SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
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/ / Soliciting Material Pursuant to Section240.14a-12
INVERNESS MEDICAL INNOVATIONS, INC.
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(Name of Registrant as Specified In Its Charter)
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[LOGO]
April 29, 2002
Dear Fellow Stockholder:
You are cordially invited to attend Inverness Medical Innovation's Annual
Meeting of Stockholders on Wednesday, June 5, 2002, at 12:30 p.m., local time,
at the Harvard Club of Boston, Downtown Clubhouse, One Federal Street, Boston,
MA 02110-2069.
In addition to the matters described in the attached proxy statement, we
will report on our activities since we were split-off from Inverness Medical
Technology, Inc., our former parent, on November 21, 2001. You will have an
opportunity to ask questions and to meet your directors and executives.
Whether or not you plan to attend the meeting in person, it is important
that your shares be represented and voted. Therefore, after reading the enclosed
proxy statement, please complete, sign, date and return the enclosed proxy card
promptly. You may also vote by telephone, or electronically over the Internet,
by following the instructions on your proxy card.
We look forward to seeing you at the meeting. Your vote is important to us.
Cordially,
[LOGO]
Ron Zwanziger
Chairman, Chief Executive Officer and
President
INVERNESS MEDICAL INNOVATIONS, INC.
51 Sawyer Road, Suite 200
Waltham, Massachusetts 02453
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
DATE: June 5, 2002
TIME: 12:30 p.m., local time
PLACE: Harvard Club of Boston
Downtown Clubhouse
One Federal Street
Boston, MA 02110-2069
PURPOSE:
1. Elect two Class I Directors to serve until the 2005 annual meeting of
stockholders;
2. Approve an increase in the number of shares of common stock available
for issuance under the Inverness Medical Innovations, Inc. 2001 Stock
Option and Incentive Plan; and
3. Conduct such other business as may properly come before the annual
meeting and at any adjournment or postponement thereof.
Only stockholders of record on April 15, 2002, may vote at the annual
meeting and at any adjournment or postponement thereof. This proxy solicitation
material is being mailed to stockholders on or about April 29, 2002, and
includes a copy of our 2001 Annual Report, which includes financial statements
for the period ended December 31, 2001.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS YOU VOTE "FOR" EACH OF THE
PROPOSALS PRESENTED TO YOU IN THIS PROXY STATEMENT.
Your vote is important. Please cast your vote by mail, telephone or over the
Internet by following the instructions on your proxy card.
Paul T. Hempel, Esq.
Secretary
April 29, 2002
TABLE OF CONTENTS
PAGE
--------
PROXY STATEMENT............................................. 1
GENERAL INFORMATION......................................... 1
Who May Vote.............................................. 1
How to Vote............................................... 1
How Proxies Work.......................................... 1
Solicitation.............................................. 2
Revoking a Proxy.......................................... 2
Quorum.................................................... 2
Votes Required............................................ 2
PROPOSAL 1: ELECTION OF DIRECTORS........................... 3
Introduction.............................................. 3
Vote Required............................................. 3
Recommendation............................................ 3
INFORMATION REGARDING NOMINEES, OTHER DIRECTORS AND
EXECUTIVE OFFICERS........................................ 4
BOARD COMMITTEES AND MEETINGS............................... 7
PROPOSAL 2: APPROVAL OF INCREASE IN OPTION SHARES........... 8
Introduction.............................................. 8
Summary of the 2001 Stock Option Plan..................... 8
Grants of Options......................................... 11
Material Federal Income Tax Consequences.................. 11
Vote Required............................................. 12
Recommendation............................................ 12
PRINCIPAL STOCKHOLDERS...................................... 13
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS............ 16
Director Compensation..................................... 16
Executive Compensation.................................... 16
Change-In-Control Arrangements............................ 20
Compensation Committee Report on Executive Compensation... 20
STOCK PERFORMANCE GRAPH..................................... 24
AUDIT COMMITTEE REPORT...................................... 25
INDEPENDENT PUBLIC ACCOUNTANTS.............................. 25
Audit Fees................................................ 25
Financial Information Systems Design and Implementation... 25
All Other Fees............................................ 25
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 26
Loans to Executive Officers and Directors................. 26
Sales of Series A Preferred Stock and Notes and
Warrants................................................ 27
Option and Warrant Grant Related to Lock Up Agreements.... 27
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE..... 28
STOCKHOLDER PROPOSALS....................................... 28
OTHER INFORMATION........................................... 28
APPENDIX A--AUDIT COMMITTEE CHARTER
i
INVERNESS MEDICAL INNOVATIONS, INC.
51 SAWYER ROAD, SUITE 200
WALTHAM, MASSACHUSETTS 02453
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Inverness Medical Innovations, Inc. for use
at our 2002 Annual Meeting of Stockholders to be held on Wednesday, June 5, 2002
at 12:30 p.m., local time, at the Harvard Club of Boston, Downtown Clubhouse,
One Federal Street, Boston, MA, and at any adjournments or postponements of the
annual meeting. References in this proxy statement to "us", "we", "our" and the
"Company" refer to Inverness Medical Innovations, Inc., except where otherwise
indicated, such as in the "Compensation Committee Report of Executive
Compensation" and the "Audit Committee Report."
GENERAL INFORMATION
WHO MAY VOTE
Holders of our common stock or our Series A Convertible Preferred Stock (the
"Series A Preferred Stock"), as recorded in our stock register on April 15,
2002, may vote at the annual meeting on the specific matters for which they are
entitled to vote. As of that date, there were 9,128,084 shares of our common
stock outstanding and entitled to one vote per share and 2,360,246 shares of our
Series A Preferred Stock outstanding and entitled to two votes per share (the
number of shares of common stock into which each share of Series A Preferred
Stock was convertible as of the record date). Holders of our common stock are
entitled to vote on the election of Class I Directors and the amendment to our
2001 Stock Option and Incentive Plan (the "2001 Stock Option Plan") to increase
the number of shares of common stock available for issuance thereunder. Holders
of Series A Preferred Stock are entitled to vote on the amendment to the 2001
Stock Option Plan. A list of stockholders will be available for inspection for
at least ten days prior to the meeting at the principal executive offices of the
Company at 51 Sawyer Road, Suite 200, Waltham, MA 02453-3448.
HOW TO VOTE
You may vote in person at the meeting or by proxy. We recommend you vote by
proxy even if you plan to attend the meeting. You can always change your vote at
the meeting.
Most stockholders have a choice of voting by using a toll free number, by
submitting their vote over the Internet or by completing a proxy card and
mailing it in the postage-paid envelope provided. Please refer to your proxy
card or the information forwarded by your bank, broker or other holder of record
to see which options are available to you.
HOW PROXIES WORK
Our Board of Directors (the "Board") is asking for your proxy. Giving us
your proxy means you authorize us to vote your shares at the meeting, or at any
adjournment or postponement thereof, in the manner you direct. With respect to
the election of directors, you may vote for all, some or none of our director
candidates. With respect to the amendment to the 2001 Stock Option Plan, you may
vote for or against the proposal or abstain from voting.
If you sign and return the enclosed proxy card but do not specify how to
vote, we will vote your shares in favor of our director candidates and in favor
of the amendment to the 2001 Stock Option Plan.
As of the date hereof, we do not know of any other business that will be
presented at the meeting. If other business shall properly come before the
meeting, including any proposal submitted by a stockholder which was omitted
from this proxy statement in accordance with applicable federal securities laws,
the persons
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named in the proxy will vote your shares according to their best judgment.
SOLICITATION
In addition to this mailing, our employees may solicit proxies personally,
electronically or by telephone. We pay all of the costs of soliciting this
proxy. We also reimburse brokers, banks, nominees and other fiduciaries for
their expenses in sending these materials to you and getting your voting
instructions.
REVOKING A PROXY
You may revoke your proxy before it is voted by submitting a new proxy with
a later date, by voting in person at the meeting, or by notifying the Company's
Secretary in writing.
QUORUM
In order to carry on the business of the meeting, we must have a quorum.
Under our bylaws, this means at least a majority of the voting power of all
outstanding shares entitled to vote must be represented at the meeting, either
by proxy or in person. For purposes of the election of the Class I Directors, a
majority of the outstanding shares of common stock entitled to vote shall
constitute a quorum. For the purposes of the amendment to the 2001 Stock Option
Plan, a majority of the total votes represented by the outstanding shares of
common stock entitled to vote and the outstanding shares of Series A Preferred
Stock entitled to vote shall constitute a quorum. Proxies marked as abstaining
or withheld, limited proxies and proxies containing broker non-votes with
respect to any matter to be acted upon by stockholders will be treated as
present at the meeting for purposes of determining a quorum, but will not be
counted as votes cast on such matter. A "broker non-vote" is a proxy submitted
by a broker or other nominee holding shares on behalf of a client in which the
broker or other nominee indicates that it does not have discretionary authority
to vote such shares on a particular matter.
VOTES REQUIRED
Each proposal sets forth the vote required for election of directors or
approval of the matter, as applicable.
2
PROPOSAL 1
ELECTION OF DIRECTORS
INTRODUCTION
Our Board of Directors is currently comprised of eight members. The eight
directors are divided into three classes as follows: two Class I Directors
(Messrs. Carabillo and Levy), three Class II Directors (Ms. Goldberg and
Messrs. Zeien and Zwanziger) and three Class III Directors (Messrs. Khederian,
Scott and Townsend). The members of each class serve for a staggered three-year
term and, at each annual meeting of stockholders, a class of directors is
elected for a three-year term to succeed the directors of the same class whose
terms are expiring. The current terms of the Class I Directors, Class II
Directors and Class III Directors will expire at the annual meetings of
stockholders held following the end of calendar years 2001, 2002 and 2003,
respectively.
At the 2002 annual meeting, the Board proposes the election of the following
nominees as Class I Directors:
ERNEST A. CARABILLO, JR.
JOHN F. LEVY
As noted above, each of these nominees is currently serving as a member of
the Board. The proxies granted by stockholders will be voted individually at the
annual meeting for the election of these two nominees. In the event that
Mr. Carabillo or Mr. Levy shall be unable to serve, it is intended that the
proxy will be voted for any replacements nominated by the Board. Mr. Carabillo
and Mr. Levy have indicated that they will serve on the Board if elected. For
information regarding these nominees, see "Information Regarding Nominees, Other
Directors and Executive Officers."
VOTE REQUIRED
The Class I Directors must be elected by a plurality of the common stock
votes properly cast at the annual meeting. This means that the two nominees
receiving the highest number of FOR votes will be elected as Class I Directors.
Votes may be cast FOR or WITHHELD FROM each nominee. Votes that are WITHHELD
FROM the nominees will be excluded entirely from the vote and will have no
effect. Furthermore, if you hold your shares of common stock in your own name as
a holder of record, and you fail to vote your shares, either in person or by
proxy, the votes represented by your shares will be excluded entirely from the
vote and will have no effect. If, however, your shares are held by a broker,
bank or other nominee (i.e., in "street name") and you fail to give instructions
as to how you want your shares voted, the broker, bank or other nominee may vote
the shares in their own discretion.
RECOMMENDATION
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES LISTED
ABOVE.
3
INFORMATION REGARDING NOMINEES, OTHER DIRECTORS AND EXECUTIVE OFFICERS
The following biographical descriptions set forth certain information with
respect to the two nominees for re-election as Class I Directors, the incumbent
directors who are not up for election at this annual meeting and the executive
officers and other key employees who are not directors. This information has
been furnished by the respective individuals.
NAME AGE POSITION
---- -------- ------------------------------------------
Ron Zwanziger............................. 48 Chairman of the Board, President and Chief
Executive Officer
David Scott, Ph.D......................... 45 Director and Chief Scientific Officer
Anthony J. Bernardo....................... 50 Vice President and Chief Operating Officer
President of Inverness Medical, Inc.
Jerry McAleer, Ph.D....................... 47 Vice President, Research and Development
Managing Director of Unipath Ltd.
David Toohey.............................. 45 Vice President, European Operations
Duane L. James............................ 42 Vice President, Finance and Treasurer
John Yonkin............................... 42 Vice President, U.S. Sales & Marketing
Doug Shaffer.............................. 44 Vice President, U.S. Operations
Paul T. Hempel............................ 53 General Counsel and Secretary
Ernest A. Carabillo, Jr................... 63 Director
Carol R. Goldberg......................... 71 Director
Robert P. Khederian....................... 49 Director
John F. Levy.............................. 55 Director
Peter Townsend............................ 67 Director
Alfred M. Zeien........................... 72 Director
NOMINEES FOR ELECTION AS CLASS I DIRECTORS--TERM EXPIRING 2005
ERNEST A. CARABILLO, JR. has served on the Board since May 30, 2001. Prior
to our split-off from Inverness Medical Technology, Inc., our former parent
("Inverness Medical Technology"), on November 21, 2001 (the "Split-Off"),
Mr. Carabillo served as a director of Inverness Medical Technology since
May 2000. He is the founder and president of EXPERTech Associates, Inc., which
provides regulatory, clinical and quality management consulting services to
medical device companies, where he has served as president since 1990. He has
also served in management positions at Baxter Healthcare, C.R. Bard and the
medical device/pharmaceutical division of Union Carbide. Mr. Carabillo has
served as the head of three different divisions of the Food and Drug
Administration and Department of Justice and as Associate Director of Regulatory
Affairs for the President's Office of Drug Abuse Policy.
JOHN F. LEVY has served on the Board since May 30, 2001. Prior to the
Split-Off, Mr. Levy served as a director of Inverness Medical Technology since
August 1996. Since 1993, he has been an independent consultant. Mr. Levy served
as president and chief executive officer of Waban, Inc., a warehouse
merchandising company, from 1989 to 1993. Mr. Levy is a member of the Board's
Audit Committee.
INCUMBENT CLASS II DIRECTORS--TERM EXPIRING 2003
CAROL R. GOLDBERG has served on the Board since May 30, 2001. Prior to the
Split-Off, Ms. Goldberg served as a director of Inverness Medical Technology
since August 1992. Since December 1989, she has served as president of The AVCAR
Group, Ltd., an investment and management consulting firm in Boston,
Massachusetts. Ms. Goldberg is a director and serves on the compensation
committee of the board of directors of America Service Group, Inc., a managed
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healthcare company, The Gillette Company, a consumer products company, and
Konover Property Trust, Inc., a real estate investment trust. Ms. Goldberg is a
member of the Board's Compensation Committee.
ALFRED M. ZEIEN has served on the Board since July 31, 2001. From 1991 until
his retirement in 1999, Mr. Zeien served as chairman and chief executive officer
of The Gillette Company, a consumer products company. Mr. Zeien currently serves
on the boards of EMC Corporation, Massachusetts Mutual Life Insurance Company,
Raytheon Company, Polaroid Corporation and Bernard Technologies. Mr. Zeien is a
member of the Board's Compensation Committee.
RON ZWANZIGER has served as our Chairman, Chief Executive Officer and
President since May 11, 2001. Prior to the Split-Off, Mr. Zwanziger served as
chairman, chief executive officer and president of Inverness Medical Technology
since its inception in 1992. From 1981 to 1991, he was chairman and chief
executive officer of MediSense, a medical device company.
INCUMBENT CLASS III DIRECTORS--TERM EXPIRING 2004
PETER TOWNSEND has served on the Board since May 30, 2001. Prior to the
Split-Off, Mr. Townsend served as a director of Inverness Medical Technology
since August 1996. From 1991 to 1995, when he retired, Mr. Townsend served as
chief executive officer and a director of Enviromed plc, a medical products
company currently known as Theratese plc. Mr. Townsend is a member of the
Board's Audit Committee.
DAVID SCOTT, PH.D., has served on the Board since July 31, 2001 and is our
Chief Scientific Officer. Prior to the Split-Off, Dr. Scott served as chairman
of Inverness Medical Limited, a subsidiary of Inverness Medical Technology,
since July 1999 and served as a managing director of Inverness Medical Limited
from July 1995 to July 1999. Dr. Scott served as managing director of Great
Alarm Limited, a consulting company, from October 1993 to April 1995. Between
October 1984 and September 1993, he held several positions at MediSense UK, most
recently as managing director where he was responsible for managing product
development, as well as the mass manufacture of one of its principal products,
ExacTech.
ROBERT P. KHEDERIAN has served on the Board since July 31, 2001.
Mr. Khederian is the chairman of Belmont Capital, a venture capital firm he
founded in 1996. From 1984 through 1996, he was founder and chairman of Medical
Specialties Group, Inc., a nationwide distributor of medical products which was
acquired by Bain Capital. Since 1998, Mr. Khederian has served as the managing
partner of Provident Capital Partners and First Healthcare Partners, both of
which are investment banking firms based in Boston, Massachusetts.
Mr. Khederian is also a director of Cambridge Heart, Inc. Mr. Khederian is a
member of the Board's Audit Committee.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
ANTHONY J. BERNARDO has served as a Vice President since the Split-Off and
on February 19, 2002 was appointed our Vice President & Chief Operating Officer.
He has also served as President and Chief Operating Officer of Inverness
Medical, Inc., our primary U.S. Operating subsidiary, since the Split-Off. Prior
to the Split-Off, Mr. Bernardo served as vice president of new business
development of Inverness Medical Technology since April 2000. Prior to
April 2000, Mr. Bernardo served as vice president and senior director of
operations for a division of Polaroid Corporation from April 1997. From 1991 to
1997, he held several executive management positions with Dade
International Inc., most recently as vice president of site operations for the
Paramax Chemistry unit where he was responsible for the integration of the
in-vitro diagnostics business unit acquired from DuPont.
JERRY MCALEER, PH.D., has served as our Vice President, Research and
Development since the Split-Off. Prior to the Split-Off, Dr. McAleer served as
vice president of research and development of
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Inverness Medical Technology and Inverness Medical Limited, one of its
subsidiaries, since 1999. From 1995 to 1999, Dr. McAleer served as director of
development of Inverness Medical Limited and headed the development of Inverness
Medical Technology's electrochemical glucose strips. Prior to joining Inverness
Medical Technology, Dr. McAleer held senior research and development positions
at MediSense from 1985 to 1993 and more recently, at Ecossensors, Inc., an
environmental research company, where he was responsible for the development of
electrochemically based assay systems.
DAVID TOOHEY was appointed Vice President, European Operations on
February 19, 2002 and had served as our Vice President, New Products since the
Split-Off. He was also appointed Managing Director of Unipath Ltd. when we
acquired the Unipath businesses on December 20, 2001. Prior to the Split-Off,
Mr. Toohey was employed by Inverness Medical Technology as its vice president,
new products since May 2001. Prior to joining Inverness Medical Technology,
Mr. Toohey served as vice president of operations at Boston Scientific
Corporation's Galway, Ireland facility, Boston Scientific's largest and most
complex manufacturing facility with 2,500 employees. Between 1995 and 2001 he
oversaw the growth of that facility from a 100 person start-up initially as
general manager, later as managing director and finally as vice president of
operations. Prior to that time he held various executive positions at Bausch &
Lomb, Inc., Digital Equipment Corp. and Mars, Inc.
DUANE L. JAMES has served as our Vice President, Finance since the Split-Off
and as our Treasurer since the Company's inception. Prior to the Split-Off,
Mr. James served as vice president, finance and treasurer of Inverness Medical
Technology since October 2000. Prior to October 2000, Mr. James served as
Inverness Medical Technology's chief accounting officer since August 1998 and as
its corporate controller from February 1996 until August 1998. From June 1991 to
February 1996, he held positions at Aquila Biopharmaceuticals, Inc. ranging from
accounting manager to corporate controller.
JOHN YONKIN has served as our Vice President, U.S. Sales & Marketing since
the Split-Off. Prior to the Split-Off, Mr. Yonkin served as Inverness Medical
Technology's vice president of U.S. sales since October 1998 and general manager
since January 2000. He also served as manager of product development for
Inverness Medical Technology from October 1997 until October 1998. From
January 1995 to September 1997, Mr. Yonkin was director of national accounts for
Genzyme Genetics, a subsidiary of Genzyme, Inc., a leader in Genetic testing
services for hospitals, physicians and managed healthcare companies. Previously,
he worked for MediSense, a medical device company, in a number of marketing and
sales capacities.
DOUGLAS SHAFFER has served as our Vice President, U.S. Operations since the
Split-Off. Prior to the Split-Off, Mr. Schaffer served as vice president, U.S.
operations of Inverness Medical Technology since January 2001. Prior to
January 2001, he served as Inverness Medical Technology's controller, U.S.
operations since December 1996. Before joining Inverness Medical Technology,
Mr. Shaffer served as a division controller for several different divisions of
MKS Instruments, Inc., a leading producer of gas management instrumentation.
PAUL T. HEMPEL has served as General Counsel and Secretary since the
inception of the Company. Prior to the Split-Off, Mr. Hempel served as general
counsel and assistant secretary of Inverness Medical Technology since
October 1, 2000. He was a founding stockholder and managing director of Erickson
Schaffer Peterson Hempel & Israel PC from 1996 to 2000. Prior to 1996,
Mr. Hempel was a partner and managed the business practice at Bowditch & Dewey
LLP.
6
BOARD COMMITTEES AND MEETINGS
The Board has a Compensation Committee and an Audit Committee. The
Compensation Committee, consisting of Ms. Goldberg and Mr. Zeien, makes
recommendations concerning salaries and incentive compensation for our employees
and consultants, establishes and approves salaries and incentive compensation
for certain senior officers and employees, and administers the 2001 Stock Option
Plan. The Audit Committee, consisting of Mr. Levy, Mr. Townsend and
Mr. Khederian, among other things, reviews the results and scope of the
financial audit and other services provided by the Company's independent public
accountants. Each of the members of the Audit Committee are "independent" as
defined in Section 121(A) of the American Stock Exchange's listing standards.
The Board held 12 meetings during the last fiscal year. The Compensation
Committee held 2 meetings and the Audit Committee held 1 meeting during the last
fiscal year. The Audit Committee's written charter, which was adopted on
September 11, 2002, states that the committee will generally meet four times per
year and the Audit Committee intends to do so during future years. The Board
does not have a nominating committee or a committee serving a similar function.
7
PROPOSAL 2
APPROVAL OF INCREASE IN OPTION SHARES
INTRODUCTION
The Board has adopted and is seeking stockholder approval of an amendment to
the 2001 Stock Option Plan to increase the number of shares of common stock that
are available to be issued through grants or awards made thereunder or through
the exercise of options granted thereunder from 3,824,081 shares to 4,824,081
shares. Of the shares originally made available for issuance under the 2001
Stock Option Plan, the Board approved compensation packages, including
restricted stock and stock option grants totaling 2,336,382 shares, for three
key executives, Ron Zwanziger, David Scott, Ph.D. and Jerry McAleer, Ph.D., on
August 10, 2002. (For further discussion of these compensation packages as well
as certain other grants made to the named executive officers see the
"Compensation Committee Report on Executive Compensation" beginning on
page 20). In addition, in order to retain and properly incentivize other
executives and employees in light of the Split-Off, the Compensation Committee
approved grants of stock options to purchase up to 507,000 shares of common
stock during November and December 2001. During the first quarter of 2002, the
Compensation Committee also approved grants of stock options to acquire 478,000
shares of common stock to employees of our two recent acquisitions: the Unipath
business and IVC Industries, Inc. As a result of these and other grants to
employees and directors, of the 3,824,081 shares of common stock authorized for
grant under the 2001 Stock Option Plan, only 220,199 shares remain available for
issuance. While some additional shares may become available under the 2001 Stock
Option Plan through employee terminations, this number is expected to be
inconsequential. The Board is therefore proposing that the stockholders approve
the increase in shares of common stock available under the 2001 Stock Option
Plan from 3,824,081 to 4,824,081.
The increase of 1,000,000 shares of common stock available for grant under
the 2001 Stock Option Plan will result in additional potential dilution of our
outstanding stock. Based solely on the closing price of our common stock as
reported on AMEX on April 15, 2002 of $25.25 per share, the maximum aggregate
market value of the additional 1,000,000 shares of common stock to be reserved
for issuance under the 2001 Stock Option Plan would be $25,250,000.
The Board recommends this action in order to continue to provide a source of
stock to attract and retain talented personnel. The Board believes that stock
options promote growth and provide a meaningful incentive to employees of
successful companies. Additionally, the Compensation Committee has recently
adopted an amendment to our Executive Bonus Plan which may require us to grant
up to an additional 712,600 options over the next 5 years.This amendment
replaces the performance-based cash bonuses that were payable to certain
executives upon the achievement of certain stock performance goals under the
Executive Bonus Plan with stock options that are to be granted to these
executives upon the achievement of the stock performance goals. The amendment
replaces the potential payment of $21.65 million in cash bonuses with the
potential award of options to purchase up to 712,600 shares of common stock. The
Compensation Committee believes that this amendment is in the best interests of
the Company as it will provide comparable performance incentives while avoiding
the negative impact on earnings per share that would result from payment of the
performance-based cash bonuses.
SUMMARY OF THE 2001 STOCK OPTION PLAN
ADMINISTRATION. The 2001 Stock Option Plan provides for administration by
the Board or by a committee of not fewer than two independent directors,
referred to as the "administrator," as appointed by the Board from time to time.
The Compensation Committee is currently serving as the administrator of the 2001
Stock Option Plan.
8
The administrator has full power to select, from among the individuals
eligible for awards, the individuals to whom awards will be granted, to make any
combination of awards to participants, and to determine the specific terms and
conditions of each award, subject to the provisions of the 2001 Stock Option
Plan. The administrator may permit common stock, and other amounts payable
pursuant to an award, to be deferred. In such instances, the administrator may
permit interest, dividends or deemed dividends to be credited to the amount of
deferrals.
ELIGIBILITY AND LIMITATIONS ON GRANTS. All of our officers, employees,
directors, consultants and other key persons are eligible to participate in the
2001 Stock Option Plan, subject to the discretion of the administrator. In no
event may any one participant receive options to purchase more than 1,529,632
shares of common stock, subject to adjustment for stock splits and similar
events, during any one calendar year.
STOCK OPTIONS. Options granted under the 2001 Stock Option Plan may be
either incentive stock options, referred to as "incentive options," within the
definition of Section 422 of the Internal Revenue Code, or non-qualified stock
options, referred to as "non-qualified options." Options granted under the 2001
Stock Option Plan will be non-qualified options if they fail to meet the
Internal Revenue Code definition of incentive options, are granted to a person
not eligible to receive incentive options under the Internal Revenue Code, or
otherwise so provide. Incentive options may be granted only to officers or other
employees of the Company or its subsidiaries. Non-qualified options may be
granted to persons eligible to receive incentive options and to non-employee
directors and other key persons.
OTHER OPTION TERMS. The administrator has authority to determine the terms
of options granted under the 2001 Stock Option Plan. Generally, options are
granted with an exercise price that is not less than the fair market value of
the shares of common stock on the date of the option grant.
The life of each option will be fixed by the administrator and may not
exceed ten years from date of grant. The administrator will determine at what
time or times each option may be exercised and the period of time, if any, after
retirement, death, disability or termination of employment during which options
may be exercised. Options may be made exercisable in installments, and the
exercisability of options may be accelerated by the administrator. In general,
unless otherwise permitted by the administrator, no option granted under the
2001 Stock Option Plan is transferable by the optionee other than by will or by
the laws of descent and distribution, and options may be exercised during the
optionee's lifetime only by the optionee, or by the optionee's legal
representative or guardian in the case of the optionee's incapacity.
Options granted under the 2001 Stock Option Plan may be exercised for cash
or by the transfer to us of shares of common stock which are not then subject to
restrictions under the 2001 Stock Option Plan or any other stock plan that we
maintain, which have been held by the optionee for at least six months or were
purchased on the open market, and which have a fair market value equivalent to
the option exercise price of the shares being purchased. Such options may also
be exercised by compliance with certain provisions pursuant to which a
securities broker delivers the purchase price for the shares to us.
At the discretion of the administrator, stock options granted under the 2001
Stock Option Plan may include a "reload" feature pursuant to which an optionee
exercising an option by the delivery of shares of common stock would
automatically be granted an additional stock option to purchase that number of
shares of common stock equal to the number delivered to exercise the original
stock option. This additional stock option would have an exercise price equal to
the fair market value of the common stock on the date the additional stock
option is granted. The purpose of this reload feature is to enable participants
to maintain any equity interest in us without causing dilution.
9
To qualify as incentive options, options must meet additional federal tax
requirements, including a $100,000 limit on the value of shares subject to
incentive options which first become exercisable in any one calendar year, and a
shorter term and higher minimum exercise price in the case of certain large
stockholders.
RESTRICTED STOCK AWARDS. The administrator may grant or sell shares of
common stock to any participant subject to such conditions and restrictions as
the administrator may determine. The shares may be sold at par value or for a
higher purchase price determined by the administrator. These conditions and
restrictions may include the achievement of pre-established performance goals
and/or continued employment with us through a specified vesting period. The
vesting period shall be determined by the administrator but shall be at least
one year for attainment of pre-established performance goals or at least three
years for other conditions and restrictions. If the applicable performance goals
and other restrictions are not attained, the participant will forfeit his or her
award of restricted stock.
UNRESTRICTED STOCK AWARDS. The administrator may also grant shares of
common stock which are free from any restrictions under the 2001 Stock Option
Plan. Unrestricted stock may be granted to any participant in recognition of
past services or other valid consideration, and may be issued in lieu of cash
compensation due to such participant.
DEFERRED STOCK AWARDS. The administrator may also award phantom stock units
as deferred stock awards to participants. The deferred stock awards are
ultimately payable in the form of shares of common stock and may be subject to
such conditions and restrictions as the administrator may determine. These
conditions and restrictions may include the achievement of certain performance
goals and/or continued employment with us through a specified vesting period.
During the deferral period, subject to terms and conditions imposed by the
administrator, the deferred stock awards may be credited with dividend
equivalent rights. Subject to the consent of the administrator, a participant
may make an advance election to receive a portion of his compensation or
restricted stock award otherwise due in the form of a deferred stock award.
PERFORMANCE SHARE AWARDS. The administrator may grant performance share
awards to any participant which entitle the recipient to receive shares of
common stock upon the achievement of individual or company performance goals and
such other conditions as the administrator shall determine.
DIVIDEND EQUIVALENT RIGHTS. The administrator may grant dividend equivalent
rights, which entitle the recipient to receive credits for dividends that would
be paid if the grantee had held specified shares of common stock. Dividend
equivalent rights may be granted as a component of another award or as a
freestanding award.
CHANGE OF CONTROL PROVISIONS. The 2001 Stock Option Plan provides that in
the event of a "change of control" as defined in the 2001 Stock Option Plan, all
stock options will automatically become fully exercisable and the restrictions
and conditions on all other awards will automatically be deemed waived.
ADJUSTMENTS FOR STOCK DIVIDENDS, MERGERS, ETC. The 2001 Stock Option Plan
authorizes the administrator to make appropriate adjustments to the number of
shares of common stock that are subject to the 2001 Stock Option Plan and to any
outstanding stock options to reflect stock dividends, stock splits and similar
events. In the event of certain transactions, such as a merger, consolidation,
dissolution or liquidation of the Company, the 2001 Stock Option Plan and all
awards will terminate unless the parties to the transaction, in their
discretion, provide for appropriate substitutions or adjustments of outstanding
stock options or awards. Before any outstanding stock options and awards
terminate, the option holder will have an opportunity to exercise all
outstanding options, and holders of other awards will receive a cash or in kind
payment of such appropriate consideration as determined by the administrator in
its sole discretion after taking into account the consideration payable per
share of common stock pursuant to the business combination.
10
REPRICING AWARDS. The exercise price of an award may be reduced only upon a
finding by the administrator that the value of such award has been jeopardized
by extreme circumstances beyond the control of management, and, in such a case,
not more than 10% of the shares authorized for grant under the 2001 Stock Option
Plan may be repriced.
AMENDMENTS AND TERMINATION. The Board may at any time amend or discontinue
the 2001 Stock Option Plan and the administrator may at any time amend or cancel
any outstanding award for the purpose of satisfying changes in law or for any
other lawful purpose, but no such action shall adversely affect the rights under
any outstanding awards without the holder's consent. To the extent required by
the Internal Revenue Code to ensure that options granted under the 2001 Stock
Option Plan qualify as incentive options or that compensation earned under the
options granted under the 2001 Stock Option Plan qualifies as performance-based
compensation under the Internal Revenue Code, plan amendments shall be subject
to approval by our stockholders.
GRANTS OF OPTIONS
No grants have been made with respect to the additional 1,000,000 shares of
common stock proposed to be available for issuance under the stock option plan.
We could be required to grant options to purchase up to 712,600 of these
additional shares under our Executive Bonus Plan, as amended; however, as the
issuance of such options is dependent upon the achievement of certain stock
performance goals, the actual number of shares of common stock that will be
granted, or subject to options granted, to the executive officers who
participate in this plan cannot be determined at this time. Similarly, as grants
under the 2001 Stock Option Plan are generally made at the discretion of the
administrator, the number of shares of common stock that may ultimately be
granted, or subject to options granted, to executive officers, directors and
other employees under the 2001 Stock Option Plan cannot be determined at this
time.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion describes the material federal income tax
consequences of transactions under the 2001 Stock Option Plan. It does not
describe all federal tax consequences under the 2001 Stock Option Plan, nor does
it describe state or local tax consequences.
INCENTIVE OPTIONS. No taxable income is generally realized by the optionee
upon the grant or exercise of an incentive option. If shares of common stock
issued to an optionee pursuant to the exercise of an incentive option are sold
or transferred after two years from the date of grant and after one year from
the date of exercise, then upon sale of such shares, any amount realized in
excess of the option price will be taxed to the optionee as a long-term capital
gain, and any loss sustained will be a long-term capital loss, and we will not
have a deduction for federal corporate income tax purposes. The exercise of an
incentive option will give rise to an item of tax preference that may result in
alternative minimum tax liability for the optionee.
If shares of common stock acquired upon the exercise of an incentive option
are disposed of prior to the expiration of the two-year and one-year holding
periods described above, a "disqualifying disposition," generally the optionee
will realize ordinary income in the year of disposition in an amount equal to
the excess, if any, of the fair market value of the shares of common stock at
exercise (or, if less, the amount realized on a sale of such shares of common
stock) over the option price thereof, and we will be entitled to deduct such
amount. Special rules will apply where all or a portion of the exercise price of
the incentive option is paid by tendering shares of common stock.
If an incentive option is exercised at a time when it no longer qualifies
for the tax treatment described above, the option is treated as a non-qualified
option. Generally, an incentive option will not be eligible for the tax
treatment described above if it is exercised more than three months following
termination of employment, or one year in the case of termination of employment
by reason of disability. In the case of termination of
11
employment by reason of death, the three-month rule does not apply.
NON-QUALIFIED OPTIONS. With respect to non-qualified options under the 2001
Stock Option Plan, no income is realized by the optionee at the time the option
is granted. Generally,
- at exercise, ordinary income is realized by the optionee in an amount
equal to the difference between the option price and the fair market value
of the shares of common stock on the date of exercise, and we receive a
tax deduction for the same amount, and
- at disposition, appreciation or depreciation after the date of exercise is
treated as either short-term or long-term capital gain or loss depending
on how long the shares of common stock have been held.
Special rules will apply where all or a portion of the exercise price of the
non-qualified option is paid by tendering shares of common stock.
PARACHUTE PAYMENTS. The vesting or exercisability of any portion of any
option or other award that is accelerated due to the occurrence of a change of
control may cause a portion of the payments with respect to such accelerated
awards to be treated as "parachute payments" as defined in the Internal Revenue
Code. Any such parachute payments may be non-deductible to us, in whole or in
part, and may subject the recipient to a non-deductible 20% federal excise tax
on all or a portion of such payment in addition to other taxes ordinarily
payable.
LIMITATION ON OUR DEDUCTIONS. As a result of Section 162(m) of the Internal
Revenue Code, our deduction for certain awards under the stock option plan may
be limited to the extent that a covered employee receives compensation in excess
of $1,000,000 in such taxable year, other than performance-based compensation
that otherwise meets the requirements of Section 162(m) of the Internal Revenue
Code.
VOTE REQUIRED
The approval of the proposal to amend the 2001 Stock Option Plan to increase
the number of shares of common stock available for issuance thereunder requires
the affirmative vote of a majority of the votes properly cast on the proposal.
With respect to this proposal, shares of common stock (representing one vote per
share) and shares of Series A Preferred Stock (representing two votes per share)
will be voted together as a single class. In accordance with Delaware law and
our bylaws, abstentions and broker non-votes will not be counted as votes cast
on this matter and, accordingly, will have no effect.
RECOMMENDATION
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT TO
THE 2001 STOCK OPTION PLAN INCREASING THE NUMBER OF SHARES OF COMMON STOCK
AVAILABLE THEREUNDER.
12
PRINCIPAL STOCKHOLDERS
The following table furnishes information as to shares of our common stock
and Series A Preferred Stock beneficially owned by:
- each person or entity known by us to beneficially own more than five
percent of either our common stock or the Series A Preferred Stock;
- each of our directors;
- each of our "named executive officers" (as defined in "Compensation of
Directors and Executive Officers--Executive Compensation" on page 16); and
- all of our directors and executive officers as a group.
Unless otherwise stated, beneficial ownership is calculated as of March 31,
2002. For the purpose of this table, a person, group or entity is deemed to have
"beneficial ownership" of any shares that such person, group or entity has the
right to acquire within 60 days after such date through the exercise of options
or warrants or the conversion of convertible securities.
COMMON STOCK SERIES A PREFERRED STOCK(1)
-------------------------- ---------------------------
AMOUNT AND AMOUNT AND
NATURE OF NATURE OF
BENEFICIAL BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER (2) OWNERSHIP(3) PERCENT (4) OWNERSHIP(3) PERCENT (4)
---------------------------------------- ------------ ----------- ------------- -----------
Deutsche Bank AG (5)........................... 705,600 7.73% -- --
Zwanziger Family Ventures, LLC(6).............. 1,686,283 16.00% 500,000 21.18%
Orit Goldstein(7).............................. 909,832 9.29% 333,333 14.12%
Leroy Schecter(8).............................. 479,336 5.07% 166,667 7.06%
Cooper Hill Partners(9)........................ 333,334 3.52% 166,667 7.06%
Goldman, Sachs & Co.(10)....................... 333,332 3.52% 166,666 7.06%
Galleon Group(11).............................. 589,678 6.28% 128,172 5.43%
Oxford Bioscience Partners(12)................. 384,600 4.04% 192,300 8.15%
Perry Capital(13).............................. 662,949 6.83% 292,613 12.40%
Ron Zwanziger(14).............................. 3,226,609 30.33% 500,000 21.18%
David Scott, Ph.D.(15)......................... 573,516 6.17% -- --
Kenneth D. Legg, Ph.D.(16)..................... 96,212 1.05% -- --
Jerry McAleer, Ph.D.(17)....................... 420,319 4.52% -- --
David Toohey(18)............................... 10,000 * -- --
Ernest A. Carabillo, Jr.(19)................... 25,549 * 10,000 *
Carol R. Goldberg(20).......................... 81,905 * 16,666 *
Robert P. Khederian(21)........................ 210,000 2.25% 100,000 4.24%
John F. Levy(22)............................... 109,693 1.20% -- --
Peter Townsend................................. 10,285 * -- --
Alfred M. Zeien................................ -- -- -- --
All current executive officers and directors
(15 persons)(23)............................. 4,719,057 41.75% 626,666 26.55%
------------------------
* Represents less than 1%
(1) Each share of Series A Preferred Stock is currently convertible into two
shares of common stock.
(2) The address of each director or executive officer (and any related persons
or entities) is c/o the Company at its principal office.
13
(3) Unless otherwise indicated, the stockholders identified in this table have
sole voting and investment power with respect to the shares beneficially
owned by them.
(4) The number of shares outstanding used in calculating the percentage for each
person, group or entity listed includes the number of shares underlying
options, warrants and convertible securities held by such person or group
that were exercisable or convertible within 60 days from March 31, 2002, but
excludes shares of stock underlying options, warrants or convertible
securities held by any other person.
(5) The address of Deutsche Bank AG is Taunusanlage 12, D-60325, Frankfort am
Main, Federal Republic of Germany. The information for Deutsche Bank AG
contained herein is based upon information contained in a Schedule 13G filed
with the Securities and Exchange Commission on February 1, 2002.
(6) Consists of 273,689 shares of common stock, 412,594 shares of common stock
underlying warrants exercisable within 60 days from March 31, 2002, and
500,000 shares of Series A Preferred Stock which are currently convertible
into 1,000,000 shares of common stock, all of which are owned by Zwanziger
Family Ventures, LLC ("Zwanziger Family Ventures"). Ron Zwanziger, our
Chairman, Chief Executive Officer and President, and Janet M. Zwanziger, his
spouse, are the managers of Zwanziger Family Ventures and each have shared
voting and investment power over these securities.
(7) Orit Goldstein is the sister of Ron Zwanziger, our Chairman, Chief Executive
Officer and President. Of the shares of common stock attributed to her,
Ms. Goldstein disclaims beneficial ownership of (i) 4,894 shares owned by
her husband, (ii) 900 shares held in her husband's IRA, and (iii) 100,230
shares owned by the Zwanziger Family Trust, of which Ms. Goldstein is a
trustee.
(8) Consists of 146,002 shares of common stock and 166,667 shares of Series A
Preferred Stock which are currently convertible into 333,334 shares of
common stock. The address of Leroy Schecter is 55 Passaic Ave., Kearny, NJ
07032.
(9) Consists of 166,667 shares of Series A Preferred Stock which are currently
convertible into 333,334 shares of common stock held in the name of several
private investment funds controlled by Cooper Hill Partners, LLC and Cooper
Hill Partners, L.P., two institutional investment managers under the common
control of Jeffrey Casdin and Casdin Capital, LLC. The address of Cooper
Hill Partners is 230 Park Avenue, 20th Floor, New York, NY 10169.
(10) Consists of 166,666 shares of Series A Preferred Stock which are currently
convertible into 333,332 shares of common stock held in the name of several
private investment funds managed by Goldman, Sachs & Co.'s Private Equity
Group. The address of Goldman, Sachs & Co. is 32 Old Slip, 21stFloor, New
York, NY 10005.
(11) Consists of 333,334 shares of common stock and 128,172 shares of Series A
Preferred Stock which are currently convertible into 256,344 shares of
common stock held in the name of two private investment funds managed by The
Galleon Group. The address of The Galleon Group is 135 East 57th Street,
16th Floor, New York, NY 10022.
(12) Consists of 192,300 shares of Series A Preferred Stock which are currently
convertible into 384,600 shares of common stock held in the name of two
private investment funds managed by Oxford Bioscience Partners. The address
of Oxford Bioscience Partners is 31 St. James Avenue, #905, Boston, MA
02116.
(13) Consists of 77,723 shares of common stock and 292,613 shares of Series A
Preferred Stock which are currently convertible into 585,226 shares of
common stock held in the name of several private investment funds managed by
Perry Capital. The address of Perry Capital is 599 Lexington Avenue,
36thFloor, New York, NY 10022.
14
(14) Consists of 1,714,530 shares of common stock, 512,079 shares of common
stock underlying options and warrants exercisable within 60 days from
March 31, 2002, and 500,000 shares of Series A Preferred Stock which are
currently convertible into 1,000,000 shares of common stock. Of the shares
attributed to Mr. Zwanziger, 273,689 shares of common stock, 412,594 shares
of common stock underlying warrants exercisable within 60 days from
March 31, 2002 and all of the shares of Series A Preferred Stock are owned
by Zwanziger Family Ventures, a limited liability company managed by
Mr. Zwanziger and his spouse. Of the other shares attributed to him,
Mr. Zwanziger disclaims beneficial ownership of (i) 2,600 shares owned by
his wife, Janet Zwanziger and (ii) 7,600 shares owned by the Zwanziger
Goldstein Foundation, a charitable foundation where Mr. Zwanziger and his
spouse, along with three others, serve as directors.
(15) Consists of 411,554 shares of common stock and 161,962 shares of common
stock underlying options or warrants exercisable within 60 days from
March 31, 2002.
(16) Consists of 52,712 shares of common stock and 43,500 shares of common stock
underlying options or warrants exercisable within 60 days from March 31,
2002. Dr. Legg disclaims beneficial ownership of 1,079 shares of common
stock owned by his son and 3,960 shares held in trust for the benefit of his
son. Dr. Legg retired on February 15, 2001.
(17) Consists of 250,059 shares of common stock and 170,260 shares of common
stock underlying options or warrants exercisable within 60 days from
March 31, 2002.
(18) Consists of common stock underlying options exercisable within 60 days from
March 31, 2002.
(19) Consists of 5,549 shares of common stock and 10,000 shares of Series A
Preferred Stock which are currently convertible into 20,000 shares of common
stock.
(20) Consists of 21,413 shares of common stock, 27,160 shares of common stock
underlying options or warrants exercisable within 60 days from March 31,
2002, and 16,666 shares of Series A Preferred Stock which are currently
convertible into 33,332 shares of common stock. Ms. Goldberg disclaims
beneficial ownership of 8,333 shares of Series A Preferred Stock owned by
the Avram J. Goldberg and Carol R. Goldberg Charitable Remainder Unitrust.
(21) Consists of 10,000 shares of common stock and 100,000 shares of Series A
Preferred Stock which are currently convertible into 200,000 shares of
common stock.
(22) Consists of 100,977 shares of common stock and 8,716 shares of common stock
underlying options or warrants exercisable within 60 days from March 31,
2002. Mr. Levy disclaims beneficial ownership of warrants to purchase 1,007
shares of common stock owned by a charitable remainder unitrust.
(23) Includes 923,756 shares of common stock underlying options or warrants
exercisable within 60 days from March 31, 2002 and 626,666 shares of
Series A Preferred Stock which are currently convertible into 1,253,332
shares of common stock.
15
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
DIRECTOR COMPENSATION
Our directors currently receive no additional cash compensation for their
services as directors, although they are reimbursed for expenses incurred in
connection with their attendance at board and committee meetings. In addition,
options and other awards may be granted to directors in the sole discretion of
the administrator of the 2001 Stock Option Plan.
On November 23, 2001, each non-employee director, namely Ernest A.
Carabillo, Jr., Carol R. Goldberg, Robert P. Khederian, John F. Levy, Peter
Townsend and Alfred M. Zeien, was awarded an option to purchase 25,000 shares of
common stock at an exercise price of $18.73 per share. These options will vest
in three equal, annual installments beginning on the first anniversary of the
date of grant.
EXECUTIVE COMPENSATION
Set forth below is information regarding the compensation for fiscal year
2001 of the Chief Executive Officer and the four other most highly compensated
executive officers whose total annual salary and bonus would have exceeded
$100,000 during fiscal 2001 had it been a complete fiscal year, collectively
referred to as the "named executive officers." The information set forth below
includes only compensation paid or accrued by us and does not include any
compensation paid or accrued by Inverness Medical Technology prior to the
Split-Off. Please note that all information in this section regarding stock
purchases or stock option grants that occurred prior to the Split-Off have been
adjusted to reflect the stock split that occurred immediately prior to the
Split-Off.
SUMMARY COMPENSATION TABLE. The following summary compensation table
contains information regarding the named executive officers' compensation from
us for the last fiscal year. We were not a reporting company prior to the
Split-Off.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------- --------------------------
RESTRICTED SECURITIES
STOCK AWARDS UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS ($) OPTIONS (#) COMPENSATION
--------------------------- -------- -------- -------- ------------ ----------- ------------
Ron Zwanziger....................... 2001 $53,846 $225,000 $ 0 (1) 115,000(2) --
Chairman, Chief Executive Officer
and President
David Scott, Ph.D................... 2001 $23,033(3) $ 55,000 -- 599,072(4) --
Chief Scientific Officer
Jerry McAleer, Ph.D................. 2001 $20,028(3) $ 50,000 -- 569,119(5) --
Vice President, R&D
David Toohey........................ 2001 $26,361(6) -- -- 75,000
Vice President, European
Operations
Kenneth D. Legg, Ph.D.(7)........... 2001 $31,710 -- -- 75,000(8) --
FORMER Executive Vice President
------------------------
(1) On August 15, 2001, Mr. Zwanziger purchased 1,168,191 shares of restricted
stock from us for an aggregate purchase price of $10,665,583.84, or
approximately $9.13 per share. The amount shown represents the dollar value
of 1,168,191 shares of common stock on the date of grant ($10,665,583.84),
as determined by the Board, net of the aggregate consideration paid by
Mr. Zwanziger for such shares ($10,665,583.84) for a total of approximately
$0. Mr. Zwanziger purchased these shares for aggregate consideration
consisting of cash in their par value, $0.16, and
16
a promissory note in the principal amount of $10,665,583.68, as described in
"Certain Relationships and Related Transactions." Two-thirds of these shares
of restricted stock, or 778,794 shares, vest in 36 equal monthly
installments beginning on November 30, 2001. Vesting on these 778,794 shares
will also accelerate in the event of death, disability or actual or
constructive termination without cause. One-third of these shares of
restricted stock, or 389,397 shares, vest in 48 equal monthly installments
beginning on November 30, 2001. Any non-vested shares forfeited by
Mr. Zwanziger will be subject to repurchase by us at fair market value on
the date of repurchase. For purposes of dividends, the restricted stock will
be treated as if it was unrestricted common stock. As of December 31, 2001,
the value of these shares of restricted stock was $10,420,263.71 calculated
by subtracting the aggregate consideration paid by Mr. Zwanziger for such
shares ($10,665,583.84) from the value of such shares based on the closing
price of the common stock on the American Stock Exchange on December 31,
2001 ($21,085,847.55).
(2) Mr. Zwanziger voluntarily waived his rights to purchase 50,000 shares of
common stock under this option in consideration of an agreement to amend the
terms of his restricted stock (discussed in footnote 1 above) to require us
to repurchase the stock at fair market value rather than at cost in the
event Mr. Zwanziger forfeits any non-vested shares in the future.
(3) Salary paid in British pounds and reported in U.S. dollars using the average
exchange rate for December 2001.
(4) Includes an option to purchase up to 399,381 shares of restricted stock from
us at a purchase price of $6.20 per share which was to expire on
January 31, 2002. That option was exercised on December 3, 2001 for 399,381
shares of restricted stock. These shares of restricted stock vest in 36
equal monthly installments beginning on December 31, 2001. Vesting on these
shares will also accelerate in the event of death, disability or actual or
constructive termination without cause. Upon termination of employment, any
non-vested shares will be subject to repurchase by us at their then fair
market value. For purposes of dividends, the restricted stock will be
treated as if it was unrestricted common stock. As of December 31, 2001, the
value of these shares of restricted stock was $4,732,664.85 calculated by
subtracting the consideration paid by Dr. Scott for such shares
($2,476,162.20) from the value of such shares based on the closing price of
the common stock on the American Stock Exchange on December 31, 2001
($7,208,827.05).
(5) Includes an option to purchase up to 370,413 shares of restricted stock from
us at a purchase price of $6.20 per share which was to expire on
January 31, 2002. That option was exercised on December 3, 2001 for 250,000
shares of restricted stock. These shares of restricted stock vest in 36
equal monthly installments beginning on December 31, 2001. Vesting on these
shares will also accelerate in the event of death, disability or actual or
constructive termination without cause. Upon termination of employment, any
non-vested shares will be subject to repurchase by us at their then fair
market value. For purposes of dividends, the restricted stock will be
treated as if it was unrestricted common stock. As of December 31, 2001, the
value of these shares of restricted stock was $2,962,500 calculated by
subtracting the consideration paid by Dr. McAleer for such shares
($1,550,000) from the value of such shares based on the closing price of the
common stock on the American Stock Exchange on December 31, 2001
($4,512,500). Pursuant to the terms of the original option, upon exercise of
that option Dr. McAleer received a new option for 120,413 shares of
unrestricted common stock (representing the number of unpurchased shares
underlying the original option) with an exercise price of $16.76 per share.
(6) Salary paid in Euros and reported in U.S. dollars using the average exchange
rate for December 2001.
(7) Dr. Legg retired on February 15, 2002.
(8) These options terminated upon Dr. Legg's retirement.
17
OPTION GRANTS. The following table sets forth certain information
concerning grants of stock options made to the named executive officers by us
during the last fiscal year:
OPTION/SAR GRANTS IN LAST FISCAL YEAR (1)
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATE OF
NUMBER OF PERCENT OF TOTAL STOCK PRICE APPRECIATION FOR
SECURITIES OPTIONS GRANTED EXERCISE OPTION TERM
UNDERLYING OPTIONS TO EMPLOYEES IN PRICE PER EXPIRATION ------------------------------
NAME GRANTED FISCAL YEAR SHARE DATE (2) 5% 10%
---- ------------------ ---------------- --------- ---------- ------------ ------------
Ron Zwanziger.......... 115,000(3) 5.9% $17.15 12/19/11 $1,240,337 $3,143,259
David Scott, Ph.D...... 399,381(4) 20.5% $ 6.20 1/31/02(4) $1,557,245 $3,946,365
199,691(5) 10.24% $15.47 12/02/11 $1,942,794 $4,923,421
Jerry McAleer, Ph.D.... 379,413(6) 19.46% $ 6.20 1/31/02(6) $1,479,387 $3,749,057
189,706(5) 9.73% $15.47 12/02/11 $1,845,650 $4,677,239
David Toohey........... 75,000(7) 3.85% $15.47 12/02/11 $ 729,685 $1,849,140
Kenneth D. Legg, 75,000(8) 3.85% $15.47 2/15/02(8) $ 729,685(8) $1,849,140(8)
Ph.D.................
------------------------
(1) In connection with the Split-Off, each previously granted option to purchase
common stock of Inverness Medical Technology partially converted into an
option to purchase shares of our common stock (at a conversion ratio of 0.2
shares of our common stock per share of common stock of Inverness Medical
Technology underlying the original options). This table does not include
specific information about any such options that were received by the named
executive officers in connection with the Split-Off.
(2) The exercisability of these options is accelerated upon the occurrence of a
change of control (as defined in the 2001 Stock Option Plan).
(3) This option was granted to Mr. Zwanziger on December 20, 2001 in
consideration for Mr. Zwanziger's execution of a Lock Up Agreement as
described in "Certain Relationships and Related Transactions." This option
is immediately exercisable in full. On March 1, 2002, Mr. Zwanziger
voluntarily waived his rights to purchase 50,000 shares of common stock
under this stock option in consideration of an agreement by us to amend the
terms by which we can repurchase certain shares of restricted stock in the
event that Mr. Zwanziger ceases to be employed by us.
(4) This option was for shares of restricted stock and was exercised on
December 3, 2001 for 399,381 shares of restricted stock. In connection with
the exercise of this option, Dr. Scott delivered a promissory note to us.
The material terms of the promissory note are described in "Certain
Relationships and Related Transactions." The shares of restricted stock vest
in 36 equal monthly installments beginning on December 31, 2001. Vesting on
these shares will also accelerate in the event of death, disability or
actual or constructive termination without cause. Upon termination of
employment, any non-vested shares will be subject to repurchase by us at
their then fair market value.
(5) This option is exercisable in 48 equal monthly installments beginning on
December 30, 2001. The exercise price of this option may be paid using the
proceeds of a five-year promissory note with terms similar to those
referenced in footnote 4 above.
(6) This option was for shares of restricted stock and was exercised on
December 3, 2001 for 250,000 shares of restricted stock. In connection with
the exercise of this option, Dr. McAleer delivered a promissory note to us.
The material terms of the promissory note are described in "Certain
Relationships and Related Transactions." The shares of restricted stock vest
in 36 equal monthly
18
installments beginning on December 31, 2001. Vesting on these shares will
also accelerate in the event of death, disability or actual or constructive
termination without cause. Upon termination of employment, any non-vested
shares will be subject to repurchase by us at their then fair market value.
Pursuant to the terms of the option, upon exercise Dr. McAleer received a
new option for 120,413 shares of unrestricted common stock (representing the
number of unpurchased shares underlying the original option). The new option
has a ten-year term, will become exercisable in 36 equal monthly
installments beginning January 3, 2002 and has a per share exercise price
equal to $16.76. Exercisability of the new option will accelerate in the
event of death, disability or actual or constructive termination without
cause. The exercise price of the new option may be paid using the proceeds
of a five-year promissory note which will have terms similar to those of the
promissory note delivered in connection with the exercise of the original
option.
(7) This option vests in four equal, annual installments beginning on
November 30, 2002.
(8) This option, which was scheduled to vest in four, equal annual installments,
terminated in its entirety upon Dr. Legg's retirement on February 15, 2002.
YEAR END OPTION VALUES. The following table sets forth certain information
concerning exercises of stock options during fiscal year 2001 by each of the
named executive officers and the number and value of unexercised options held by
each of the named executive officers on December 31, 2001:
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SHARES VALUE OF UNEXERCISED IN-
UNDERLYING OPTIONS AT THE-MONEY OPTIONS AT
NUMBER OF FISCAL YEAR END FISCAL YEAR END(2)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- --------------- ----------- ------------------------- -------------------------
Ron Zwanziger............ 248,000 $4,131,480 149,485/0 $272,793/$0
David Scott, Ph.D........ 399,381(3) $4,217,463(3) 105,160/195,531 $1,921,874/$504,470
Jerry McAleer, Ph.D...... 250,000(3) $2,640,000(3) 77,852/315,167 $1,346,655/$479,245
David Toohey............. -- -- 10,000/75,000 $62,500/$193,500
Kenneth D. Legg, Ph.D.... -- -- 45,584/75,000(4) $715,791/$193,500(4)
------------------------
(1) Based on the fair market value of our common stock as of the date of
exercise (the closing price of our common stock as reported on the American
Stock Exchange on such date) less the option exercise price, multiplied by
the number of shares underlying the options.
(2) Based on the fair market value of our common stock as of December 31, 2001
($18.05 per share, which represents the closing price of our common stock as
reported on the American Stock Exchange on such date) less the option
exercise price, multiplied by the number of shares underlying the options.
(3) Represents shares of restricted stock. The determination of value was made
without regard to the vesting requirements of the shares of restricted
stock.
(4) Includes 9,751 shares underlying options that were exercisable as of
December 31, 2001 (and valued in accordance with note 2 above at $159,000),
which have been subsequently exercised. All unvested stock options held by
Dr. Legg terminated upon his retirement on February 15, 2002.
19
CHANGE-IN-CONTROL ARRANGEMENTS
There are no compensatory plans or arrangements with any named executive
officer in connection with a change in control of our company or a change in
such officer's responsibilities, except that the 2001 Stock Option and Incentive
Plan provides that in the event of a "change of control," as defined in the
plan, all stock options will automatically become fully exercisable and all
other stock awards will automatically become vested and non-forfeitable.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
In reviewing and establishing the salary and incentive payments for our
Chief Executive Officer ("CEO") and senior management (for purposes of this
section, the "Executive Officers") who report directly to the CEO, we, the
Compensation Committee, intend to apply the following guidelines:
(a) Annual base salary for each individual will generally be near the
average for the particular peer group from comparable companies for that
individual. Annually, the CEO will review the base salary for each Executive
Officer and recommend appropriate adjustments to us.
(b) Cash bonuses paid for achieving agreed performance measures will bring
the individual to the top 10% of the cash compensation of the particular peer
group for each individual.
(c) Stock related incentives for achieving specified performance measures
need to be significant and meaningful to that individual.
(d) For the Executive Officers there will be group goals only. This is to
help foster interaction between the complementary but dispersed operations of
the growing organization.
(e) Incentive payments (cash or stock) made if the specified performance
measures have been achieved within the management team should not be the same
for each individual but should reflect the Executive Officer's relative value to
the Company.
(f) The group goals for the Executive Officers do not necessarily have to be
the same goals as for the CEO.
(g) Each year (unless a multi-year plan is in place, but the targets shall
nevertheless be annual) prior to or shortly after the start of the fiscal year,
the CEO will present a plan to us with suggested performance targets for the
Executive Officers for the subsequent year or years. The plan will include a
specific proposal with respect to stock-based incentives but may omit a cash
bonus recommendation. In such event, we may change the plan to provide for
awards of cash bonuses if and when specified goals are met. Following discussion
and any changes, we will recommend to the Board approval of a plan and the
performance targets.
(h) Each year (unless a multi-year plan is in place) we will determine,
prior to or shortly after the start of the subsequent year, the performance
targets and specific stock-based incentives for the CEO and recommend approval
of the plan to the full Board. Any cash bonuses will be determined separately
from time to time. The determination of cash bonuses may be tied to individual
performance as well as achievement of group or Company performance targets. We
will review the base salary of the CEO annually.
(i) The performance targets referred to in paragraphs (g) and (h) above may
include both numeric targets, including increases in the market price of the
common stock, and descriptive business objectives. These targets may be varied
subsequently at our recommendation and with the approval of the Board if the
Company has undergone significant positive change rendering the previous targets
meaningless, weakened or counter productive.
The CEO and Executive Officers who report directly to the CEO are currently
paid an annual salary equivalent to the salary that they were paid by Inverness
Medical Technology, Inc. prior to the Split-Off. We intend to review these
20
salaries under the criterion set forth above during fiscal year 2002.
In August 2001, in contemplation of the upcoming Split-Off from Inverness
Medical Technology, the Board approved incentive compensation packages for
certain key executives, namely Ron Zwanziger, David Scott and Jerry McAleer. The
compensation packages, which were subsequently approved by the stockholders of
Inverness Medical Technology (who became stockholders of the Company at the time
of the Split-Off), were designed to (i) retain the key executives,
(ii) properly compensate them for the risks they were assuming in committing to
guide a newly-formed entity with no independent track record and no existing
trading market for its stock and (iii) reward them in the event the Company
meets aggressive market-based performance goals. The compensation packages
consist of both stock-based awards, fixed cash bonuses and a performance-based
Executive Bonus Plan. With respect to the stock-based awards, Mr. Zwanziger was
given the opportunity to purchase the 1,168,191 shares of restricted stock
described in footnote 1 to the "Summary Compensation Table" and Dr. Scott and
Dr. McAleer were granted the options described under "Option/SAR Grants in Last
Fiscal Year." With respect to the fixed cash bonuses, for each of fiscal years
2001 through 2006 each key executive will receive the following year-end bonuses
payable during the month of January of the following year:
ANNUAL BONUS ANNUAL BONUS
KEY EXECUTIVE 2001 2002-2006
------------- ------------ ------------
Ron Zwanziger............................................... $225,000 $550,000
David Scott................................................. $ 55,000 $125,000
Jerry McAleer............................................... $ 50,000 $120,000
The Executive Bonus Plan, as originally adopted, provided that each of these
executives was eligible to receive the performance bonuses set forth in Table I
and Table II below if the Company's common stock achieved specified stock price
targets. With respect to each cash bonus listed in the tables below, each key
executive was entitled to receive that bonus if the average closing price of the
Company's common stock during any 30-day period exceeded:
- the price per share target for a particular cash bonus on or prior to its
target date; or
- any higher price per share target for any other cash bonus having a later
target date on or prior to said later target date.
These bonuses were to be paid in cash in January of the year following the
year in which the bonus was earned. Tables I and II were originally as follows:
TABLE I
MAXIMUM CASH BONUSES PAYABLE IF PRICE
PER SHARE TARGET IS ACHIEVED
TARGET PRICE ---------------------------------------
TARGET DATES PER SHARE MR. ZWANZIGER DR. SCOTT DR. MCALEER
------------ ------------ ------------- --------- -----------
December 31, 2002.............................. $28.125 $2,400,000 $850,000 $800,000
December 31, 2003.............................. 33.750 2,400,000 850,000 800,000
December 31, 2004.............................. 39.375 2,400,000 850,000 800,000
21
TABLE II
MAXIMUM CASH BONUSES PAYABLE IF PRICE
PER SHARE TARGET IS ACHIEVED
TARGET PRICE ---------------------------------------
TARGET DATES PER SHARE MR. ZWANZIGER DR. SCOTT DR. MCALEER
------------ ------------ ------------- --------- -----------
December 31, 2002.............................. $33.750 $900,000 $750,000 $725,000
December 31, 2003.............................. 45.000 900,000 750,000 725,000
December 31, 2004.............................. 56.250 900,000 750,000 725,000
December 31, 2005.............................. 67.500 900,000 750,000 725,000
In 2002, we adopted an amendment to the Executive Bonus Plan, to provide for
the grant of ten-year, non-qualified stock options in lieu of the cash bonuses
set forth in Tables I and II above. We adopted this amendment, upon
recommendation of the Board, to avoid the negative impact on earnings through
the end of fiscal year 2006 that would have resulted from the original
commitment to pay large annual cash bonuses. Pursuant to the Executive Bonus
Plan, as amended, options will be automatically granted on the last day of the
30-day period during which the average closing price of of the Company's common
stock exceeds the relevant target price per share. The per share exercise price
of each option will be the closing price of the Company's common stock on the
date of grant and each option will be fully exercisable immediately upon grant.
The number of shares for which options are to be granted pursuant to the
Executive Bonus Plan, as amended, is set forth in Table III and IV below.
TABLE III
NUMBER OF SHARES OF COMMON STOCK FOR
WHICH OPTIONS ARE AWARDED IF PRICE PER
SHARE TARGET IS ACHIEVED
TARGET PRICE ----------------------------------------
TARGET DATES PER SHARE MR. ZWANZIGER DR. SCOTT DR. MCALEER
------------ ------------ ------------- ---------- -----------
December 31, 2002................................ $28.125 102,000 38,000 37,000
December 31, 2003................................ 33.750 85,300 33,000 31,000
December 31, 2004................................ 39.375 73,100 30,000 28,000
TABLE IV
NUMBER OF SHARES OF COMMON STOCK FOR
WHICH OPTIONS ARE AWARDED IF PRICE PER
SHARE TARGET IS ACHIEVED
TARGET PRICE ----------------------------------------
TARGET DATES PER SHARE MR. ZWANZIGER DR. SCOTT DR. MCALEER
------------ ------------ ------------- ---------- -----------
December 31, 2002................................ $33.750 32,000 29,000 30,000
December 31, 2003................................ 45.000 24,000 23,000 22,000
December 31, 2004................................ 56.250 19,200 17,000 19,000
December 31, 2005................................ 67.500 16,000 12,000 12,000
Section 162(m) of the Internal Revenue Code of 1986, as amended, limits the
deductibility on the Company's tax return of compensation of over $1 million to
any of the named executive officers unless, in general, the compensation is paid
pursuant to a plan which is performance-related, non-discretionary and has been
approved by the Company's stockholders. Our policy with respect to
Section 162(m) is to make every reasonable effort to ensure that
22
compensation is fully deductible for federal income tax purposes. However, we
may, from time to time, award compensation that may not constitute
"performance-related" compensation if we believe that such awards would be in
the best interest of the Company. The Company did not pay any compensation
during 2001 that would be subject to the Section 162(m) limits.
Carol R. Goldberg, Compensation Committee Member
Alfred M. Zeien, Compensation Committee Member
23
STOCK PERFORMANCE GRAPH
The following line graph compares the yearly percentage change in the
cumulative total stockholder return on our common stock since November 23, 2001
(the first day our common stock was traded on AMEX). This graph assumes an
investment of $100 on November 23, 2001 in our common stock, and compares its
performance with the AMEX US Total Return Index and the AMEX Health Products &
Services Total Return Index ("Current Indices"). We currently pay no dividends.
The Current Indices reflect a cumulative total return based upon the
reinvestment of dividends of the stocks included in those indices. Measurement
points are November 23, 2001 and the last trading day of our last fiscal year.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
AMEX HEALTH
IMA AMEX US Products & Services
11/23/01 $100.00 $100.00 $100.00
12/31/01 $96.37 $103.69 $105.48
CURRENT INDICES
-----------------------------------------
AMEX US AMEX
TOTAL HEALTH PRODUCTS & SERVICES
DATE IMA RETURN INDEX TOTAL RETURN INDEX
---- -------- ------------ --------------------------
11/23/01...... $100.00 $100.00 $100.00
12/31/01...... $ 96.37 $103.69 $105.48
24
AUDIT COMMITTEE REPORT
We, the Audit Committee, assist the Board in overseeing the Company's
financial reporting process and its procedures for compliance with legal and
regulatory compliance. In 2001, we adopted a written charter which is included
as Appendix A. In fulfilling our oversight responsibilities, we discussed with
the Company's independent auditors, Arthur Andersen LLP, the overall scope and
plans for their audit. Upon completion of the audit, we reviewed with Arthur
Andersen LLP, who is responsible for expressing an opinion on the conformity of
the Company's audited, consolidated financial statements with generally accepted
accounting principles, its judgments as to the quality, not just the
acceptability, of the Company's accounting principles and such other matters as
are required to be discussed with us under generally accepted auditing
standards. We also discussed with the Company's independent auditors the matters
required to be discussed by Statement on Auditing Standards No. 61.
We also reviewed and discussed the audited, consolidated financial
statements with management. We discussed with management the quality, not just
the acceptability, of the accounting principles, the reasonableness of
significant judgments, and the clarity of disclosures in those financial
statements.
The committee received and reviewed the written disclosures and the letter
required by the Independence Standards Board and discussed with Arthur Andersen
LLP the auditor's independence from management and the Company. We determined
that the services provided by Arthur Andersen LLP during fiscal year 2001 are
compatible with maintaining such auditor's independence.
In reliance on the reviews and discussions referred to above, we recommended
to the Board (and the Board approved) that the audited, consolidated financial
statements be included in the Annual Report on Form 10-K for the year ended
December 31, 2001 for filing with the Securities and Exchange Commission.
John F. Levy, Chairman of the Audit Committee
Peter Townsend, Audit Committee Member
Robert P. Khederian, Audit Committee Member
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP served as our independent public accountant during
fiscal year 2001. We have not formally selected a principal accountant for
fiscal year 2002. The selection of a principal accountant for 2002 is pending
assessment by the Audit Committee. A representative of Arthur Andersen LLP is
expected to be present at the annual meeting, will be given the opportunity to
make a statement if he or she so desires. The representative is also expected to
be available to respond to appropriate questions from stockholders.
AUDIT FEES
We were billed $264,500 by Arthur Andersen LLP for professional services
rendered for the audit of our annual, consolidated financial statements for
fiscal year 2001 and for reviews of its quarterly, consolidated financial
statements filed with the Securities and Exchange Commission during 2001.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION
During fiscal year 2001, Arthur Andersen LLP did not perform services in
connection with the design or implementation of our financial information
systems.
ALL OTHER FEES
We were billed $257,500 for other services rendered by Arthur Andersen LLP
for fiscal year 2001.
25
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LOANS TO EXECUTIVE OFFICERS AND DIRECTORS
On August 15, 2001, Ron Zwanziger, our Chairman, Chief Executive Officer and
President, purchased 1,168,191 shares of restricted stock from us at a price of
approximately $9.13 per share under the 2001 Stock Option Plan. In connection
with this purchase, Mr. Zwanziger delivered a five-year promissory note to us in
the principal amount of $10,665,583.68. The promissory note is secured by the
shares of restricted stock purchased by Mr. Zwanziger. The promissory note
accrues interest which compounds annually at the rate of 4.99% per year.
Principal is due and payable at the end of the five-year term. Interest is
payable annually, commencing on August 16, 2002, and at maturity. Mr. Zwanziger
is also obligated to pay principal and accrued interest thereon with the net
after-tax proceeds of any sale by him of the restricted stock. Under certain
circumstances, Mr. Zwanziger may also pay all or a part of the principal and
accrued interest thereon by delivering shares of common stock to us, which
shares will be valued at their fair market value at the time of delivery. The
promissory note is 75% non-recourse as to principal and full recourse as to the
remaining principal and all interest. As of April 15, 2002, a total of
$10,998,216.72, including principal and accrued interest, was outstanding under
the promissory note.
On December 3, 2001, David Scott, Ph.D., our Chief Scientific Officer and
one of our directors, purchased 399,381 shares of restricted stock at a price of
$6.20 per share by exercising an option granted to Dr. Scott in August 2001
under the 2001 Stock Option Plan. In connection with this purchase, Dr. Scott
delivered a five-year promissory note to us in the principal amount of
$2,475,762.82. The promissory note is secured by the shares of restricted stock
purchased by Dr. Scott. The promissory note accrues interest which compounds
annually at the rate of 3.97% per year, the applicable federal rate for a
five-year note in effect during December 2001. Principal is due and payable at
the end of the five-year term. Interest is payable annually, commencing on
December 4, 2002, and at maturity. Dr. Scott is also obligated to pay principal
and accrued interest thereon with the net after-tax proceeds of any sale by him
of the restricted stock. Under certain circumstances, Dr. Scott may also pay all
or a part of the principal and accrued interest thereon by delivering shares of
common stock to us, which shares will be valued at their fair market value at
the time of delivery. The promissory note is 75% non-recourse as to principal
and full recourse as to the remaining principal and all interest. As of
April 15, 2002, a total of $2,507,732.56, including principal and accrued
interest, was outstanding under the promissory note.
On December 3, 2001, Jerry McAleer, Ph.D., our Vice President, Research and
Development, purchased 250,000 shares of restricted stock at a price of $6.20
per share by exercising an option granted to Dr. McAleer in August 2001 under
the 2001 Stock Option Plan. In connection with this purchase, Dr. McAleer
delivered a five-year promissory note to us in the principal amount of
$1,549,750. The promissory note is secured by the shares of restricted stock
purchased by Dr. McAleer. The promissory note accrues interest which compounds
annually at the rate of 3.97% per year, the applicable federal rate for a
five-year note in effect during December 2001. Principal is due and payable at
the end of the five-year term. Interest is payable annually, commencing on
December 4, 2002, and at maturity. Dr. McAleer is also obligated to pay
principal and accrued interest thereon with the net after-tax proceeds of any
sale by him of the restricted stock. Under certain circumstances, Dr. McAleer
may also pay all or a part of the principal and accrued interest thereon by
delivering shares of common stock to us, which shares will be valued at their
fair market value at the time of delivery. The promissory note is 75%
non-recourse as to principal and full recourse as to the remaining principal and
all interest. As of
26
April 15, 2002, a total of $1,569,762.06, including principal and accrued
interest, was outstanding under the promissory note.
SALES OF SERIES A PREFERRED STOCK AND NOTES AND WARRANTS
On December 20, 2001, in connection with the financing of our acquisition of
Unipath Limited and its associated companies and assets (the "Unipath
Acquisition"), we sold 1,995,000 shares of Series A Preferred Stock at $30.00
per share for an aggregate consideration of $59.85 million. The Series A
Preferred Stock is currently convertible into shares of common stock at a
2-for-1 ratio, subject to adjustment. Among the purchasers of the Series A
Preferred Stock were the following directors and related persons and entities:
The Ernest A. Carabillo, Jr. Trust (10,000 shares for $300,000); Robert P.
Khederian (100,000 shares for $3,000,000); The Avram J. Goldberg and Carol R.
Goldberg Charitable Remainder Unitrust (8,333 shares for $250,000); The Sidney
R. Rabb Trust f/b/o Carol Goldberg (8,333 shares for $250,000); Zwanziger Family
Ventures (500,000 shares for $15,000,000); Orit Goldstein (333,333 shares for
$10,0000) and Arie H. Zwanziger and Miriam Zwanziger (33,333 shares for
$1,000,000). Ernest A. Carabillo, Jr. is a trustee and the beneficiary of the
Ernest A. Carabillo, Jr. Trust. Carol R. Goldberg is a trustee of The Avram J.
Goldberg and Carol R. Goldberg Charitable Remainder Unitrust, and is a trustee
and the sole beneficiary of the Sidney R. Rabb Trust f/b/o Carol Goldberg. Ron
Zwanziger is a manager of Zwanziger Family Ventures. Zwanziger Family Ventures
is also a beneficial owner of over 5% of our common stock and, by virtue of this
transaction, over 5% of the Series A Preferred Stock. Orit Goldstein is the
sister of Ron Zwanziger, and Arie H. Zwanziger and Miriam Zwanziger are the
parents of Ron Zwanziger.
On December 20, 2001, in connection with the financing of the Unipath
Acquisition, we also sold subordinated promissory notes and warrants to purchase
common stock for an aggregate purchase price of $20.0 million. The notes had an
aggregate face value of $20.0 million and, under certain circumstances, were
convertible into shares of Series A Preferred Stock at a conversion price of
$30.00 per share. The warrants are exercisable for an aggregate of 55,189 shares
of common stock at a purchase price of $18.12 per share. Among the purchasers of
these notes and warrants was Zwanziger Family Ventures, which purchased a
$10.0 million promissory note and a warrant to purchase 27,594 shares of common
stock. The aggregate consideration paid by Zwanziger Family Ventures for this
note and warrant was $10.0 million. On March 6, 2002 we retired all of these
subordinated promissory notes using the proceeds from the sale of 531,913 shares
of Series A Preferred Stock completed earlier that same day. Zwanziger Family
Ventures received approximately $10.28 million, including accrued interest, to
retire the subordinated promissory note it held.
OPTION AND WARRANT GRANT RELATED TO LOCK UP AGREEMENTS
On December 20, 2001, in connection with the financing of the Unipath
Acquisition, we obtained a mezzanine credit facility from RBS Mezzanine Limited
in the aggregate principal amount of $10.0 million. In connection with the
provision of this facility, Ron Zwanziger and Zwanziger Family Ventures were
required to enter into a Lock Up Agreement restricting their ability to dispose
of our securities. In consideration for entering into the Lock Up Agreement, we
granted Mr. Zwanziger a ten-year option to purchase 115,000 shares of common
stock at an exercise price of $17.15 per share (the fair value of our common
stock on the date of grant) and Zwanziger Family Ventures a five-year warrant to
purchase 385,000 shares of common stock at an exercise price of $17.15 per share
(the fair value of our common stock on the date of grant). Both the option and
the warrant are immediately exercisable. On March 1, 2002, Mr. Zwanziger
voluntarily waived his rights to purchase 50,000 shares of common stock under
the option granted to him in consideration of an agreement by us to amend the
terms by which we can repurchase certain shares of restricted stock owned by him
in the event that he ceases to be employed by us.
27
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our officers and directors and
persons who own more than 10% of our outstanding shares of common stock to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission and AMEX. Such persons are required by applicable regulations to
furnish us with copies of all reports filed pursuant to Section 16(a).
To our knowledge, based solely on a review of the copies of such reports
received by us and certain written representations that no other reports were
required, we believe that for the fiscal year ended December 31, 2001, all
Section 16(a) filing requirements applicable to its officers, directors and 10%
beneficial owners were complied with, except that one 10% beneficial owner,
Zwanziger Family Ventures, LLC, inadvertently filed its Form 3 late.
STOCKHOLDER PROPOSALS
Stockholders who wish to present proposals pursuant to Rule 14a-8
promulgated under the Securities Exchange Act of 1934 for consideration at our
2003 annual meeting of stockholders must submit the proposals in proper form to
us at the address set forth on the first page of this proxy statement not later
than December 25, 2002 in order for the proposals to be considered for inclusion
in our proxy statement and form of proxy relating to the 2003 annual meeting.
Stockholder proposals intended to be presented at our 2003 annual meeting
submitted outside the processes of Rule 14a-8 must be received in writing by us
no later than March 7, 2003, nor earlier than February 5, 2003, together with
all supporting documentation required by our bylaws. Proxies solicited by the
Board will confer discretionary voting authority with respect to these
proposals, subject to SEC rules governing the exercise of this authority.
OTHER INFORMATION
A COPY OF THE OUR ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL
STATEMENTS AND THE FINANCIAL STATEMENT SCHEDULES, FOR THE YEAR ENDED
DECEMBER 31, 2001, AS AMENDED (THE "ANNUAL REPORT"), SHALL BE PROVIDED WITHOUT
CHARGE TO EACH PERSON SOLICITED HEREBY UPON THE WRITTEN REQUEST MADE TO:
INVERNESS MEDICAL INNOVATIONS, INC.
Investor Relations Department
51 Sawyer Road Suite 200
Waltham, MA 02453-3448
Attn: Doug Guarino
IN ADDITION, COPIES OF ANY EXHIBITS TO THE ANNUAL REPORT WILL BE PROVIDED
FOR A NOMINAL CHARGE TO STOCKHOLDERS WHO MAKE A WRITTEN REQUEST TO US AT THE
ABOVE ADDRESS.
The Board is aware of no other matters, except for those incident to the
conduct of the annual meeting, that are to be presented to stockholders for
formal action at the annual meeting. If, however, any other matters properly
come before the annual meeting or any adjournments thereof, it is the intention
of the persons named in the proxy to vote the proxy in accordance with their
judgment.
By order of the Board
Ron Zwanziger
Chairman, Chief Executive Officer and President
April 29, 2002
28
APPENDIX A--AUDIT COMMITTEE CHARTER
INVERNESS MEDICAL INNOVATIONS, INC.
AUDIT COMMITTEE CHARTER
I. GENERAL STATEMENT OF PURPOSE
The Audit Committee of the Board of Directors (the "Audit Committee") of
Inverness Medical Innovations, Inc. (the "Company") oversees on behalf of the
Board of Directors (the "Board") management's and the independent auditor's
participation in the Company's financial reporting process. The primary
objective of the Audit Committee in exercising its oversight function is to
promote and preserve the integrity of the Company's financial statements and the
independence of the Company's independent auditor.
II. AUDIT COMMITTEE COMPOSITION
The Audit Committee shall consist of at least three members who shall be
appointed annually by the Board and shall satisfy the qualification requirements
set forth in Section 121 of the Rules of the American Stock Exchange LLC. The
Board shall designate one member of the Audit Committee to be Chairman of the
committee.
III. MEETINGS
The Audit Committee generally is to meet four times per year in person or by
telephone conference call, with any additional meetings as deemed necessary by
the Audit Committee.
IV. AUDIT COMMITTEE ACTIVITIES
The principal activities of the Audit Committee will generally include the
following:
A. REVIEW OF CHARTER
- Review and reassess the adequacy of this Charter annually and submit it
to the Board for approval.
B. AUDITED FINANCIAL STATEMENTS AND ANNUAL AUDIT
- Review the overall audit plan with the independent auditor and the
members of management who are responsible for preparing the Company's
financial statements, including the Company's Chief Financial Officer
and/or principal accounting officer or principal financial officer (the
Chief Financial Officer and such other officer or officers are referred
to herein collectively as the "Senior Accounting Executive").
- Review and discuss with management (including the Company's Senior
Accounting Executive) and with the independent auditor:
(i) the Company's annual audited financial statements, including any
significant financial reporting issues that have arisen in
connection with the preparation of such audited financial
statements;
(ii) the adequacy of the Company's internal financial reporting
controls that could significantly affect the integrity of the
Company's financial statements; and
(iii) major changes in and other questions regarding accounting and
auditing principles and procedures.
- Review and discuss with the independent auditor (outside of the
presence of management) how the independent auditor plans to handle its
responsibilities under the Private Securities Litigation Reform Act of
1995.
- Review and discuss with the independent auditor (outside of the
presence of management) any problems or difficulties that the auditor
may have encountered with management or others and any management
letter provided by the auditor and the Company's response to that
letter. This review shall include considering any difficulties
encountered by the auditor in the course of performing its audit work,
including any restrictions on the scope of its activities or its access
to information.
- Review and discuss with management and the independent auditor such
issues as may be brought to the Audit Committee's attention by the
independent auditor pursuant to Statement on Auditing Standards No. 61
("SAS 61").
- Based on the Audit Committee's review and discussions (1) with
management of the audited financial statements, (2) with the
independent auditor of the matters required to be discussed by SAS 61,
and (3) with the independent auditor concerning the independent
auditor's independence, make a recommendation to the Board as to
whether the Company's audited financial statements should be included
in the Company's annual Report on Form 10-K.
- Prepare the Audit Committee report required by Item 306 of
Regulation S-K of the Securities Exchange Act of 1934 (or any successor
provision) to be included in the Company's annual proxy statement.
C. UNAUDITED QUARTERLY FINANCIAL STATEMENTS
- Review and discuss with management and the independent auditor such
issues as may be brought to the Audit Committee's attention by the
independent auditor pursuant to Statement on Auditing Standards
No. 71.
D. MATTERS RELATING TO SELECTION, PERFORMANCE AND INDEPENDENCE OF
INDEPENDENT AUDITOR
- Recommend to the Board the appointment of the independent auditor.
- Instruct the independent auditor that the independent auditor's
ultimate accountability is to the Board and the Audit Committee as
representatives of the Company's shareholders.
- Evaluate on an annual basis the performance of the independent auditor
and, if necessary in the judgment of the Audit Committee, recommend
that the Board replace the independent auditor.
- Recommend to the Board on an annual basis the fees to be paid to the
independent auditor.
- Request that the independent auditor provide the Audit Committee with
the written disclosures and the letter required by Independence
Standards Board Standard No. 1, as may be modified or supplemented,
discuss with the independent auditor any disclosed relationships or
services that may impact the objectivity and independence of the
independent auditor, and based on such discussion take or recommend
that the Board take appropriate action to oversee the independence of
the independent auditor.
E. GENERAL
- The Audit Committee may be requested by the Board to review or
investigate on behalf of the Board activities of the Company or of its
employees, including compliance with laws, regulations or Company
policies.
- The Audit Committee may consider the matters referred to in Item
9(e)(4) of Regulation 14A of the Securities Exchange Act of 1934 (or
any successor provision) in performing its oversight function
hereunder.
2
- The Audit Committee may perform such other oversight functions as may
be requested by the Board from time to time.
- In performing its oversight function, the Audit Committee shall be
entitled to rely upon advice and information that it receives in its
discussions and communications with management, the independent auditor
and such experts, advisors and professionals consulted with by the
Audit Committee. The Audit Committee shall have the authority to retain
special legal, accounting or other experts, advisors or professionals
to render advice to the committee. The Audit Committee shall have the
authority to request that any officer or employee of the Company, the
Company's outside legal counsel, the Company's independent auditor or
any other professional retained by the Company to render advice to the
Company attend a meeting of the Audit Committee or meet with any
members of or advisors to the Audit Committee.
- Notwithstanding the responsibilities and powers of the Audit Committee
set forth in this Charter, the Audit Committee does not have the
responsibility of planning or conducting audits of the Company's
financial statements or determining whether or not the Company's
financial statements are complete, accurate and in accordance with
generally accepted accounting principles. Such responsibilities are the
duty of management and, to the extent of the independent auditor's
audit responsibilities, the independent auditor. It also is not the
duty of the Audit Committee to resolve disagreements, if any, between
management and the independent auditor or to ensure compliance with
laws, regulations or Company policies.
3
INVERNESS MEDICAL
INNOVATIONS, INC.
C/O EQUISERVE
P.O. BOX 43068
PROVIDENCE, RI 02940
----------------- ----------------
VOTE BY TELEPHONE VOTE BY INTERNET
----------------- ----------------
It's fast, convenient, and immediate! It's fast, convenient, and your vote is
Call Toll-Free on a Touch-Tone Phone immediately confirmed and posted.
1-877-PRX-VOTE (1-877-779-8683).
------------------------------------ ---------------------------------------
Follow these four easy steps: Follow these four easy steps:
1. Read the accompanying Proxy 1. Read the accompanying Proxy
Statement/Prospectus and Proxy Statement/Prospectus and Proxy
Card. Card.
2. Call the toll-free number 2. Go to the Website
1-877-PRX-VOTE (1-877-779-8683). http://www.eproxyvote.com/ima
3. Enter your Voter Control Number 3. Enter your Voter Control Number
located on your Proxy Card above located on your Proxy Card above
your name. your name.
4. Follow the recorded instructions. 4. Follow the instructions provided.
------------------------------------ ---------------------------------------
Your vote is important! Your vote is important!
Call 1-877-PRX-VOTE anytime! Go to http://www.eproxyvote.com/ima
anytime!
DO NOT RETURN YOUR PROXY CARD IF YOU ARE VOTING BY TELEPHONE OR INTERNET
DETACH HERE
Please mark
|X| votes as in
this example.
------------------------------------------------------------------------------
INVERNESS MEDICAL INNOVATIONS, INC.
------------------------------------------------------------------------------
COMMON STOCK
The Board of Directors recommends that you vote for all nominees listed in
Proposal 1 and for Proposal 2.
1. Election of Directors
Nominees: (01) Ernest A. Carabillo, Jr. and (02) John F. Levy
FOR WITHHELD
ALL | | | | FROM ALL
NOMINEES NOMINEES
| | _________________________________________
For all nominees except as noted above
FOR AGAINST ABSTAIN
2. Approval and adoption of an amendment to the
2001 Stock Option and Incentive Plan to | | | | | |
increase the number of shares of Common
Stock that are available to be issued pursuant
to grants or awards made thereunder from
3,824,081 shares to 4,824,081 shares.
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
Mark box at right if an address change or comment has been noted on the | |
reverse side of this card.
Please sign this proxy exactly as name appears hereon. When shares are held
by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
Signature: _______________ Date: ______ Signature: ______________ Date: ______
CONSENT TO OBTAIN FUTURE STOCKHOLDER-RELATED MATERIALS
ELECTRONICALLY INSTEAD OF BY MAIL
The Inverness Medical Innovations, Inc. (the "Company") stockholders may
consent to receive future stockholder-related materials, including notices of
stockholder meetings, proxy solicitation materials, annual reports and any
other stockholder-related materials which may be delivered electronically,
through the Internet instead of receiving copies through the mail. The
Company is offering this service to provide added convenience to its
stockholders, to reduce printing and mailing costs and to help preserve our
environment.
To consent to receive future stockholder-related materials electronically, go
to the website http://www.econsent.com/ima. If the Company elects to deliver
any future stockholder-related materials electronically, stockholders who
have consented to receive these materials electronically will be notified by
electronic mail how to access these materials and how to vote their shares on
the Internet.
To take advantage of this option, stockholders must have access to the world
wide web. Costs normally associated with electronic access, such as usage and
telephone charges, will be the responsibility of the stockholder.
If you consent to receive the Company's future stockholder-related materials
electronically, your consent will remain in effect unless it is withdrawn by
calling, writing, or electronically mailing the Company's Transfer Agent,
EquiServe Trust Company, N.A. (EquiServe), at 1-877-282-1168; P.O. Box 43068,
Providence, RI 02940-3011; www.equiserve.com. Also, if while this consent is
in effect you decide you would like to receive a hard copy of any
electronically posted stockholder-related materials, you may call, write or
electronically mail the Company's Transfer Agent.
PLEASE NOTE THAT EVEN IF YOU HAVE CONSENTED TO RECEIVE STOCKHOLDER-RELATED
MATERIALS ELECTRONICALLY, THE COMPANY MAY CONTINUE TO ONLY SEND THESE
MATERIALS TO YOU BY MAIL AND YOU MUST CONTINUE TO MAINTAIN A CURRENT MAILING
ADDRESS WITH THE COMPANY'S TRANSFER AGENT.
INVERNESS MEDICAL INNOVATIONS, INC.
51 SAWYER ROAD, SUITE 200
WALTHAM, MASSACHUSETTS 02453
Proxy For Annual Meeting Of Stockholders To Be Held June 5, 2002
This Proxy Is Solicited On Behalf Of The Board Of Directors
The undersigned hereby appoints RON ZWANZIGER and PAUL T. HEMPEL, and
each of them acting singly, Proxies, with full power of substitution in each
of them, in the name, place and stead of the undersigned, to vote all shares
of the common stock of Inverness Medical Innovations, Inc. which the
undersigned is entitled to vote at the Annual Meeting of Stockholders of
Inverness Medical Innovations,Inc. to be held on June 5, 2002, at 12:30 P.M.
at the Harvard Club of Boston, Downtown Clubhouse, One Federal Street,
Boston, MA 02110-2069, or at any adjournment or postponement thereof, upon
the matters set forth on the reverse side.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS GIVEN ON THE
REVERSE SIDE. IF NO INSTRUCTIONS ARE GIVEN, THIS PROXY WILL BE VOTED FOR EACH
OF THE PROPOSALS LISTED ON THE REVERSE SIDE.
------------------------------------------------------------------------------
PLEASE VOTE, DATE AND SIGN ON REVERSE AND
RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
------------------------------------ ----------------------------------------
------------------------------------ ----------------------------------------
------------------------------------ ----------------------------------------
INVERNESS MEDICAL
INNOVATIONS, INC.
C/O EQUISERVE
P.O. BOX 43068
PROVIDENCE, RI 02940
----------------- ----------------
VOTE BY TELEPHONE VOTE BY INTERNET
----------------- ----------------
It's fast, convenient, and immediate! It's fast, convenient, and your vote is
Call Toll-Free on a Touch-Tone Phone immediately confirmed and posted.
1-877-PRX-VOTE (1-877-779-8683).
------------------------------------ ---------------------------------------
Follow these four easy steps: Follow these four easy steps:
1. Read the accompanying Proxy 1. Read the accompanying Proxy
Statement/Prospectus and Proxy Statement/Prospectus and Proxy
Card. Card.
2. Call the toll-free number 2. Go to the Website
1-877-PRX-VOTE (1-877-779-8683). http://www.eproxyvote.com/ima
3. Enter your Voter Control Number 3. Enter your Voter Control Number
located on your Proxy Card above located on your Proxy Card above
your name. your name.
4. Follow the recorded instructions. 4. Follow the instructions provided.
------------------------------------ ---------------------------------------
Your vote is important! Your vote is important!
Call 1-877-PRX-VOTE anytime! Go to http://www.eproxyvote.com/ima
anytime!
DO NOT RETURN YOUR PROXY CARD IF YOU ARE VOTING BY TELEPHONE OR INTERNET
DETACH HERE
Please mark
|X| votes as in
this example.
------------------------------------------------------------------------------
INVERNESS MEDICAL INNOVATIONS, INC.
------------------------------------------------------------------------------
SERIES A CONVERTIBLE PREFERRED STOCK
The Board of Directors recommends that you vote for Proposal 1.
FOR AGAINST ABSTAIN
1. Approval and adoption of an amendment to the
2001 Stock Option and Incentive Plan to | | | | | |
increase the number of shares of Common
Stock that are available to be issued pursuant
to grants or awards made thereunder from
3,824,081 shares to 4,824,081 shares.
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
Mark box at right if an address change or comment has been noted on the | |
reverse side of this card.
Please sign this proxy exactly as name appears hereon. When shares are held
by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
Signature: _______________ Date: ______ Signature: ______________ Date: ______
CONSENT TO OBTAIN FUTURE STOCKHOLDER-RELATED MATERIALS
ELECTRONICALLY INSTEAD OF BY MAIL
The Inverness Medical Innovations, Inc. (the "Company") stockholders may
consent to receive future stockholder-related materials, including notices of
stockholder meetings, proxy solicitation materials, annual reports and any
other stockholder-related materials which may be delivered electronically,
through the Internet instead of receiving copies through the mail. The
Company is offering this service to provide added convenience to its
stockholders, to reduce printing and mailing costs and to help preserve our
environment.
To consent to receive future stockholder-related materials electronically, go
to the website http://www.econsent.com/ima. If the Company elects to deliver
any future stockholder-related materials electronically, stockholders who
have consented to receive these materials electronically will be notified by
electronic mail how to access these materials and how to vote their shares on
the Internet.
To take advantage of this option, stockholders must have access to the world
wide web. Costs normally associated with electronic access, such as usage and
telephone charges, will be the responsibility of the stockholder.
If you consent to receive the Company's future stockholder-related materials
electronically, your consent will remain in effect unless it is withdrawn by
calling, writing, or electronically mailing the Company's Transfer Agent,
EquiServe Trust Company, N.A. (EquiServe), at 1-877-282-1168; P.O. Box 43068,
Providence, RI 02940-3011; www.equiserve.com. Also, if while this consent is
in effect you decide you would like to receive a hard copy of any
electronically posted stockholder-related materials, you may call, write or
electronically mail the Company's Transfer Agent.
PLEASE NOTE THAT EVEN IF YOU HAVE CONSENTED TO RECEIVE STOCKHOLDER-RELATED
MATERIALS ELECTRONICALLY, THE COMPANY MAY CONTINUE TO ONLY SEND THESE
MATERIALS TO YOU BY MAIL AND YOU MUST CONTINUE TO MAINTAIN A CURRENT MAILING
ADDRESS WITH THE COMPANY'S TRANSFER AGENT.
INVERNESS MEDICAL INNOVATIONS, INC.
51 SAWYER ROAD, SUITE 200
WALTHAM, MASSACHUSETTS 02453
Proxy For Annual Meeting Of Stockholders To Be Held June 5, 2002
This Proxy Is Solicited On Behalf Of The Board Of Directors
The undersigned hereby appoints RON ZWANZIGER and PAUL T. HEMPEL, and
each of them acting singly, Proxies, with full power of substitution in each
of them, in the name, place and stead of the undersigned, to vote all shares
of Series A Convertible Preferred Stock of Inverness Medical Innovations,
Inc. which the undersigned is entitled to vote at the Annual Meeting of
Stockholders of Inverness Medical Innovations,Inc. to be held on June 5,
2002, at 12:30 P.M. at the Harvard Club of Boston, Downtown Clubhouse, One
Federal Street, Boston, MA 02110-2069, or at any adjournment or postponement
thereof, upon the matters set forth on the reverse side.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS GIVEN ON THE
REVERSE SIDE. IF NO INSTRUCTIONS ARE GIVEN, THIS PROXY WILL BE VOTED FOR EACH
OF THE PROPOSALS LISTED ON THE REVERSE SIDE.
------------------------------------------------------------------------------
PLEASE VOTE, DATE AND SIGN ON REVERSE AND
RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
------------------------------------ ----------------------------------------
------------------------------------ ----------------------------------------
------------------------------------ ----------------------------------------
EXHIBIT A
EXPLANATORY NOTE: This Exhibit A contains a copy of the Inverness Medical
Innovations, Inc. 2001 Stock Option and Incentive Plan, as amended by the
proposed amendment described in the proxy statement to which this Exhibit A is
attached."
INVERNESS MEDICAL INNOVATIONS, INC.
2001 STOCK OPTION AND INCENTIVE PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
The name of the plan is the Inverness Medical Innovations, Inc. 2001
Stock Option and Incentive Plan (the "Plan"). The purpose of the Plan is to
encourage and enable the officers, employees, Independent Directors and other
key persons (including consultants) of Inverness Medical Innovations, Inc. (the
"Company") and its Subsidiaries upon whose judgment, initiative and efforts the
Company largely depends for the successful conduct of its business to acquire a
proprietary interest in the Company. It is anticipated that providing such
persons with a direct stake in the Company's welfare will assure a closer
identification of their interests with those of the Company, thereby stimulating
their efforts on the Company's behalf and strengthening their desire to remain
with the Company.
The following terms shall be defined as set forth below:
"ACT" means the Securities Act of 1933, as amended, and the rules and
regulations thereunder.
"ADMINISTRATOR" is defined in Section 2(a).
"AWARD" or "AWARDS," except where referring to a particular category of
grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock
Options, Deferred Stock Awards, Restricted Stock Awards, Unrestricted Stock
Awards, Performance Share Awards and Dividend Equivalent Rights.
"BOARD" means the Board of Directors of the Company.
"CHANGE OF CONTROL" is defined in Section 15.
"CODE" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"COMMITTEE" means the Committee of the Board referred to in Section 2.
"COVERED EMPLOYEE" means an employee who is a "Covered Employee" within
the meaning of Section 162(m) of the Code.
"DEFERRED STOCK AWARD" means Awards granted pursuant to Section 7.
"DIVIDEND EQUIVALENT RIGHT" means Awards granted pursuant to Section 10.
"EFFECTIVE DATE" means the date on which the Plan is approved by
stockholders as set forth in Section 17.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder.
"FAIR MARKET VALUE" of the Stock on any given date means the fair market
value of the Stock determined in good faith by the Administrator; provided,
however, that if the Stock is admitted to quotation on the National Association
of Securities Dealers Automated Quotation System ("NASDAQ") or a national
securities exchange, the determination shall be made by reference to market
quotations. If there are no market quotations for such date, the determination
shall be made by reference to the last date preceding such date for which there
are market quotations.
"INCENTIVE STOCK OPTION" means any Stock Option designated and qualified
as an "incentive stock option" as defined in Section 422 of the Code.
"INDEPENDENT DIRECTOR" means a member of the Board who is not also an
employee of the Company or any Subsidiary.
"NON-QUALIFIED STOCK OPTION" means any Stock Option that is not an
Incentive Stock Option.
"OPTION" or "STOCK OPTION" means any option to purchase shares of Stock
granted pursuant to Section 5.
"PERFORMANCE SHARE AWARD" means Awards granted pursuant to Section 9.
"RESTRICTED STOCK AWARD" means Awards granted pursuant to Section 6.
"STOCK" means the Common Stock, par value $0.001 per share, of the
Company, subject to adjustments pursuant to Section 3.
"SUBSIDIARY" means any corporation or other entity (other than the
Company) in which the Company has a controlling interest, either directly or
indirectly.
"UNRESTRICTED STOCK AWARD" means any Award granted pursuant to Section 8.
SECTION 2. ADMINISTRATION OF PLAN; ADMINISTRATOR AUTHORITY TO SELECT GRANTEES
AND DETERMINE AWARDS
(a) COMMITTEE. The Plan shall be administered by either the Board or a
committee of not less than two Independent Directors (in either case, the
"Administrator").
2
(b) POWERS OF ADMINISTRATOR. The Administrator shall have the power and
authority to grant Awards consistent with the terms of the Plan, including the
power and authority:
(i) to select the individuals to whom Awards may from time to time
be granted;
(ii) to determine the time or times of grant, and the extent, if
any, of Incentive Stock Options, Non-Qualified Stock Options, Restricted Stock
Awards, Deferred Stock Awards, Unrestricted Stock Awards, Performance Share
Awards and Dividend Equivalent Rights or any combination of the foregoing,
granted to any one or more grantees;
(iii) to determine the number of shares of Stock to be covered by
any Award;
(iv) to determine and modify from time to time the terms and
conditions, including restrictions, not inconsistent with the terms of the Plan,
of any Award, which terms and conditions may differ among individual Awards and
grantees, and to approve the form of written instruments evidencing the Awards;
(v) to accelerate at any time the exercisability or vesting of all
or any portion of any Award;
(vi) subject to the provisions of Section 5(a)(ii), to extend at any
time the period in which Stock Options may be exercised;
(vii) to determine at any time whether, to what extent, and under
what circumstances distribution or the receipt of Stock and other amounts
payable with respect to an Award shall be deferred either automatically or at
the election of the grantee and whether and to what extent the Company shall pay
or credit amounts constituting interest (at rates determined by the
Administrator) or dividends or deemed dividends on such deferrals; and
(viii) at any time to adopt, alter and repeal such rules, guidelines
and practices for administration of the Plan and for its own acts and
proceedings as it shall deem advisable; to interpret the terms and provisions of
the Plan and any Award (including related written instruments); to make all
determinations it deems advisable for the administration of the Plan; to decide
all disputes arising in connection with the Plan; and to otherwise supervise the
administration of the Plan.
All decisions and interpretations of the Administrator shall be binding
on all persons, including the Company and Plan grantees.
(c) DELEGATION OF AUTHORITY TO GRANT AWARDS. The Administrator, in its
discretion, may delegate to the Chief Executive Officer of the Company all or
part of the Administrator's authority and duties with respect to the granting of
Awards at Fair Market Value, to individuals who are not subject to the reporting
and other provisions of Section 16 of the Exchange Act or Covered Employees. Any
such delegation by the Administrator shall include a limitation as to the amount
of Awards that may be granted during the period of the delegation and shall
contain guidelines as to the determination of the exercise price of any Stock
Option, the conversion ratio or price of other Awards and the vesting criteria.
The Administrator may revoke or amend the
3
terms of a delegation at any time but such action shall not invalidate any prior
actions of the Administrator's delegate or delegates that were consistent with
the terms of the Plan.
(d) INDEMNIFICATION. Neither the Board nor the Committee, nor any member
of either or any delegatee thereof, shall be liable for any act, omission,
interpretation, construction or determination made in good faith in connection
with the Plan, and the members of the Board and the Committee (and any delegatee
thereof) shall be entitled in all cases to indemnification and reimbursement by
the Company in respect of any claim, loss, damage or expense (including, without
limitation, reasonable attorneys' fees) arising or resulting therefrom to the
fullest extent permitted by law and/or under any directors' and officers'
liability insurance coverage which may be in effect from time to time.
SECTION 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION
(a) STOCK ISSUABLE. The maximum number of shares of Stock reserved and
available for issuance under the Plan shall be 4,824,081 shares, subject to
adjustment as provided in Section 3(b). For purposes of this limitation, the
shares of Stock underlying any Awards which are forfeited, canceled, reacquired
by the Company, satisfied without the issuance of Stock or otherwise terminated
(other than by exercise) shall be added back to the shares of Stock available
for issuance under the Plan. Subject to such overall limitation, shares of Stock
may be issued up to such maximum number pursuant to any type or types of Award;
provided, however, Stock Options with respect to no more than 1,529,632 shares
of Stock may be granted to any one individual grantee during any one calendar
year period. The shares available for issuance under the Plan may be authorized
but unissued shares of Stock or shares of Stock reacquired by the Company and
held in its treasury.
(b) CHANGES IN STOCK. Subject to Section 3(c) hereof, if, as a result of
any reorganization, recapitalization, reclassification, stock dividend, stock
split, reverse stock split or other similar change in the Company's capital
stock, the outstanding shares of Stock are increased or decreased or are
exchanged for a different number or kind of shares or other securities of the
Company, or additional shares or new or different shares or other securities of
the Company or other non-cash assets are distributed with respect to such shares
of Stock or other securities, or, if, as a result of any merger or
consolidation, sale of all or substantially all of the assets of the Company,
the outstanding shares of Stock are converted into or exchanged for a different
number or kind of securities of the Company or any successor entity (or a parent
or subsidiary thereof), the Administrator shall make an appropriate or
proportionate adjustment in (i) the maximum number of shares reserved for
issuance under the Plan, (ii) the number of Stock Options that can be granted to
any one individual grantee, (iii) the number and kind of shares or other
securities subject to any then outstanding Awards under the Plan, (iv) the
repurchase price per share subject to each outstanding Restricted Stock Award,
and (v) the price for each share subject to any then outstanding Stock Options
under the Plan, without changing the aggregate exercise price (i.e., the
exercise price multiplied by the number of Stock Options) as to which such Stock
Options remain exercisable. The adjustment by the Administrator shall be final,
binding and conclusive. No fractional shares of Stock shall be issued under the
Plan resulting from any such adjustment, but the Administrator in its discretion
may make a cash payment in lieu of fractional shares.
4
The Administrator may also adjust the number of shares subject to
outstanding Awards and the exercise price and the terms of outstanding Awards to
take into consideration material changes in accounting practices or principles,
extraordinary dividends, acquisitions or dispositions of stock or property or
any other event if it is determined by the Administrator that such adjustment is
appropriate to avoid distortion in the operation of the Plan, provided that no
such adjustment shall be made in the case of an Incentive Stock Option, without
the consent of the grantee, if it would constitute a modification, extension or
renewal of the Option within the meaning of Section 424(h) of the Code.
(c) MERGERS AND OTHER TRANSACTIONS. In the case of and subject to the
consummation of (i) the dissolution or liquidation of the Company, (ii) the sale
of all or substantially all of the assets of the Company on a consolidated basis
to an unrelated person or entity, (iii) a merger, reorganization or
consolidation in which the outstanding shares of Stock are converted into or
exchanged for a different kind of securities of the successor entity and the
holders of the Company's outstanding voting power immediately prior to such
transaction do not own a majority of the outstanding voting power of the
successor entity immediately upon completion of such transaction, or (iv) the
sale of all of the Stock of the Company to an unrelated person or entity (in
each case, a "Sale Event"), upon the effective time of the Sale Event, the Plan
and all outstanding Awards granted hereunder shall terminate, unless provision
is made in connection with the Sale Event in the sole discretion of the parties
thereto for the assumption or continuation of Awards theretofore granted by the
successor entity, or the substitution of such Awards with new Awards of the
successor entity or parent thereof, with appropriate adjustment as to the number
and kind of shares and, if appropriate, the per share exercise prices, as such
parties shall agree (after taking into account any acceleration hereunder). In
the event of such termination, each grantee shall be permitted, within a
specified period of time prior to the consummation of the Sale Event as
determined by the Administrator, to exercise all outstanding Options held by
such grantee, including those that will become exercisable upon the consummation
of the Sale Event; provided, however, that the exercise of Options not
exercisable prior to the Sale Event shall be subject to the consummation of the
Sale Event.
Notwithstanding anything to the contrary in this Section 3(c), in the
event of a Sale Event pursuant to which holders of the Stock of the Company will
receive upon consummation thereof a cash payment for each share surrendered in
the Sale Event, the Company shall have the right, but not the obligation, to
make or provide for a cash payment to the grantees holding Options, in exchange
for the cancellation thereof, in an amount equal to the difference between (A)
the value as determined by the Administrator of the consideration payable per
share of Stock pursuant to the Sale Event (the "Sale Price") times the number of
shares of Stock subject to outstanding Options (to the extent then exercisable
at prices not in excess of the Sale Price) and (B) the aggregate exercise price
of all such outstanding Options.
(d) SUBSTITUTE AWARDS. The Administrator may grant Awards under the Plan
in substitution for stock and stock based awards held by employees, directors or
other key persons of another corporation in connection with the merger or
consolidation of the employing corporation with the Company or a Subsidiary or
the acquisition by the Company or a Subsidiary of property or stock of the
employing corporation. The Administrator may direct that the substitute awards
be granted on such terms and conditions as the Administrator considers
5
appropriate in the circumstances. Any substitute Awards granted under the Plan
shall not count against the share limitation set forth in Section 3(a).
SECTION 4. ELIGIBILITY
Grantees under the Plan will be such full or part-time officers and other
employees, Independent Directors and key persons (including consultants and
prospective employees) of the Company and its Subsidiaries as are selected from
time to time by the Administrator in its sole discretion.
SECTION 5. STOCK OPTIONS
Any Stock Option granted under the Plan shall be in such form as the
Administrator may from time to time approve.
Stock Options granted under the Plan may be either Incentive Stock
Options or Non-Qualified Stock Options. Incentive Stock Options may be granted
only to employees of the Company or any Subsidiary that is a "subsidiary
corporation" within the meaning of Section 424(f) of the Code. To the extent
that any Option does not qualify as an Incentive Stock Option, it shall be
deemed a Non-Qualified Stock Option.
No Incentive Stock Option shall be granted under the Plan after August
14, 2011.
(a) STOCK OPTIONS. Stock Options granted pursuant to this Section 5(a)
shall be subject to the following terms and conditions and shall contain such
additional terms and conditions, not inconsistent with the terms of the Plan, as
the Administrator shall deem desirable. If the Administrator so determines,
Stock Options may be granted in lieu of cash compensation at the optionee's
election, subject to such terms and conditions as the Administrator may
establish.
(i) EXERCISE PRICE. The exercise price per share for the Stock
covered by a Stock Option granted pursuant to this Section 5(a) shall be
determined by the Administrator at the time of grant but shall not be less than
100 percent of the Fair Market Value on the date of grant (other than options
granted in lieu of cash compensation). If an employee owns or is deemed to own
(by reason of the attribution rules of Section 424(d) of the Code) more than 10
percent of the combined voting power of all classes of stock of the Company or
any parent or subsidiary corporation and an Incentive Stock Option is granted to
such employee, the option price of such Incentive Stock Option shall be not less
than 110 percent of the Fair Market Value on the grant date.
(ii) OPTION TERM. The term of each Stock Option shall be fixed by
the Administrator, but no Stock Option shall be exercisable more than 10 years
after the date the Stock Option is granted. If an employee owns or is deemed to
own (by reason of the attribution rules of Section 424(d) of the Code) more than
10 percent of the combined voting power of all classes of stock of the Company
or any parent or subsidiary corporation and an Incentive Stock Option is granted
to such employee, the term of such Stock Option shall be no more than five years
from the date of grant.
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(iii) EXERCISABILITY; RIGHTS OF A STOCKHOLDER. Stock Options shall
become exercisable at such time or times, whether or not in installments, as
shall be determined by the Administrator at or after the grant date. The
Administrator may at any time accelerate the exercisability of all or any
portion of any Stock Option. An optionee shall have the rights of a stockholder
only as to shares acquired upon the exercise of a Stock Option and not as to
unexercised Stock Options.
(iv) METHOD OF EXERCISE. Stock Options may be exercised in whole or
in part, by giving written notice of exercise to the Company, specifying the
number of shares to be purchased. Payment of the purchase price may be made by
one or more of the following methods to the extent provided in the Option Award
agreement:
(A) In cash, by certified or bank check or other instrument
acceptable to the Administrator;
(B) Through the delivery (or attestation to the ownership) of
shares of Stock that have been purchased by the optionee on the open
market or that have been beneficially owned by the optionee for at least
six months and are not then subject to restrictions under any Company
plan. Such surrendered shares shall be valued at Fair Market Value on the
exercise date;
(C) By the optionee delivering to the Company a properly
executed exercise notice together with irrevocable instructions to a
broker to promptly deliver to the Company cash or a check payable and
acceptable to the Company for the purchase price; provided that in the
event the optionee chooses to pay the purchase price as so provided, the
optionee and the broker shall comply with such procedures and enter into
such agreements of indemnity and other agreements as the Administrator
shall prescribe as a condition of such payment procedure; or
(D) Any other method permitted by the Administrator.
Payment instruments will be received subject to collection. The delivery of
certificates representing the shares of Stock to be purchased pursuant to the
exercise of a Stock Option will be contingent upon receipt from the optionee (or
a purchaser acting in his stead in accordance with the provisions of the Stock
Option) by the Company of the full purchase price for such shares and the
fulfillment of any other requirements contained in the Option Award agreement or
applicable provisions of laws. In the event an optionee chooses to pay the
purchase price by previously-owned shares of Stock through the attestation
method, the number of shares of Stock transferred to the optionee upon the
exercise of the Stock Option shall be net of the number of shares attested to.
(v) ANNUAL LIMIT ON INCENTIVE STOCK OPTIONS. To the extent required
for "incentive stock option" treatment under Section 422 of the Code, the
aggregate Fair Market Value (determined as of the time of grant) of the shares
of Stock with respect to which Incentive Stock Options granted under this Plan
and any other plan of the Company or its parent and subsidiary corporations
become exercisable for the first time by an optionee during any calendar
7
year shall not exceed $100,000. To the extent that any Stock Option exceeds this
limit, it shall constitute a Non-Qualified Stock Option.
(b) RELOAD OPTIONS. At the discretion of the Administrator, Options
granted under the Plan may include a "reload" feature pursuant to which an
optionee exercising an option by the delivery of a number of shares of Stock in
accordance with Section 5(a)(iv)(B) hereof would automatically be granted an
additional Option (with an exercise price equal to the Fair Market Value of the
Stock on the date the additional Option is granted and with such other terms as
the Administrator may provide) to purchase that number of shares of Stock equal
to the sum of (i) the number delivered to exercise the original Option and (ii)
the number withheld to satisfy tax liabilities, with an Option term equal to the
remainder of the original Option term unless the Administrator otherwise
determines in the Award agreement for the original Option grant.
(c) NON-TRANSFERABILITY OF OPTIONS. No Stock Option shall be transferable
by the optionee otherwise than by will or by the laws of descent and
distribution and all Stock Options shall be exercisable, during the optionee's
lifetime, only by the optionee, or by the optionee's legal representative or
guardian in the event of the optionee's incapacity. Notwithstanding the
foregoing, the Administrator, in its sole discretion, may provide in the Award
agreement regarding a given Option that the optionee may transfer his
Non-Qualified Stock Options to members of his immediate family, to trusts for
the benefit of such family members, or to partnerships in which such family
members are the only partners, provided that the transferee agrees in writing
with the Company to be bound by all of the terms and conditions of this Plan and
the applicable Option.
(d) FORM OF SETTLEMENT. Shares of Stock issued upon exercise of a Stock
Option shall be free of all restrictions under the Plan, except as otherwise
provided in the Plan.
SECTION 6. RESTRICTED STOCK AWARDS
(a) NATURE OF RESTRICTED STOCK AWARDS. A Restricted Stock Award is an
Award entitling the recipient to acquire, at such purchase price as determined
by the Administrator, shares of Stock subject to such restrictions and
conditions as the Administrator may determine at the time of grant ("Restricted
Stock"). Conditions may be based on continuing employment (or other service
relationship) and/or achievement of pre-established performance goals and
objectives. The grant of a Restricted Stock Award is contingent on the grantee
executing the Restricted Stock Award agreement. The terms and conditions of each
such agreement shall be determined by the Administrator, and such terms and
conditions may differ among individual Awards and grantees.
(b) RIGHTS AS A STOCKHOLDER. Upon execution of a written instrument
setting forth the Restricted Stock Award and payment of any applicable purchase
price, a grantee shall have the rights of a stockholder with respect to the
voting of the Restricted Stock, subject to such conditions contained in the
written instrument evidencing the Restricted Stock Award. Unless the
Administrator shall otherwise determine, certificates evidencing the Restricted
Stock shall remain in the possession of the Company until such Restricted Stock
is vested as provided in Section 6(d) below, and the grantee shall be required,
as a condition of the grant, to deliver to the Company a stock power endorsed in
blank.
8
(c) RESTRICTIONS. Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided herein or in the Restricted Stock Award agreement. If a
grantee's employment (or other service relationship) with the Company and its
Subsidiaries terminates for any reason, the Company shall have the right to
repurchase Restricted Stock that has not vested at the time of termination at
its original purchase price, from the grantee or the grantee's legal
representative.
(d) VESTING OF RESTRICTED STOCK. The Administrator at the time of grant
shall specify the date or dates and/or the attainment of pre-established
performance goals, objectives and other conditions on which the
non-transferability of the Restricted Stock and the Company's right of
repurchase or forfeiture shall lapse. Subsequent to such date or dates and/or
the attainment of such pre-established performance goals, objectives and other
conditions, the shares on which all restrictions have lapsed shall no longer be
Restricted Stock and shall be deemed "vested." Except as may otherwise be
provided by the Administrator either in the Award agreement or, subject to
Section 13 below, in writing after the Award agreement is issued, a grantee's
rights in any shares of Restricted Stock that have not vested shall
automatically terminate upon the grantee's termination of employment (or other
service relationship) with the Company and its Subsidiaries and such shares
shall be subject to the Company's right of repurchase as provided in Section
6(c) above.
(e) RESTRICTION PERIOD. Restricted Stock vesting upon the attainment of
performance goals or objectives shall vest after a restriction period of not
less than one (1) year. All other Restricted Stock shall vest after a
restriction period of not less than three (3) years.
(f) WAIVER, DEFERRAL AND REINVESTMENT OF DIVIDENDS. The Restricted Stock
Award agreement may require or permit the immediate payment, waiver, deferral or
investment of dividends paid on the Restricted Stock.
SECTION 7. DEFERRED STOCK AWARDS
(a) NATURE OF DEFERRED STOCK AWARDS. A Deferred Stock Award is an Award
of phantom stock units to a grantee, subject to restrictions and conditions as
the Administrator may determine at the time of grant. Conditions may be based on
continuing employment (or other service relationship) and/or achievement of
pre-established performance goals and objectives. The grant of a Deferred Stock
Award is contingent on the grantee executing the Deferred Stock Award agreement.
The terms and conditions of each such agreement shall be determined by the
Administrator, and such terms and conditions may differ among individual Awards
and grantees. At the end of the deferral period, the Deferred Stock Award, to
the extent vested, shall be paid to the grantee in the form of shares of Stock.
(b) ELECTION TO RECEIVE DEFERRED STOCK AWARDS IN LIEU OF COMPENSATION.
The Administrator may, in its sole discretion, permit a grantee to elect to
receive a portion of the cash compensation or Restricted Stock Award otherwise
due to such grantee in the form of a Deferred Stock Award. Any such election
shall be made in writing and shall be delivered to the Company no later than the
date specified by the Administrator and in accordance with rules and procedures
established by the Administrator. The Administrator shall have the sole right to
determine
9
whether and under what circumstances to permit such elections and to impose such
limitations and other terms and conditions thereon as the Administrator deems
appropriate.
(c) RIGHTS AS A STOCKHOLDER. During the deferral period, a grantee shall
have no rights as a stockholder; provided, however, that the grantee may be
credited with Dividend Equivalent Rights with respect to the phantom stock units
underlying his Deferred Stock Award, subject to such terms and conditions as the
Administrator may determine.
(d) RESTRICTIONS. A Deferred Stock Award may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of during the deferral
period.
(e) TERMINATION. Except as may otherwise be provided by the Administrator
either in the Award agreement or, subject to Section 13 below, in writing after
the Award agreement is issued, a grantee's right in all Deferred Stock Awards
that have not vested shall automatically terminate upon the grantee's
termination of employment (or cessation of service relationship) with the
Company and its Subsidiaries for any reason.
SECTION 8. UNRESTRICTED STOCK AWARDS
(a) GRANT OR SALE OF UNRESTRICTED STOCK. The Administrator may, in its
sole discretion, grant (or sell at a purchase price determined by the
Administrator) an Unrestricted Stock Award to any grantee, pursuant to which
such grantee may receive shares of Stock free of any restrictions ("Unrestricted
Stock") under the Plan. Unrestricted Stock Awards may be granted or sold as
described in the preceding sentence in respect of past services or other valid
consideration, or in lieu of any cash compensation due to such participant.
(b) ELECTIONS TO RECEIVE UNRESTRICTED STOCK IN LIEU OF COMPENSATION. Upon
the request of a grantee and with the consent of the Administrator, each grantee
may, pursuant to an advance written election delivered to the Company no later
than the date specified by the Administrator, receive a portion of the cash
compensation otherwise due to such grantee in the form of shares of Unrestricted
Stock (valued at Fair Market Value on the date or dates the cash compensation
would otherwise be paid) either currently or on a deferred basis.
(c) RESTRICTIONS ON TRANSFERS. The right to receive shares of
Unrestricted Stock on a deferred basis may not be sold, assigned, transferred,
pledged or otherwise encumbered, other than by will or the laws of descent and
distribution.
SECTION 9. PERFORMANCE SHARE AWARDS
(a) NATURE OF PERFORMANCE SHARE AWARDS. A Performance Share Award is an
Award entitling the recipient to acquire shares of Stock upon the attainment of
specified performance goals. The Administrator may make Performance Share Awards
independent of or in connection with the granting of any other Award under the
Plan. The Administrator in its sole discretion shall determine whether and to
whom Performance Share Awards shall be made, the performance goals, the periods
during which performance is to be measured, and all other limitations and
conditions.
10
(b) RESTRICTIONS OF TRANSFER. Performance Share Awards, and all rights
with respect to such Awards may not be sold, assigned, transferred, pledged or
otherwise encumbered.
(c) RIGHTS AS A STOCKHOLDER. A grantee receiving a Performance Share
Award shall have the rights of a stockholder only as to shares actually received
by the grantee under the Plan and not with respect to shares subject to the
Award but not actually received by the grantee. A grantee shall be entitled to
receive a stock certificate evidencing the acquisition of shares of Stock under
a Performance Share Award only upon satisfaction of all conditions specified in
the Performance Share Award agreement (or in a performance plan adopted by the
Administrator).
(d) TERMINATION. Except as may otherwise be provided by the Administrator
either in the Award agreement or, subject to Section 13 below, in writing after
the Award agreement is issued, a grantee's rights in all Performance Share
Awards shall automatically terminate upon the grantee's termination of
employment (or cessation of service relationship) with the Company and its
Subsidiaries for any reason.
(e) ACCELERATION, WAIVER, ETC. At any time prior to the grantee's
termination of employment (or other service relationship) by the Company and its
Subsidiaries, the Administrator may in its sole discretion accelerate, waive or,
subject to Section 14, amend any or all of the goals, restrictions or conditions
applicable to a Performance Share Award.
SECTION 10. DIVIDEND EQUIVALENT RIGHTS
(a) DIVIDEND EQUIVALENT RIGHTS. A Dividend Equivalent Right is an Award
entitling the recipient to receive credits based on cash dividends that would be
paid on the shares of Stock specified in the Dividend Equivalent Right (or other
award to which it relates) if such shares were held by the recipient. A Dividend
Equivalent Right may be granted hereunder to any participant, as a component of
another Award or as a freestanding award. The terms and conditions of Dividend
Equivalent Rights shall be specified in the grant. Dividend equivalents credited
to the holder of a Dividend Equivalent Right may be paid currently or may be
deemed to be reinvested in additional shares of Stock, which may thereafter
accrue additional equivalents. Any such reinvestment shall be at Fair Market
Value on the date of reinvestment or such other price as may then apply under a
dividend reinvestment plan sponsored by the Company, if any. Dividend Equivalent
Rights may be settled in cash or shares of Stock or a combination thereof, in a
single installment or installments. A Dividend Equivalent Right granted as a
component of another Award may provide that such Dividend Equivalent Right shall
be settled upon exercise, settlement, or payment of, or lapse of restrictions
on, such other award, and that such Dividend Equivalent Right shall expire or be
forfeited or annulled under the same conditions as such other award. A Dividend
Equivalent Right granted as a component of another Award may also contain terms
and conditions different from such other award.
(b) INTEREST EQUIVALENTS. Any Award under this Plan that is settled in
whole or in part in cash on a deferred basis may provide in the grant for
interest equivalents to be credited with respect to such cash payment. Interest
equivalents may be compounded and shall be paid upon such terms and conditions
as may be specified by the grant.
11
SECTION 11. TAX WITHHOLDING
(a) PAYMENT BY GRANTEE. Each grantee shall, no later than the date as of
which the value of an Award or of any Stock or other amounts received thereunder
first becomes includable in the gross income of the grantee for Federal income
tax purposes, pay to the Company, or make arrangements satisfactory to the
Administrator regarding payment of, any Federal, state, or local taxes of any
kind required by law to be withheld with respect to such income. The Company and
its Subsidiaries shall, to the extent permitted by law, have the right to deduct
any such taxes from any payment of any kind otherwise due to the grantee. The
Company's obligation to deliver stock certificates to any grantee is subject to
and conditioned on tax obligations being satisfied by the grantee. The Company's
obligation to deliver stock certificates to any grantee is subject to and is
conditioned on tax obligations being satisfied by the grantee.
(b) PAYMENT IN STOCK. Subject to approval by the Administrator, a grantee
may elect to have the minimum required tax withholding obligation satisfied, in
whole or in part, by (i) authorizing the Company to withhold from shares of
Stock to be issued pursuant to any Award a number of shares with an aggregate
Fair Market Value (as of the date the withholding is effected) that would
satisfy the withholding amount due, or (ii) transferring to the Company shares
of Stock owned by the grantee with an aggregate Fair Market Value (as of the
date the withholding is effected) that would satisfy the withholding amount due.
SECTION 12. TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or from
the Company to a Subsidiary, or from one Subsidiary to another; or
(b) an approved leave of absence for military service or sickness, or for
any other purpose approved by the Company, if the employee's right to
re-employment is guaranteed either by a statute or by contract or under the
policy pursuant to which the leave of absence was granted or if the
Administrator otherwise so provides in writing.
SECTION 13. AMENDMENTS AND TERMINATION
The Board may, at any time, amend or discontinue the Plan and the
Administrator may, at any time, amend or cancel any outstanding Award for the
purpose of satisfying changes in law or for any other lawful purpose, but no
such action shall adversely affect rights under any outstanding Award without
the holder's consent. If and to the extent determined by the Administrator to be
required by the Code to ensure that Incentive Stock Options granted under the
Plan are qualified under Section 422 of the Code or to ensure that compensation
earned under Awards qualifies as performance-based compensation under Section
162(m) of the Code, if and to the extent intended to so qualify, Plan amendments
shall be subject to approval by the Company stockholders entitled to vote at a
meeting of stockholders. Nothing in this Section 13 shall limit the
Administrator's authority to take any action permitted pursuant to Section 3(c).
12
SECTION 14. STATUS OF PLAN
With respect to the portion of any Award that has not been exercised and
any payments in cash, Stock or other consideration not received by a grantee, a
grantee shall have no rights greater than those of a general creditor of the
Company unless the Administrator shall otherwise expressly determine in
connection with any Award or Awards. In its sole discretion, the Administrator
may authorize the creation of trusts or other arrangements to meet the Company's
obligations to deliver Stock or make payments with respect to Awards hereunder,
provided that the existence of such trusts or other arrangements is consistent
with the foregoing sentence.
SECTION 15. CHANGE OF CONTROL PROVISIONS
Upon the occurrence of a Change of Control as defined in this Section 15:
(a) Each outstanding Stock Option shall automatically become fully
exercisable.
(b) Except as otherwise provided in the applicable Award Agreement,
conditions and restrictions on each outstanding Restricted Stock Award, Deferred
Stock Award and Performance Share Award will be removed.
(c) "Change of Control" shall mean the occurrence of any one of the
following events:
(i) any "Person," as such term is used in Sections 13(d) and 14(d)
of the Act (other than the Company, any of its Subsidiaries, or any trustee,
fiduciary or other person or entity holding securities under any employee
benefit plan or trust of the Company or any of its Subsidiaries), together with
all "affiliates" and "associates" (as such terms are defined in Rule 12b-2 under
the Exchange Act) of such person, shall become the "beneficial owner" (as such
term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Company representing in excess of 50% of either (A) the
combined voting power of the Company's then outstanding securities having the
right to vote in an election of the Company's Board of Directors ("Voting
Securities") or (B) the then outstanding shares of Stock of the Company (in
either such case other than as a result of an acquisition of securities directly
from the Company); or
(ii) persons who, as of the Effective Date, constitute the Company's
Board of Directors (the "Incumbent Directors") cease for any reason, including,
without limitation, as a result of a tender offer, proxy contest, merger or
similar transaction, to constitute at least a majority of the Board, provided
that any person becoming a director of the Company subsequent to the Effective
Date shall be considered an Incumbent Director if such person's election was
approved by or such person was nominated for election by either (A) a vote of at
least a majority of the Incumbent Directors or (B) a vote of at least a majority
of the Incumbent Directors who are members of a nominating committee comprised,
in the majority, of Incumbent Directors; but provided further, that any such
person whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of members of the Board of
Directors or other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board, including by reason of agreement
intended to avoid or settle any such actual or threatened contest or
solicitation, shall not be considered an Incumbent Director; or
13
(iii) the consummation of a consolidation, merger or consolidation
or sale or other disposition of all or substantially all of the assets of the
Company (a "Corporate Transaction"); excluding, however, a Corporate Transaction
in which the stockholders of the Company immediately prior to the Corporate
Transaction, would, immediately after the Corporate Transaction, beneficially
own (as such term is defined in Rule 13d-3 under the Act), directly or
indirectly, shares representing in the aggregate more than 80% of the voting
shares of the corporation issuing cash or securities in the Corporate
Transaction (or of its ultimate parent corporation, if any); or
(iv) the approval by the stockholders of any plan or proposal for
the liquidation or dissolution of the Company.
Notwithstanding the foregoing, a "Change of Control" shall not be deemed
to have occurred for purposes of the foregoing clause (i) solely as the result
of an acquisition of securities by the Company which, by reducing the number of
shares of Voting Securities outstanding, increases the proportionate number of
shares of Voting Securities beneficially owned by any person in excess of 50% or
more of the combined voting power of all then outstanding Voting Securities;
PROVIDED, HOWEVER, that if any person referred to in this sentence shall
thereafter become the beneficial owner of any additional shares of Voting
Securities (other than pursuant to a stock split, stock dividend, or similar
transaction or as a result of an acquisition of securities directly from the
Company) and immediately thereafter beneficially owns in excess of 50% of the
combined voting power of all then outstanding Voting Securities, then a "Change
of Control" shall be deemed to have occurred for purposes of the foregoing
clause (i).
SECTION 16. GENERAL PROVISIONS
(a) NO DISTRIBUTION; COMPLIANCE WITH LEGAL REQUIREMENTS. The
Administrator may require each person acquiring Stock pursuant to an Award to
represent to and agree with the Company in writing that such person is acquiring
the shares without a view to distribution thereof.
No shares of Stock shall be issued pursuant to an Award until all
applicable securities law and other legal and stock exchange or similar
requirements have been satisfied. The Administrator may require the placing of
such stop-orders and restrictive legends on certificates for Stock and Awards as
it deems appropriate.
(b) DELIVERY OF STOCK CERTIFICATES. Stock certificates to grantees under
this Plan shall be deemed delivered for all purposes when the Company or a stock
transfer agent of the Company shall have mailed such certificates in the United
States mail, addressed to the grantee, at the grantee's last known address on
file with the Company.
(c) OTHER COMPENSATION ARRANGEMENTS; NO EMPLOYMENT RIGHTS. Nothing
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of this
Plan and the grant of Awards do not
14
confer upon any employee any right to continued employment with the Company or
any Subsidiary.
(d) TRADING POLICY RESTRICTIONS. Option exercises and other Awards under
the Plan shall be subject to such Company's insider trading policy, as in effect
from time to time.
(e) LOANS TO GRANTEES. The Company shall have the authority to make loans
to grantees ofp Awards hereunder (including to facilitate the purchase of
shares) and shall further have the authority to issue shares for promissory
notes hereunder.
(f) DESIGNATION OF BENEFICIARY. Each grantee to whom an Award has been
made under the Plan may designate a beneficiary or beneficiaries to exercise any
Award or receive any payment under any Award payable on or after the grantee's
death. Any such designation shall be on a form provided for that purpose by the
Administrator and shall not be effective until received by the Administrator. If
no beneficiary has been designated by a deceased grantee, or if the designated
beneficiaries have predeceased the grantee, the beneficiary shall be the
grantee's estate.
SECTION 17. EFFECTIVE DATE OF PLAN
This Plan shall become effective upon approval by the holders of a
majority of the shares of Stock of the Company present or represented and
entitled to vote at a meeting of stockholders at which a quorum is present or by
written consent of the stockholders. Subject to such approval by the
stockholders, Stock Options and other Awards may be granted hereunder on and
after adoption of this Plan by the Board.
SECTION 18. GOVERNING LAW
This Plan and all Awards and actions taken thereunder shall be governed
by, and construed in accordance with, the laws of the State of Delaware, applied
without regard to conflict of law principles.
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