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