SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                            SCHEDULE 14A INFORMATION
                  PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
                      THE SECURITIES EXCHANGE ACT OF 1934


 [X]  Filed by the Registrant
 [ ]  Filed by a party other than the Registrant

Check the appropriate box:
    [ ]  Preliminary Proxy Statement
    [ ]  Confidential, for Use of the Commission Only [as permitted by 
         Exchange Act Rule 14(a)-6(e)(2)]
    [X]  Definitive Proxy Statement
    [ ]  Definitive Additional Material
    [ ]  Soliciting Material Pursuant to section 240.14a-11(c) or 
         section 240.14a-12
    


                            OSTEX INTERNATIONAL, INC.
                (NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)




Payment of Filing Fee:

    [X]  No fee required.
    [ ]  $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-6(i)(2),
         or Item 22(a)(2) of Schedule 14A.

    [ ]  Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 
         and 0-11:
    



  Title of Each Class of    Aggregate Number of     Per Unit Price or Other Underlying      Proposed Maximum    Total
   Securities to Which      Securities to Which   Value of Transaction Computed Pursuant   Aggregate Value of    Fee
   Transaction Applies      Transaction Applies          To Exchange Act Rule 0-11             Transaction       Paid
   -------------------      -------------------          -------------------------             -----------       ----
                                                                                                     
            -                        -                               -                              -              -




    [ ]  Fee paid previously with written preliminary materials.
    

    [ ]  Check box if any part of the fee is offset as provided by Exchange 
         Act Rule 0-11(a)(2) and identify the filing for which the offsetting 
         fee was paid previously.  Identify the previous filing by registration
         statement number, or the Form or Schedule and the date of its filing:
         (1)  Amount previously paid:
         (2)  Form, schedule or registration statement number:
         (3)  Filing party:
         (4)  Date filed:







                                [OSTEX LOGO OMITTED]




                            OSTEX INTERNATIONAL, INC.
                        2203 Airport Way South, Suite 400
                            Seattle, Washington 98134



                                 March 31, 1998


Dear Shareholder:

         You are cordially  invited to attend the Annual Meeting of Shareholders
of Ostex International, Inc. to be held on Monday, May 18, 1998, at 9:00 a.m. at
the Museum of History &  Industry,  located at 2700 24th  Avenue  East,  McCurdy
Park, Seattle, Washington.

         The matters to be acted upon are described in the  accompanying  Notice
of Annual Meeting of Shareholders and Proxy Statement. At the Annual Meeting, we
will also  report on Ostex's  operations  and respond to any  questions  you may
have.

         Whether or not you plan to attend the Annual  Meeting,  it is important
that your shares be represented and voted.  THEREFORE,  PLEASE  COMPLETE,  SIGN,
DATE  AND  MAIL  THE  ENCLOSED  PROXY  AS  SOON  AS  POSSIBLE  IN  THE  ENCLOSED
POSTAGE-PREPAID  ENVELOPE.  Returning  the  enclosed  proxy will not affect your
right to  revoke it later or to vote your  shares  in person if you  attend  the
Annual Meeting.

                                Very truly yours,

                                /S/ THOMAS A. BOLOGNA

                                Thomas A. Bologna
                                PRESIDENT AND CHIEF EXECUTIVE OFFICER





                            OSTEX INTERNATIONAL, INC.
                        2203 Airport Way South, Suite 400
                            Seattle, Washington 98134

                    NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
                                  MAY 18, 1998


To the Shareholders of Ostex International, Inc.:

         The Annual Meeting of the Shareholders of Ostex International,  Inc., a
Washington  Corporation  (the "Company") will be held at the Museum of History &
Industry,   located  at  2700  24th  Avenue  East,  McCurdy  Park,  in  Seattle,
Washington,  on May 18, 1998, at 9:00 a.m. If you would like directions,  please
visit the Company's website at http://www.ostex.com or call the Company at (206)
292-8082. The Annual Meeting is held for the following purposes:

         1.       To elect four  directors  to the  Company's  Board of  
                  Directors  for the term  described  in the attached
                  Proxy Statement;  and

         2.       To ratify the  selection of Arthur  Andersen LLP as the  
                  Company's  independent  auditors for the fiscal year 
                  ending December 31, 1998; and

         3.       To  transact  such other  business  that may  properly  come
                  before  the  Annual  Meeting or any adjournment thereof.

         The foregoing  items of business are more fully  described in the Proxy
Statement accompanying this Notice.

         The  record  date for the  Annual  Meeting  is  March  27,  1998.  Only
shareholders  of record at the close of  business  on that date are  entitled to
notice of, and to vote at, the Annual Meeting or any adjournment or postponement
thereof.

                                    By Order of the Board of Directors


                                    /S/ ROBERT M. LITTAUER

                                   Robert M. Littauer
                                   SECRETARY

Seattle, Washington
March 31, 1998



         ALL  SHAREHOLDERS  ARE CORDIALLY  INVITED TO ATTEND THE ANNUAL MEETING.
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING,  PLEASE  COMPLETE,  SIGN
AND DATE THE  ENCLOSED  PROXY  CARD AND  RETURN  IT AS SOON AS  POSSIBLE  IN THE
ENCLOSED  POSTAGE-PREPAID ENVELOPE IN ORDER TO ENSURE YOUR REPRESENTATION AT THE
MEETING.  THE GIVING OF SUCH PROXY DOES NOT AFFECT YOUR RIGHT TO REVOKE IT LATER
OR VOTE YOUR  SHARES IN PERSON IN THE EVENT  THAT YOU  SHOULD  ATTEND THE ANNUAL
MEETING.








           
                    OSTEX INTERNATIONAL, INC. PROXY STATEMENT

                     FOR THE ANNUAL MEETING OF SHAREHOLDERS
                             TO BE HELD MAY 18, 1998
                       ----------------------------------

                 INFORMATION CONCERNING SOLICITATION AND VOTING

GENERAL

         This enclosed proxy is solicited on behalf of the Board of Directors of
Ostex International, Inc., a Washington corporation (the "Company"), to be voted
at the Company's 1998 Annual Meeting of Shareholders (the "Annual Meeting"),  to
be held at 9:00 a.m.  on  Monday,  May 18,  1998,  at the  Museum  of  History &
Industry,   located  at  2700  24th  Avenue  East,  McCurdy  Park,  in  Seattle,
Washington,  or at any adjournment or postponement thereof, for the purposes set
forth herein and in the  accompanying  Notice of Annual Meeting of Shareholders.
Any shareholder  requiring directions to the Museum of History & Industry should
call  the  Company  at  (206)  292-8082  or  visit  the  Company's   website  at
http://www.ostex.com.

         This Proxy Statement and accompanying proxy card are first being mailed
to shareholders on or about April 3, 1998.

VOTING AND OUTSTANDING SHARES

         Only holders of record of Company  common  stock,  $0.01 par value (the
"Common  Stock"),  at the close of business  on March 27,  1998 are  entitled to
notice of, and to vote at, the Annual Meeting. At the close of business on March
27,  1998,  there were  outstanding  and entitled to vote  12,696,250  shares of
Common Stock.  Shareholders  of record on such date are entitled to one vote for
each share of Common  Stock  held on all  matters to be voted upon at the Annual
Meeting.  All votes will be tabulated by the inspector of election appointed for
the Annual Meeting,  who will separately tabulate affirmative and negative votes
and abstentions.

         The  presence  in person or by proxy of holders of record of a majority
of the outstanding  shares of Common Stock is required to constitute a quorum at
the  Annual  Meeting.  Under  Washington  law  and  the  Company's  Articles  of
Incorporation,  assuming the presence of a quorum, the election of the Company's
directors requires a plurality of votes cast.

         Abstentions and "broker  nonvotes" (shares by a broker or nominee as to
which a broker  or  nominee  indicates  on the  proxy  that it does not have the
authority, either express or discretionary,  to vote on a particular matter) are
counted for purposes of determining  the presence of a quorum.  For the election
of directors,  an abstention from voting and broker nonvotes will not be counted
either in favor of or against the nominees since the election of director's is a
discretionary  matter being  considered at the Annual Meeting,  there will be no
broker nonvotes on this matter.

REVOCABILITY OF PROXIES

         Any person giving a proxy pursuant to this  solicitation  has the power
to revoke it at any time  before it is voted.  It may be revoked by filing  with
the Secretary of the Company at the Company's  principal  executive office, 2203
Airport Way South,  Suite 400,  Seattle,  Washington  98134, a written notice of
revocation or a duly  executed  proxy bearing a later date, or it may be revoked
by attending the Annual Meeting and voting in person.
Attendance at the Annual Meeting will not, by itself, revoke a proxy.

SOLICITATION

         The  Company  will bear the entire  cost of  solicitation  of  proxies,
including  preparing,  printing and mailing this Proxy Statement,  the proxy and
any  additional  information  furnished to  shareholders.  The Company will also
request brokerage firms, banks, nominees,  custodians and fiduciaries to forward



proxy  materials  to the  beneficial  owners of shares of Common Stock as of the
record date. The Company will provide  reimbursement  for the cost of forwarding
the proxy  materials  in  accordance  with  customary  practice.  In addition to
mailing this Proxy  Statement and the  accompanying  proxy card,  proxies may be
solicited by  directors,  officers and other  employees of the Company,  without
additional  compensation,  in person or by  telephone,  telegraph  or  facsimile
transmission.

                                   PROPOSAL 1:
                 ELECTION OF DIRECTORS AND DIRECTOR INFORMATION

         The Company's  Articles of Incorporation  (the  "Articles")  divide the
Board of  Directors  into three  classes,  each class  consisting,  as nearly as
possible,  of one-third of the total  number of  directors.  The members of each
class are  elected to serve for a  three-year  term and until the  election  and
qualification of their successors.  At each annual meeting of shareholders,  one
class of the Board of  Directors is elected and  directors in the other  classes
remain in office  until their  respective  three-year  terms  expire.  Under the
Company's Amended and Restated Bylaws, the Board of Directors is to be comprised
of no more than ten members and no fewer than three members, the exact number of
which shall be set by the Board of Directors from time to time.
The Board of Directors currently consists of eight directors.

         At the  Annual  Meeting,  shareholders  will be asked  to  elect  three
directors  to the class whose term of office will expire at the year 2001 annual
meeting of shareholders (the "Class 1" Directors), and one director to the class
whose term of office will expire at the 1999 annual meeting of shareholders (the
"Class 2"  Directors).  The  nominees  for  election as directors in Class 1 are
Thomas A. Bologna,  Elisabeth L. Evans, M.D., and Gregory D. Phelps. The nominee
for  election  as  director  in  Class 2 is John H.  Trimmer.  Unless  otherwise
directed,  the persons named in the proxy intend to cast all proxies in favor of
Messrs.  Bologna and Phelps and Dr. Evans to serve as Class 1 Directors  and Mr.
Trimmer to serve as a Class 2  Director.  All  nominees  have agreed to serve if
elected  and  management  has no reason to  believe  that they will be unable to
serve, but if any are not able to serve, it is intended that the proxies will be
voted for the election of such nominee as  designated  by the Board of Directors
to fill any such vacancy.

INFORMATION ABOUT THE DIRECTOR NOMINEES

       THOMAS A. BOLOGNA (age 49) has been a Director,  President and Chief 
Executive  Officer of the Company since July 1997.  From January 1996 until
July 1997,  Mr.  Bologna was a principal in  Healthcare  Venture  Associates,  a
consulting firm. From January 1994 to January 1996 Mr. Bologna was President and
Chief  Executive  Officer for Scriptgen  Pharmaceuticals,  Inc., a biotechnology
company with  proprietary  drug screening  technology that is developing  orally
active drugs to regulate gene expression, and from July 1987 to January 1994 was
the Chairman of the Board of Directors, President and Chief Executive Officer of
Gen-Probe     Incorporated,     a    biotechnology    company    commercializing
genetic-probe-based  technology for diagnostic and therapeutic applications. Mr.
Bologna serves on the Board of Directors for Biostar, Inc. and Prolinx, Inc. Mr.
Bologna received an M.B.A. and a B.S. from New York University.

         ELISABETH L. EVANS,  M.D.  (age 50) has been a Director of Ostex since
June  1997 and  currently  serves on the  Audit  Committee  of the Board of
Directors.  Since 1987, Dr. Evans has been in private practice in obstetrics and
gynecology at Overlake  Obstetricians and  Gynecologists,  and from 1992 to 1994
served as Section  Chief,  Department of Obstetrics  and  Gynecology at Overlake
Hospital  Medical  Center.  Dr. Evans  previously  served as a Staff  Physician,
Department of Obstetrics and Gynecology, Kaiser Permanente, Portland, Oregon; as
the Senior Staff and Division  Head,  Department of Gynecology  and  Obstetrics,
Henry Ford  Hospital,  Detroit,  Michigan;  and as a Clinical  Instructor at the
University of Michigan Medical Center, Ann Arbor,  Michigan.  Dr. Evans received
an M.D. from the  University  of  Washington  School of Medicine and a B.A. from
Wellesley College.

         GREGORY D. PHELPS  (age 49) has been a Director  of the  Company  since
November 1995 and currently serves on the Compensation Committee of the Board of
Directors.  Mr.  Phelps  was an  executive  officer of  Genzyme  Corporation,  a
biotechnology  company,  from 1991 to 1997,  most recently  serving as Executive
Vice  President.  From 1988 to 1990,  Mr.  Phelps  served as President and Chief
Executive  Officer  of  Viagene,  Inc.,  a  biotechnology  company  focusing  on
development of gene  therapies for viral diseases and cancers,  and from 1986 to
1988,   Mr.  Phelps  served  as  President  and  Chief   Executive   Officer  of
ZymoGenetics,  Inc., a company developing  biotherapeutic  products.  His career
also includes management positions from 1975 to 1986 with Baxter  International,
a healthcare  company,  where he was Vice  President of the Hyland  Therapeutics
Division.  Mr. Phelps received an M.B.A. from Harvard Business School and a B.S.
from Bradley University.



         JOHN H. TRIMMER (age 46) has been a Director of the Company  since 
June  1997 and  currently  serves on the  Audit  Committee  of the Board of
Directors. Mr. Trimmer served as Chairman, President and Chief Executive Officer
from 1992 to 1994 at National Diagnostic Systems, a managed care company focused
on the management of clinically  appropriate  diagnostic imaging services;  from
1985 to 1989 as President and Chief Operating Officer of American Biodyne, Inc.,
a managed care company  focused on the delivery  and  management  of  clinically
appropriate  mental health services;  and from 1984 to 1985 as President of TMS,
Inc., a private  management  consulting  firm providing  services to health care
venture  businesses.  His career also includes  positions with American  Medical
Systems,  Inc.,  Hospital  Business,  and Booz,  Allen & Hamilton.  Mr.  Trimmer
received  an M.B.A.  from the  University  of Chicago  and a B.A.  from  Harvard
University.

         THE BOARD OF  DIRECTORS  RECOMMENDS  A VOTE FOR THE ELECTION OF EACH OF
THE DIRECTOR NOMINEES.

INFORMATION ABOUT DIRECTORS WHOSE TERMS OF OFFICE CONTINUE AFTER THE 
ANNUAL MEETING

DIRECTOR WHOSE TERM EXPIRES IN 1999

         THOMAS J.  CABLE (age 58) has been a  Director  of the  Company  since
1989 and  currently  serves on the  Compensation  Committee of the Board of
Directors. Mr. Cable was co-founder and partner of Cable & Howse Ventures, Inc.,
a venture management company founded in 1979. Mr. Cable was also co-founder and,
from  1982 to 1985,  a partner  in Cable  Howse & Ragen,  a  Seattle  investment
banking and brokerage firm now known as Ragen MacKenzie.  Mr. Cable is a founder
and current  Chairman of the  Washington  Research  Foundation and serves on the
Board of Directors of Fischer Imaging, EndoSonics, Molecular Simulations, Omeros
Medical Systems, Inc., Stellar One Corporation, Key Computer Systems, and Coffee
Station.  Mr. Cable received an M.B.A. from Stanford  University and a B.A. from
Harvard College.

DIRECTORS WHOSE TERMS EXPIRE IN 2000

         DAVID R. EYRE,  PH.D. (age 53) is a founder of the Company and has been
a Director since the Company's  formation in May 1989. Dr. Eyre currently serves
on the  Compensation  Committee of the Board of  Directors.  His major  research
interests include collagen  biochemistry,  inborn skeletal  diseases,  cartilage
pathology,   biochemistry  of  the  intervertebral  disc,  bone  metabolism  and
osteoporosis.  Since  1985,  Dr.  Eyre has served as the  Burgess  Professor  of
Orthopedics  at the  University  of  Washington,  where  he is also  an  Adjunct
Professor  of  Biochemistry  and Oral  Biology and a director of the  Orthopedic
Research Laboratories. Dr. Eyre has previously served as a research scientist at
Children's  Hospital Medical Center in Boston,  Massachusetts,  and as a faculty
member in the department of biological  chemistry at Harvard Medical School.  In
addition, from 1973 to 1976 Dr. Eyre served on the permanent scientific staff of
the Kennedy  Institute of  Rheumatology  in London,  England,  and as a Research
Fellow at Massachusetts  General  Hospital and Harvard Medical School.  Dr. Eyre
has published  numerous articles on the biochemistry of connective  tissue.  Dr.
Eyre earned his Ph.D.  and B.S. in  biochemistry  from the  University of Leeds,
England.

       FREDRIC J.  FELDMAN,  PH.D.  (age 58) has been a Director  with the 
Company since April 1997 and currently serves on the Audit Committee of the
Board of Directors.  Dr.  Feldman has served as the President of FJF  Associates
since 1992, a firm providing  management and investment  consulting  services to
venture capital and emerging growth companies in the health care industry.  From
1995 to 1996, Dr. Feldman served as the interim Chief Executive Officer of Biex,
Inc., a biotechnology company; from 1992 to 1995 as the Chairman of the Board of
Directors and Chief Executive  Officer of  Oncogenetics,  Inc., a genetic cancer
diagnostic  company;  and from 1988 to 1992 as  President  and  Chief  Executive
Officer of Microgenic  Corporation,  a  biotechnology  diagnostic  company.  Dr.
Feldman  received a Ph.D.  and M.S. in chemistry from the University of Maryland
and a B.S. in chemistry from Brooklyn College of City University of New York.

         GILBERT S. OMENN,  M.D.,  PH.D.  (age 56) was appointed by the Board 
of Directors on June 2, 1997,  and is not running for election as a Director.

COMPENSATION OF DIRECTORS

         The Company  pays $1,500 to each  Director on a quarterly  basis.  Each
Director is reimbursed actual travel expenses for attendance at regular Board of
Directors  and committee  meetings and $1,500 for each day of meetings  attended



outside  of  regularly  scheduled  Board of  Director  and  committee  meetings.
Additionally,  the Company's  nonemployee directors participate in the Company's
Amended and Restated  Directors  Nonqualified  Stock Option Plan (the "Directors
Plan").  Upon election or  appointment  to the Board of  Directors,  nonemployee
directors  receive a one-time  stock option grant to purchase  25,000  shares of
Common Stock under the  Directors  Plan.  In addition,  each  director who is in
office the day following any annual meeting of  shareholders  of the Company (at
which meeting such  director was  re-elected or continued in office) and who has
been in office for at least five months prior to such annual  meeting,  receives
an option to purchase 10,000 shares of Common Stock.

         Options  granted  under the Directors  Plan vest in equal  installments
over a three-year  period.  Options vest immediately if a director is terminated
by reason of death or disability.  Options  granted under the Directors Plan are
exercisable  for a period of ten years  from the date of grant.  Vested  options
terminate  90 days after a director's  termination  as a director of the Company
for any reason other than death or  disability,  and one year after  termination
upon  death or  disability.  The  exercise  price of options  granted  under the
Directors  Plan is the  fair  market  value of the  Common  Stock on the date of
grant.  Upon exercise,  the exercise  price may be paid  immediately in cash, by
delivering  to the  Company  shares  of  Common  Stock  previously  held by such
director, having shares withheld from the amount of shares of Common Stock to be
received by the director,  or delivering an irrevocable  subscription  agreement
obligating  the  director  to take and pay for the shares of Common  Stock to be
purchased within one year of the date of exercise.

         In  addition,  Mr.  Cable was granted a  nonqualified  stock  option to
purchase 25,000 shares of Common Stock at an exercise price of $2.38 on June 25,
1997,  outside the Directors  Plan,  but upon the same terms as contained in the
Directors  Plan, in recognition  of his past and future  services as Chairman of
the Board of Directors.

         CONSULTING  AGREEMENTS WITH  DIRECTORS.  The Company has entered into a
consulting  agreement  with Dr. Eyre for  assistance  with the urinary assay for
measuring bone resorption and osteoclast colony stimulating factor technologies.
The agreement provides for the payment of $6,000 per month by the Company to Dr.
Eyre,  plus expenses.  During the year ended December 31, 1997, the Company paid
Dr. Eyre $72,000 pursuant to the agreement.

         During the year ended  December 31,  1997, the Company paid Dr. Feldman
$4,000 for consulting on marketing issues.

BOARD COMMITTEES

         The Company's Board of Directors has standing Audit, and Compensation 
Committees.

         The Audit Committee  currently consists of Messrs.  Feldman and Trimmer
and Dr.  Evans.  The  Audit  Committee  makes  recommendations  to the  Board of
Directors regarding the selection of independent  auditors,  reviews the results
and scope of the audit and other services provided by the Company's  independent
auditors,  and reviews and evaluates the Company's  internal control  functions.
The Audit Committee met one time during 1997.

         The  Compensation  Committee  currently  consists of Messrs.  Cable and
Phelps and Dr.  Eyre.  The  Compensation  Committee  administers  the  Company's
employee stock option plans and is responsible for determining the  compensation
of the  executive  officers and  consultants  of the Company.  The  Compensation
Committee met six times in 1997.

BOARD MEETINGS

         During 1997, there were ten meetings of the Board of Directors and each
director  attended at least 75% of the  aggregate  number of Board  meetings and
meetings of committees on which he or she served.






         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

       The  following  table  sets  forth  certain  information   regarding  the
beneficial  ownership  of the  Common  Stock as of March 31,  1998,  by (i) each
person  who is known by the  Company  to own  beneficially  more  than 5% of the
Common  Stock;  (ii) each  Director and nominee for  Director;  (iii) each Named
Executive Officer;  and (iv) all Directors and executive officers of the Company
as a group.




    NAME OF BENEFICIAL                NUMBER          PERCENTAGE BENEFICIALLY
         OWNER                      OF SHARES (1)            OWNED (2)
         -----                     --------------            ---------
                                                         
Wisconsin Investment Board  (5)       839,000                  6.61%
P.O. Box 7842
Madison, WI   53707

Mochida Pharmaceutical, Co., Ltd.     736,842                  5.80%
Y.S. Building
9 San-Eicho, Shinjuku-ku
Tokyo 160, Japan

Shaw Venture Partners                 642,935                  5.06%
400 S.W. 6th Ave.
Suite 1100
Portland, OR  97204

Thomas A. Bologna  (6)                165,810                  1.31%

Thomas J. Cable  (4)                1,047,570                  8.25%

Elisabeth L. Evans, M.D.                3,083                   *

David R. Eyre, Ph.D.  (3)           1,473,500                 11.61%

Fredric J. Feldman, Ph.D.  (8)         10,333                   *

Gilbert S. Omenn, M.D., Ph.D.           -                       -

Gregory D. Phelps  (8)                 16,667                   *

John H. Trimmer                         -                       -

Thomas F. Broderick  (7)               30,670                   *

Robert M. Littauer  (9)                50,004                   *

Jeffrey J. Miller, Ph.D.                -                       -

William K. Strelke  (10)               42,838                   *

John Wynne                              -                       -

All directors and executive 
officers as a group                 2,873,277                 22.63%
(thirteen persons)  (11)

* - Less than 1 %
- -------
<FN>
(1)    Unless  otherwise  indicated in the footnotes to this table,  each of the
       shareholders  named in this table has sole  voting and  investment  power
       with respect to the shares shown as beneficially owned.
(2)    Percentage of beneficial  ownership is based on 12,696,250 shares of 
       Common Stock  outstanding  as of March 31, 1998.
(3)    Includes  560,000  shares held in trust for the benefit of Dr. Eyre's  
       children and 62,500 shares subject to stock options that are exercisable
       within 60 days of March 31, 1998.



(4)    Includes  991,070 shares held by CH Partners IV Limited  Partnership ("CH
       IV"), a venture  capital  fund of which Mr.  Cable is a general  partner.
       Under  federal   securities   laws,  Mr.  Cable  may  be  deemed  to  own
       beneficially  all the shares  held by CH IV. In  addition,  the number of
       shares  includes 25,000 shares subject to fully vested stock options that
       are exercisable within 60 days of March 31, 1998.
(5)    Based on publicly available information filed with the S.E.C. on Form 13g
       on January 22, 1998. 
(6)    Includes  145,810 shares subject to stock options that are exercisable 
       within 60 days of March 31, 1998. 
(7)    Includes 16,670 shares subject to stock  options that are  exercisable  
       within 60 days of March 31,  1998.  
(8)    Includes  8,333 shares subject to stock options that are  exercisable  
       within 60 days of March 31, 1998. 
(9)    Represents  shares subject to stock options that are exercisable  within
       60 days of March  31,  1998.  
(10)   Includes  42,238  shares subject to stock options that are exercisable  
       within 60 days of March 31, 1998.
(11)   Includes  399,724  shares  subject to stock  options that are  
       exercisable within 60 days of March 31, 1998.
</FN>



                             EXECUTIVE COMPENSATION


         EXECUTIVE   COMPENSATION.   The  following  table  sets  forth  certain
information  regarding  compensation  paid during the years ended  December  31,
1997, 1996 and 1995 to (i) the Company's Chief Executive  Officer,  (ii) each of
the  Company's  executive  officers who earned more than  $100,000 in 1997,  and
(iii) two former  executive  officers  who  earned  more than  $100,000  in 1997
(collectively, the "Named Executive Officers").




                           SUMMARY COMPENSATION TABLE

                                --------------------------------   --------------------------
                                       ANNUAL COMPENSATION           LONG-TERM COMPENSATION
                                --------------------------------   --------------------------

                                                                             AWARDS
                                                                           -----------
 NAME AND PRINCIPAL                              OTHER ANNUAL        SECURITIES UNDERLYING        ALL OTHER
    POSITION            YEAR    SALARY    BONUS  COMPENSATION (6)          OPTIONS (#)           COMPENSATION
    --------            ----    ------    -----  ---------------          -----------            ------------
                                                                                
Thomas A. Bologna,      1997   $126,000  $50,000                             700,000               $46,700 (10)
President and Chief
Executive Officer  (1)

Thomas F. Broderick,    1997   $150,000                                      200,000 (7)
Vice President,         1996   $ 95,000                                       30,000
Patent and General
Counsel  (2)

Robert M. Littauer,     1997   $201,000                                      150,000
Senior Vice             1996   $ 51,000                                         -
President, Finance
and Administration
and
Secretary  (3)


William K. Strelke,     1997   $129,000               -                       70,000 (8)
Vice President, Sales   1996   $125,000            $24,000                    12,500
                        1995   $124,000            $36,000                    20,000

Jeffrey J. Miller,      1997   $150,000                                      150,000              $100,000 (11)
Former Senior Vice      1996   $ 51,000                                         -                      -
President, Corporate
Development and
Secretary (4)

John Wynne, Former      1997   $121,000                                       50,000 (9)            $7,000 (12)
Vice President,         1996   $ 6,000                                          -                      -
European Operation(5)
- -------
<FN>
(1)   Joined the Company in July 1997.
(2)   Joined the Company in April 1996.
(3)   Joined the Company in September 1996.
(4)   Joined the Company in September 1996 and resigned in October 1997.



(5)   Joined the Company in December 1996 and resigned in December 1997.
(6)   Represents commissions earned.
(7)   Includes 80,000 shares that were repriced during 1997.
(8)   Includes 70,000 shares that were repriced during 1997.
(9)   Includes 25,000 shares that were repriced during 1997.
(10)  Represents $46,000 for relocation and commuting expenses and $700 for 
      insurance premiums paid on behalf of Mr. Bologna.
(11)  Represents  severance paid in connection with  resignation  under a 
      Release and  Separation  agreement.  See  "Employment,  Termination  
      and  Change of Control  Agreements"  on  page  11 of  this  Proxy  
      Statement  for  further information.
(12)  Represents relocation expenses paid during 1997.
</FN>



       OPTION GRANTS IN 1997. The following table sets forth certain information
regarding stock options granted to the Named Executive  Officers during the year
ended December 31, 1997.




                              OPTION GRANTS IN 1997

- -----------------------------------------------------------------------------
                                INDIVIDUAL GRANTS
- -----------------------------------------------------------------------------
                                                                                            POTENTIAL
                                                                                         REALIZABLE VALUE
                         SHARES      PERCENTAGE                                          AT ASSUMED ANNUAL
                       UNDERLYING     OF TOTAL                                                RATES
                         OPTIONS      OPTIONS     EXERCISE                                OF STOCK PRICE
                        GRANTED      GRANTED TO   PRICE PER   EXPIRATION                 APPRECIATION FOR
    NAME                  (#)        EMPLOYEES    SHARE (3)    DATE (4)                    OPTION TERM
    ----                 -----       ---------    ---------    --------                    ------------

                                                                                         5%             10%
                                                                                         --             ---
                                                                                 
Thomas A. Bologna        700,000       34.43%      $3.13       7/16/2007            $ 1,377,908    $ 3,491,890
Thomas F. Broderick       20,000         .98%      $5.75       2/14/2007            $    72,323    $   183,280
                          30,000 (1)    1.48%      $5.75       2/14/2007            $   108,484    $   274,921
                          50,000        2.46%      $3.13       7/16/2007            $    98,422    $   249,421
                          50,000        2.46%      $3.94       9/18/2007            $   123,892    $   313,967
                          20,000 (2)     .98%      $3.75       9/16/2007            $    47,167    $   119,531
                          30,000 (2)    1.48%      $3.75       9/16/2007            $    70,751    $   179,296
Robert M. Littauer       150,000        7.38%      $2.13       9/30/2006            $   200,932    $   509,201
William K. Strelke        12,500 (1)     .61%      $5.75       2/14/2007            $    45,202    $   114,550
                          12,500 (2)     .61%      $3.75       9/16/2007            $    29,479    $    74,707
                          45,000 (1)    2.21%      $3.75       9/16/2007            $   106,126    $   268,944
Jeffrey J. Miller        150,000        7.38%      $2.13       9/30/2006            $   200,932    $   509,201
John Wynne                25,000        1.23%      $5.63       12/9/2006            $    88,517    $   224,319
                          25,000 (2)    1.23%      $3.75       9/16/2007            $    58,959    $   149,413
- ----------
<FN>
(1)     This option  agreement was granted in exchange for an option  granted in
        previous  years.  See  Stock  Options  Repriced  in 1997  of this  Proxy
        Statement for further information.
(2)     This option  agreement was granted in exchange for an option  granted in
        February  1997.  See  Stock  Options  Repriced  in 1997  of  this  Proxy
        Statement for further information.
(3)     The  exercise  price  equals the fair market  value on the date of grant
        based on the closing price of the Common stock as reported by the Nasdaq
        Stock Market.
(4)     Options  have  terms of ten  years  from the  date of grant  and  become
        exercisable  generally over a period of four years.  Upon the occurrence
        of certain business transactions,  the exercisability of the options are
        accelerated.
</FN>



       OPTION EXERCISES AND YEAR-END OPTION VALUES FOR 1997. The following table
sets forth certain  information  regarding  options exercised during 1997 by the
Named Executive Officers and the value of such persons'  unexercised  options as
of December 31, 1997.




                       AGGREGATED OPTION EXERCISES IN 1997
                        AND FISCAL YEAR-END OPTION VALUES


                                                               NUMBER OF                          VALUE OF
                                                                SHARES                           UNEXERCISED
                                                              UNDERLYING                           IN-THE-
                            SHARES                            UNEXERCISED                           MONEY
                           ACQUIRED       VALUE               OPTIONS AT                         OPTIONS AT
                          ON EXERCISE   REALIZED                FISCAL                             FISCAL
             NAME              #          ($) (1)              YEAR END                         YEAR END (2)
             -----           -----       -------               --------                         ------------

                                                       EXERCISABLE    UNEXERCISABLE    EXERCISABLE       UNEXERCISABLE
                                                       -----------    -------------    -----------       -------------
                                                                                            
Thomas A. Bologna              -            -            72,916          627,084            -                  -
Thomas F. Broderick            -            -            11,458          138,542            -                  -
Robert M. Littauer             -            -            37,500          112,500          18,750             56,250
William K. Strelke             -            -            30,156          39,844             -                  -
Jeffrey J. Miller           60,000       $30,000            -               -               -                  -
John Wynne                     -            -             1,563          23,437             -                  -

- ------
<FN>
(1)  Dr.  Miller's  value  realized was based on an average $2.63 market price 
     of the Company's  Common Stock on the dates of exercise  minus the per 
     share price, multiplied  by the number of shares  exercised.  
(2)  Based on the $2.63  closing price of the  Company's  Common Stock on 
     December  31, 1997,  as reported by the Nasdaq Stock  Market,  minus the 
     per-share  exercise  price,  multiplied by the number of shares underlying
     the option.
</FN>



COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

       During 1997, the Company's  Compensation  Committee  consisted of Messrs.
Cable and Phelps and Dr. Eyre, all of whom were  nonemployee  directors.  To the
Company's knowledge,  no member of the Compensation Committee has a relationship
that would constitute an interlocking  relationship  with executive  officers or
directors of another entity.

       Mr. Cable is Chairman of the Board of Trustees of the Washington Research
Foundation  (the "WRF"),  a  not-for-profit  licensing  agency  dedicated to the
transfer to the private  sector of  technology  developed at the  University  of
Washington  (the  "University").  During the year ended  December 31, 1997,  the
Company  incurred  approximately  $123,000 in patent legal expenses on behalf of
the WRF and $80,000 in royalties for  OSTEOMARK-registered trademark-  kit 
revenue in accordance with the Company's  worldwide  exclusive license 
agreements with the WRF for the urinary assay for measuring bone  resorption 
and osteoclast  colony  stimulating factor technologies.

         Dr.  Eyre  has  been  the  Burgess  Professor  of  Orthopedics  at  the
University since 1985. The Company has entered into two research agreements with
the  University   extending  through  December  31,  1999.   Pursuant  to  these
agreements,  the  Company  is  obligated  to fund  certain  research  activities
conducted by Dr. Eyre and one other research group at the University. During the
year ended  December 31, 1997,  the Company  paid the  University  approximately
$499,000 under these agreements.  The Company has also entered into an agreement
with Dr.  Eyre for  research  and  consulting  services.  See  "Compensation  of
Directors - Consulting  Agreements  with  Directors"  on pages 3-4 of this Proxy
Statement for further information.







COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

       The Compensation Committee of the Board of Directors (the "Committee") is
responsible for determining  the  compensation of the executive  officers of the
Company.  The Committee is comprised of three nonemployee  directors.  In making
its determinations,  the Committee relies on input from compensation consultants
and industry  surveys,  and reviews  appropriate  decisions with all nonemployee
directors who constitute a majority of the full Board of Directors.

       EXECUTIVE  COMPENSATION  POLICY.  The  Company's  executive  compensation
program  reflects the policy that  executives'  rewards  should be structured to
closely  align  their  interests  with those of the  shareholders.  The  program
emphasizes  stock-based  incentives,  and  extends  these  concepts  beyond  the
executive officer population to all of the Company's  full-time employees in the
interest  of  motivation,   teamwork,  and  fairness.  The  Company's  executive
compensation  programs  are  designed  to  attract  and retain  experienced  and
well-qualified  executive  officers  who will  enhance  the  performance  of the
Company  and build  shareholder  value.  The  Company's  executive  compensation
program generally includes two components: base salary and stock options.

       In setting the compensation level for executive  officers,  the Committee
is guided by the following considerations:

       o  compensation levels should be competitive with compensation  generally
          being  paid  to  executives  in  the   biotechnology   and  diagnostic
          industries  to ensure the  Company's  ability  to  attract  and retain
          superior executives;
       o  a significant portion of executive officer compensation should be paid
          in the form of equity-based incentives to link closely shareholder and
          executive  interests  and to  encourage  stock  ownership by executive
          officers; and
       o  each individual  executive  officer's  compensation should reflect the
          performance  of the  Company  as a whole  and the  performance  of the
          executive officer.

       BASE SALARY.  An executive  officer's  base salary is  determined  by the
Company's overall  performance,  the responsibility of the particular  position,
and   an   assessment   of   the   person's   performance   against   individual
responsibilities  and objectives,  including,  where appropriate,  the impact of
such performance on the business results of the Company.  The Committee also may
consider  nonfinancial  indicators  including,  but not  limited  to,  strategic
developments  for which an  executive  officer  has  responsibility,  intangible
elements  of  managerial  performance  and levels of  compensation  to  maintain
competitive  levels with similar  companies in the  biotechnology and diagnostic
industries.  The companies surveyed for compensation  levels include some of the
companies in the Hambrecht & Quist Healthcare Index.  Generally,  unless special
circumstances  apply,  the  Committee  sets  executive  salaries  at or near the
midpoint of the range  indicated  by the  surveys  depending  on the  applicable
experience  level of the  executive  officer  and  subject to  minimum  salaries
established in any employment  agreement  with the executive.  See  "Employment,
Termination  and  Change of Control  Agreements"  of this  Proxy  Statement  for
further  information.  Executive  officer  salaries  are  reviewed  annually and
adjusted  each  calendar  year based on the above  information  and taking  into
consideration  industry  compensation  based on a  survey  report  published  by
Radford and Associates, an independent consulting group.

       STOCK OPTIONS.  The Company  grants a stock option in connection  with an
executive's  initial  employment  with the  Company.  In making  such grants the
Committee  evaluates the long-term  incentive  packages offered to the Company's
executives  in relation to the  long-term  incentive  packages  offered by other
biotechnology and diagnostic companies that the Committee considers to be in the
Company's  peer group.  These option grants  reflect the  Committee's  policy of
encouraging  long-term  performance  and  promoting  executive  retention  while
further aligning management's and shareholders'  interests in the performance of
the Company's  Common Stock.  Through 1996, it was the Company's policy to grant
stock options annually to executives and other employees. The Company ended this
policy in 1997 but may,  from time to time,  grant stock  options to  executives
other than in connection with their initial employment.

       COMPENSATION OF THE CHIEF EXECUTIVE  OFFICER.  Mr.  Bologna's  employment
with  the  Company  began  in July  1997.  The  Compensation  Committee  set Mr.
Bologna's  compensation  to be  competitive  with  base  salaries  paid to other
executives  in the  biotechnology  industry  with similar  responsibilities  and



seniority.   Pursuant  to  an  employment   agreement  with  the  Company,   his
compensation  consisted of a minimum annual base salary of $275,000,  a bonus of
$50,000 and $46,000 for reimbursement of reasonable expenses associated with (i)
recurring  travel  from  California  to  Washington  State,  and  (ii)  expenses
associated with an apartment in Washington.  Mr. Bologna also received an option
for the purchase of 700,000 shares.  See "Employment,  Termination and Change of
Control Agreements" on page 11 of this Proxy Statement for further information.

       COMPLIANCE WITH INTERNAL  REVENUE CODE SECTION 162(M).  Section 162(m) of
the Internal Revenue Code ("Section 162(m)") generally disallows a tax deduction
to  publicly  held  companies  for annual  compensation  in excess of $1 million
earned by the chief  executive  officer  or any of the  other  four most  highly
compensated   officers.   The  deduction  limit  does  not  apply,  however,  to
performance-based   compensation  that  satisfies  certain   requirements.   The
Committee's policy is generally to provide executive  compensation that is fully
deductible by the Company for income tax purposes.  No executive  officer of the
Company  earned or is expected to earn  compensation  in excess of $1 million in
1998 that would not qualify as  performance-based  compensation.  The  Company's
stock option plan is not currently qualified as performance-based.

                COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
                ------------------------------------------------
                         Mr. Gregory D. Phelps, Chairman
                               Mr. Thomas J. Cable
                                Dr. David R. Eyre


STOCK OPTIONS REPRICED IN 1997

Stock  options are a regular  component  of the employee  compensation  program.
Option grants reflect the Company's policy of encouraging  long-term performance
and  promoting  employee   retention  while  further  aligning   employees'  and
shareholders'  interests in the performance of the Company's  Common Stock.  The
Company believes stock options having exercise prices  substantially higher than
the current market value of the  underlying  common stock provide a disincentive
and negatively impact employee morale and motivation.

       In February 1997, the Board of Directors offered to exchange  outstanding
options  granted in 1996 at exercise prices between $8.75 and $14.00 for options
with an exercise price of $5.75, the fair market value of the underlying  Common
Stock on the repricing date. In September 1997 the Board of Directors offered to
reprice any  outstanding  options to $3.75,  the fair market value of the Common
Stock at that time.  The September  1997 repricing was offered in return for the
employee  agreeing  that  previous  vesting of options to be  repriced  would be
eliminated and vesting would begin as of the repricing date.  Certain  optionees
chose not to reprice  their  options.  In January  1998,  the Board of Directors
adopted a policy that the  Company  will not grant stock  options  having  lower
exercise prices in exchange for the  cancellation  of outstanding  stock options
having higher exercise prices, unless the shares for such stock options that are
canceled  are  no  longer  available  for  grant,  or  otherwise   reprice  such
outstanding  stock options to a lower  exercise  price,  without the approval of
shareholders.

                COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
                ------------------------------------------------
                         Mr. Gregory D. Phelps, Chairman
                               Mr. Thomas J. Cable
                                Dr. David R. Eyre






       The following  table sets forth  certain  information  regarding  options
repriced during 1997 for the Named Executive Officers during the past ten fiscal
years.




                           TEN-YEAR OPTION REPRICINGS

                                                                                          
                                                                                        LENGTH OF
                                                                                        ORIGINAL
                                      NUMBER OF      MARKET                            OPTION TERM
                                        SHARES      PRICE OF     EXERCISE              REMAINING AT
                                      UNDERLYING    STOCK AT     PRICE AT      NEW       DATE OF
                          DATE OF      OPTIONS       TIME OF      TIME OF    EXERCISE   REPRICING
    NAME/TITLE           REPRICING     REPRICED     REPRICING    REPRICING    PRICE      (YEARS)
    ----------           ---------     --------     ---------    ---------   --------    -------    
                                                                        
Thomas A. Bologna            -            -             -            -          -           -
Thomas F. Broderick       2/14/97       30,000        $5.75       $14.00      $5.75        9.2
                          9/16/97       30,000        $3.75        $5.75      $3.75        9.4
                          9/16/97       20,000        $3.75        $5.75      $3.75        9.4
Robert M. Littauer           -            -             -            -          -           -
William K. Strelke        2/14/97       12,500        $5.75       $10.75      $5.75        9.4
                          9/16/97       20,000        $3.75        $8.75      $3.75        7.6
                          9/16/97       12,500        $3.75        $5.75      $3.75        9.4
Jeffrey J. Miller            -            -             -            -          -           -
John Wynne                9/16/97       25,000        $3.75        $5.63      $3.75        9.4



EMPMPLOYMENT, TERMINATION AND CHANGE OF CONTROL AGREEMENTS

       EMPLOYMENT  AGREEMENT WITH THE CHIEF EXECUTIVE OFFICER. In July 1997, Mr.
Bologna entered into an employment  agreement with the Company that provides for
an initial  annual base salary of $275,000  and the grant of a stock  option for
700,000 shares of common stock vesting over four years.  The base salary will be
increased  effective on the first anniversary of employment by not less than 10%
of the initial base salary and, thereafter,  further increase to the base salary
will be  determined  by the  Board  of  Directors.  Pursuant  to the  employment
agreement, Mr. Bologna received a bonus of $50,000 for services rendered through
December 31, 1997, of which $25,000 was paid during 1997 and $25,000 was paid in
January 1998.

       The  Company has  obtained  term life  insurance  on Mr.  Bologna,  which
provides  for  payment to Mr.  Bologna's  family in the event of his death of an
amount  equal to his  annual  base  salary.  During  the  term of Mr.  Bologna's
employment,  the Company will also reimburse Mr. Bologna for or pay directly the
reasonable  expense of (i) recurring travel from California to Washington State,
and (ii) expenses associated with an apartment in Washington.  To the extent the
reimbursement  for living expenses or direct payment shall be treated as taxable
income,  Mr.  Bologna shall receive a "gross up bonus" to compensate for any and
all income  taxes that Mr.  Bologna may be required to pay with  respect to such
reimbursement and gross up bonus.

       The  employment  agreement is terminable at will by either party.  In the
event that the Board of Directors  terminates Mr. Bologna's  employment  without
cause,  Mr.  Bologna  will be entitled to all accrued  compensation  and Company
benefits  as well as the then  existing  base  salary  Mr.  Bologna  would  have
received  if his  employment  had  continued  for 12  months  from  the  date of
termination.  If such termination  occurs without cause in connection with or at
any time following a change in control (as defined in the Company's  Amended and
Restated  1994 Stock Option Plan),  Mr.  Bologna shall be entitled to a lump sum
payment equal to two years' base salary, plus a bonus of 30% of such amount.

       RELEASE  AND  SEPARATION  AGREEMENT  WITH FORMER  SENIOR VICE  PRESIDENT,
CORPORATE DEVELOPMENT AND SECRETARY. On October 1, 1997 the Company entered into
a Release and  Separation  Agreement  with  Jeffrey J. Miller,  Ph.D.  Under the
agreement,  Dr. Miller  received an amount  equivalent to his regular salary and
coverage under the Company's insurance program through March 31, 1998.



COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

         Section  16(a) of the  Securities  Exchange Act of 1934 (the  "Exchange
Act") requires the Company's  officers and  directors,  and persons who own more
than 10% of the  Common  Stock,  to file  reports  of  ownership  and  change in
ownership  with the  Securities  and  Exchange  Commission  ("SEC") and with the
National Association of Securities Dealers, Inc. Officers, directors and greater
than 10%  shareholders  are required by SEC  regulations  to furnish the Company
with copies of all Section 16(a) reports that they file.

         To the Company's knowledge, based solely on its review of the copies of
such reports furnished to the Company and written  representations that no other
reports were required,  all Section 16(a) filing requirements  applicable to its
officers,  directors and greater than 10% shareholders  were compiled during the
fiscal year ending  December  31,  1997,  except the  following:  Dr.  Evans was
appointed to the Board of Directors in June 1997 and did not file a Form 3 until
January  1998,  and Messrs.  Feldman and Trimmer were  appointed to the Board of
Directors in April 1997 and June 1997, respectively, and did not file their Form
3's until August 1997.


                                PERFORMANCE GRAPH


   COMPARISON OF THE CUMULATIVE TOTAL RETURN ON COMMON STOCK DURING THE PERIOD
    FROM JANUARY 25, 1995 (WHEN THE COMPANY'S STOCK BEGAN PUBLIC TRADING) TO
       DECEMBER 31, 1997 AMONG OSTEX INTERNATIONAL, INC., THE NASDAQ U.S.
            STOCK MARKET, AND THE HAMBRECHT & QUIST HEALTHCARE INDEX.



                      [PERFORMANCE GRAPH FILED SEPARATELY]

- ----------------------------------------------------------------------------------------------------------------------
                            1/25/95  3/95  6/95  9/95  12/95   3/96   6/96   9/96  12/96   3/97   6/97   9/97  12/97
- ----------------------------------------------------------------------------------------------------------------------
                                                                          
Ostex International, Inc.     100     99   245   236    203    168    111     84     58     39     25     38     28
- ----------------------------------------------------------------------------------------------------------------------
Nasdaq U.S. Stock Market      100    108   123   138    140    146    158    164    172    162    192    225    211
- ----------------------------------------------------------------------------------------------------------------------
Hambrecht & Quist 
Healthcare Index              100    109   117   144    166    169    159    172    171    164    191    201    198
- ----------------------------------------------------------------------------------------------------------------------


The above graph  assumes $100  invested on January 25, 1995 in the Common Stock,
the Nasdaq U.S. Stock Market and the Hambrecht & Quist Healthcare Index with all
dividends  reinvested.  The  Company has not paid cash  dividends  on its Common
Stock.  Stock  performance  shown in the  above  graph for the  Common  Stock is
historical and not necessarily indicative of future price performance.




                                   PROPOSAL 2:
                      RATIFICATION OF SELECTION OF AUDITORS


         The  Board  of  Directors  has  selected  Arthur  Andersen  LLP  as the
Company's  independent  auditors for the year ending  December 31, 1998, and has
further  directed that management  submit the selection of independent  auditors
for ratification by the shareholders at the Annual Meeting.  Arthur Andersen LLP
has audited the Company's financial  statements since the Company's inception in
1989.  Representatives  of Arthur Andersen LLP are expected to be present at the
Annual  Meeting  and will have an  opportunity  to make a  statement  if they so
desire and will be available to respond to appropriate questions.

         Shareholder ratification of the selection of Arthur Andersen LLP as the
Company's  independent  auditors  is not  required  by the  Company's  Bylaws or
otherwise. However, the Board of Directors is submitting the selection of Arthur
Andersen LLP to the  shareholders for ratification as a matter of good corporate
practice.  If the  shareholders  fail to  ratify  the  selection,  the  Board of
Directors  will  reconsider  whether  or not to retain  that  firm.  Even if the
selection is ratified,  the Board of Directors in its  discretion may direct the
appointment of a different  independent  accounting  firm at any time during the
year if the Board of  Directors  determines  that such a change  would be in the
best interests of the Company and its shareholders.

         THE BOARD OF DIRECTORS  RECOMMENDS A VOTE FOR THE  RATIFICATION  OF THE
SELECTION OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS OF THE COMPANY.


                            PROPOSALS OF SHAREHOLDERS

         Shareholder  proposals  or  nominations  for  Members  to the  Board of
Directors to be presented at the Company's 1999 Annual  Meeting of  Shareholders
and to be included in the  Company's  Proxy  Statement  relating to such meeting
must be received in writing by the Company no later than December 2, 1998,  with
information  regarding  such proposal or nominee.  Such proposals or nominations
should be directed to the  Secretary  of the  Company,  2203  Airport Way South,
Suite 400, Seattle, Washington 98134.

                                 OTHER BUSINESS

         The Board of  Directors  does not  intend  to bring any other  business
before  the Annual  Meeting,  nor is the Board  aware of any other  matter to be
brought before the Annual  Meeting,  except as specified in the Notice of Annual
Meeting of  Shareholders.  However,  as to any other  business that may properly
come  before  the Annual  Meeting,  it is  intended  that  proxies,  in the form
enclosed,  will be voted in respect thereto,  in accordance with the judgment of
the persons voting such proxies.


                                  ANNUAL REPORT

         A copy of the Company's 1997 Annual Report to Shareholders is enclosed.

                                  By Order of the Board of Directors

                                  /S/ ROBERT M. LITTAUER

                                  Robert M. Littauer
                                  SECRETARY

Seattle, Washington
March 31, 1998