONS.
5.12.2 As a condition to the exercise of any
Option granted under this Plan, the Optionee shall make such arrangements
as the Plan Administrator may require for the satisfaction of any federal, state
or local withholding tax obligations that may arise in connection with such
exercise.
5.12.3 The issuance, transfer or delivery of
certificates of Common Stock pursuant to the exercise of Options may be
delayed, at the discretion of the Plan Administrator, until the Plan
Administrator is satisfied that the applicable requirements of the federal and
state securities laws and the withholding provisions of the Code have been met.
5.13 STOCK DIVIDEND, REORGANIZATION OR LIQUIDATION.
5.13.1 If (i) the Company shall at any time be
involved in a transaction described in Section 424(a) of the Code (or any
successor provision) or any "corporate transaction" described in the regulations
thereunder, (ii) the Company shall declare a dividend payable in, or shall
subdivide or combine, its Common Stock or (iii) any other event with
substantially the same effect shall occur, then the Plan Administrator shall
proportionately adjust the number of shares of Common Stock authorized for
issuance under this Plan pursuant to Section 4 above, and shall further
proportionately adjust the number of shares of Common Stock and/or the exercise
price per share with respect to each Option then outstanding so as to preserve
the rights of the Optionee substantially proportionate to the rights of the
Optionee prior to such event, all without further action on the part of the Plan
Administrator, the Company or the Company's shareholders.
5.13.2 If the Company is liquidated or dissolved,
the Plan Administrator shall allow the holders of any outstanding Options
to exercise all or any part of the unvested portion of the Options held by them;
PROVIDED, that such Options must be exercised prior to the effective date of
such liquidation or dissolution. If the Option holders do not exercise their
Options prior to such effective date, each outstanding Option shall terminate as
of the effective date of the liquidation or dissolution.
5.13.3 The foregoing adjustments in the shares
subject to Options shall be made by the Plan Administrator, or by any
successor administrator of this Plan, or by the applicable terms of any
assumption or substitution document.
5.13.4 The grant of an Option shall not affect in
any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure, to merge, consolidate or dissolve, to liquidate or to sell or
transfer all or any part of its business or assets.
5.14 CHANGE IN CONTROL; DECLARATION OF EXTRAORDINARY DIVIDEND.
5.14.1 CHANGE IN CONTROL. If at any time there is
a Change in Control (as defined below) of the Company, all Options shall
accelerate and become fully vested and immediately exercisable for the duration
of the Option term. For purposes of this Subsection 5.14.1, "Change in Control"
shall mean either one of the following: (i) When any "person," as such term is
used in sections 13(d) and 14(d) of the Exchange Act (other than a shareholder
of the Company on the date of this Plan, the Company, a Subsidiary or an
employee benefit plan of the Company, including any trustee of such plan acting
as trustee) becomes, after the date of this Plan, the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing fifty percent (50%) or more of the
combined voting power of the Company's then outstanding securities; or (ii) the
occurrence of a transaction requiring shareholder approval, and involving the
sale of all or substantially all of the assets of the Company or the merger of
the Company with or into another corporation.
5.14.2 DECLARATION OF EXTRAORDINARY DIVIDEND. If
at any time the Company declares an Extraordinary Dividend (as defined
below), all Options shall accelerate and thereupon become fully vested and
immediately exercisable for the duration of the Option term. For purposes of
this Subsection 5.14.2, "Extraordinary Dividend" shall mean a cash dividend
payable to holders of record of the Common Stock in an amount in excess of ten
percent (10%) of the then fair market value of the Company's Common Stock. The
fair market value of the Company's Common Stock shall be determined in good
faith by the Board.
6. EFFECTIVE DATE; TERM. This Plan shall be effective as of the closing
of the initial public offering of securities of the Company under the Securities
Act of 1933. Incentive Stock Options may be granted by the Plan Administrator
from time to time thereafter until ten (10) years after such approval.
Non-Qualified Stock Options may be granted until this Plan is terminated by the
Board in its sole discretion. Termination of this Plan shall not terminate any
Option granted prior to such termination.
7. NO OBLIGATIONS TO EXERCISE OPTION. The grant of an Option
shall impose no obligation upon the Optionee to exercise such Option.
8. NO RIGHT TO OPTIONS OR TO EMPLOYMENT. The grant of any Options under
this Plan shall be exclusively within the discretion of the Plan Administrator,
and nothing contained in this Plan shall be construed as giving any person any
right to participate under this Plan. The Plan shall not confer on any Optionee
any right with respect to continuation of any employment or contractual
relationship with the Company or any Related Corporation, nor shall it interfere
in any way with the Company's or, where applicable, a Related Corporation's
right to terminate any Optionee's employment or contractual relationship at any
time, which right is hereby reserved.
9. APPLICATION OF FUNDS. The proceeds received by the Company
from the sale of Common Stock issued upon the exercise of Options shall be
used for general corporate purposes, unless otherwise directed by the Board.
10. INDEMNIFICATION OF PLAN ADMINISTRATOR. In addition to all other
rights of indemnification they may have as members of the Board, members of the
Plan Administrator shall be indemnified by the Company for all reasonable
expenses and liabilities of any type or nature, including reasonable attorneys'
fees, incurred in connection with any action, suit or proceeding to which they
or any of them are a party by reason of, or in connection with, this Plan or any
Option granted under this Plan, and against all amounts paid by them in
settlement thereof (provided that such settlement is approved by independent
legal counsel selected by the Company), except to the extent that such expenses
relate to matters for which it is adjudged that such Plan Administrator member
is liable for willful misconduct; PROVIDED, that within fifteen (15) days after
the institution of any such action, suit or proceeding, the Plan Administrator
member involved therein shall, in writing, notify the Company of such action,
suit or proceeding, so that the Company may have the opportunity to make
appropriate arrangements to prosecute or defend the same.
11. AMENDMENT OF PLAN. The Plan Administrator may, at any time, modify,
amend or terminate this Plan and Options granted under this Plan, including,
without limitation, such modifications or amendments as are necessary to
maintain compliance with applicable statutes, rules or regulations; PROVIDED,
that no amendment with respect to an outstanding Option shall be made over the
objection of the Optionee thereof; and PROVIDED FURTHER, that, following
registration of any of the Company's securities under Section 12 of the Exchange
Act, the approval of the holders of a majority of the Company's outstanding
shares of voting capital stock represented at a meeting at which a quorum is
present is required within twelve (12) months before or after the adoption by
the Plan Administrator of any amendment that will permit the granting of Options
to a class of persons other than those currently eligible to receive Options
under this Plan or that would cause this Plan to no longer comply with
Securities and Exchange Commission Rule 16b-3, as amended, or any successor rule
or other regulatory requirements. Without limiting the generality of the
foregoing, the Plan Administrator may modify grants to persons who are eligible
to receive Options under this Plan who are foreign nationals or employed outside
the United States to recognize differences in local law, tax policy or custom.
