SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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 Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / 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)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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OSTEX INTERNATIONAL, INC.
2203 Airport Way South, Suite 400
Seattle, Washington 98134
March 26, 1999
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Ostex International, Inc. to be held on Thursday, June 3, 1999, at 9:00 a.m. at
the Sheraton Seattle Hotel & Towers, located at 1400 Sixth Avenue, 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' 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,
[LOGO]
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
JUNE 3, 1999
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 Sheraton Seattle
Hotel & Towers, located at 1400 Sixth Avenue, in Seattle, Washington, on June 3,
1999, at 9:00 a.m. If you would like directions, please call the Company at
(206) 292-8082. The Annual Meeting is held for the following purposes:
1. To elect two directors to the Company's Board of Directors for the term
described in the attached Proxy Statement;
2. To ratify the selection of Arthur Andersen LLP as the Company's
independent auditors for the fiscal year ending December 31, 1999; 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 26, 1999. 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
[LOGO]
Thomas F. Broderick
SECRETARY
Seattle, Washington
March 26, 1999
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 JUNE 3, 1999
------------------------
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 1999 Annual Meeting of Shareholders (the "Annual Meeting"), to
be held at 9:00 a.m. on Thursday, June 3, 1999, at the Sheraton Seattle Hotel &
Towers, located at 1400 Sixth Avenue, 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 Sheraton Seattle Hotel & Towers should call the
Company at (206) 292-8082.
This Proxy Statement and accompanying proxy card are first being mailed to
shareholders on or about April 9, 1999.
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 26, 1999 are entitled to notice of,
and to vote at, the Annual Meeting. At the close of business on March 26, 1999,
there were outstanding and entitled to vote 12,537,500 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 are counted for purposes of determining the presence of a
quorum. For the election of directors, an abstention from voting will not be
counted either in favor of or against the nominees. There can be no "broker
nonvotes" on the election of directors since brokers who hold shares for their
clients have discretionary authority to vote such shares with respect to this
matter unless directed otherwise by their clients.
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
1
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 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 and a successor has been
elected or until resignation or removal in the manner provided by the Company's
Amended and Restated Bylaws. 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 seven
directors.
At the Annual Meeting, shareholders will be asked to elect two directors to
the class whose term of office will expire at the year 2002 annual meeting of
shareholders (the "Class 1" Directors). The nominees for election as directors
in Class 1 are Thomas J. Cable and John H. Trimmer. Unless otherwise directed,
the persons named in the proxy intend to cast all proxies in favor of Messrs.
Cable and Trimmer to serve as Class 1 Directors. Both nominees have agreed to
serve if elected and management has no reason to believe that they will be
unable to serve, but if either is not able to serve, it is intended that the
proxies will be voted for the election of such nominee as designated by the
Board of Directors to fill any such vacancy.
INFORMATION ABOUT THE DIRECTOR NOMINEES
THOMAS J. CABLE (age 59) 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 Group Incorporated. Mr. Cable is a
founder and current Chairman of the Washington Research Foundation and serves on
the Board of Directors of Fischer Imaging, Inc., EndoSonics, Inc., Therus
Corporation, Omeros Medical Systems, Inc., Stellar One Corporation, Key Computer
Systems, Inc., and Coffee Station, Inc. Mr. Cable received an M.B.A. from
Stanford University and a B.A. from Harvard College.
JOHN H. TRIMMER (age 47) 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, Inc., 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. He also held 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.
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INFORMATION ABOUT DIRECTORS WHOSE TERMS OF OFFICE CONTINUE AFTER THE ANNUAL
MEETING
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
Orthopaedics at the University of Washington, where he is also an Adjunct
Professor of Biochemistry and Oral Biology and a director of the Orthopaedic
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 59) 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.
DIRECTORS WHOSE TERMS EXPIRE IN 2001
THOMAS A. BOLOGNA (age 50) 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
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 Prolinx, Inc. Mr. Bologna received
a M.B.A. and a B.S. from New York University.
ELISABETH L. EVANS, M.D. (age 51) 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 a M.D. from the
University of Washington School of Medicine and a B.A. from Wellesley College.
GREGORY D. PHELPS (age 50) 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
3
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 presently serves as Vice Chairman of Dyax Corporation. Mr.
Phelps received a M.B.A. from Harvard Business School and a B.S. from Bradley
University.
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 an 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, on March 4, 1998, Messrs. Cable, Phelps and Dr. Eyre were
granted nonqualified stock options to purchase 15,000 shares, 15,000 shares, and
25,000 shares, respectively, at an exercise price of $2.38 under the Directors
Plan because they had initially not received the full 25,000 share grant under
the Directors Plan.
CONSULTING AGREEMENTS WITH DIRECTORS. The Company has entered into a
consulting agreement with Dr. Eyre for assistance with the urinary test 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, 1998, the Company paid
Dr. Eyre $72,000 pursuant to the agreement.
BOARD COMMITTEES
The Company's Board of Directors has 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 1998.
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. The Compensation Committee met seven times in 1998.
4
BOARD MEETINGS
During 1998, there were seven 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 26, 1999, 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 PERCENTAGE BENEFICIALLY
OWNER NUMBER OF SHARES(1) OWNED(2)
- -------------------------------------------------- -------------------- -----------------------
Wisconsin Investment Board(3)..................... 839,000 6.69%
P.O. Box 7842
Madison, WI 53707
Mochida Pharmaceutical, Co., Ltd.................. 736,842 5.88%
Y.S. Building
9 San-Eicho, Shinjuku-ku
Tokyo 160, Japan
Shaw Venture Partners............................. 515,235 4.11%
400 S.W. 6th Ave.
Suite 1100
Portland, OR 97204
Thomas A. Bologna(4).............................. 377,028 3.01%
Thomas J. Cable(5)................................ 1,074,238 8.57%
Elisabeth L. Evans, M.D.(6)....................... 23,083 *
David R. Eyre, Ph.D.(7)........................... 1,483,500 11.83%
Fredric J. Feldman, Ph.D.(6)...................... 22,000 *
Gregory D. Phelps(8).............................. 40,000 *
John H. Trimmer(9)................................ 20,000 *
Thomas F. Broderick(10)........................... 123,376 *
Donna DeLong(9)................................... 24,975 *
Nancy J.S. Mallinak(9)............................ 45,886 *
All directors and executive officers as a
group (twelve persons)(11)........................ 3,338,780 26.63%
* Less than 1%
- ------------------------------
(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 beneficially owned is based on 12,537,500 shares of Common Stock
outstanding as of March 26, 1999.
(3) Based on publicly available information filed with the SEC on Form 13G on
February 2, 1999.
(4) Includes 350,028 shares subject to stock options that are exercisable within
60 days of March 26, 1999.
(5) 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 51,668
shares subject to fully vested stock options that are exercisable within 60
days of March 26, 1999.
5
(6) Includes 20,000 shares subject to stock options that are exercisable within
60 days of March 26, 1999.
(7) Includes 560,000 shares held in trust for the benefit of Dr. Eyre's children
and 72,500 shares subject to stock options that are exercisable within 60
days of March 26, 1999.
(8) Includes 35,000 shares subject to stock options that are exercisable within
60 days of March 26, 1999.
(9) Represents shares subject to stock options that are exercisable within 60
days of March 26, 1999.
(10) Includes 59,376 shares subject to stock options that are exercisable within
60 days of March 26, 1999.
(11) Includes 804,127 shares subject to stock options that are exercisable
within 60 days of March 26, 1999.
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION. The following table sets forth certain information
regarding compensation paid during the years ended December 31, 1998, 1997 and
1996 to (i) the Company's Chief Executive Officer, (ii) each of the Company's
executive officers who earned more than $100,000 in 1998, and (iii) one former
executive officer who earned more than $100,000 in 1998 (collectively, the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ----------------------
------------------------------- SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION OPTIONS (#) COMPENSATION
--------------------- ---- -------- ------- ------------ ---------------------- ------------
Thomas A. Bologna,................................ 1998 $289,000 $50,000 $25,000(5) -- $35,700(8)
President and Chief 1997 $126,000 $25,000 $20,000 700,000 $26,700
Executive Officer(1)
Thomas F. Broderick,.............................. 1998 $160,000 --
Vice President, 1997 $150,000 200,000(6)
Patent and General 1996 $95,000 30,000
Counsel and Secretary
Donna J. DeLong,.................................. 1998 $119,000 $15,000(4) 75,000 $87,000(9)
Vice President, Marketing(2)
Robert M. Littauer,............................... 1998 $ 90,000 -- $34,000(10)
Former Senior Vice 1997 $201,000 150,000
President, Finance 1996 $51,000 --
and Administration
and Secretary(3)
Nancy J.S. Mallinak,.............................. 1998 $101,000 --
Vice President, 1997 $95,000 75,000(7)
Regulatory & Clinical Affairs 1996 $74,000 15,000
- ------------------------------
(1) Joined the Company in July 1997.
(2) Joined the Company in February 1998.
(3) Joined the Company in September 1996 and resigned in June 1998.
(4) Bonus associated with relocating to Seattle, Washington.
(5) Represents gross up to compensate for income taxes with respect to living
and traveling expenses.
(6) Includes 80,000 shares that were repriced during 1997.
(7) Includes 60,000 shares that were repriced during 1997.
(8) Represents $35,000 for living and traveling expenses and $700 for insurance
premiums paid on behalf of Mr. Bologna.
(9) Represents relocation expenses paid during 1998.
(10) Represents severance paid in connection with resignation under a Release
and Separation agreement. See "Employment, Termination and Change of Control
Agreements" on Page 9 of this Proxy Statement for further information.
6
OPTION GRANTS IN 1998. The following table sets forth certain information
regarding stock options granted to the Named Executive Officers during the year
ended December 31, 1998.
OPTION GRANTS IN 1998
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
--------------------------- AT ASSUMED ANNUAL RATES
SHARES PERCENTAGE OF OF STOCK PRICE APPRECIATION
UNDERLYING TOTAL OPTIONS EXERCISE FOR OPTION TERM (3)
OPTIONS GRANTED TO PRICE PER EXPIRATION ----------------------------
NAME GRANTED (#) EMPLOYEES SHARE (1) DATE (2) 5% 10%
- ---------------------------------------- ----------- ------------- --------- ---------- ------------- ------------
Donna J. Delong......................... 75,000 22.16% $2.38 2/23/2008 $112,022 $283,885
- ------------------------
(1) 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.
(2) 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.
(3) Assumes all options are exercised at the end of their respective 10-year
terms. The dollar amounts under these columns are the result of calculations
at the 5% and 10% rates required by applicable regulations of the Commission
and, therefore, are not intended to forecast possible future appreciation,
if any, of the Common Stock price. Actual gains, if any, on stock option
exercises depend on the future performance of the Common Stock and overall
stock market conditions, as well as the option holders' continued employment
through the vesting period. The amount reflected in this table may not
necessarily be achieved.
YEAR-END OPTION VALUES FOR 1998. No options were exercised during 1998. The
following table sets forth certain information regarding the value of the Named
Executive Officers' unexercised options as of December 31, 1998.
FISCAL YEAR-END OPTION VALUES
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR END AT FISCAL YEAR END(1)
--------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------------------- ----------- ------------- ------------ -------------
Thomas A. Bologna................................. 247,940 452,060 -- --
Thomas F. Broderick............................... 43,750 106,250 -- --
Donna J. Delong................................... -- 75,000 -- --
Nancy J.S. Mallinak............................... 39,063 30,937 -- --
- ------------------------
(1) Based on the $0.41 closing price of the Company's Common Stock on December
31, 1998, as reported by the Nasdaq National Market, minus the per-share
exercise price, multiplied by the number of shares underlying the option.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, the Company's Compensation Committee consisted of Messrs.
Cable, 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.
7
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, 1998, the
Company incurred approximately $150,000 in patent expenses on behalf of the WRF
and $60,000 in royalties for OSTEOMARK-Registered Trademark- kit revenue in
accordance with the Company's worldwide exclusive license agreements with the
WRF for the bone resorption test and osteoclast colony stimulating factor
technologies.
Dr. Eyre has been the Burgess Professor of Orthopaedics at the University
since 1985. The Company has entered into two research agreements with the
University extending through December 31, 2000. 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, 1998, the Company paid the University approximately $367,000 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 Page 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:
- compensation levels should be competitive with compensation generally
being paid to executives in the biotechnology and diagnostic industries to
ensure the Company's ability to attract and retain superior executives;
- a significant portion of executive officer compensation should be paid in
the form of equity-based incentives to link closely shareholder and
executive interests and to encourage stock ownership by executive
officers; and
- each individual executive officer's compensation should reflect the
performance of the Company as a whole and the performance of the executive
officer.
BASE SALARY. An executive officer's base salary is determined by the
Company's overall performance, the responsibility of the particular position,
and an assessment of the person's performance against individual
responsibilities and objectives, including, where appropriate, the impact of
such performance on the business results of the Company. The Committee also may
consider nonfinancial indicators including, but not limited to, strategic
developments for which an executive officer has responsibility, intangible
elements of managerial performance and levels of compensation to maintain
competitive levels with
8
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 included in the performance graph on page 11.
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 October 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 an
annual base salary of $305,000 and a bonus of $50,000. Mr. Bologna also received
an option for the purchase of 700,000 shares upon his initial employment. See
"Employment, Termination and Change of Control Agreements" for further
information.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M). Section 162(m) of the
Internal Revenue Code generally disallows a tax deduction to publicly held
companies for annual compensation in excess of $1 million earned by the chief
executive officer or any of the other four 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 program 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
EMPLOYMENT, 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.
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
9
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
Washington State to California, and (ii) expenses associated with living 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
to compensate for any and all income taxes that Mr. Bologna may be required to
pay with respect to such reimbursement and gross up.
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, FINANCE
AND ADMINISTRATION AND SECRETARY
On June 1, 1998, the Company entered into a Release and Separation Agreement
with Robert M. Littauer. Under the agreement, Mr. Littauer received an amount
equivalent to his regular salary through July 31, 1998 and coverage under the
Company's insurance program through June 30, 1998.
CHANGE IN CONTROL AGREEMENTS
Pursuant to the 1994 Stock Option Plan (the "1994 Plan") and the Directors'
Nonqualified Stock Option Plan (the "Directors Plan"), in the event of a change
in control of the Company, any outstanding option granted under the 1994 Plan or
Directors Plan will become fully vested and immediately exercisable. A "change
of control" is defined under the 1994 Plan as (i) the acquisition by any person
of beneficial ownership of 50% or more of the voting power of the Company's
outstanding securities or (ii) the occurrence of a transaction requiring
shareholder approval and involving the sale of all or substantially all of the
assets of the Company or the merger of the Company with or into another
corporation. In addition, upon the liquidation or dissolution of the Company,
all outstanding options shall terminate; provided, however, that prior to such
liquidation or dissolution, an option holder has the right to exercise his or
her options in whole or in part whether or not the vesting requirements set
forth in the option agreement have been satisfied.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 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, 1998, except the following: Donna J. DeLong,
Vice President, Sales, joined the Company in February 1998 and did not file her
Form 3 until March 1999. All officers and directors of the Company did not file
their Form 5's until March 1999.
10
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, 1998 AMONG OSTEX INTERNATIONAL, INC.,
THE NASDAQ U.S. STOCK MARKET INDEX, AND THE
HAMBRECHT & QUIST HEALTHCARE INDEX.
OSTEX INTERNATIONAL, INC.
H&Q HEALTHCARE INDEX
NASDAQ U.S. STOCK MARKET INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
NASDAQ U.S. STOCK HAMBRECHT & QUIST
Ostex International
Inc. Market Index Healthcare Index
1/25/95 $100 $100 $100
3/95 $99 $108 $109
6/95 $245 $123 $117
9/95 $236 $138 $144
12/95 $203 $140 $166
3/96 $168 $146 $169
6/96 $111 $158 $159
9/96 $84 $164 $172
12/96 $58 $172 $171
3/97 $39 $162 $164
6/97 $25 $192 $191
9/97 $38 $225 $201
12/97 $28 $211 $198
3/98 $26 $246 $226
6/98 $16 $253 $227
9/98 $11 $229 $207
12/98 $4 $296 $252
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, 1999, 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
11
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 2000 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, 1999, 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.
Pursuant to Rule 14a-4(c), under the Securities Exchange Act of 1934, as
amended, the Company intends to retain discretionary authority to vote proxies
with respect to shareholder proposals for which the proponent does not seek
inclusions of the proposed matter in the Company's proxy statement for the
Company's 2000 Annual Meeting of Shareholders, except in circumstances where (i)
the Company receives notice of the proposed matter no later than February 14,
2000, and (ii) the proponent complies with the other requirements set forth in
Rule 14a-4.
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 1998 Annual Report to Shareholders for the year
ended December 31, 1998 accompanies this proxy statement. A copy of the
Company's Annual Report on Form 10-K will be furnished without charge to
beneficial shareholders of record upon request to Ostex International, Inc.,
2203 Airport Way South, Suite 400, Seattle, Washington 98134.
By Order of the Board of Directors
[LOGO]
Thomas F. Broderick
SECRETARY
Seattle, Washington
March 26, 1998
12
ANNUAL MEETING OF SHAREHOLDERS
OF
OSTEX INTERNATIONAL, INC.
The undersigned hereby constitutes and appoints Thomas A. Bologna and
Thomas F. Broderick, and each of them, with full power of substitution, the
undersigned's attorney-in-fact and proxy to vote all of the shares of Common
Stock of Ostex International, Inc. (the "Company") owned of record by the
undersigned on March 26, 1999 at the annual meeting of shareholders of the
Company to be held on June 3, 1999 or any adjournment(s) or postponement(s)
thereof.
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FOLD AND DETACH HERE
Please mark
your votes as
indicated in /X/
this example
FOR all nominees
(except as indicated WITHHOLD AUTHORITY
to the contrary) to vote for all nominees
ITEM 1. ELECTION OF DIRECTORS / / / /
Nominees that will expire in year 2002:
Thomas J. Cable and John H. Trimmer
(Instruction: To withhold authority to vote for
any individual nominee(s), write that nominee's
name on the space provided below.)
_________________________________________________
FOR AGAINST ABSTAIN
ITEM 2. RATIFICATION OF AUDITOR / / / / / /
Ratification of Arthur Andersen LLP as
the Company's independent auditor for
the year ending December 31, 1999,
and any interim period.
UNLESS OTHERWISE INDICATED, THE SHARES OF COMMON
STOCK OWNED BY THE UNDERSIGNED WILL BE VOTED FOR
ELECTION OF THE DIRECTOR NOMINEES (ITEM 1) AND FOR
APPROVAL OF ITEM 2.
Dated: _____________________________________, 1999
__________________________________________________
Signature of holder
__________________________________________________
Additional Signature if Jointly owned
__________________________________________________
Please print name(s)
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FOLD AND DETACH HERE