SCHEDULE 14A INFORMATION
(Rule 14a-101)
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934, as amended.
Filed by Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Exogen, Inc.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid: __________________________.
(2) Form, Schedule or Registration Statement No.: ___________________.
(3) Filing Party: ___________________________________.
(4) Date Filed: ___________________________________.
<PAGE>
EXOGEN, INC.
10 Constitution Avenue
Piscataway, New Jersey 08855
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
February 25, 1998
The annual meeting of stockholders (the "Annual Meeting") of Exogen,
Inc. (the "Company") will be held at The Holiday Inn Somerset, 195 Davidson
Avenue, Somerset, New Jersey 08873, telephone number (732) 356- 1700 on February
25, 1998 at 9:00 a.m. (eastern standard time) for the following purposes:
(1) To elect seven Directors to serve until the next Annual
Meeting or until their respective successors shall have been
duly elected and qualified;
(2) To approve an amendment to the 1995 Stock Option/Stock
Issuance Plan, which includes an increase in the number of
shares of common stock available for issuance thereunder from
750,000 to 1,350,000 shares;
(3) To approve an amendment to the Employee Stock Purchase Plan to
increase the number of shares of common stock available for
issuance thereunder from 150,000 to 350,000 shares;
(4) To ratify the selection of Arthur Andersen LLP, independent
public accountants, as auditors of the Company for the fiscal
year ending September 30, 1998; and
(5) To transact such other business as may properly come before
the Annual Meeting.
Only stockholders of record at the close of business on December 31,
1997 will be entitled to notice of, and to vote at, the Annual Meeting. A list
of stockholders eligible to vote at the Annual Meeting will be available for
inspection at the Annual Meeting and for a period of ten days prior to the
Annual Meeting during regular business hours at the corporate headquarters at
the address above.
<PAGE>
Whether or not you expect to attend the Annual Meeting, your proxy vote
is important. To assure your representation at the meeting, please sign and date
the enclosed proxy card and return it promptly in the enclosed envelope, which
requires no additional postage if mailed in the United States or Canada.
By Order of the Board of Directors
/s/Patrick A. McBrayer
----------------------
Patrick A. McBrayer
Chief Executive Officer and President
Piscataway, New Jersey
January 8, 1998
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IT IS IMPORTANT THAT THE ENCLOSED PROXY CARD
BE COMPLETED AND RETURNED PROMPTLY
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<PAGE>
EXOGEN, INC.
PROXY STATEMENT FOR ANNUAL MEETING
OF STOCKHOLDERS
January 8, 1998
This Proxy Statement is furnished to stockholders of record of Exogen,
Inc. (the "Company") as of December 31, 1997 in connection with the solicitation
of proxies by the Board of Directors of the Company (the "Board of Directors" or
"Board") for use at the Annual Meeting of Stockholders to be held on February
25, 1998 (the "Annual Meeting").
Shares cannot be voted at the Annual Meeting unless the owner is
present in person or by proxy. All properly executed and unrevoked proxies in
the accompanying form that are received in time for the Annual Meeting will be
voted at the Annual Meeting or any adjournment thereof in accordance with
instructions thereon, or if no instructions are given, will be voted, "FOR" the
election of the named nominees as Directors of the Company, "FOR" the approval
of the amendment to the 1995 Stock Option/Stock Insurance Plan, "FOR" the
approval of the amendment to the Employee Stock Purchase Plan, "FOR" the
ratification of Arthur Andersen LLP, Independent Public Accountants, as auditors
of the Company and will be voted in accordance with the best judgment of the
persons appointed as proxies with respect to other matters which properly come
before the Annual Meeting. Any person giving a proxy may revoke it by written
notice to the Company at any time prior to exercise of the proxy. In addition,
although mere attendance at the Annual Meeting will not revoke the proxy, a
stockholder who attends the meeting may withdraw his or her proxy and vote in
person. Abstentions and broker non-votes will be counted for purposes of
determining the presence or absence of a quorum for the transaction of business
at the Annual Meeting. Abstentions will be counted in tabulations of the votes
cast on each of the proposals presented at the Annual Meeting, whereas broker
non-votes will not be counted for purposes of determining whether a proposal has
been approved.
The Annual Report of the Company (which does not form a part of the
proxy solicitation materials) is being distributed concurrently herewith to
stockholders.
The mailing address of the principal executive offices of the Company
is 10 Constitution Avenue, P.O. Box 6860, Piscataway, New Jersey 08855. This
Proxy Statement and the accompanying form of proxy are being mailed to the
stockholders of the Company on or about January 8, 1998.
VOTING SECURITIES
The Company has only one class of voting securities, its common stock,
par value $0.0001 per share (the "Common Stock"). At the Annual Meeting, each
stockholder of record at the close of business on December 31, 1997 will be
entitled to one vote for each share of Common Stock owned on that date as to
each matter presented at the Annual Meeting. On December 31, 1997, 11,802,159
shares of Common Stock were outstanding. A list of stockholders eligible to vote
at the Annual Meeting will be available for inspection at the Annual Meeting and
for a period of ten days prior to the Annual Meeting during regular business
hours at the principal executive offices of the Company at the address specified
above.
<PAGE>
PROPOSAL 1:
ELECTION OF DIRECTORS
Unless otherwise directed, the persons appointed in the accompanying
form of proxy intend to vote at the Annual Meeting for the election of the seven
nominees named below as Directors of the Company to serve until the next Annual
Meeting or until their successors are duly elected and qualified. If any nominee
is unable to be a candidate when the election takes place, the shares
represented by valid proxies will be voted in favor of the remaining nominees.
The Board of Directors does not currently anticipate that any nominee will be
unable to be a candidate for election.
The Board of Directors currently has seven members, all of whom are
nominees for election. Each director shall serve until the next Annual Meeting
or until their respective successors shall have been duly elected and qualified.
John P. Ryaby, Patrick A. McBrayer, Buzz Benson, Donald J. Lothrop, Terence D.
Wall and David J. Ottensmeyer, M.D. were elected to the Board of Directors by
the stockholders at the 1997 Annual Meeting. Peter C. Madeja was appointed by
the Board of Directors to fill a vacancy on the Board in February 1997.
The affirmative vote of a plurality of the Company's outstanding Common
Stock represented and voting at the Annual Meeting is required to elect the
Directors.
Information Regarding Nominees for Election as Directors
The Board of Directors currently has seven members. The following
information with respect to the principal occupation or employment, other
affiliations and business experience of each of the seven nominees during the
last five years has been furnished to the Company by such nominee. Except as
indicated, each of the seven nominees for election has had the same principal
occupation for the last five years.
John P. Ryaby, 63, a founder of the Company, has been a Director of the
Company since March 1992 and Chairman of the Board of Directors since February
1994. Mr. Ryaby served as Chief Executive Officer and President of the Company
from March 1992 to February 1994 and currently serves as the Vice President of
Research and Development and Regulatory Affairs. Mr. Ryaby served from 1989
until 1992 as the President and Chief Operating Officer of Interpore
Orthopaedics, Inc. ("Interpore"), a division of Interpore International, Inc., a
physical and biological research company. Mr. Ryaby was a founder of, and from
1975 to 1982, was President and Chief Operating Officer of Electro-Biology, Inc.
("EBI"), a company involved in bone growth electrical stimulation technology,
and was responsible for obtaining regulatory approval of EBI's pre-market
approval ("PMA") in 1979 and for establishing EBI's direct sales force.
Patrick A. McBrayer, 46, was named Chief Executive Officer, President
and a Director of the Company in February 1994. Prior to joining the Company,
Mr. McBrayer served in various executive positions from 1987 to February 1994 at
Osteotech, Inc., including President and Chief Executive Officer. While at
Osteotech, Inc., a company that develops and markets biologic, biomaterial and
implant systems for musculoskeletal surgery, Mr. McBrayer guided the company's
transition from its inception to a public entity. From 1979 through 1986, he
served in a variety of positions of increasing responsibility with Johnson &
Johnson, Inc., including Marketing Manager of the Patient Care Division, where
he built a significant business in surgical products.
<PAGE>
Buzz Benson, 43, has been a Director of the Company since January 1995.
Mr. Benson has been the President and Managing Director of Piper Jaffray
Ventures, a venture capital fund, since November 1992. Piper Jaffray Ventures is
the investment manager and sole private limited partner of Piper Jaffray
Healthcare Capital Limited Partnership (SBIC). From 1986 to November 1992, Mr.
Benson was a Managing Director in the corporate finance department of Piper
Jaffray Inc. Mr. Benson serves on the Board of Directors of Unologix, Inc. and
several privately-held medical companies.
Donald J. Lothrop, 38, has been a Director of the Company since March
1993. Mr. Lothrop has been a General Partner of Delphi Management Partners II,
L.P. since July 1994, a General Partner of Delphi Management Partners III,
L.L.C. since March 1995 and a General Partner of Delphi Management Partners IV,
L.L.C. since October 1997. From January 1991 to June 1994, Mr. Lothrop was a
Partner of Marquette Venture Partners, a venture capital firm, where he focused
on the health care area. From 1989 to 1990, he worked at Bain & Company, Inc., a
management consulting firm.
Terence D. Wall, 56, has been a Director of the Company since March
1993. Mr. Wall founded Vital Signs, Inc., a medical products company, in 1972
and has been President, Chief Executive Officer and a Director of Vital Signs,
Inc. since that time. Mr. Wall serves on the Board of Directors of Vital Signs,
Inc., EchoCath, Inc. and Bionix, Inc.
David J. Ottensmeyer, M.D., 67, has been a Director of the Company
since October 1996. From 1991 to December 1995, Dr. Ottensmeyer served as
President and Chief Executive Officer of The Lovelace Institutes, a health
services and biomedical research organization. From 1990 to 1991, Dr.
Ottensmeyer served as President of the Travelers Health Companies and Chief
Medical Officer of the Travelers Companies - Managed Care and Employee Benefits
Operations. Dr. Ottensmeyer serves on the Board of Directors of Access Anytime
Bank Corporation.
Peter C. Madeja, 39, has been a Director of the Company since February
1997. Since October 1993, Mr. Madeja has been the President and Chief Executive
Officer of Genex Services, Inc. ("Genex"), a company that provides services to
insurance companies, third party administrators and companies with respect to
integrated disability management and medical cost containment. Mr. Madeja has
held various positions at Genex since 1982. Since March 1997, Mr. Madeja has
served as an Executive Vice President of Provident Companies, Inc., the parent
company of Genex and a provider of disability and life insurance and other
voluntary benefits.
Committees of the Board
The Audit Committee consists of Messrs. McBrayer, Benson and Lothrop
and its functions include recommending to the Board of Directors the selection
of the Company's auditors and reviewing with such auditors the plan and results
of their audit and the adequacy of the Company's systems of internal accounting
controls and management information systems. In addition, the Audit Committee
reviews the independence of the auditors and their fees for services rendered to
the Company.
The Compensation Committee currently consists of Mr. Madeja and Dr.
Ottensmeyer and its functions include recommending, reviewing and overseeing
salaries, benefits and stock option plans relating to the Company's employees,
consultants, directors and other individuals compensated by the Company.
<PAGE>
Pursuant to the provisions of the Company's 1995 Stock Option/Stock Issuance
Plan (the "Option Plan"), the Committee has complete discretion to authorize
options and direct stock issuances. Until December 2, 1997, the Compensation
Committee consisted of Messrs. Lothrop and Wall.
Attendance at Board and Committee Meetings
During fiscal 1997, the Board of Directors held nine meetings. Each
Director who served on the Board for the full fiscal year attended all meetings
of the Board of Directors, except for Mr. Lothrop who missed one meeting. With
respect to those Directors appointed to the Board after the commencement of
fiscal 1997, Mr. Madeja attended four of five meetings and Dr. Ottensmeyer
attended five of eight meetings held since becoming a Director. The Compensation
Committee acted by unanimous written consent in lieu of a meeting seven times
during fiscal 1997. The Audit Committee held two meetings during fiscal 1997.
Compensation of Directors
Cash Compensation. Directors do not receive a fee for attending Board
of Directors or committee meetings, but are reimbursed for expenses incurred in
connection with performing their respective duties as Directors of the Company.
Pursuant to a consulting agreement with the Company, Dr. Ottensmeyer receives
payments of $10,000 per year for consulting services on issues relating to third
party reimbursement.
Stock Option Grant. Under the Company's Option Plan, each non-employee
Director first elected or appointed to the Board of Directors after the initial
public offering of the Company's Common Stock will automatically be granted an
option for 7,500 shares of Common Stock on the date of his or her election or
appointment to the Board of Directors, provided such individual has not
previously been in the employ of the Company. In addition, at each annual
meeting of stockholders, each individual with at least six months of service on
the Board of Directors who will continue to serve as a non-employee Director
following the meeting will automatically be granted an option for 1,250 shares
of Common Stock, whether or not such individual has been in the prior employ of
the Company or joined the Board of Directors prior to the initial public
offering. Each option granted under the automatic grant program will have an
exercise price equal to 100% of the fair market value of the Common Stock on the
automatic grant date and a maximum term of ten years, subject to earlier
termination upon the optionee's cessation of Board of Director service. Each
automatic option will be immediately exercisable; however, any shares purchased
upon exercise of the option will be subject to repurchase by the Company should
the optionee's service as a non-employee Director cease prior to vesting in the
shares. The initial 7,500-share option will vest in successive equal annual
installments over the optionee's initial four-year period of service on the
Board of Directors; each annual option will vest upon completion of one (1) year
of Board service measured from the option grant date. However, each outstanding
option will immediately vest upon (i) certain changes in the ownership or
control of the Company or (ii) the death or disability of the optionee while
serving on the Board of Directors. In accordance with the Option Plan, each of
Messrs. Benson, Lothrop, Madeja and Wall and Dr. Ottensmeyer, if elected to the
Board of Directors for the ensuing year, will receive options to purchase 1,250
shares of Common Stock at an exercise price equal to the fair market value of
the Company's Common Stock on the date of the Annual Meeting.
<PAGE>
EXECUTIVE OFFICERS AND INFORMATION REGARDING
EXECUTIVE COMPENSATION
Executive Officers
The executive officers of the Company as of December 31, 1997 were the
following:
Name Age Position
---- --- --------
Patrick A. McBrayer 46 Chief Executive Officer and President
John P. Ryaby 63 Vice President of Research and Development and
Regulatory Affairs
Richard H. Reisner 54 Vice President, Chief Financial Officer and Secretary
Roger J. Talish 55 Vice President of Operations
Information Concerning Executive Officers Who Are Not Directors
Richard H. Reisner, a founder of the Company, has served as its Vice
President and Chief Financial Officer since September 1992. From 1991 to 1992,
Mr. Reisner was Vice President and Chief Financial Officer of Cirrus Diagnostics
Inc. ("Cirrus"), a company which developed a system for the automation of
diagnostic immunoassay and chemistry testing. Mr. Reisner was directly involved
with the acquisition of Cirrus by Diagnostic Products Corporation in May 1992.
From 1990 to 1991, Mr. Reisner was the Corporate Controller for Datascope Corp.,
a manufacturer of medical instruments. From 1988 to 1990, Mr. Reisner was
President and Chief Executive Officer of Pain Suppression Labs, Inc., a
manufacturer of electrical stimulation devices to suppress chronic headache
pain. From 1979 to 1988, Mr. Reisner was Vice President of Finance and
Administration of EBI and was responsible for obtaining third-party
reimbursement for EBI's bone growth electrical stimulation devices.
Roger J. Talish, a founder of the Company, has served as Vice President
of Operations for the Company since March 1992. From 1989 to 1992, Mr. Talish
was Vice President of Operations at Interpore and from 1985 to 1989 he held the
same position at Meditron, Inc. From 1978 to 1985, Mr. Talish held various
engineering management positions at EBI, including Director of Research and
Product Engineering.
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the annual and long-term compensation
earned for the three fiscal years ended September 30, 1997, 1996 and 1995 by the
Company's Chief Executive Officer ("CEO") who served in such capacity during
fiscal 1997, the executive officers of the Company, other than the CEO, whose
total compensation during fiscal 1997 exceeded $100,000 and who were serving as
such at the end of fiscal 1997 and one other officer who resigned during fiscal
1997 (collectively, the "Named Executive Officers"):
<TABLE>
<CAPTION>
Annual Long-Term Compensation
Compensation(1) Awards
----------------------- ---------------------------
Restricted Securities
Fiscal Stock Underlying All Other
Name and Principal Position Year Salary Bonus Awards(2) Options Compensation
- - --------------------------- ---- ------ ----- --------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Patrick A. McBrayer........... 1997 $200,000 -- -- -- --
Chief Executive Officer 1996 200,000 -- -- -- --
and President 1995 200,000 -- -- -- --
John P. Ryaby................. 1997 144,000 -- -- -- --
Vice President of Research 1996 144,000 $10,000(3) -- -- --
and Development and 1995 135,000 10,000(3) -- -- --
Regulatory Affairs
Richard H. Reisner............ 1997 130,000 -- -- -- --
Vice President, Chief 1996 128,333 -- -- -- --
Financial Officer and 1995 110,000 -- -- -- --
Secretary
Roger J. Talish............... 1997 127,750 -- -- -- --
Vice President of 1996 128,750 6,666(3) -- -- --
Operations 1995 115,000 6,667(3) -- -- --
John Bohan(4)................. 1997 96,667 5,751 -- -- $65,000(5)
Vice President of 1996 129,167 23,359 -- -- --
Sales and Marketing 1995 120,000 9,659 -- 25,000(6) --
</TABLE>
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(1) Other compensation in the form of perquisites and other personal benefits
has been omitted in those instances where the aggregate amount of such
perquisites and other personal benefits constituted the lesser of $50,000
or 10% of the total annual salary and bonus for the executive officer for
such year.
(2) No restricted stock grants were made to Messrs. Ryaby, Reisner or Talish
during the fiscal years ended September 30, 1995, September 30, 1996 and
September 30, 1997. Messrs. Ryaby, Reisner and Talish each entered into
Stock Restriction Agreements with the Company relating to 159,500, 129,412
and 151,162 shares of Common Stock, respectively, previously purchased by
such individuals. Pursuant to the terms of the Stock Restriction
Agreements, 10% of the shares of each of Messrs. Ryaby, Reisner and Talish
vested immediately on March 1, 1993, and an additional 16% vested upon
receipt of the PMA from the U.S. Food and Drug Administration on October
5, 1994. The remaining shares vest in 37 equal monthly installments,
measured from October 5, 1994. The Company has the right to repurchase, at
<PAGE>
a purchase price of $0.0034 per share, any unvested shares held by each of
Messrs. Ryaby, Reisner and Talish at the time of termination of service.
However, in the event service with the Company is terminated by reason of
death or disability, such repurchase right shall immediately terminate.
All restricted shares immediately vest in the event the Company is
acquired by merger or asset sale, unless the Company's repurchase rights
are assigned to the acquiring entity. As of September 30, 1997, Messrs.
Ryaby, Reisner and Talish held 6,380, 5,185 and 6,055 shares of restricted
Common Stock, respectively, which shares had a fair market value equal to
$29,486, $23,963 and $27,983, respectively. In addition, Messrs. Ryaby,
Reisner and Talish each entered into Stock Purchase Agreements with the
Company on August 2, 1993, relating to 100,000, 50,000 and 50,000 shares
of Common Stock, respectively, which shares are no longer restricted.
(3) Represents a portion of the loan to each of Messrs. Ryaby and Talish
forgiven by the Company on January 1, 1995 and January 1, 1996.
(4) Mr. Bohan resigned from the Company in May 1997.
(5) Represents severance payments made during fiscal 1997 and the first
quarter of fiscal 1998. See "Severance Agreements."
(6) In January 1995, the Company granted Mr. Bohan an option to purchase
25,000 shares of Common Stock at an exercise price of $.60 per share,
vesting 20% per annum, pursuant to the Company's 1993 Stock Option Plan.
See "Severance Agreements."
OPTION/SAR GRANTS IN LAST FISCAL YEAR
No options or stock appreciation rights were granted to any Named
Executive Officer during the last fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
With respect to the Named Executive Officers, there were no stock
option holdings as of September 30, 1997. The following table sets forth certain
information regarding the exercise of stock options by such persons in fiscal
1997. No stock appreciation rights were exercised by any Named Executive Officer
during fiscal 1997 and no stock appreciation rights were outstanding as of
September 30, 1997.
Shares Acquired Value
Name On Exercise (#) Realized ($)(1)
- - ---- --------------- ---------------
Patrick A. McBrayer................... -- --
John P. Ryaby......................... -- --
Richard H. Reisner.................... -- --
Roger J. Talish....................... -- --
John Bohan............................ 10,000 $30,250
- - ------------------
(1) The value realized is the excess of the fair market value of the shares on
the date of option exercise over the exercise price paid for each share.
<PAGE>
Employment and Severance Agreements
Patrick A. McBrayer and the Company are parties to an employment
agreement, dated as of March 1, 1997. Pursuant to the terms of this agreement,
Mr. McBrayer receives annual minimum compensation of $200,000, which amount is
subject to annual review by the Compensation Committee during the term of the
agreement. The agreement also provides that Mr. McBrayer is entitled to
participate in an executive performance bonus program, which is to be developed
by Mr. McBrayer and approved by the Board of Directors. Mr. McBrayer is entitled
to receive all employee benefits generally made available to executive officers,
as well as a monthly car allowance of $600. In the event Mr. McBrayer's
employment is terminated by the Company without good cause, the Company is
required to provide Mr. McBrayer with severance payments equal to his base
compensation in effect at the time of such termination until the earlier of one
year following the date of termination or March 1, 2000.
John P. Ryaby entered into an arrangement with the Company in May 1995
whereby if he is terminated by the Company without good cause prior to November
13, 1999, he will be entitled to receive certain benefits from the date of such
termination until November 13, 1999.
John Bohan resigned from the Company effective May 31, 1997. Pursuant
to a letter agreement dated May 27, 1997, Mr. Bohan received an aggregate
severance payment consisting of six months base salary. The letter agreement
provides that the Company will not exercise certain repurchase rights with
respect to 25,000 shares purchased by Mr. Bohan pursuant to a Stock Purchase
Agreement between the Company and Mr. Bohan, dated February 5, 1994. In January
1995, Mr. Bohan was granted an option to purchase 25,000 shares of Common Stock,
10,000 shares of which vested as of May 31, 1997. The option was subsequently
exercised for the vested shares by Mr. Bohan.
Compensation Committee Interlocks and Insider Participation
During fiscal 1997, Messrs. Lothrop and Wall served as members of the
Company's Compensation Committee. On December 2, 1997, Messrs. Lothrop and Wall
resigned from the Compensation Committee and Mr. Madeja and Dr. Ottensmeyer were
appointed to the Compensation Committee. Messrs. Lothrop and Wall resigned in
accordance with certain federal regulations due to their participation in a
private placement of Common Stock of the Company in October 1997. See "Certain
Transactions" for a description of the private placement.
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors advises the Chief
Executive Officer and the Board of Directors on matters of the Company's
compensation philosophy and the compensation of executive officers and other
individuals compensated by the Company. The Compensation Committee also is
responsible for the administration of the Company's Option Plan under which
option grants and direct stock issuances may be made to executive officers. The
Compensation Committee has reviewed and is in accord with the compensation paid
to executive officers in fiscal 1997.
General Compensation Policy. The fundamental policy of the Compensation
Committee is to provide the Company's executive officers with competitive
compensation opportunities based upon their contribution to the development and
financial success of the Company and their personal performance. It is the
Compensation Committee's objective to have a portion of each executive officer's
<PAGE>
compensation contingent upon the Company's performance as well as upon such
executive officer's own level of performance. Accordingly, the compensation
package for each executive officer is comprised of two elements: (i) base salary
which reflects individual performance and is designed primarily to be
competitive with salary levels in the industry and (ii) long-term stock-based
incentive awards which strengthen the mutuality of interests between the
executive officers and the Company's stockholders.
Factors. The principal factors which the Compensation Committee
considered with respect to each executive officer's compensation package for
fiscal 1997 are summarized below. The Compensation Committee may, however, in
its discretion apply entirely different factors in advising the Chief Executive
Officer and the Board of Directors with respect to executive compensation for
future years.
o Base Salary. The suggested base salary for each executive
officer is determined on the basis of the following factors: experience,
personal performance, the salary levels in effect for comparable positions
within and without the industry and internal base salary comparability
considerations. The weight given to each of these factors differs from
individual to individual, as the Compensation Committee deems appropriate.
While it is the general policy of the Compensation Committee not to
award performance-based cash bonuses, from time to time, the Compensation
Committee may advocate cash bonuses when such bonuses are deemed to be in the
best interest of the Company.
o Long-Term Incentive Compensation. Long-term incentives are
provided through grants of restricted stock and stock options. The grants are
designed to align the interests of each executive officer with those of the
stockholders and to provide each individual with a significant incentive to
manage the Company from the perspective of an owner with an equity stake in the
Company. The restricted stock generally vests in monthly or annual installments
over a period of four years and any unvested shares held by an executive officer
at the time of his or her termination of service are subject to the Company's
right of repurchase. Each option grant allows the individual to acquire shares
of the Company's Common Stock at a fixed price per share (generally, the market
price on the grant date) over a specified period of time (up to ten years). Each
option generally becomes exercisable in installments over a five-year period,
contingent upon the executive officer's continued employment with the Company.
Accordingly, the restricted stock or option grant will provide a return to the
executive officer only if the executive officer remains employed by the Company
during the vesting period, and then only if the market price of the underlying
shares appreciates.
The number of shares subject to each option grant is set at a level
intended to create a meaningful opportunity for stock ownership based on the
executive officer's current position with the Company, the base salary
associated with that position, the size of comparable awards made to individuals
in similar positions within the industry, the individual's potential for
increased responsibility and promotion over the option term and the individual's
personal performance in recent periods. The Compensation Committee also
considers the number of unvested options held by the executive officer in order
to maintain an appropriate level of equity incentive for that individual.
However, the Compensation Committee does not adhere to any specific guidelines
as to the relative option holdings of the Company's executive officers. There
were no stock options granted to executive officers in fiscal 1997.
<PAGE>
Through the Company's Employee Stock Purchase Plan, the Company offers
additional opportunities for equity ownership to executive officers.
CEO Compensation. In advising the Board of Directors with respect to
the compensation payable to the Company's Chief Executive Officer, the
Compensation Committee seeks to achieve two objectives: (i) to establish a level
of base salary competitive with that paid by companies within the industry which
are of comparable size to the Company and by companies outside of the industry
with which the Company competes for executive talent and (ii) to make a
significant percentage of the total compensation package contingent upon the
Company's performance and stock price appreciation.
The suggested base salary established for Mr. McBrayer on the basis of
the foregoing criteria was intended to provide a level of stability and
certainty each year. Accordingly, this element of compensation was not affected
to any significant degree by Company performance factors.
In January 1994, Mr. McBrayer was issued 350,000 shares of restricted
Common Stock of the Company, which restrictions fully lapsed in September 1997.
This restricted stock made a significant portion of Mr. McBrayer's total
compensation contingent on increased value for the Company's stockholders, since
the value of this restricted stock depends upon the value of the Company's
Common Stock.
Compliance with Internal Revenue Code Section 162(m). As a result of
Section 162(m) of the Internal Revenue Code of 1986, as amended, which was
enacted into law in 1993, the Company will not be allowed a federal income tax
deduction for compensation paid to certain executive officers, to the extent
that compensation exceeds $1 million per officer in any one year. This
limitation will apply to all compensation paid to the covered executive officers
which is not considered to be performance based. Compensation which does qualify
as performance-based compensation will not have to be taken into account for
purposes of this limitation. The Option Plan contains certain provisions which
are intended to assure that any compensation deemed paid in connection with the
exercise of stock options granted under that plan with an exercise price equal
to the market price of the option shares on the grant date will qualify as
performance-based compensation.
The Compensation Committee does not expect that the compensation to be
paid to the Company's executive officers for the 1998 fiscal year will exceed
the $1 million limit per officer. Because it is very unlikely that the cash
compensation payable to any of the Company's executive officers in the
foreseeable future will approach the $1 million limit, the Compensation
Committee has decided at this time not to take any other action to limit or
restructure the elements of cash compensation payable to the Company's executive
officers. The Compensation Committee will reconsider this decision should the
individual compensation of any executive officer ever approach the $1 million
level.
THE COMPENSATION COMMITTEE
Donald J. Lothrop
Terence D. Wall
<PAGE>
PERFORMANCE GRAPH
Set forth below is a graph comparing the annual percentage change in
the Company's cumulative total stockholder return on its Common Stock from July
20, 1995 (the date public trading of the Company's stock commenced) to the last
day of the Company's last completed fiscal year (as measured by dividing (i) the
sum of (A) the cumulative amount of dividends for the measurement period,
assuming dividend reinvestment, and (B) the excess of the Company's share price
at the end over the price at the beginning of the measurement period, by (ii)
the share price at the beginning of the measurement period) with the cumulative
total return so calculated of The Nasdaq Stock Market (US) Index and a group of
peer issuers in a line of business similar to the Company during the same
period.
COMPARISON OF 26-MONTH CUMULATIVE TOTAL RETURN*
AMONG EXOGEN, INC, THE NASDAQ STOCK MARKET (U.S) INDEX
AND A PEER GROUP
[GRAPHIC-GRAPH PLOTTED TO POINTS LISTED IN CHART BELOW]
Cumulative Total Return
----------------------------------
7/20/95 9/95 9/96 9/97
------- ---- ---- ----
Exogen Inc. EXGN 100 128 35 40
PEER GROUP PPEER2 100 113 129 191
NASDAQ STOCK MARKET-US INAS 100 109 129 177
$100 INVESTED ON 7/20/95 IN STOCK OR INDEX
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING SEPTEMBER 30.
The Peer Group consists of Biomet, Inc., Orthofix International N.V.,
Orthologic Corp., Sofamor/Danek Group, Inc., Spine-Tech, Inc., Stryker Corp.,
and Osteotech Inc.
Notwithstanding anything to the contrary set forth in any of the
Company's previous filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, which might incorporate future
filings made by the Company under those statutes, the preceding Compensation
Committee Report on Executive Compensation and the Company Stock Performance
Graph will not be incorporated by reference into any of those prior filings, nor
will such report or graph be incorporated by reference into any future filings
made by the Company under those statutes.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of November 28, 1997 by (i) each
Director and nominee for Director, (ii) each of the Named Executive Officers,
(iii) each person known by the Company to be the beneficial owner of more than
5% of the Company's Common Stock and (iv) all executive officers and Directors
as a group.
<TABLE>
<CAPTION>
Number of Shares of Percentage of
Common Stock Beneficially Shares
Name and Address of Beneficial Owner Owned(1) Outstanding(1)
- - ------------------------------------ -------- --------------
<S> <C> <C>
Delphi Ventures III, L.P. (2)............... 1,151,534 9.8%
State of Wisconsin Investment Board (3)..... 884,800 7.5%
DLJ Capital Corporation (4)................. 815,384 6.9%
Marquette Venture Partners II, L.P. (5)..... 744,463 6.3%
Dawson-Samberg Capital Management, Inc. (6). 735,294 6.2%
Patrick A. McBrayer (7)..................... 293,000 2.5%
John P. Ryaby............................... 155,450 1.3%
Richard H. Reisner (8)...................... 153,412 1.3%
Roger J. Talish (9)......................... 145,963 1.2%
John Bohan.................................. 104,572 *
Buzz Benson (10)............................ 321,990 2.7%
Donald J. Lothrop (11)...................... 1,180,646 10.0%
Terence D. Wall (12)........................ 168,632 1.4%
David J. Ottensmeyer, M.D. (13)............. 7,500 *
Peter C. Madeja (14)........................ 7,500 *
All executive officers and directors
as a group (9 persons) (15)............... 2,538,665 21.5%
- - ------------------------
</TABLE>
* Represents beneficial ownership of less than one percent of the Common
Stock.
(1) Applicable percentage of ownership as of November 28, 1997 is based upon
11,802,159 shares of Common Stock outstanding. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission, and includes voting and investment power with respect to
shares. Gives effect to the shares of Common Stock issuable within 60 days
of November 28, 1997 upon the exercise of all options and other rights
beneficially owned by the indicated stockholders on that date.
<PAGE>
(2) Consists of (i) 443,439 shares owned by Delphi Ventures II, L.P. ("Ventures
II"); (ii) 2,213 shares owned by Bio-Investments II, L.P. ("Bio-Investments
II"); (iii) 693,398 shares owned by Delphi Ventures III, L.P. ("Ventures
III") and (iv) 12,484 shares owned by Delphi Bio-Investments III, L.P.
("Bio-Investments III") (collectively, the "Delphi Entities"). The address
for the Delphi Entities is 3000 Sand Hill Road, Building 1, Suite 135,
Menlo Park, California 94025.
(3) The address for the State of Wisconsin Investment Board is P.O. Box 7842,
Madison, Wisconsin 53707.
(4) Consists of 111,470 shares owned by DLJ Capital Corporation and 703,914
shares owned by Sprout Capital VI, L.P. DLJ Capital Corporation is the
Managing General Partner of Sprout Capital VI, L.P. The address for DLJ
Capital Corporation is 277 Park Avenue, New York, New York 10172.
(5) Consists of 723,783 shares owned by Marquette Venture Partners II, L.P. and
20,680 shares owned by MVP II Affiliates Fund, L.P. The address for
Marquette Venture Partners II, L.P. is 520 Lake Cook Road, Suite 450,
Deerfield, Illinois 60015.
(6) Consists of 652,660 shares owned by Pequot Private Equity Fund, L.P. and
82,634 shares owned by Pequot Offshore Private Equity Fund, Inc., funds for
which Dawson-Samberg Capital Management, Inc. acts as investment manager.
The address for Dawson-Samberg Capital Management, Inc. is 354 Pequot
Avenue, Southport, Connecticut 06490.
(7) Includes (i) 30,000 shares held by Mr. McBrayer's spouse; (ii) 1,000 shares
held by Mr. McBrayer's two children; and (iii) 147,500 shares pledged to
Merrill Lynch Credit Corp. Mr. McBrayer disclaims beneficial ownership of
the shares held by his spouse and two children.
(8) Includes 1,000 shares held by Mr. Reisner's spouse. Mr. Reisner disclaims
beneficial ownership of such shares.
(9) Includes 5,060 shares held by Mr. Talish's daughter and 120,793 shares
pledged to Merrill Lynch Credit Corp. Mr. Talish disclaims beneficial
ownership of the shares held by his daughter.
(10) Includes (i) 299,465 shares owned by Piper Jaffray Healthcare Capital
Limited Partnership (SBIC) ("Piper Jaffray"); (ii) 3,025 shares held by Mr.
Benson's children; and (iii) 2,500 shares issuable upon the exercise of
stock options, of which 1,250 shares, if issued, would be subject to the
Company's repurchase right. Mr. Benson is a Managing Director of Piper
Ventures Capital, Inc., which is the general partner of Piper Ventures
Management IV Limited Partnership, which is the general partner of Piper
Jaffray and, as such, may be deemed to share voting and investment power
with respect to Piper Jaffray's shares. Mr. Benson disclaims beneficial
ownership of Piper Jaffray's shares except to the extent of his pecuniary
interest in such shares arising from his interest in the partnership.
(11) Includes (i) 443,439 shares owned by Ventures II; (ii) 2,213 shares owned
by Bio-Investments; (iii) 693,398 shares owned by Ventures III; (iv) 12,484
shares owned by Bio-Investments III and (v) 2,500 shares issuable upon the
exercise of stock options, of which 1,250 shares, if issued, would be
subject to the Company's repurchase right. Mr. Lothrop is a general partner
of the general partner of Ventures II, Bio-Investments II, Ventures III and
Bio-Investments III, respectively, and, as such, may be deemed to share
voting and investment power with respect to such shares. Mr. Lothrop
disclaims beneficial ownership of such shares except to the extent of his
pecuniary interest in such shares arising from his interest in Ventures II,
Bio-Investments II, Ventures III and Bio-Investments III, respectively.
(12) Includes 2,500 shares issuable upon the exercise of stock options, of which
1,250 shares, if issued, would be subject to the Company's repurchase
right.
<PAGE>
(13) Includes 7,500 shares issuable upon the exercise of stock options, of which
5,625 shares, if issued, would be subject to the Company's repurchase
right.
(14) Includes 7,500 shares issuable upon the exercise of stock options, of which
7,500 shares, if issued, would be subject to the Company's repurchase
right.
(15) See Notes (7) through (14) above.
Compliance with Reporting Requirements
Under the securities laws of the United States, the Company's
Directors, executive officers, and any persons holding more than ten percent of
the Company's Common Stock are required to report their ownership of the
Company's Common Stock and any changes in that ownership to the Securities and
Exchange Commission and the Nasdaq National Market Surveillance Department.
Specific due dates for these reports have been established and the Company is
required to report in this Proxy Statement any failure to file by these dates
during fiscal 1997. Based solely on its review of such forms received by it from
such persons for their fiscal 1997 transactions, the Company believes that such
executive officers, directors and holders of more than ten percent of the
Company's Common Stock have complied with all filing requirements applicable to
such persons.
Certain Transactions
In October 1997, the Company completed a $7.5 million private placement
(the "Private Placement") of 1,799,019 shares of its Common Stock. Participants
in the Private Placement included Messrs. Benson, Lothrop and Wall. Mr. Benson
is a Managing Director of Piper Ventures Capital, Inc., which is the general
partner of Piper Ventures Management IV Limited Partnership, which is the
general partner of Piper Jaffray Piper Jaffray. Mr. Lothrop is a general partner
of Delphi Management Partners III, L.L.C., which is the general partner of each
Ventures III and Bio-Investments III. Piper Jaffray, Ventures III,
Bio-Investments III and Mr. Wall purchased 117,647, 693,398, 12,484 and 117,647
shares, respectively, in the Private Placement.
<PAGE>
PROPOSAL 2:
APPROVAL OF AMENDMENT TO 1995 STOCK OPTION/STOCK ISSUANCE PLAN
The Company's stockholders are being asked to approve an amendment to
the 1995 Stock Option/Stock Issuance Plan (the "Option Plan") which includes the
following changes:
(i) increase the number of shares of Common Stock available
for issuance by 600,000 shares;
(ii) allow members of the Compensation Committee which
administers the Option Plan to receive discretionary grants and stock
issuances under the Discretionary Option Grant and Stock Issuance
Programs of the Option Plan;
(iii) allow the shares issued under the Option Plan which are
subsequently reacquired by the Company pursuant to the Company's
exercise of its repurchase rights to be added back to the share reserve
available for future issuance under the Option Plan;
(iv) require stockholder approval of future amendments to the
Option Plan only to the extent necessary to satisfy applicable laws or
regulations;
(v) allow either the Board or the Compensation Committee to
administer the Option Plan with respect to individuals subject to
Section 16 of the Securities Exchange Act of 1934, as amended;
(vi) allow non-statutory options granted under the Option Plan
to be transferred to family members or trusts established for family
members in connection with the optionee's estate planning; and
(vii) eliminate the six-month holding period requirement for
the exercise of limited stock appreciation rights in connection with a
hostile take-over.
The amendment to the Option Plan was adopted by the Board on November
14, 1997, subject to stockholder approval at the 1998 Annual Meeting. The Board
believes it is in the best interests of the Company to increase the share
reserve so that the Company can continue to attract and retain the services of
those persons essential to the Company's growth and financial success. The
purpose of the remaining changes to the Option Plan is to provide the Plan
Administrator with more flexibility as is allowed under recent changes to the
regulations governing employee option plans such as the Option Plan.
The following is a summary of the principal features of the Option
Plan. The summary, however, does not purport to be a complete description of all
the provisions of the Option Plan. Any stockholder of the Company who wishes to
obtain a copy of the actual plan document may do so upon written request to the
Corporate Secretary at the Company's principal executive offices in Piscataway,
New Jersey.
Equity Incentive Programs
The Option Plan contains four separate equity incentive programs: (i) a
Discretionary Option Grant Program, (ii) a Salary Investment Option Grant
Program, (iii) a Stock Issuance Program and (iv) an Automatic Option Grant
<PAGE>
Program. The principal features of these programs are described below. The
Option Plan (other than the Automatic Option Grant Program) is administered by
the Compensation Committee of the Board. This committee (the "Plan
Administrator") has complete discretion (subject to the provisions of the Option
Plan) to authorize option grants and direct stock issuances under the Option
Plan. However, all grants under the Automatic Option Grant Program are made in
strict compliance with the provisions of that program, and no administrative
discretion is exercised by the Plan Administrator with respect to the grants
made thereunder.
Share Reserve
1,350,000 shares of Common Stock have been reserved for issuance over
the ten year term of the Option Plan. In no event may any one participant in the
Option Plan be granted stock options, separately exercisable stock appreciation
rights and direct stock issuances for more than 300,000 shares per calendar
year.
In the event any change is made to the outstanding shares of Common
Stock by reason of any recapitalization, stock dividend, stock split,
combination of shares, exchange of shares or other change in corporate structure
effected without the Company's receipt of consideration, appropriate adjustments
will be made to the securities issuable (in the aggregate and to each
participant) under the Option Plan and to the securities and exercise price
under each outstanding option.
Eligibility
Officers and other employees of the Company and its parent or
subsidiaries (whether now existing or subsequently established), non-employee
members of the Board and the board of directors of its parent or subsidiaries
and consultants and independent advisors of the Company and its parent and
subsidiaries are eligible to participate in the Discretionary Option Grant and
Stock Issuance Programs. Employees of the Company and its parent or subsidiaries
are also eligible to participate in the Salary Investment Option Grant Program.
Only non-employee members of the Board are eligible to participate in the
Automatic Option Grant Program.
As of November 28, 1997, approximately 4 executive officers, 71 other
employees and 5 non-employee Board members were eligible to participate in the
Option Plan, and 5 non-employee Board members were eligible to participate in
the Automatic Option Grant Program.
Valuation
The fair market value per share of Common Stock on any relevant date
under the Option Plan will be the closing selling price per share on that date
on the Nasdaq National Market. On November 28, 1997, the closing selling price
per share was $3.75.
Discretionary Option Grant Program
Options may be granted under the Discretionary Option Grant Program at
an exercise price per share not less than the fair market value per share of
Common Stock on the option grant date. No granted option will have a term in
excess of ten years.
<PAGE>
Upon cessation of service, the optionee will have a limited period of
time in which to exercise any outstanding option to the extent such option is
exercisable for vested shares. The Plan Administrator will have complete
discretion to extend the period following the optionee's cessation of service
during which his or her outstanding options may be exercised and/or to
accelerate the exercisability or vesting of such options in whole or in part.
Such discretion may be exercised at any time while the options remain
outstanding, whether before or after the optionee's actual cessation of service.
The Plan Administrator is authorized to issue two types of stock
appreciation rights in connection with option grants made under the
Discretionary Option Grant Program:
Tandem stock appreciation rights provide the holders with the
right to surrender their options for an appreciation distribution from
the Company equal in amount to the excess of (a) the fair market value
of the vested shares of Common Stock subject to the surrendered option
over (b) the aggregate exercise price payable for such shares. Such
appreciation distribution may, at the discretion of the Plan
Administrator, be made in cash or in shares of Common Stock.
Limited stock appreciation rights may be granted to officers
of the Company as part of their option grants. Any option with such a
limited stock appreciation right in effect may be surrendered to the
Company upon the successful completion of a hostile take-over of the
Company. In return for the surrendered option, the officer will be
entitled to a cash distribution from the Company in an amount per
surrendered option share equal to the excess of (a) the take-over price
per share over (b) the exercise price payable for such share.
The Plan Administrator will have the authority to effect the
cancellation of outstanding options under the Discretionary Option Grant Program
which have exercise prices in excess of the then current market price of Common
Stock and to issue replacement options with an exercise price based on the
market price of Common Stock at the time of the new grant.
Salary Investment Option Grant Program
The Plan Administrator has complete discretion in implementing the
Salary Investment Option Grant Program for one or more calendar years and in
selecting the executive officers and other eligible individuals who are to
participate in the program for those years. As a condition to such
participation, each selected individual must, prior to the start of the calendar
year of participation, file with the Plan Administrator an irrevocable
authorization directing the Company to reduce, by a designated multiple of one
percent (1%), his or her base salary for the upcoming calendar year. The salary
reduction amount must not be less than Five Thousand Dollars ($5,000.00), and
may not be more than the lesser of (i) twenty percent (20%) of his or her base
salary or (ii) Twenty Thousand Dollars ($20,000.00). Each individual who files a
proper salary reduction authorization will be granted a stock option under the
Salary Investment Option Grant Program on the first trading day in January of
the calendar year for which that salary reduction is to be in effect.
Each option will be subject to substantially the same terms and
conditions applicable to option grants made under the Discretionary Option Grant
Program, except for the following differences:
<PAGE>
- Each option will be a non-statutory option.
- The exercise price per share will be equal to one-third of
the fair market value per share of Common Stock on the option grant
date, and the number of option shares will be determined by dividing
the total dollar amount of the authorized reduction in the optionee's
base salary by two-thirds of the fair market value per share of Common
Stock on the option grant date. As a result, the total spread on the
option (the fair market value of the option shares on the grant date
less the aggregate exercise price payable for those shares) will equal
the dollar amount of the reduction to the optionee's base salary to be
in effect for the calendar year for which the option grant is made.
- The option will become exercisable for the option shares in
a series of twelve (12) successive equal monthly installments upon the
optionee's completion of each calendar month of service in the calendar
year for which the salary reduction is in effect.
- Each option will remain outstanding for vested shares until
the earlier of (i) the expiration of the ten (10)-year option term or
(ii) the expiration of the two (2)-year period measured from the date
the optionee's service terminates.
Stock Issuance Program
Shares may be sold under the Stock Issuance Program at a price per
share not less than the fair market value per share of Common Stock, payable in
cash or through a promissory note payable to the Company. Shares may also be
issued solely as a bonus for past services.
The issued shares may either be immediately vested upon issuance or
subject to a vesting schedule tied to the performance of service or the
attainment of performance goals. The Plan Administrator will, however, have the
discretionary authority at any time to accelerate the vesting of any unvested
shares.
Automatic Option Grant Program
Under the Automatic Option Grant Program, each individual who first
becomes a non-employee Board member will automatically be granted at that time
an option grant for 7,500 shares of Common Stock, provided such individual has
not been in the prior employ of the Company. In addition, on the date of each
Annual Stockholders Meeting, beginning with the 1996 Annual Meeting, each
individual who is to continue to serve as a non-employee Board member after such
meeting will automatically be granted an option to purchase 1,250 shares of
Common Stock, provided such individual has served as a non-employee Board member
for at least six months. There will be no limit on the number of such
1,250-share options which any one non-employee Board member may receive over the
period of Board service.
Each option will have an exercise price per share equal to 100% of the
fair market value per share of Common Stock on the option grant date and a
maximum term of ten years measured from the option grant date.
Each option will be immediately exercisable for all the option shares,
but any purchased shares will be subject to repurchase by the Company, at the
exercise price paid per share, upon the optionee's cessation of Board service.
Each initial option grant will vest (and the Company's repurchase rights will
<PAGE>
lapse) in four equal annual installments over the optionee's period of Board
service, with the first such installment to vest upon the completion of one year
of Board service measured from the option grant date. Each annual option grant
will vest (and the Company's repurchase rights will lapse) upon the completion
of one year of Board service measured from the option grant date.
The shares subject to each automatic option grant will immediately vest
upon the optionee's death or permanent disability or an acquisition of the
Company by merger or asset sale or a hostile change in control of the Company
(whether by successful tender offer for more than 50% of the outstanding voting
stock or by proxy contest for the election of Board members). In addition, upon
the successful completion of a hostile take-over, each automatic option grant
may be surrendered to the Company for a cash distribution per surrendered option
share in an amount equal to the excess of (a) the take-over price per share over
(b) the exercise price payable for such share.
General Provisions
Acceleration
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not to
be assumed by the successor corporation or replaced with a comparable option to
purchase shares of the capital stock of the successor corporation will
automatically accelerate in full, and all unvested shares under the Stock
Issuance Program will immediately vest, except to the extent the Company's
repurchase rights with respect to those shares are to be assigned to the
successor corporation. Any options assumed or replaced in connection with such
acquisition will be subject to immediate acceleration, and any unvested shares
which do not vest at the time of such acquisition will be subject to full and
immediate vesting, in the event the individual's service is subsequently
terminated within 18 months following the acquisition. Each option will
automatically accelerate and all unvested shares will be subject to full and
immediate vesting in the event the individual's service is terminated within 18
months following a hostile change in control of the Company (whether by
successful tender offer for more than 50% of the outstanding voting stock or by
proxy contest for the election of Board members).
In the event that the Company is acquired or there is a hostile change
in control of the Company (whether by successful tender offer for more than 50%
of the outstanding voting stock or by proxy contest for the election of Board
members), each outstanding option under the Salary Investment Option Grant
Program will automatically accelerate in full. Each option outstanding at the
time of an acquisition of the Company will be assumed by the successor
corporation.
The acceleration of vesting in the event of a change in the ownership
or control of the Company may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of the Company.
Financial Assistance
The Plan Administrator may permit one or more participants to pay the
exercise price of outstanding options or the purchase price of shares under the
Option Plan by delivering a promissory note payable in installments. The Plan
Administrator will determine the terms of any such promissory note. However, the
<PAGE>
maximum amount of financing provided any participant may not exceed the cash
consideration payable for the issued shares plus all applicable taxes incurred
in connection with the acquisition of the shares. Any such promissory note may
be subject to forgiveness in whole or in part, at the discretion of the Plan
Administrator, over the optionee's period of service.
Special Tax Election
The Plan Administrator may provide one or more holders of options or
unvested shares with the right to have the Company withhold a portion of the
shares otherwise issuable to such individuals in satisfaction of the tax
liability incurred by such individuals in connection with the exercise of those
options or the vesting of those shares. Alternatively, the Plan Administrator
may allow such individuals to deliver previously acquired shares of Common Stock
in payment of such tax liability.
Amendment and Termination
The Board may amend or modify the Option Plan in any or all respects
whatsoever subject to any stockholder approval required under applicable laws
and regulations. The Board may terminate the Option Plan at any time, and the
Option Plan will in all events terminate on April 30, 2005.
<PAGE>
Stock Awards
The table below shows, as to each of the Company's executive officers
named in the Summary Compensation Table and the various indicated individuals
and groups, the number of shares of Common Stock subject to options granted
between October 1, 1996 and November 28, 1997, together with the weighted
average exercise price payable per share.
<TABLE>
<CAPTION>
OPTION TRANSACTIONS
Weighted
Number of Average
Name Option Shares Exercise Price
---- ------------- --------------
<S> <C> <C>
Patrick A. McBrayer - -
Chief Executive Officer and President
John P. Ryaby - -
Chairman of the Board of Directors and Vice
President of Research and Development and
Regulatory Affairs
Richard H. Reisner - -
Vice President, Chief Financial Officer and
Secretary
Roger J. Talish - -
Vice President of Operations
John Bohan - -
Vice President of Sales and Marketing
All current executive officers as a group - -
(4 persons)
Buzz Benson 1,250 $4.75
Director
Donald J. Lothrop 1,250 $4.75
Director
Terence D. Wall 1,250 $4.75
Director
David J. Ottensmeyer, M.D. 7,500 $4.50
Director
Peter C. Madeja 7,500 $4.75
Director
All non-employee directors as a group 18,750 $4.65
(5 persons)
All employees, including current officers who are
not executive officers as a group (56 persons) 271,800 $4.17
</TABLE>
<PAGE>
Federal Income Tax Consequences
Option Grants
Options granted under the Option Plan may be either incentive stock
options which satisfy the requirements of Section 422 of the Internal Revenue
Code or non-statutory options which are not intended to meet such requirements.
The Federal income tax treatment for the two types of options differs as
follows:
Incentive Options. No taxable income is recognized by the optionee at
the time of the option grant, and no taxable income is generally recognized at
the time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise disposed
of. For Federal tax purposes, dispositions are divided into two categories: (i)
qualifying and (ii) disqualifying. A qualifying disposition occurs if the sale
or other disposition is made after the optionee has held the shares for more
than two years after the option grant date and more than one year after the
exercise date. If either of these two holding periods is not satisfied, then a
disqualifying disposition will result.
If the optionee makes a disqualifying disposition of the purchased
shares, then the Company will be entitled to an income tax deduction, for the
taxable year in which such disposition occurs, equal to the excess of (i) the
fair market value of such shares on the option exercise date over (ii) the
exercise price paid for the shares. In no other instance will the Company be
allowed a deduction with respect to the optionee's disposition of the purchased
shares.
Non-Statutory Options. No taxable income is recognized by an optionee
upon the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when the Company's repurchase right lapses, an amount
equal to the excess of (i) the fair market value of the shares on the date the
repurchase right lapses over (ii) the exercise price paid for the shares. The
optionee may, however, elect under Section 83(b) of the Internal Revenue Code to
include as ordinary income in the year of exercise of the option an amount equal
to the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the Section
83(b) election is made, the optionee will not recognize any additional income as
and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed for the
taxable year of the Company in which such ordinary income is recognized by the
optionee.
<PAGE>
Stock Appreciation Rights
An optionee who is granted a stock appreciation right will recognize
ordinary income in the year of exercise equal to the amount of the appreciation
distribution. The Company will be entitled to an income tax deduction equal to
the appreciation distribution for the taxable year in which the ordinary income
is recognized by the optionee.
Direct Stock Issuance
The tax principles applicable to direct stock issuances under the
Option Plan will be substantially the same as those summarized above for the
exercise of non-statutory option grants.
Accounting Treatment
Option grants or stock issuances to employees at 100% of fair market
value will not result in any charge to the Company's earnings. However, the
number of outstanding options may be a factor in determining the Company's
earnings per share on a fully-diluted basis. Option grants or stock issuances to
consultants and independent advisors at 100% of fair market value will result in
a charge to earnings equal to the fair value of the award and will be amortized
over the vesting period. Under the new FASB release, footnote disclosure will be
required as to the impact the outstanding options under the Option Plan would
have upon the Company's reported earnings were those options appropriately
valued as compensation expense.
Should one or more optionees be granted stock appreciation rights which
have no conditions upon exercisability other than a service or employment
requirement, then such rights will result in a compensation expense to the
Company's earnings.
New Plan Benefits
As of November 28, 1997, no options have been granted under the Option
Plan in reliance upon the 600,000-share increase which is the subject of this
Proposal 2. However, on the date of the 1998 Annual Meeting, Messrs. Benson,
Lothrop, Wall and Madeja, and Dr. Ottensmeyer each will be granted an option to
purchase 1,250 shares of Common Stock under the Automatic Option Grant Program
at an exercise price per share equal to the closing selling price per share of
Common Stock on that date on the Nasdaq National Market.
Stockholder Approval
The affirmative vote of a majority of the outstanding voting shares of
the Company present or represented and entitled to vote at the 1998 Annual
Meeting is required for approval of the amendment to the Option Plan. Should
such stockholder approval not be obtained, then the share reserve will not be
increased, unvested shares repurchased by the Company pursuant to the Company's
repurchase right will not be added back to the share reserve available for
future issuances and the members of the Compensation Committee will not become
eligible to receive option grants under the Discretionary Option Grant Program
or receive issuances under the Stock Issuance Program. The Option Plan will,
however, continue to remain in effect, and option grants and stock issuances may
continue to be made pursuant to the provisions of the Plan prior to its
amendment until the available reserve of Common Stock under the plan is issued.
<PAGE>
The Board of Directors recommends that the stockholders vote FOR the
approval of the amendment to the Option Plan. The Board believes that it is in
the best interests of the Company to continue to have a comprehensive equity
incentive program for the Company which will provide a meaningful opportunity
for officers, employees and non-employee Board members to acquire a substantial
proprietary interest in the enterprise and thereby encourage such individuals to
remain in the Company's service and more closely align their interests with
those of the stockholders.
<PAGE>
PROPOSAL 3:
APPROVAL OF AMENDMENT TO EMPLOYEE STOCK PURCHASE PLAN
The Company's stockholders are being asked to approve an amendment to
the Employee Stock Purchase Plan (the "Purchase Plan") which will increase the
maximum number of shares of Common Stock authorized for issuance over the term
of the Purchase Plan from 150,000 shares to 350,000 shares.
The amendment to the Purchase Plan was adopted by the Board on November
14, 1997, subject to stockholder approval at the 1998 Annual Meeting. The Board
believes it is in the best interests of the Company to increase the share
reserve to ensure that such plan will continue to serve as a meaningful
incentive for the employees of the Company and its affiliates to continue in the
Company's service by giving them the opportunity to acquire an equity interest
in the Company and thereby further align their interests with those of the
stockholders.
The following is a summary of the principal features of the Purchase
Plan. The summary, however, does not purport to be a complete description of all
the provisions of the Purchase Plan. Any stockholder of the Company who wishes
to obtain a copy of the actual plan document may do so upon written request to
the Corporate Secretary at the Company's principal executive offices in
Piscataway, New Jersey.
Purpose
The purpose of the Purchase Plan is to provide eligible employees of
the Company and its participating affiliates with the opportunity to acquire a
proprietary interest in the Company through participation in a payroll-deduction
based employee stock purchase plan under Section 423 of the Internal Revenue
Code. Participating affiliates may include any parent or subsidiary corporations
of the Company, whether now existing or hereafter established, which elect to
extend the benefits of the Purchase Plan to their eligible employees.
Administration
The Purchase Plan is administered by a committee comprised of two or
more members of the Board. Such committee, as Plan Administrator, has full
authority to adopt administrative rules and procedures and to interpret the
provisions of the Purchase Plan. All costs and expenses incurred in plan
administration are paid by the Company without charge to participants.
Securities Subject to the Purchase Plan
The shares of Common Stock issuable under the Purchase Plan may be
either shares newly issued by the Company or shares reacquired by the Company,
including shares purchased on the open market. The maximum number of shares of
Common Stock which may be sold to participants over the term of the Purchase
Plan may not exceed 350,000 shares.
In the event that any change is made to the Company's outstanding
Common Stock (whether by reason of recapitalization, stock dividend, stock
split, exchange or combination of shares or other change in corporate structure
effected without the Company's receipt of consideration), appropriate
adjustments will be made to (i) the class and maximum number of securities
issuable over the term of the Purchase Plan, (ii) the class and maximum number
<PAGE>
of securities purchasable per participant on any one semi-annual purchase date
and (iii) the class and number of securities and the price per share in effect
under each outstanding purchase right.
Offering Periods
Shares of Common Stock are offered under the Purchase Plan through a
series of successive offering periods, each with a maximum duration of
twenty-four (24) months. The initial offering period began on July 25, 1995 and
terminated on the last business day in July 1997. The current offering period
began on the first business day in August 1997 and will end on the last business
day in July 1999; and subsequent offering periods will commence as designated by
the Plan Administrator.
Each offering period will be comprised of a series of one or more
successive purchase periods. Purchase periods shall begin on the first business
day in February and August each year and terminate on the last business day in
January and July respectively each year.
Eligibility
Any individual who is employed on a basis under which he or she is
expected to work more than twenty (20) hours per week for more than five (5)
months per calendar year in the employ of the Company or any participating
parent or subsidiary corporation is eligible to participate in the Purchase
Plan.
As of November 28, 1997, approximately 74 employees, including 4
executive officers, were eligible to participate in the Purchase Plan.
Participation
An individual who is an eligible employee may join an offering period
on the start date of such offering period or on any subsequent semi-annual entry
date (the first business day in February and August each year) within that
offering period provided, in each case, that such individual has completed at
least three (3) months of service with the Company or any affiliate of the
Company prior to such date.
At the time a participant joins the offering period, he or she will be
granted a right to purchase shares of Common Stock. That right will be exercised
on the last business day in January and July of each year during that offering
period, and all payroll deductions collected from the participant during the
period ending with each such semi-annual purchase date will automatically be
applied to the purchase of Common Stock.
Payroll Deductions and Stock Purchases
A participant may authorize periodic payroll deductions in any multiple
of one percent (1%) (up to a maximum of ten percent (10%)) of his or her cash
compensation to be applied to the acquisition of Common Stock under the Purchase
Plan. Cash compensation includes base salary and any pre-tax contributions made
by the participant to any Code Section 401(k) salary deferral plan or any Code
Section 125 cafeteria benefit plan, overtime payments, bonuses, commissions,
profit-sharing distributions and other incentive-type payments. On each
semi-annual purchase date (the last business day in January and July each year),
the payroll deductions of each participant will automatically be applied to the
purchase of whole shares of Common Stock at the purchase price in effect for the
participant for that purchase date.
<PAGE>
Purchase Price
The purchase price of the Common Stock acquired on each semi-annual
purchase date will be equal to eighty-five percent (85%) of the lower of (i) the
fair market value per share of Common Stock on the participant's entry date into
the offering period or (ii) the fair market value on the semi-annual purchase
date. However, the clause (i) amount for any participant whose entry date is
other than the start date of the offering period will not be less than the fair
market value per share of Common Stock on that start date.
The fair market value of the Common Stock on any relevant date under
the Purchase Plan will be the closing selling price per share on such date on
the Nasdaq National Market. On November 28, 1997, the fair market value per
share of Common Stock was $3.75 per share.
Special Limitations
The Purchase Plan imposes the following limitations upon a
participant's rights to acquire Common Stock:
(i) Purchase rights may not be granted to any individual who owns stock
(including stock purchasable under any outstanding purchase rights)
possessing five percent (5%) or more of the total combined voting power
or value of all classes of stock of the Company or any of its
affiliates.
(ii) Purchase rights granted to a participant may not permit such
individual to purchase more than $25,000 of Common Stock (valued at the
time each purchase right is granted) during any one calendar year.
(iii) No participant may purchase more than 2,500 shares of Common
Stock on any semi-annual purchase date.
Termination of Purchase Rights
A participant may withdraw from the Purchase Plan at any time prior to
the next semi-annual purchase date and elect to have his or her accumulated
payroll deductions either refunded immediately or applied to the purchase of
Common Stock on the next semi-annual purchase date.
A participant's purchase right will immediately terminate upon his or
her cessation of employment or loss of eligible employee status. Any payroll
deductions which the participant may have made for the semi-annual period in
which his or her employment terminates will be refunded and will not be applied
to the purchase of Common Stock.
Stockholder Rights
No participant will have any stockholder rights with respect to the
shares covered by his or her purchase rights until the shares are actually
purchased on the participant's behalf. No adjustment will be made for dividends,
distributions or other rights for which the record date is prior to the date of
such purchase.
Assignability
Purchase rights will only be exercisable by the participant and will
not be assignable or transferable by the participant other than by will or the
laws of descent and distribution following the death of the participant.
<PAGE>
Corporate Transaction
In the event the Company is acquired by merger or asset sale, all
outstanding purchase rights will automatically be exercised immediately prior to
the effective date of such corporate transaction. The purchase price will be
eighty-five percent (85%) of the lower of (i) the fair market value per share of
Common Stock on the participant's entry date into the offering period in which
such corporate transaction occurs or (ii) the fair market value per share of
Common Stock immediately prior to the effective date of such corporate
transaction. However, the applicable share limitations per participant will
continue to apply to any such purchase, and in no event will the clause (i) fair
market value be less than the fair market value per share of Common Stock on the
start date of the offering period in which such corporate transaction occurs.
Amendment and Termination
The Purchase Plan will terminate upon the earlier of (i) July 31, 2005,
(ii) the date on which all shares available for issuance thereunder are sold
pursuant to exercised purchase rights, or (iii) the date on which all purchase
rights are exercised in connection with a corporate transaction.
The Board may at any time alter, suspend or discontinue the Purchase
Plan. However, certain amendments may require stockholder approval pursuant to
applicable laws or regulations.
Federal Tax Consequences
The Purchase Plan is intended to be an "employee stock purchase plan"
within the meaning of Section 423 of the Internal Revenue Code. Under a plan
which so qualifies, no taxable income will be recognized by a participant, and
no deductions will be allowable to the Company, upon either the grant or the
exercise of the purchase rights. Taxable income will not be recognized until
there is a sale or other disposition of the shares acquired under the Purchase
Plan or in the event the participant should die while still owning the purchased
shares.
If the participant sells or otherwise disposes of the purchased shares
within two (2) years after his or her entry date into the offering period in
which such shares were acquired or within one (1) year after the semi-annual
purchase date on which those shares were actually acquired, then the participant
will recognize ordinary income in the year of sale or disposition equal to the
amount by which the fair market value of the shares on the purchase date
exceeded the purchase price paid for those shares, and the Company will be
entitled to an income tax deduction, for the taxable year in which such
disposition occurs, equal in amount to such excess.
If the participant sells or disposes of the purchased shares more than
two (2) years after his or her entry date into the offering period in which the
shares were acquired and more than one year after the semi-annual purchase date
of those shares, then the participant will recognize ordinary income in the year
of sale or disposition equal to the lesser of (i) the amount by which the fair
market value of the shares on the sale or disposition date exceeded the purchase
price paid for those shares or (ii) fifteen percent (15%) of the fair market
value of the shares on the participant's entry date into that offering period;
and any additional gain upon the disposition will be taxed as a long-term
capital gain. The Company will not be entitled to an income tax deduction with
respect to such disposition.
<PAGE>
If the participant still owns the purchased shares at the time of
death, the lesser of (i) the amount by which the fair market value of the shares
on the date of death exceeds the purchase price or (ii) fifteen percent (15%) of
the fair market value of the shares on his or her entry date into the offering
period in which those shares were acquired will constitute ordinary income in
the year of death.
Accounting Treatment
Under current accounting rules, the issuance of Common Stock under the
Purchase Plan will not result in a compensation expense chargeable against the
Company's reported earnings. However, the Company must disclose, in pro-forma
statements to the Company's financial statements, the impact the purchase rights
granted under the Purchase Plan would have upon the Company's reported earnings
were the value of those purchase rights treated as compensation expense.
Stock Issuances
The table below shows, as to each of the Company's executive officers
named in the Summary Compensation Table and the various indicated groups, the
number of shares of Common Stock purchased under the Purchase Plan between
October 1, 1996 and November 28, 1997, together with the weighted average
purchase price paid per share.
<TABLE>
<CAPTION>
PURCHASE PLAN TRANSACTIONS
Number of Weighted
Shares Average Purchase
Name Purchased Price
---- --------- -----
<S> <C> <C>
Patrick A. McBrayer -- --
Chief Executive Officer and President
John P. Ryaby
Chairman of the Board of Directors and Vice -- --
President of Research and Development and
Regulatory Affairs
Richard H. Reisner 1,571 $4.14
Vice President, Chief Financial Officer and
Secretary
Roger J. Talish 2,953 $3.56
Vice President of Operations
John Bohan 736 $4.14
Vice President of Sales and Marketing
All current executive officers as a group 4,524 $3.76
(4 persons)
All employees, including current officers who are
not executive officers as a group 51,736 $3.57
(54 persons)
</TABLE>
<PAGE>
New Plan Benefits
As of November 28, 1997, no purchase rights have been granted under the
Purchase Plan in reliance upon the 200,000-share increase which is the subject
of this Proposal 3.
Stockholder Approval
The affirmative vote of a majority of the outstanding voting shares of
the Company present or represented and entitled to vote at the 1998 Annual
Meeting is required for approval of the amendments to increase the share reserve
under the Purchase Plan by an additional 200,000 shares. Should such stockholder
approval not be obtained, then, the share reserve will not be increased by
200,000 shares. The Purchase Plan will, however, continue to remain in effect,
and purchase rights may continue to be granted pursuant to the provisions of the
Purchase Plan prior to its amendment until the available reserve of Common Stock
under the plan is issued.
The Board of Directors recommends that the stockholders vote FOR the
approval of the amendment to the Purchase Plan.
<PAGE>
PROPOSAL 4:
RATIFICATION OF SELECTION
OF INDEPENDENT PUBLIC ACCOUNTANTS
Upon the recommendation of the Audit Committee, the Board of Directors
appointed Arthur Andersen LLP, independent public accountants and auditors of
the Company since the Company's inception, as auditors of the Company to serve
for the fiscal year ending September 30, 1998, subject to the ratification of
such appointment by the stockholders at the Annual Meeting. The affirmative vote
of a majority of the outstanding voting shares of the Company present or
represented and entitled to vote at the 1998 Annual Meeting is required to
ratify the appointment of the auditors. A representative of Arthur Andersen LLP
will attend the Annual Meeting of Stockholders with the opportunity to make a
statement if he or she so desires and will also be available to answer
inquiries.
The Board of Directors recommends that the stockholders vote FOR the
ratification of Arthur Andersen LLP as the Company's independent public
accountants for the fiscal year ending September 30, 1998.
STOCKHOLDER PROPOSALS
In accordance with regulations issued by the Securities and Exchange
Commission, stockholder proposals intended for presentation at the 1999 Annual
Meeting of Stockholders must be received by the Secretary of the Company no
later than October 28, 1998 if such proposals are to be considered for inclusion
in the Company's Proxy Statement.
OTHER MATTERS
Management knows of no matters that are to be presented for action at
the Annual Meeting other than those set forth above. If any other matters
properly come before the Annual Meeting, the persons named in the enclosed form
of proxy will vote the shares represented by proxies in accordance with their
best judgment on such matters.
Proxies will be solicited by mail and may also be solicited in person
or by telephone by some regular employees of the Company. The Company may also
consider the engagement of a proxy solicitation firm. Costs of the solicitation
will be borne by the Company.
By Order of the Board of Directors
/s/Patrick A. McBrayer
----------------------
Patrick A. McBrayer
Chief Executive Officer and President
Piscataway, New Jersey
January 8, 1998
<PAGE>
APPENDIX A-1
FORM OF PROXY
REVOCABLE PROXY
EXOGEN, INC.
[ X ] PLEASE MARK VOTES AS IN THIS EXAMPLE
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS -- FEBRUARY 25, 1998
(This Proxy is solicited by the Board of Directors of the Company)
The undersigned stockholder of Exogen, Inc. hereby appoints Patrick A.
McBrayer, Chief Executive Officer and President, and Richard H. Reisner, Vice
President, Chief Financial Officer and Secretary, and each of them, with full
power of substitution, proxies to vote the shares of stock which the undersigned
could vote if personally present at the Annual Meeting of Stockholders of
Exogen, Inc. to be held at The Holiday Inn Somerset, 195 Davidson Avenue,
Somerset, New Jersey 08873, telephone number (732) 356-1700 on February 25,
1998, at 9:00 a.m. (eastern standard time), or any adjournment thereof.
1. ELECTION OF DIRECTORS (for terms as described in the Proxy Statement)
[ ] FOR [ ] WITHHOLD [ ] FOR ALL EXCEPT
John P. Ryaby, Patrick A. McBrayer, Buzz Benson, Donald J. Lothrop,
Terence D. Wall, David J. Ottensmeyer, M.D. and Peter C. Madeja.
INSTRUCTION To withhold authority to vote for an individual nominee, mark
"For All Except" and write that nominee's name in the space provided below.
- - --------------------------------------------------------------------------------
2. APPROVAL OF AMENDMENT TO THE 1995 STOCK OPTION/STOCK ISSUANCE PLAN which
includes an increase in the number of shares of common stock available for
issuance thereunder from 750,000 to 1,350,000 shares and is further described
in the Proxy Statement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. APPROVAL OF AMENDMENT TO THE EMPLOYEE STOCK PURCHASE PLAN to increase the
number of shares of common stock available for issuance thereunder from
150,000 to 350,000 shares and is further described in the Proxy Statement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. RATIFICATION OF ACCOUNTANTS proposal to ratify the selection of Arthur
Andersen LLP, independent public accountants, as auditors of the Company as
described in the Proxy Statement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE>
5. IN THEIR DISCRETION UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING.
UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE
PERSONS NOMINATED BY MANAGEMENT AS DIRECTORS, FOR PROPOSAL 2, FOR PROPOSAL 3 AND
FOR PROPOSAL 4.
Please be sure to sign and date this Proxy in the box below.
________________________________________
Date
________________________________________
Stockholder sign above
________________________________________
Co-holder (if any) sign above
Detach above card, sign, date and mail in postage paid envelope provided.
EXOGEN, INC.
Please date and sign exactly as your name appears on this proxy card. If shares
are held jointly, each stockholder should sign. Executors, administrators,
trustees, etc. should use full title and, if more than one, all should sign. If
the stockholder is a corporation, please sign full corporate name by an
authorized officer. If the stockholder is a partnership, please sign full
partnership name by an authorized person.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
<PAGE>
APPENDIX A-2
EXOGEN, INC.
1995 STOCK OPTION/STOCK ISSUANCE PLAN
-------------------------------------
(As Amended through November 14, 1997)
--------------------------------------
ARTICLE ONE
GENERAL PROVISIONS
------------------
I. PURPOSE OF THE PLAN
This 1995 Stock Option/Stock Issuance Plan is intended to
promote the interests of Exogen, Inc., a Delaware corporation, by providing
eligible persons with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such
terms in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into four separate equity
programs:
(i) the Discretionary Option Grant Program
under which eligible persons may, at the discretion of the Plan
Administrator, be granted options to purchase shares of Common Stock,
(ii) the Salary Investment Option Grant
Program under which eligible employees may elect to have a portion of
their base salary invested each year in options to purchase shares of
Common Stock,
(iii) the Stock Issuance Program under which
eligible persons may, at the discretion of the Plan Administrator, be
issued shares of Common Stock directly, either through the immediate
purchase of such shares or as a bonus for services rendered the
Corporation (or any Parent or Subsidiary), and
(iv) the Automatic Option Grant Program under
which Eligible Directors shall automatically receive option grants at
periodic intervals to purchase shares of Common Stock.
B. The provisions of Articles One and Six shall apply to all
equity programs under the Plan and shall accordingly govern the interests of all
persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Board shall have authority to administer the
Discretionary Option Grant, Salary Investment Option Grant and Stock Issuance
Programs with respect to Section 16 Insiders. However the Board may, at its sole
discretion, delegate such authority to the Primary Committee.
<PAGE>
B. Administration of the Discretionary Option Grant, Salary
Investment Option Grant and Stock Issuance Programs with respect to all other
persons eligible to participate in those programs may, at the Board's
discretion, be vested in the Primary Committee or a Secondary Committee, or the
Board may retain the power to administer those programs with respect to such
persons.
C. Members of the Primary Committee or any Secondary Committee
shall serve for such period of time as the Board may determine and may be
removed by the Board at any time. The Board may also at any time terminate the
functions of any committee and reassume all powers and authority previously
delegated to such committee.
D. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may
deem appropriate for proper administration of the Discretionary Option Grant,
Salary Investment Option Grant and Stock Issuance Programs and to make such
determinations under, and issue such interpretations of, the provisions of such
programs and any outstanding options or stock issuances thereunder as it may
deem necessary or advisable. Decisions of the Plan Administrator within the
scope of its administrative functions under the Plan shall be final and binding
on all parties who have an interest in the Discretionary Option Grant, Salary
Investment Option Grant or Stock Issuance Program under its jurisdiction or any
option or stock issuance thereunder.
E. Service on the Primary Committee or the Secondary Committee
shall constitute service as a Board member, and members of each such committee
shall accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
F. Administration of the Automatic Option Grant Program shall
be self-executing in accordance with the terms of that program, and no Plan
Administrator shall exercise any discretionary functions with respect to option
grants made thereunder.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary
Option Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the
board of directors of any Parent or Subsidiary, and
(iii) consultants and other independent
advisors who provide services to the Corporation (or any Parent or
Subsidiary).
B. Only Employees shall be eligible to participate in the
Salary Investment Option Grant Program.
<PAGE>
C. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants under the Discretionary Option Grant and
Salary Investment Option Grant Programs, which eligible persons are to receive
option grants, the time or times when such option grants are to be made, the
number of shares to be covered by each such grant, the status of the granted
option as either an Incentive Option or a Non-Statutory Option, the time or
times at which each option is to become exercisable, the vesting schedule (if
any) applicable to the option shares and the maximum term for which the option
is to remain outstanding and (ii) with respect to stock issuances under the
Stock Issuance Program, which eligible persons are to receive stock issuances,
the time or times when such issuances are to be made, the number of shares to be
issued to each Participant, the vesting schedule (if any) applicable to the
issued shares and the consideration to be paid by the Participant for such
shares.
D. The Plan Administrator shall have the absolute discretion
either to grant options in accordance with the Discretionary Option Grant and/or
Salary Investment Option Grant Program or to effect stock issuances in
accordance with the Stock Issuance Program.
E. The individuals eligible to participate in the Automatic
Option Grant Program shall be those individuals who first become non-employee
Board members after the Effective Date, whether through appointment by the Board
or election by the Corporation's stockholders, and those individuals who
continue to serve as non-employee Board members after the Effective Date. A
non-employee Board member who has previously been in the employ of the
Corporation (or any Parent or Subsidiary) shall not be eligible to receive an
option grant under the Automatic Option Grant Program at the time he or she
first becomes a non-employee Board member, but such individual shall be eligible
to receive periodic option grants under the Automatic Option Grant Program upon
his or her continued service as a non-employee Board member at one or more
Annual Stockholders Meetings.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares repurchased
by the Corporation on the open market. The maximum number of shares of Common
Stock which may be issued over the term of the Plan shall not exceed 1,350,000
shares. Such authorized share reserve reflects the 1-for-2 reverse stock split
effected prior to the Effective Date and is comprised of (i) the number of
shares which remained available for issuance, as of the Effective Date, under
the Predecessor Plan as last approved by the Corporation's stockholders,
including the shares subject to the outstanding options incorporated into the
Plan and any other shares which would have been available for future option
grants under the Predecessor Plan, (ii) an increase of 500,000 shares authorized
by the Board and approved by the Corporation's stockholders prior to the
Effective Date and (iii) an increase of 600,000 shares authorized by the Board
in November 1997, subject to approval by the Corporation's stockholders at the
1998 Annual Meeting.
B. No one person participating in the Plan may receive
options, separately exercisable stock appreciation rights and direct stock
issuances for more than 300,000 shares of Common Stock per calendar year.
<PAGE>
C. Shares of Common Stock subject to outstanding options shall
be available for subsequent issuance under the Plan to the extent (i) the
options (including any options incorporated from the Predecessor Plan) expire or
terminate for any reason prior to exercise in full or (ii) the options are
cancelled in accordance with the cancellation-regrant provisions of Article Two.
Unvested shares issued under the Plan and subsequently cancelled or repurchased
by the Corporation, at the original exercise or direct issue price paid per
share, pursuant to the Corporation's repurchase rights under the Plan shall be
added back to the number of shares of Common Stock reserved for issuance under
the Plan and shall accordingly be available for reissuance through one or more
subsequent option grants or direct stock issuances under the Plan. However,
shares subject to any options surrendered in connection with the stock
appreciation right provisions of the Plan shall not be available for reissuance.
In addition, should the exercise price of an option under the Plan (including
any option incorporated from the Predecessor Plan) be paid with shares of Common
Stock or should shares of Common Stock otherwise issuable under the Plan be
withheld by the Corporation in satisfaction of the withholding taxes incurred in
connection with the exercise of an option or the vesting of a stock issuance
under the Plan, then the number of shares of Common Stock available for issuance
under the Plan shall be reduced by the gross number of shares for which the
option is exercised or which vest under the stock issuance, and not by the net
number of shares of Common Stock issued to the holder of such option or stock
issuance.
D. Should any change be made to the Common Stock by reason of
any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and/or class of securities
issuable under the Plan, (ii) the number and/or class of securities for which
any one person may be granted options, separately exercisable stock appreciation
rights and direct stock issuances per calendar year, (iii) the number and/or
class of securities for which automatic option grants are to be subsequently
made per Eligible Director under the Automatic Option Grant Program and (iv) the
number and/or class of securities and the exercise price per share in effect
under each outstanding option (including any option incorporated from the
Predecessor Plan) in order to prevent the dilution or enlargement of benefits
thereunder. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the
form approved by the Plan Administrator; provided, however, that each such
document shall comply with the terms specified below. Each document evidencing
an Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
1. The exercise price per share shall be fixed by the
Plan Administrator but shall not be less than the Fair Market Value per share of
Common Stock on the option grant date.
2. The exercise price shall become immediately due
upon exercise of the option and shall, subject to the provisions of Section I of
Article Six and the documents evidencing the option, be payable in one or more
of the forms specified below:
(i) cash or check made payable to the
Corporation,
(ii) shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market
Value on the Exercise Date, or
(iii) to the extent the option is exercised
for vested shares, through a special sale and remittance procedure
pursuant to which the Optionee shall concurrently provide irrevocable
written instructions to (a) a Corporation-designated brokerage firm to
effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate exercise price payable for the
purchased shares plus all applicable Federal, state and local income
and employment taxes required to be withheld by the Corporation by
reason of such exercise and (b) the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm
in order to complete the sale transaction.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
B. Exercise and Term of Options. Each option shall be
exercisable at such time or times, during such period and for such number of
shares as shall be determined by the Plan Administrator and set forth in the
documents evidencing the option. However, no option shall have a term in excess
of ten (10) years measured from the option grant date.
<PAGE>
C. Effect of Termination of Service.
1. The following provisions shall govern the exercise
of any options held by the Optionee at the time of cessation of Service or
death:
(i) Any option outstanding at the time of the
Optionee's cessation of Service for any reason shall remain exercisable
for such period of time thereafter as shall be determined by the Plan
Administrator and set forth in the documents evidencing the option, but
no such option shall be exercisable after the expiration of the option
term.
(ii) Any option exercisable in whole or in part
by the Optionee at the time of death may be subsequently exercised by
the personal representative of the Optionee's estate or by the person
or persons to whom the option is transferred pursuant to the Optionee's
will or in accordance with the laws of descent and distribution.
(iii) During the applicable post-Service
exercise period, the option may not be exercised in the aggregate for
more than the number of vested shares for which the option is
exercisable on the date of the Optionee's cessation of Service. Upon
the expiration of the applicable exercise period or (if earlier) upon
the expiration of the option term, the option shall terminate and cease
to be outstanding for any vested shares for which the option has not
been exercised. However, the option shall, immediately upon the
Optionee's cessation of Service, terminate and cease to be outstanding
to the extent it is not otherwise at that time exercisable for vested
shares.
(iv) Should the Optionee's Service be terminated
for Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.
(v) In the event of an Involuntary Termination
following a Corporate Transaction,the provisions of Section III of this
Article Two shall govern the period for which the outstanding options
are to remain exercisable following the Optionee's cessation of Service
and shall supersede any provisions to the contrary in this Section.
2. The Plan Administrator shall have the discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the
option is to remain exercisable following the Optionee's cessation of
Service from the period otherwise in effect for that option to such
greater period of time as the Plan Administrator shall deem
appropriate, but in no event beyond the expiration of the option term,
and/or
<PAGE>
(ii) permit the option to be exercised, during
the applicable post-Service exercise period, not only with respect to
the number of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee's cessation of Service but also
with respect to one or more additional installments in which the
Optionee would have vested under the option had the Optionee continued
in Service.
D. Stockholder Rights. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. Limited Transferability of Options. During the lifetime of
the Optionee, Incentive Options shall be exercisable only by the Optionee and
shall not be assignable or transferable other than by will or by the laws of
descent and distribution following the Optionee's death. However, Nonstatutory
Options may, in connection with the Optionee's estate plan, be assigned in whole
or in part during the Optionee's lifetime to one or more members of the
Optionee's immediate family or to a trust established exclusively for one or
more such family members. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant to
the assignment. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Six shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall not be subject to the terms of this Section II.
A. Eligibility. Incentive Options may only be granted to
Employees.
B. Dollar Limitation. The aggregate Fair Market Value
(determined as of the respective date or dates of grant) of the shares of Common
Stock for which one or more options granted to any Employee under the Plan (or
any other option plan of the Corporation or any Parent or Subsidiary) may for
the first time become exercisable as Incentive Options during any one (1)
calendar year shall not exceed the sum of One Hundred Thousand Dollars
($100,000). To the extent the Employee holds two (2) or more such options which
become exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.
<PAGE>
C. 10% Stockholder. If any Employee to whom an Incentive
Option is granted is a 10% Stockholder, then the exercise price per share shall
not be less than one hundred ten percent (110%) of the Fair Market Value per
share of Common Stock on the option grant date, and the option term shall not
exceed five (5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable for all of the shares of Common Stock at the time subject to
such option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. However, an outstanding option shall not so accelerate
if and to the extent: (i) such option is, in connection with the Corporate
Transaction, either to be assumed by the successor corporation (or parent
thereof) or to be replaced with a comparable option to purchase shares of the
capital stock of the successor corporation (or parent thereof), (ii) such option
is to be replaced with a cash incentive program of the successor corporation
which preserves the spread existing on the unvested option shares at the time of
the Corporate Transaction and provides for subsequent payout in accordance with
the same vesting schedule applicable to such option or (iii) the acceleration of
such option is subject to other limitations imposed by the Plan Administrator at
the time of the option grant. The determination of option comparability under
clause (i) above shall be made by the Plan Administrator, and its determination
shall be final, binding and conclusive.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are to be assigned to the
successor corporation (or parent thereof) in connection with such Corporate
Transaction or (ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan on both an aggregate and per
individual basis following the consummation of such Corporate Transaction and
(ii) the exercise price payable per share under each outstanding option,
provided the aggregate exercise price payable for such securities shall remain
the same.
E. Any options which are assumed or replaced in the Corporate
Transaction and do not otherwise accelerate at that time shall automatically
accelerate (and any of the Corporation's outstanding repurchase rights which do
not otherwise terminate at the time of the Corporate Transaction shall
automatically terminate and the shares of Common Stock subject to those
<PAGE>
terminated rights shall immediately vest in full) in the event the Optionee's
Service should subsequently terminate by reason of an Involuntary Termination
within eighteen (18) months following the effective date of such Corporate
Transaction. Any options so accelerated shall remain exercisable for
fully-vested shares until the earlier of (i) the expiration of the option term
or (ii) the expiration of the one (1)-year period measured from the effective
date of the Involuntary Termination.
F. Each outstanding option shall automatically accelerate (and
any outstanding repurchase rights shall automatically terminate and the shares
of Common Stock subject to those terminated rights shall immediately vest in
full) in the event the Optionee's Service should terminate by reason of an
Involuntary Termination within eighteen (18) months following the effective date
of a Change in Control. Any options so accelerated shall remain exercisable for
fully-vested shares until the earlier of (i) the expiration of the option term
(ii) the expiration of the one (1)-year period measured from the effective date
of the Involuntary Termination.
G. The portion of any Incentive Option accelerated in
connection with a Corporate Transaction or Change in Control shall remain
exercisable as an Incentive Option only to the extent the applicable One Hundred
Thousand Dollar limitation is not exceeded. To the extent such dollar limitation
is exceeded, the accelerated portion of such option shall be exercisable as a
Non-Statutory Option under the Federal tax laws.
H. The grant of options under the Discretionary Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at
any time and from time to time, with the consent of the affected option holders,
the cancellation of any or all outstanding options under the Discretionary
Option Grant Program (including outstanding options incorporated from the
Predecessor Plan) and to grant in substitution new options covering the same or
different number of shares of Common Stock but with an exercise price per share
based on the Fair Market Value per share of Common Stock on the new option grant
date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority
to grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.
B. The following terms shall govern the grant and exercise of
tandem stock appreciation rights:
(i) One or more Optionees may be granted the
right, exercisable upon such terms as the Plan Administrator may
establish, to elect between the exercise of the underlying option for
shares of Common Stock and the surrender of that option in exchange for
a distribution from the Corporation in an amount equal to the excess of
<PAGE>
(a) the Fair Market Value (on the option surrender date) of the number
of shares in which the Optionee is at the time vested under the
surrendered option (or surrendered portion thereof) over (b) the
aggregate exercise price payable for such shares.
(ii) No such option surrender shall be
effective unless it is approved by the Plan Administrator. If the
surrender is so approved, then the distribution to which the Optionee
shall be entitled may be made in shares of Common Stock valued at Fair
Market Value on the option surrender date, in cash, or partly in shares
and partly in cash, as the Plan Administrator shall in its sole
discretion deem appropriate.
(iii) If the surrender of an option is
rejected by the Plan Administrator, then the Optionee shall retain
whatever rights the Optionee had under the surrendered option (or
surrendered portion thereof) on the option surrender date and may
exercise such rights at any time prior to the later of (a) five (5)
business days after the receipt of the rejection notice or (b) the last
day on which the option is otherwise exercisable in accordance with the
terms of the documents evidencing such option, but in no event may such
rights be exercised more than ten (10) years after the option grant
date.
C. The following terms shall govern the grant and exercise of
limited stock appreciation rights:
(i) One or more Section 16 Insiders may be
granted limited stock appreciation rights with respect to their
outstanding options.
(ii) Upon the occurrence of a Hostile
Take-Over, each such individual holding one or more options with such a
limited stock appreciation right shall have the unconditional right
(exercisable for a thirty (30)-day period following such Hostile
Take-Over) to surrender each such option to the Corporation, to the
extent the option is at the time exercisable for vested shares of
Common Stock. In return for the surrendered option, the Optionee shall
receive a cash distribution from the Corporation in an amount equal to
the excess of (a) the Take-Over Price of the shares of Common Stock
which are at the time vested under each surrendered option (or
surrendered portion thereof) over (b) the aggregate exercise price
payable for such shares. Such cash distribution shall be paid within
five (5) days following the option surrender date.
(iii) The Plan Administrator shall pre-approve,
at the time the limited right is granted, the subsequent exercise of
that right in accordance with the terms of the grant and the provisions
of this Section V. No additional approval of the Plan Administrator
shall be required at the time of the actual option surrender and cash
distribution.
(iv) The balance of the option (if any) shall
continue in full force and effect in accordance with the documents
evidencing such option.
<PAGE>
ARTICLE THREE
SALARY INVESTMENT OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive
authority to determine the calendar year or years (if any) for which the Salary
Investment Option Program is to be in effect and to select the Employees
eligible to participate in the Salary Investment Option Grant Program for such
calendar year or years. Each selected Employee who elects to participate in the
Salary Investment Option Grant Program must, prior to the start of each calendar
year of participation, file with the Plan Administrator (or its designate) an
irrevocable authorization directing the Corporation to reduce his or her base
salary for that calendar year by a designated multiple of one percent (1%).
However, the amount of such salary reduction must be not less than Five Thousand
Dollars ($5,000.00) and must not be more than the lesser of (i) twenty percent
(20%) of his or her rate of base salary for the calendar year or (ii) Twenty
Thousand Dollars ($20,000.00). Each individual who files a proper salary
reduction authorization shall automatically be granted an option under this
Salary Investment Option Grant Program on the first trading day in January of
the calendar year for which that salary reduction is to be in effect.
II. OPTION TERMS
Each option shall be a Non-Statutory Option evidenced by one
or more documents in the form approved by the Plan Administrator; provided,
however, that each such document shall comply with the terms specified below.
A. Exercise Price.
1. The exercise price per share shall be thirty-three
and one-third percent (33-1/3%) of the Fair Market Value per share of Common
Stock on the option grant date.
2. The exercise price shall become immediately due
upon exercise of the option and shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
B. Number of Option Shares. The number of shares of Common
Stock subject to the option shall be determined pursuant to the following
formula (rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the dollar amount of the Optionee's base salary
reduction for the calendar year, and
B is the Fair Market Value per share of Common Stock
on the option grant date.
<PAGE>
C. Exercise and Term of Options. The option shall become
exercisable in a series of twelve (12) successive equal monthly installments
upon the Optionee's completion of each calendar month of Service in the calendar
year for which the salary reduction is in effect. Each option shall have a
maximum term of ten (10) years measured from the option grant date.
D. Effect of Termination of Service. Should the Optionee cease
Service for any reason while holding one or more options under this Article
Three, then each such option shall remain exercisable, for any or all of the
shares for which the option is exercisable at the time of such cessation of
Service, until the earlier of (i) the expiration of the ten (10)-year option
term or (ii) the expiration of the two (2)-year period measured from the date of
such cessation of Service. Should the Optionee die while holding one or more
options under this Article Three, then each such option may be exercised, for
any or all of the shares for which the option is exercisable at the time of the
Optionee's cessation of Service (less any shares subsequently purchased by the
Optionee prior to death), by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant to
the Optionee's will or in accordance with the laws of descent and distribution.
Such right of exercise shall lapse, and the option shall terminate, upon the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the two
(2)-year period measured from the date of the Optionee's cessation of Service.
However, the option shall, immediately upon the Optionee's cessation of Service
for any reason, terminate and cease to remain outstanding with respect to any
and all shares of Common Stock for which the option is not otherwise at that
time exercisable.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction while the
Optionee remains in Service, each outstanding option held by such Optionee under
this Salary Investment Option Grant Program shall automatically accelerate so
that each such option shall, immediately prior to the effective date of the
Corporate Transaction, become fully exercisable for all of the shares of Common
Stock at the time subject to such option and may be exercised for any or all of
those shares as fully-vested shares of Common Stock. Each such outstanding
option shall be assumed by the successor corporation (or parent thereof) in the
Corporate Transaction and shall remain exercisable for the fully-vested shares
until the earlier of (i) the expiration of the option term or (ii) the
expiration of the two (2)-year period measured from the date of Optionee's
cessation of Service.
B. In the event of a Change in Control while the Optionee
remains in Service, each outstanding option held by such Optionee under this
Salary Investment Option Grant Program shall automatically accelerate so that
each such option shall immediately become fully exercisable for all of the
shares of Common Stock at the time subject to such option and may be exercised
for any or all of such shares as fully-vested shares of Common Stock. The option
shall remain so exercisable until the earlier of (i) the expiration of the
option term or (ii) the expiration of the two (2)-year period measured from the
date of Optionee's cessation of Service.
C. The grant of options under the Salary Investment Option
Grant Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
<PAGE>
III. REMAINING TERMS
The remaining terms of each option granted under the Salary
Investment Option Grant Program shall be the same as the terms in effect for
option grants made under the Discretionary Option Grant Program.
<PAGE>
ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening option
grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement which complies with the terms specified below.
A. Purchase Price.
1. The purchase price per share shall be fixed by the
Plan Administrator, but shall not be less than the Fair Market Value per share
of Common Stock on the stock issuance date.
2. Subject to the provisions of Section I of Article
Six shares of Common Stock may be issued under the Stock Issuance Program for
any of the following items of consideration which the Plan Administrator may
deem appropriate in each individual instance:
(i) cash or check made payable to the
Corporation, or
(ii) past services rendered to the Corporation
(or any Parent or Subsidiary).
B. Vesting Provisions.
1. Shares of Common Stock issued under the Stock
Issuance Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program, namely:
(i) the Service period to be completed by the
Participant or the performance objectives to be attained,
(ii) the number of installments in which the
shares are to vest,
(iii) the interval or intervals (if any) which
are to lapse between installments, and
(iv) the effect which death, Permanent
Disability or other event designated by the Plan Administrator is to
have upon the vesting schedule,
shall be determined by the Plan Administrator and incorporated into the Stock
Issuance Agreement.
<PAGE>
2. Any new, substituted or additional securities or
other property (including money paid other than as a regular cash dividend)
which the Participant may have the right to receive with respect to the
Participant's unvested shares of Common Stock by reason of any stock dividend,
stock split, recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration shall be issued subject to (i) the same
vesting requirements applicable to the Participant's unvested shares of Common
Stock and (ii) such escrow arrangements as the Plan Administrator shall deem
appropriate.
3. The Participant shall have full stockholder rights
with respect to any shares of Common Stock issued to the Participant under the
Stock Issuance Program, whether or not the Participant's interest in those
shares is vested. Accordingly, the Participant shall have the right to vote such
shares and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service
while holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to such surrendered shares.
5. The Plan Administrator may in its discretion waive
the surrender and cancellation of one or more unvested shares of Common Stock
(or other assets attributable thereto) which would otherwise occur upon the
cessation of the Participant's Service or the non-completion of the vesting
schedule applicable to such shares. Such waiver shall result in the immediate
vesting of the Participant's interest in the shares of Common Stock as to which
the waiver applies. Such waiver may be effected at any time, whether before or
after the Participant's cessation of Service or the attainment or non-attainment
of the applicable performance objectives.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the outstanding repurchase rights under the Stock
Issuance Program shall terminate automatically, and all the shares of Common
Stock subject to those terminated rights shall immediately vest in full, in the
event of any Corporate Transaction, except to the extent (i) those repurchase
rights are assigned to the successor corporation (or parent thereof) in
connection with such Corporate Transaction or (ii) such accelerated vesting is
precluded by other limitations imposed in the Stock Issuance Agreement.
B. Any repurchase rights that are assigned in the Corporate
Transaction shall automatically terminate, and all the shares of Common Stock
subject to those terminated rights shall immediately vest in full, in the event
the Participant's Service should subsequently terminate by reason of an
Involuntary Termination within eighteen (18) months following the effective date
of such Corporate Transaction.
<PAGE>
C. All of the outstanding repurchase rights under the Stock
Issuance Program shall terminate automatically, and all the shares of Common
Stock subject to those terminated rights shall immediately vest in full, in the
event the Optionee's service should terminate by reason of an Involuntary
Termination within eighteen (18) months following the effective date of a Change
in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion,
be held in escrow by the Corporation until the Participant's interest in such
shares vests or may be issued directly to the Participant with restrictive
legends on the certificates evidencing those unvested shares.
<PAGE>
ARTICLE FIVE
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. Grant Dates. Option grants shall be made on the dates
specified below:
1. Each Eligible Director who is first elected or
appointed as a non-employee Board member after the Effective Date shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase 7,500 shares of Common Stock.
2. On the date of each Annual Stockholders Meeting,
beginning with the 1996 Annual Meeting, each individual who is to continue to
serve as an Eligible Director shall automatically be granted a Non-Statutory
Option to purchase an additional 1,250 shares of Common Stock, provided such
individual has served as a non-employee Board member for at least six (6)
months. There shall be no limit on the number of such 1,250-share option grants
any one Eligible Director may receive over his or her period of Board service.
B. Exercise Price.
1. The exercise price per share shall be equal to one
hundred percent (100%) of the Fair Market Value per share of Common Stock on the
option grant date.
2. The exercise price shall be payable in one or more
of the alternative forms authorized under the Discretionary Option Grant
Program. Except to the extent the sale and remittance procedure specified
thereunder is utilized, payment of the exercise price for the purchased shares
must be made on the Exercise Date.
C. Option Term. Each option shall have a term of ten (10)
years measured from the option grant date.
D. Exercise and Vesting of Options. Each option shall be
immediately exercisable for any or all of the option shares. However, any shares
purchased under the option shall be subject to repurchase by the Corporation, at
the exercise price paid per share, upon the Optionee's cessation of Board
service prior to vesting in those shares. Each initial grant shall vest, and the
Corporation's repurchase right shall lapse, in a series of four (4) equal and
successive annual installments over the Optionee's period of continued service
as a Board member, with the first such installment to vest upon the Optionee's
completion of one (1) year of Board service measured from the option grant date.
Each annual grant shall vest, and the Corporation's repurchase right shall
lapse, upon the Optionee's completion of one (1) year of Board service measured
from the option grant date.
E. Effect of Termination of Board Service. The following
provisions shall govern the exercise of any options held by the Optionee at the
time the Optionee ceases to serve as a Board member:
<PAGE>
(i) Should the Optionee cease to serve as a
Board member for any reason (other than death or Permanent Disability),
then the Optionee shall have a six (6)-month period following the date
of such cessation of Board service in which to exercise each such
option.
(ii) Should the Optionee die while the option
is outstanding, then the personal representative of the Optionee's
estate or the person or persons to whom the option is transferred
pursuant to the Optionee's will or in accordance with the laws of
descent and distribution shall have a twelve (12)- month period
following the date of the Optionee's cessation of Board service in
which to exercise each such option.
(iii) During the limited post-service exercise
period, the option may not be exercised in the aggregate for more than
the number of vested shares for which the option is exercisable at the
time of the Optionee's cessation of Board service.
(iv) Should the Optionee cease to serve as a
Board member by reason of death or Permanent Disability, then all
shares at the time subject to the option shall immediately vest so that
such option may, during the twelve (12)-month exercise period following
the Optionee's death or Permanent Disability, be exercised for all or
any portion of such shares as fully-vested shares of Common Stock.
(v) In no event shall the option remain
exercisable after the expiration of the option term. Upon the
expiration of the limited post-service exercise period or (if earlier)
upon the expiration of the option term, the option shall terminate and
cease to be outstanding for any vested shares for which the option has
not been exercised. However, the option shall, immediately upon the
Optionee's cessation of Board service, terminate and cease to be
outstanding to the extent it is not otherwise at that time exercisable
for vested shares.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-
OVER
A. In the event of any Corporate Transaction, the shares of
Common Stock at the time subject to each outstanding option but not otherwise
vested shall automatically vest in full so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable for all of the shares of Common Stock at the time subject to
such option and may be exercised for all or any portion of such shares as
fully-vested shares of Common Stock. Immediately following the consummation of
the Corporate Transaction, each automatic option grant shall terminate and cease
to be outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
B. In connection with any Change in Control, the shares of
Common Stock at the time subject to each outstanding option but not otherwise
vested shall automatically vest in full so that each such option shall,
immediately prior to the effective date of the Change in Control, become fully
exercisable for all of the shares of Common Stock at the time subject to such
<PAGE>
option and may be exercised for all or any portion of such shares as
fully-vested shares of Common Stock. Each such option shall remain exercisable
for such fully-vested option shares until the expiration or sooner termination
of the option term or the surrender of the option in connection with a Hostile
Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee
shall have a thirty (30)-day period in which to surrender to the Corporation
each automatic option held by him or her. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to the surrendered option (whether or not the Optionee is otherwise at
the time vested in those shares) over (ii) the aggregate exercise price payable
for such shares. Such cash distribution shall be paid within five (5) days
following the surrender of the option to the Corporation. Stockholder approval
of the amendments to the Plan at the 1998 Annual Meeting shall constitute
preapproval of the grant of each such option surrender right under this
Automatic Option Grant Program and the subsequent exercise of that right in
accordance with the terms and provisions of this Section II.C. No additional
approval or consent of the Plan Administrator shall be required at the time of
the actual option surrender and cash distribution.
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same.
E. The grant of options under the Automatic Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
<PAGE>
ARTICLE SIX
MISCELLANEOUS
I. FINANCING
A. The Plan Administrator may permit any Optionee or
Participant to pay the option exercise price under the Discretionary Option
Grant Program or the purchase price for shares issued under the Stock Issuance
Program by delivering a promissory note payable in one or more installments. The
terms of any such promissory note (including the interest rate and the terms of
repayment) shall be established by the Plan Administrator in its sole
discretion. Promissory notes may be authorized with or without security or
collateral. In no event may the maximum credit available to the Optionee or
Participant exceed the sum of (i) the aggregate option exercise price or
purchase price payable for the purchased shares plus (ii) any Federal, state and
local income and employment tax liability incurred by the Optionee or the
Participant in connection with the option exercise or share purchase.
B. The Plan Administrator may, in its discretion, determine
that one or more such promissory notes shall be subject to forgiveness by the
Corporation in whole or in part upon such terms as the Plan Administrator may
deem appropriate.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common
Stock upon the exercise of options or stock appreciation rights or upon the
issuance or vesting of such shares under the Plan shall be subject to the
satisfaction of all applicable Federal, state and local income and employment
tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any
or all holders of Non-Statutory Options or unvested shares of Common Stock under
the Plan (other than the options granted or the shares issued under the
Automatic Option Grant Program) with the right to use shares of Common Stock in
satisfaction of all or part of the Taxes incurred by such holders in connection
with the exercise of their options or the vesting of their shares. Such right
may be provided to any such holder in either or both of the following formats:
(i) Stock Withholding: The election to have
the Corporation withhold, from the shares of Common Stock otherwise
issuable upon the exercise of such Non-Statutory Option or the vesting
of such shares, a portion of those shares with an aggregate Fair Market
Value equal to the percentage of the Taxes (not to exceed one hundred
percent (100%)) designated by the holder.
(ii) Stock Delivery: The election to deliver
to the Corporation, at the time the Non-Statutory Option is exercised
or the shares vest, one or more shares of Common Stock previously
acquired by such holder (other than in connection with the option
exercise or share vesting triggering the Taxes) with an aggregate Fair
Market Value equal to the percentage of the Taxes (not to exceed one
hundred percent (100%)) designated by the holder.
<PAGE>
III. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan was adopted by the Board on May 25, 1995 and was
subsequently approved by the Corporation's stockholders. The Plan became
effective on the Effective Date.
B. On November 14, 1997 the Board adopted a series of
amendments to the Plan which (i) increased the number of shares of Common Stock
reserved for issuance over the term of the Plan by an additional 600,000 shares,
(ii) rendered all non-employee Board members eligible to receive option grants
and direct stock issuances under the Discretionary Option Grant and Stock
Issuance Programs, (iii) allowed unvested shares issued under the Plan and
subsequently repurchased by the Corporation at the option exercise price or
direct issue price paid per share to be reissued under the Plan, (iv) removed
certain restrictions on the eligibility of non-employee Board members to serve
as Plan Administrator, and (v) effected a series of additional changes to the
provisions of the Plan (including the stockholder approval requirements) in
order to take advantage of the 1996 amendments to Rule 16b-3 of the 1934 Act
which exempts certain officer and director transactions under the Plan from the
short-swing liability provisions of the federal securities laws. The amendments
listed above are subject to stockholder approval at the 1998 Annual Meeting. In
addition to such amendments, the Board, without the need for stockholder
approval, amended the Plan to (i) allow the Board or the Primary Committee to
administer the Plan with respect to Section 16 Insiders, (ii) allow
Non-Statutory Options to be transferred in limited circumstances and (iii)
eliminate the six (6)-month holding requirement for limited stock appreciation
rights. Should the required stockholder approval of the November 1997 amendments
not be obtained, then the amendments to the Plan which required such stockholder
approval shall have no force and effect and any options granted on the basis of
the 600,000-share increase shall terminate and cease to remain outstanding
without ever becoming exercisable for those shares, and no further option grants
shall be made on the basis of such increase. The provisions of the Plan as in
effect immediately prior to the November 1997 amendments requiring shareholder
approval shall automatically be reinstated, and option grants and share
issuances may thereafter continue to be made pursuant to the reinstated
provisions of the Plan.
C. The Plan shall serve as the successor to the Predecessor
Plan, and no further option grants shall be made under the Predecessor Plan
after the Effective Date. All options outstanding under the Predecessor Plan on
such date shall, immediately upon approval of the Plan by the Corporations's
stockholders, be incorporated into the Plan and treated as outstanding options
under the Plan. However, each outstanding option so incorporated shall continue
to be governed solely by the terms of the documents evidencing such option, and
no provision of the Plan shall be deemed to affect or otherwise modify the
rights or obligations of the holders of such incorporated options with respect
to their acquisition of shares of Common Stock.
D. One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two applicable
to Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options incorporated from
the Predecessor Plan which do not otherwise contain such provisions.
<PAGE>
E. The Plan shall terminate upon the earliest of (i) April 30,
2005, (ii) the date on which all shares available for issuance under the Plan
shall have been issued pursuant to the exercise of the options or the issuance
of shares (whether vested or unvested) under the Plan or (iii) the termination
of all outstanding options in connection with a Corporate Transaction. Upon a
clause (i) termination, all options and unvested stock issuances outstanding on
such date shall thereafter continue to have force and effect in accordance with
the provisions of the documents evidencing such options or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect the rights and obligations with
respect to options, stock appreciation rights or unvested stock issuances at the
time outstanding under the Plan unless the Optionee or the Participant consents
to such amendment or modification. In addition, certain amendments may require
stockholder approval pursuant to applicable laws and regulations.
B. Options to purchase shares of Common Stock may be granted
under the Discretionary Option Grant and Salary Investment Option Grant Programs
and shares of Common Stock may be issued under the Stock Issuance Program that
are in each instance in excess of the number of shares then available for
issuance under the Plan, provided any excess shares actually issued under those
programs are held in escrow until there is obtained stockholder approval of an
amendment sufficiently increasing the number of shares of Common Stock available
for issuance under the Plan. If such stockholder approval is not obtained within
twelve (12) months after the date the first such excess issuances are made, then
(i) any unexercised options granted on the basis of such excess shares shall
terminate and cease to be outstanding and (ii) the Corporation shall promptly
refund to the Optionees and the Participants the exercise or purchase price paid
for any excess shares issued under the Plan and held in escrow, together with
interest (at the applicable Short Term Federal Rate) for the period the shares
were held in escrow, and such shares shall thereupon be automatically cancelled
and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option
or stock appreciation right under the Plan and the issuance of any shares of
Common Stock (i) upon the exercise of any option or stock appreciation right or
(ii) under the Stock Issuance Program shall be subject to the Corporation's
procurement of all approvals and permits required by regulatory authorities
having jurisdiction over the Plan, the options and stock appreciation rights
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued
or delivered under the Plan unless and until there shall have been compliance
with all applicable requirements of Federal and state securities laws, including
the filing and effectiveness of the Form S-8 registration statement for the
shares of Common Stock issuable under the Plan, and all applicable listing
requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which Common Stock is then listed for trading.
<PAGE>
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
<PAGE>
APPENDIX
The following definitions shall be in effect under the Plan:
A. Automatic Option Grant Program shall mean the automatic option grant
program in effect under the Plan.
B. Board shall mean the Corporation's Board of Directors.
C. Change in Control shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly, by any
person or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or is
under common control with, the Corporation), of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities pursuant to a tender
or exchange offer made directly to the Corporation's stockholders which
the Board does not recommend such stockholders to accept, or
(ii) a change in the composition of the Board over a
period of thirty-six (36) consecutive months or less such that a
majority of the Board members ceases, by reason of one or more
contested elections for Board membership, to be comprised of
individuals who either (A) have been Board members continuously since
the beginning of such period or (B) have been elected or nominated for
election as Board members during such period by at least a majority of
the Board members described in clause (A) who were still in office at
the time the Board approved such election or nomination.
D. Code shall mean the Internal Revenue Code of 1986, as amended.
E. Common Stock shall mean the Corporation's common stock.
F. Corporate Transaction shall mean either of the following
stockholder-approved transactions to which the Corporation is
a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those immediately
prior to such transaction; or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.
G. Corporation shall mean Exogen, Inc., a Delaware corporation.
H. Discretionary Option Grant Program shall mean the discretionary
option grant program in effect under the Plan.
I. Effective Date shall mean the date on which the Underwriting
Agreement is executed and the initial public offering price of the Common Stock
is established.
<PAGE>
J. Eligible Director shall mean a non-employee Board member eligible to
participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Article One.
K. Employee shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
L. Exercise Date shall mean the date on which the Corporation shall
have received written notice of the option exercise.
M. Fair Market Value per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as
such price is reported by the National Association of Securities
Dealers on the Nasdaq National Market or any successor system. If there
is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling price
on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the Stock
Exchange determined by the Plan Administrator to be the primary market
for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no closing
selling price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(iii) For purposes of option grants made on the Effective
Date, the Fair Market Value shall be deemed to be equal to the initial
public offering price per share at which the Common Stock is to be sold
pursuant to the Underwriting Agreement.
N. Hostile Take-Over shall mean the acquisition, directly or
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.
O. Incentive Option shall mean an option which satisfies the
requirements of Code Section 422.
P. Involuntary Termination shall mean the termination of the Service of
any individual which occurs by reason of:
<PAGE>
(i) such individual's involuntary dismissal or
discharge by the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following
(A) a change in his or her position with the Corporation which
materially reduces his or her level of responsibility, (B) a reduction
in his or her level of compensation (including base salary, fringe
benefits and participation in corporate-performance based bonus or
incentive programs) by more than fifteen percent (15%) or (C) a
relocation of such individual's place of employment by more than fifty
(50) miles, provided and only if such change, reduction or relocation
is effected by the Corporation without the individual's consent.
Q. Misconduct shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
R. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
S. Non-Statutory Option shall mean an option not intended to satisfy
the requirements of Code Section 422.
T. Optionee shall mean any person to whom an option is granted under
the Discretionary Option Grant, Automatic Option Grant or Salary Investment
Option Grant Program.
U. Parent shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
V. Participant shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.
W. Permanent Disability or Permanently Disabled shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for the purposes of the Automatic Option
Grant Program, Permanent Disability or Permanently Disabled shall mean the
inability of the non-employee Board member to perform his or her usual duties as
a Board member by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more.
X. Plan shall mean the Corporation's 1995 Stock Option/Stock Issuance
Plan, as set forth in this document.
<PAGE>
Y. Plan Administrator shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant, Salary Investment Option Grant and
Stock Issuance Programs with respect to one or more classes of eligible persons,
to the extent such entity is carrying out its administrative functions under
those programs with respect to the persons under its jurisdiction.
Z. Predecessor Plan shall mean the Corporation's existing 1993 Stock
Option Plan.
AA. Primary Committee shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant, Salary Investment Option Grant and Stock Issuance
Programs with respect to Section 16 Insiders.
AB. Salary Investment Option Grant Program shall mean the salary
investment option grant program in effect under the Plan.
AC. Secondary Committee shall mean a committee of two (2) or more Board
members appointed by the Board to administer the Discretionary Option Grant,
Salary Investment Option Grant and Stock Issuance Programs with respect to
eligible persons other than Section 16 Insiders.
AD. Section 16 Insider shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
AE. Section 12(g) Registration Date shall mean the first date on which
the Common Stock is registered under Section 12(g) of the 1934 Act.
AF. Service shall mean the provision of services to the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant or stock issuance.
AG. Stock Exchange shall mean either the American Stock Exchange or the
New York Stock Exchange.
AH. Stock Issuance Agreement shall mean the agreement entered into by
the Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
AI. Stock Issuance Program shall mean the stock issuance program in
effect under the Plan.
AJ. Subsidiary shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
AK. Take-Over Price shall mean the greater of (i) the Fair Market Value
per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
<PAGE>
AL. Taxes shall mean the Federal, state and local income and employment
tax liabilities incurred by the holder of Non-Statutory Options or unvested
shares of Common Stock in connection with the exercise of such holder's options
or the vesting of his or her shares.
AM. 10% Stockholder shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
AN. Underwriting Agreement shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
<PAGE>
APPENDIX A-3
EXOGEN, INC.
EMPLOYEE STOCK PURCHASE PLAN
----------------------------
(As Amended through November 14, 1997)
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the
interests of Exogen, Inc. by providing eligible employees with the opportunity
to acquire a proprietary interest in the Corporation through participation in a
payroll-deduction based employee stock purchase plan designed to qualify under
Section 423 of the Code. Capitalized terms herein shall have the meanings
assigned to such terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret
and construe any provision of the Plan and to adopt such rules and regulations
for administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares of Common
Stock purchased on the open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall not exceed 350,000 shares.
Such authorized share reserve reflects the 1-for-2 reverse stock split effected
prior to the Effective Date and includes (i) the original share reserve of
150,000 shares established for the Plan and (ii) the 200,000-share increase
adopted by the Board on November 14, 1997, subject to approval by the
Corporation's stockholders at the 1998 Annual Meeting.
B. Should any change be made to the Common Stock by reason of
any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and class of securities
issuable under the Plan, (ii) the maximum number and class of securities
purchasable per Participant on any one Purchase Date and (iii) the number and
class of securities and the price per share in effect under each outstanding
purchase right in order to prevent the dilution or enlargement of benefits
thereunder.
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under
the Plan through a series of successive offering periods until such time as (i)
the maximum number of shares of Common Stock available for issuance under the
Plan shall have been purchased or (ii) the Plan shall have been sooner
terminated.
<PAGE>
B. Each offering period shall be of such duration (not to
exceed twenty-four (24) months) as determined by the Plan Administrator prior to
the start date. However, the initial offering period shall commence at the
Effective Time and terminate on the last business day in July 1997. The next
offering period shall commence on the first business day in August 1997, and
subsequent offering periods shall commence as designated by the Plan
Administrator.
C. Each offering period shall be comprised of a series of one
or more successive Purchase Periods. Purchase Periods shall begin on the first
business day in February and August each year and terminate on the last business
day in July and January respectively each year.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the start
date of the initial offering period shall be eligible to enter that offering
period or any subsequent offering period under the Plan on the start date of any
Purchase Period within the applicable offering period on which he or she remains
an Eligible Employee.
B. Each individual who first becomes an Eligible Employee
after the start date of the initial offering period shall be eligible to enter
that offering period or any subsequent offering period under the Plan on the
start date of any Purchase Period within the applicable offering period on which
he or she is an Eligible Employee with at least three (3) months of service with
the Corporation or any Corporate Affiliate.
C. The date an individual enters an offering period shall be
designated his or her Entry Date for purposes of that offering period.
D. To participate in the Plan for a particular offering
period, the Eligible Employee must complete the enrollment forms prescribed by
the Plan Administrator (including a stock purchase agreement and a payroll
deduction authorization form) and file such forms with the Plan Administrator
(or its designate) on or before his or her scheduled Entry Date.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for
purposes of acquiring shares of Common Stock under the Plan may be any multiple
of one percent (1%) of the Cash Compensation paid to the Participant during each
Purchase Period within that offering period, up to a maximum of ten percent
(10%). The deduction rate so authorized shall continue in effect for the
remainder of the offering period, except to the extent such rate is changed in
accordance with the following guidelines:
(i) The Participant may, at any time during
the offering period, reduce his or her rate of payroll deduction to
become effective as soon as possible after filing the appropriate form
with the Plan Administrator. The Participant may not, however, effect
more than one (1) such reduction per Purchase Period.
(ii) The Participant may, prior to the
commencement of any new Purchase Period within the offering period,
increase the rate of his or her payroll deduction by filing the
appropriate form with the Plan Administrator. The new rate (which may
<PAGE>
not exceed the ten percent (10%) maximum) shall become effective as of
the start date of the Purchase Period following the filing of such
form.
B. Payroll deductions shall begin on the first pay day
following the Participant's Entry Date into the offering period and shall
(unless sooner terminated by the Participant) continue through the pay day
ending with or immediately prior to the last day of that offering period. The
amounts so collected shall be credited to the Participant's book account under
the Plan, but no interest shall be paid on the balance from time to time
outstanding in such account. The amounts collected from the Participant shall
not be held in any segregated account or trust fund and may be commingled with
the general assets of the Corporation and used for general corporate purposes.
C. Payroll deductions shall automatically cease upon the
termination of the Participant's purchase right in accordance with the
provisions of the Plan.
D. The Participant's acquisition of Common Stock under the
Plan on any Purchase Date shall neither limit nor require the Participant's
acquisition of Common Stock on any subsequent Purchase Date, whether within the
same or a different offering period.
VII. PURCHASE RIGHTS
A. Grant of Purchase Right. A Participant shall be granted a
separate purchase right for each offering period in which he or she
participates. The purchase right shall be granted on the Participant's Entry
Date into the offering period and shall provide the Participant with the right
to purchase shares of Common Stock, in a series of successive installments over
the remainder of such offering period, upon the terms set forth below. The
Participant shall execute a stock purchase agreement embodying such terms and
such other provisions (not inconsistent with the Plan) as the Plan Administrator
may deem advisable.
Under no circumstances shall purchase rights be granted under
the Plan to any Eligible Employee if such individual would, immediately after
the grant, own (within the meaning of Code Section 424(d)) or hold outstanding
options or other rights to purchase, stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Corporation or any Corporate Affiliate.
B. Exercise of the Purchase Right. Each purchase right shall
be automatically exercised in installments on each successive Purchase Date
within the offering period, and shares of Common Stock shall accordingly be
purchased on behalf of each Participant (other than any Participant whose
payroll deductions have previously been refunded in accordance with the
Termination of Purchase Right provisions below) on each such Purchase Date. The
purchase shall be effected by applying the Participant's payroll deductions for
the Purchase Period ending on such Purchase Date to the purchase of whole shares
of Common Stock at the purchase price in effect for the Participant for that
Purchase Date.
C. Purchase Price. The purchase price per share at which
Common Stock will be purchased on the Participant's behalf on each Purchase Date
within the offering period shall be equal to eighty-five percent (85%) of the
lower of (i) the Fair Market Value per share of Common Stock on the
<PAGE>
Participant's Entry Date into that offering period or (ii) the Fair Market Value
per share of Common Stock on that Purchase Date. However, for each Participant
whose Entry Date is other than the start date of the offering period, the clause
(i) amount shall in no event be less than the Fair Market Value per share of
Common Stock on the start date of that offering period.
D. Number of Purchasable Shares. The number of shares of
Common Stock purchasable by a Participant on each Purchase Date during the
offering period shall be the number of whole shares obtained by dividing the
amount collected from the Participant through payroll deductions during the
Purchase Period ending with that Purchase Date by the purchase price in effect
for the Participant for that Purchase Date. However, the maximum number of
shares of Common Stock purchasable per Participant on any one Purchase Date
shall not exceed 2,500 shares, subject to periodic adjustments in the event of
certain changes in the Corporation's capitalization.
E. Excess Payroll Deductions. Any payroll deductions not
applied to the purchase of shares of Common Stock on any Purchase Date because
they are not sufficient to purchase a whole share of Common Stock shall be held
for the purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable by the Participant on the
Purchase Date shall be promptly refunded.
F. Termination of Purchase Right. The following provisions
shall govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to
the next Purchase Date in the offering period, terminate his or her
outstanding purchase right by filing the appropriate form with the Plan
Administrator (or its designate), and no further payroll deductions
shall be collected from the Participant with respect to the terminated
purchase right. Any payroll deductions collected during the Purchase
Period in which such termination occurs shall, at the Participant's
election, be immediately refunded or held for the purchase of shares on
the next Purchase Date. If no such election is made at the time such
purchase right is terminated, then the payroll deductions collected
with respect to the terminated right shall be refunded as soon as
possible.
(ii) The termination of such purchase right
shall be irrevocable, and the Participant may not subsequently rejoin
the offering period for which the terminated purchase right was
granted. In order to resume participation in any subsequent offering
period, such individual must re-enroll in the Plan (by making a timely
filing of the prescribed enrollment forms) on or before his or her
scheduled Entry Date into that offering period.
(iii) Should the Participant cease to remain
an Eligible Employee for any reason (other than death or disability)
while his or her purchase right remains outstanding, then that purchase
right shall immediately terminate, and all of the Participant's payroll
deductions for the Purchase Period in which the purchase right so
terminates shall be immediately refunded. Should the Participant cease
to remain an Eligible Employee by reason of death or disability while
his or her purchase right remains outstanding, then that purchase right
<PAGE>
shall immediately terminate, and all of the Participant's payroll
deductions for the Purchase Period in which such death or disability
occurs shall, at the election of the Participant (or, in the event of
the Participant's death, the personal representative of the
Participant's estate), be immediately refunded or held for the purchase
of shares on the next Purchase Date. If no such election is made prior
to the next Purchase Date, then the payroll deductions collected with
respect to the terminated right shall be refunded as soon as possible.
(iv) Should the Participant cease to remain in
active service by reason of an approved unpaid leave of absence, then
no further payroll deductions shall be collected on the Participant's
behalf during such leave, and the Participant shall have the election,
exercisable up until the last business day of the Purchase Period in
which such leave commences, to (a) withdraw all the payroll deductions
collected on the Participant's behalf to date in that Purchase Period
or (b) have such funds held for the purchase of shares at the end of
such Purchase Period. Upon the Participant's return to active service
following the approved leave, his or her payroll deductions under the
Plan shall automatically resume at the rate in effect at the time the
leave began, provided such return to service occurs prior to the
expiration date of the offering period in which such leave began.
G. Corporate Transaction. Each outstanding purchase right
shall automatically be exercised, immediately prior to the effective date of any
Corporate Transaction, by applying the payroll deductions of each Participant
for the Purchase Period in which such Corporate Transaction occurs to the
purchase of whole shares of Common Stock at a purchase price per share equal to
eighty-five percent (85%) of the lower of (i) the Fair Market Value per share of
Common Stock on the Participant's Entry Date into the offering period in which
such Corporate Transaction occurs or (ii) the Fair Market Value per share of
Common Stock immediately prior to the effective date of such Corporate
Transaction. However, the applicable share limitations per Participant shall
continue to apply to any such purchase, and the clause (i) amount above shall
not, for any Participant whose Entry Date for the offering period is other than
the start date of that offering period, be less than the Fair Market Value per
share of Common Stock on such start date.
The Corporation shall use its best efforts to provide at least
ten (10)-days prior written notice of the occurrence of any Corporate
Transaction, and Participants shall, following the receipt of such notice, have
the right to terminate their outstanding purchase rights prior to the effective
date of the Corporate Transaction.
H. Proration of Purchase Rights. Should the total number of
shares of Common Stock to be purchased pursuant to outstanding purchase rights
on any particular date exceed the number of shares then available for issuance
under the Plan, the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and nondiscriminatory basis, and the payroll
deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded.
I. Assignability. During the Participant's lifetime, the
purchase right shall be exercisable only by the Participant and shall not be
assignable or transferable by the Participant other by will or the laws of
descent and distribution following the Participant's death.
<PAGE>
J. Stockholder Rights. A Participant shall have no stockholder
rights with respect to the shares subject to his or her outstanding purchase
right until the shares are purchased on the Participant's behalf in accordance
with the provisions of the Plan and the Participant has become a holder of
record of the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to
acquire Common Stock pursuant to any purchase right outstanding under this Plan
if and to the extent such accrual, when aggregated with (i) rights to purchase
Common Stock accrued under any other purchase right granted under this Plan and
(ii) similar rights accrued under other employee stock purchase plans (within
the meaning of Code Section 423) of the Corporation or any Corporate Affiliate,
would otherwise permit such Participant to purchase more than Twenty-Five
Thousand Dollars ($25,000) worth of stock of the Corporation or any Corporate
Affiliate (determined on the basis of the Fair Market Value of such stock on the
date or dates such rights are granted) for each calendar year such rights are at
any time outstanding.
B. For purposes of applying such accrual limitations, the
following provisions shall be in effect:
(i) The right to acquire Common Stock under
each outstanding purchase right shall accrue in a series of
installments on each successive Purchase Date during the offering
period on which such right remains outstanding.
(ii) No right to acquire Common Stock under
any outstanding purchase right shall accrue to the extent the
Participant has already accrued in the same calendar year the right to
acquire Common Stock under one (1) or more other purchase rights at a
rate equal to Twenty-Five Thousand Dollars ($25,000) worth of Common
Stock (determined on the basis of the Fair Market Value of such stock
on the date or dates of grant) for each calendar year such rights were
at any time outstanding.
C. Should any purchase right of a Participant not accrue for a
particular Purchase Period by reason of such accrual limitations, then the
payroll deductions which the Participant made during that Purchase Period with
respect to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the provisions
of this Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on May 5, 1995 and shall
become effective at the Effective Time, provided no purchase rights granted
under the Plan shall be exercised, and no shares of Common Stock shall be issued
hereunder, until (i) the Plan shall have been approved by the stockholders of
the Corporation and (ii) the Corporation shall have complied with all applicable
requirements of the 1933 Act (including the registration of the shares of Common
Stock issuable under the Plan on a Form S-8 registration statement filed with
the Securities and Exchange Commission), all applicable listing requirements of
any stock exchange (or the Nasdaq National Market, if applicable) on which the
<PAGE>
Common Stock is listed for trading and all other applicable requirements
established by law or regulation. In the event such stockholder approval is not
obtained, or such compliance is not effected, within twelve (12) months after
the date on which the Plan is adopted by the Board, the Plan shall terminate and
have no further force or effect and all sums collected from Participants during
the initial offering period hereunder shall be refunded.
B. Unless sooner terminated by the Board, the Plan shall
terminate upon the earliest of (i) the last business day in July 2005, (ii) the
date on which all shares available for issuance under the Plan shall have been
sold pursuant to purchase rights exercised under the Plan or (iii) the date on
which all purchase rights are exercised in connection with a Corporate
Transaction. No further purchase rights shall be granted or exercised, and no
further payroll deductions shall be collected, under the Plan following its
termination.
X. AMENDMENT OF THE PLAN
The Board may alter, amend, suspend or discontinue the Plan at
any time to become effective immediately following the close of any Purchase
Period. However, the Board may not, without the approval of the Corporation's
stockholders, (i) materially increase the number of shares of Common Stock
issuable under the Plan or the maximum number of shares purchasable per
Participant on any one Purchase Date, except for permissible adjustments in the
event of certain changes in the Corporation's capitalization, (ii) alter the
purchase price formula so as to reduce the purchase price payable for the shares
of Common Stock purchasable under the Plan, or (iii) materially increase the
benefits accruing to Participants under the Plan or materially modify the
requirements for eligibility to participate in the Plan.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of
the Plan shall be paid by the Corporation.
B. Nothing in the Plan shall confer upon the Participant any
right to continue in the employ of the Corporation or any Corporate Affiliate
for any period of specific duration or interfere with or otherwise restrict in
any way the rights of the Corporation (or any Corporate Affiliate employing such
person) or of the Participant, which rights are hereby expressly reserved by
each, to terminate such person's employment at any time for any reason, with or
without cause.
C. The provisions of the Plan shall be governed by the laws of
the State of New Jersey without resort to that State's conflict-of-laws rules.
<PAGE>
Schedule A
----------
Corporations Participating in
Employee Stock Purchase Plan
As of the Effective Time
------------------------
Exogen, Inc.
<PAGE>
APPENDIX
The following definitions shall be in effect under the Plan:
A. Board shall mean the Corporation's Board of Directors.
B. Cash Compensation shall mean the (i) regular base salary
paid to a Participant by one or more Participating Companies during such
individual's period of participation in the Plan, plus (ii) any pre-tax
contributions made by the Participant to any Code Section 401(k) salary deferral
plan or any Code Section 125 cafeteria benefit program now or hereafter
established by the Corporation or any Corporate Affiliate, plus (iii) all of the
following amounts to the extent paid in cash: overtime payments, bonuses,
commissions, profit-sharing distributions and other incentive-type payments.
However, Eligible Earnings shall not include any contributions (other than Code
Section 401(k) or Code Section 125 contributions) made on the Participant's
behalf by the Corporation or any Corporate Affiliate to any deferred
compensation plan or welfare benefit program now or hereafter established.
C. Code shall mean the Internal Revenue Code of 1986, as
amended.
D. Common Stock shall mean the Corporation's common stock.
E. Corporate Affiliate shall mean any parent or subsidiary
corporation of the Corporation (as determined in accordance with Code Section
424), whether now existing or subsequently established.
F. Corporate Transaction shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete
liquidation or dissolution of the Corporation.
G. Corporation shall mean Exogen, Inc., a Delaware
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Exogen, Inc. which shall by appropriate action adopt
the Plan.
H. Effective Time shall mean the time at which the
Underwriting Agreement is executed and finally priced. Any Corporate Affiliate
which becomes a Participating Corporation after such Effective Time shall
designate a subsequent Effective Time with respect to its employee-Participants.
I. Eligible Employee shall mean any person who is engaged, on
a regularly-scheduled basis of more than twenty (20) hours per week for more
than five (5) months per calendar year, in the rendition of personal services to
any Participating Corporation as an employee for earnings considered wages under
Code Section 3401(a).
<PAGE>
J. Entry Date shall mean the date an Eligible Employee first
commences participation in the offering period in effect under the Plan. The
earliest Entry Date under the Plan shall be the Effective Time.
K. Fair Market Value per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as
such price is reported by the National Association of Securities
Dealers on the Nasdaq National Market or any successor system. If there
is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling price
on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the Stock
Exchange determined by the Plan Administrator to be the primary market
for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no closing
selling price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(iii) For purposes of the initial offering period which
begins at the Effective Time, the Fair Market Value shall be deemed to
be equal to the price per share at which the Common Stock is sold in
the initial public offering pursuant to the Underwriting Agreement.
L. 1933 Act shall mean the Securities Act of 1933, as amended.
M. Participant shall mean any Eligible Employee of a
Participating Corporation who is actively participating in the Plan.
N. Participating Corporation shall mean the Corporation and
such Corporate Affiliate or Affiliates as may be authorized from time to time by
the Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan as of the Effective Time are listed in
attached Schedule A.
O. Plan shall mean the Corporation's Employee Stock Purchase
Plan, as set forth in this document.
P. Plan Administrator shall mean the committee of two (2) or
more Board members appointed by the Board to administer the Plan.
Q. Purchase Date shall mean the last business day of each
Purchase Period. The initial Purchase Date shall be January 31, 1996.
R. Purchase Period shall mean each successive six (6)-month
period within the offering period at the end of which there shall be purchased
shares of Common Stock on behalf of each Participant.
S. Stock Exchange shall mean either the American Stock
Exchange or the New York Stock Exchange.
T. Underwriting Agreement shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
