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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
OraSure Technologies, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
[LOGO OF ORASURE TECHNOLOGIES, INC.]
ORASURE TECHNOLOGIES, INC.
150 Webster Street
Bethlehem, Pennsylvania 18015
April 12, 2002
Dear Stockholder:
You are cordially invited to attend the 2002 Annual Meeting of Stockholders
to be held on Monday, May 20, 2002, at the Radisson Hotel Bethlehem, 437 Main
Street, Bethlehem, Pennsylvania, 18018, at 10:00 a.m. local time. Your Board
of Directors and Management look forward to personally greeting those present.
At the meeting, you will be asked to (i) elect two Class II Directors to serve
on the Board of Directors until the Annual Meeting of Stockholders in 2005,
(ii) approve an amendment to the OraSure Technologies, Inc. 2000 Stock Award
Plan to increase the number of shares of Common Stock authorized for grant
under such Plan, and (iii) transact such other business as may properly come
before the meeting or any adjournments thereof.
Your Board of Directors has approved the nominees for director and
recommends that you vote FOR their election to the Board. In addition, your
Board of Directors recommends that you vote FOR the amendment to the Stock
Award Plan.
Your vote is very important, regardless of the number of shares you own.
Whether or not you plan to attend the Annual Meeting in person, we urge you to
submit your vote as soon as possible. We are pleased to announce that this
year you will have the option to vote by telephone, via the Internet, or by
marking, signing, dating, and mailing the enclosed proxy card in the
accompanying postage prepaid envelope. Additional details on these options can
be found in the attached Proxy Statement and proxy card. You may, of course,
attend the Annual Meeting and vote in person regardless of whether you have
previously voted by phone, the Internet or mail.
Sincerely yours,
/s/ Michael J. Gausling
Michael J. Gausling
President and Chief Executive Officer
[LOGO OF ORASURE TECHNOLOGIES, INC.]
ORASURE TECHNOLOGIES, INC.
150 Webster Street
Bethlehem, Pennsylvania 18015
----------------
Notice of Annual Meeting of Stockholders
to be held May 20, 2002
----------------
To the Stockholders of OraSure Technologies, Inc.:
The Annual Meeting of Stockholders of OraSure Technologies, Inc., a Delaware
corporation, will be held at the Radisson Hotel Bethlehem, 437 Main Street,
Bethlehem, Pennsylvania 18018, on Monday, May 20, 2002, at 10:00 a.m. local
time for the following purposes:
1. To elect two Class II Directors;
2. To approve an amendment increasing the number of shares of Common Stock
authorized for grant under the OraSure Technologies, Inc. 2000 Stock
Award Plan; and
3. To consider such other business as may properly come before the meeting
or any adjournment thereof.
Additional information is included in the Proxy Statement accompanying this
Notice. Only holders of Common Stock of record at the close of business on
March 28, 2002, will be entitled to vote at the Annual Meeting of Stockholders
and any adjournments thereof.
By Order of the Board of Directors,
Jack E. Jerrett
Secretary
April 12, 2002
Bethlehem, Pennsylvania
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YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the meeting, you are
urged to vote your shares as promptly as possible by telephone, via the
Internet, or by signing, dating and returning the enclosed proxy card, as
described in the attached Proxy Statement. Voting by phone, the Internet or
mail does not deprive you of your right to attend the meeting and to vote your
shares in person.
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[LOGO OF ORASURE TECHNOLOGIES, INC.]
ORASURE TECHNOLOGIES, INC.
150 Webster Street
Bethlehem, Pennsylvania 18015
----------------
Proxy Statement
This Proxy Statement is being mailed on or about April 12, 2002, to
stockholders of OraSure Technologies, Inc., a Delaware corporation (the
"Company"), in connection with the Company's solicitation of proxies (each, a
"Proxy") for use at the Annual Meeting of Stockholders to be held on May 20,
2002, at 10:00 a.m. local time, at the Radisson Hotel Bethlehem, 437 Main
Street, Bethlehem, Pennsylvania 18018, and at any adjournments thereof (the
"Annual Meeting").
Proxies
Shares represented by a properly executed Proxy, whether delivered by phone,
the Internet or mail, as described below, will be voted in accordance with the
stockholder's instructions. If no instructions are given in the Proxy, the
stockholder's shares will be voted according to the recommendations of the
Board of Directors (the "Board") as stated on the Proxy. Stockholders may
revoke the authority granted by their Proxies at any time before the Annual
Meeting by notice in writing delivered to the Secretary of the Company, by
delivering a subsequently dated Proxy, or by attending the Annual Meeting,
withdrawing the Proxy, and voting in person.
At the Annual Meeting, action will be taken on the matters set forth in the
accompanying Notice of Annual Meeting of Stockholders and described in this
Proxy Statement. The Board knows of no other matters to be presented for
action at the Annual Meeting. If any other matters do properly come before the
Annual Meeting, the persons named on the Proxy will have discretionary
authority to vote thereon in accordance with their best judgment.
The cost of soliciting Proxies will be borne by the Company. In addition to
solicitations by mail, certain of the Company's directors, officers, and
regular employees may solicit Proxies personally or by telephone or other
means without additional compensation. The Company has retained Mellon
Investor Services LLC to assist in such solicitation for an estimated fee of
$4,500 plus reimbursement for certain expenses.
Arrangements will also be made with brokerage firms and other custodians,
nominees, and fiduciaries to forward solicitation material to the beneficial
owners of stock held of record by such persons, and the Company will, upon
request, reimburse them for their reasonable expenses in so doing.
Voting Procedures
Most stockholders will have a choice of voting over the phone, via the
Internet or by completing and mailing a traditional paper proxy card, as
described below. Please check your proxy card or the information forwarded by
your bank, broker or other holder of record to determine which options are
available to you.
Voting by Mail. If stockholders desire to vote by using the paper proxy card
included with this Proxy Statement instead of by telephone or the Internet,
they may do so by completing, signing, dating and returning
1
the proxy card in the enclosed, pre-addressed envelope. Postage need not be
affixed to the envelope if mailed in the United States.
Voting by Phone or Internet. Instead of voting by use of the paper proxy
card, stockholders may be able to vote by phone or the Internet. Whether
stockholders may do so will depend on how their shares of Common Stock are
held.
Stockholders with shares registered in their name with Mellon Investor
Services LLC, the Company's transfer agent, may vote those shares by telephone
by calling Mellon Investor Services LLC at 800-435-6710 (toll free in the
United States or Canada only) or via the Internet at the following web site:
www.eproxy.com/osur. Registered stockholders desiring to vote by telephone or
the Internet must do so by 4:00 pm Eastern Time on May 17, 2002. Additional
instructions can be found on the paper proxy card accompanying this Proxy
Statement.
Stockholders with shares registered in the name of a broker or bank may be
able to vote by phone or the Internet if their broker, bank or other record
holder participates in a program provided through ADP Investor Communication
Services that offers telephone and Internet voting options. This program is
different from the program provided by Mellon Investor Services for shares
registered directly in the name of the stockholder. If a stockholder's shares
are held in an account with a broker, bank or other record holder
participating in the ADP Investor Communication Services program, that
stockholder may vote those shares telephonically by calling the telephone
number shown on the voting form received from your broker or bank, or via the
Internet at the ADP Investor Communication Services voting web site
(www.proxyvote.com). Votes submitted by telephone or the Internet through the
ADP Investor Communication Services program must be received by 12:00 midnight
Eastern Time on May 19, 2002.
Submitting a proxy by phone or the Internet will not affect a stockholder's
right to vote in person at the Annual Meeting. The telephone and Internet
voting procedures are designed to authenticate stockholders' identities, to
allow stockholders to give their voting instructions and to confirm that
stockholders' instructions have been recorded properly. Stockholders voting
via the Internet should understand that there may be costs associated with
this method of voting, such as usage charges from Internet access providers
and telephone companies and printing costs, that must be borne by the
stockholder.
Electronic Access to Proxy Materials and Annual Report. The notice of Annual
Meeting, the Proxy Statement and the 2001 Annual Report are available on the
Company's web site at http://www.orasure.com. Any stockholder of record that
would like to view future proxy statements and annual reports over the
Internet instead of receiving copies in the mail should follow the
instructions on the paper proxy card if you vote by mail or follow the
instructions provided when you vote by phone or over the Internet. If you hold
your shares through a bank, broker, or other holder, check the information
provided by that entity for instructions on how to elect to view future proxy
statements and annual reports over the Internet. Opting to receive your proxy
materials and annual report online will save the Company the cost of producing
these materials and mailing them to you in the future.
Voting Securities
On March 28, 2002, the record date for determining stockholders entitled to
vote at the Annual Meeting, the Company had outstanding and entitled to vote
at the meeting 37,429,904 shares of common stock, par value $.000001 per share
("Common Stock"). Each share of Common Stock is entitled to one vote on any
matter brought before the meeting. A majority of the shares of Common Stock
outstanding as of the record date, represented in person or by Proxy at the
meeting, will constitute a quorum for the transaction of business.
2
Principal Stockholders
The following table sets forth information as of March 28, 2002, regarding
the beneficial ownership of the Company's Common Stock by (a) each person who
is known to the Company to be the beneficial owner of more than five percent
of the Common Stock outstanding, (b) each director and nominee for election as
director, (c) each of the Company's executive officers and other persons named
in the Summary Compensation Table under "Executive Compensation," and (d) all
directors and executive officers of the Company as a group. Unless otherwise
indicated, the address of each person identified below is c/o OraSure
Technologies, Inc., 150 Webster Street, Bethlehem, Pennsylvania 18015.
Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), shares of the Company's Common Stock which a person has
a right to acquire pursuant to the exercise of stock options and warrants held
by that holder that are exercisable within 60 days of March 28, 2002 are
deemed to be outstanding for the purpose of computing the percentage ownership
of that person, but are not deemed outstanding for computing the percentage
ownership of any other person.
Amount and Nature of Percent
Beneficial Owner Beneficial Ownership(1)(2) of Class
---------------- -------------------------- --------
William W. Crouse(3)...................... 3,172,402 8.5%
HealthCare Ventures V, L.P.(3)............ 3,115,292 8.3%
HealthCare Partners V, L.P.
Augustine Lawlor
Christopher Mirabelli
Harold R. Werner
James H. Cavanaugh, Ph.D.
John W. Littlechild
William W. Crouse
44 Nassau Street
Princeton, NJ 08542
William M. Hinchey(4)..................... 2,172,397 5.8%
433 Dogwood Terrace
Easton, PA 18042
WM Advisors Inc.(5)....................... 2,154,400 5.8%
1201 Third Avenue, 22nd Floor
Seattle, WA 98101
R. Sam Niedbala, Ph.D.(6)................. 1,804,872 4.8%
Michael J. Gausling(7).................... 1,789,835 4.8%
Michael G. Bolton(8)...................... 567,536 1.5%
Robert D. Thompson........................ 388,215 1.0%
Roger L. Pringle(9)....................... 187,177 *
William D. Block.......................... 135,300 *
Frank G. Hausmann......................... 75,000 *
Gregory B. Lawless........................ 26,666 *
P. Michael Formica........................ 25,646 *
J. Richard George, Ph.D................... 15,935 *
Carter H. Eckert.......................... 5,000 *
All directors and executive officers as a 7,822,661 20.6%
group (12 people)(10)....................
--------
* Less than 1%
(1) Subject to community property laws where applicable, beneficial
ownership consists of sole voting and dispositive power except as
otherwise indicated.
3
(2) Includes shares subject to options exercisable within 60 days of March
28, 2002, as follows: Mr. Block, 127,435 shares; Mr. Bolton, 32,944
shares; Mr. Crouse, 57,110 shares; Mr. Eckert, 5,000 shares; Mr.
Formica, 25,646 shares; Mr. Gausling, 32,734 shares; Dr. George, 15,935
shares; Mr. Hausmann, 75,000 shares; Mr. Hinchey, 14,061 shares; Mr.
Lawless, 26,666 shares; Dr. Niedbala, 32,734 shares; Mr. Pringle,
150,552 shares; Mr. Thompson, 388,215 shares; and all directors and
executive officers as a group, 599,048 shares.
(3) Includes 3,115,292 shares held of record by HealthCare Ventures V, L.P.
Mr. Crouse is a general partner of HealthCare Partners V, L.P., the
general partner of HealthCare Ventures V, L.P. HealthCare Ventures V,
L.P., HealthCare Partners V, L.P., Dr. Cavanaugh and Messrs. Werner,
Littlechild, Crouse, Mirabelli and Lawlor share voting and dispositive
power with respect to 3,115,292 shares.
(4) Includes 500,713 shares held by The William M. Hinchey 2000 Grantor
Retained Annuity Trust Dated April 27, 2000, of which Mr. Hinchey is the
trustee, and 24,917 shares held by The William M. Hinchey Irrevocable
Education Trust Dated April 27, 2000, of which Mr. Hinchey's wife,
Maureen H. Hinchey, is a trustee. Mr. Hinchey retired from the Company
effective as of December 31, 2001.
(5) Based on information contained in the Schedule 13G filed January 2,
2002, WM Advisors Inc. has sole voting and dispositive power with
respect to 2,154,400 shares.
(6) Includes 500,713 shares held by The Raymond S. Niedbala 2000 Grantor
Retained Annuity Trust Dated April 28, 2000, of which Dr. Niedbala is
the trustee, 73,670 shares held by The Raymond S. Niedbala Family Trust
Dated April 28, 2000, of which Dr. Niedbala's wife, Linda-Lee Niedbala,
is a trustee, and 52,800 shares held by the Niedbala Charitable
Remainder Unit Trust, of which Dr. Niedbala and Linda-Lee Niedbala are
trustees.
(7) Includes 500,713 shares held by The Michael J. Gausling Grantor Retained
Annuity Trust, Dated April 28, 2000, of which Mr. Gausling is the
trustee, and 34,424 shares held by the Michael Gausling Irrevocable
Education Trust Dated April 28, 2000, of which Mr. Gausling's wife,
Sharon M. Gausling, is a trustee.
(8) Includes 534,590 shares held of record by Pennsylvania Early Stage
Partners L.P. Mr. Bolton is Chief Executive Officer and a Managing
Director of Pennsylvania Early Stage Partners GP, LLC, the general
partner of Pennsylvania Early Stage Partners L.P.
(9) Includes 1,500 shares owned by Mr. Pringle's spouse.
(10) Includes 3,115,292 shares held of record by HealthCare Ventures V, L.P.
and 534,590 shares held of record by Pennsylvania Early Stage Partners
L.P.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires that the Company's officers and
directors and persons who own more than ten percent of the Common Stock
(collectively, "Reporting Persons") file reports of ownership and changes in
ownership with the Securities and Exchange Commission (the "Commission").
Reporting Persons are required by the Commission's regulations to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms and representations
regarding the absence of a filing requirement received from Reporting Persons,
the Company believes that with respect to the year 2001, all Reporting Persons
complied with all applicable filing requirements, except that William M.
Hinchey, the Company's former Senior Vice President, Marketing, Drugs of
Abuse, inadvertently failed to file in a timely manner, one Form 4 with
respect to a single sale transaction occurring at the end of October 2001.
4
Item 1. Election of Directors
At the Annual Meeting, stockholders will vote on the election of two Class
II Directors. The Board has nominated William W. Crouse and Roger L. Pringle
for election as Class II Directors, for terms expiring at the Annual Meeting
of Stockholders in 2005. The nominees for election as Directors are presently
members of the Board.
In the absence of instructions to the contrary, shares of Common Stock
represented by properly executed Proxies will be voted for the two nominees,
each of whom has consented to be named and to serve if elected. If a quorum is
present, each nominee will be elected if he receives a plurality of the votes
cast by shares present in person or by Proxy entitled to vote at the Annual
Meeting. Abstentions and shares as to which a broker or other nominee has
indicated on a duly executed and returned Proxy or otherwise advised the
Company that it lacks voting authority will have no effect on the required
vote. Your Board recommends that stockholders vote FOR the election of the
Director nominees.
The Company does not know of anything that would preclude any nominee from
serving. However, should any nominee for any reason become unable or unwilling
to serve as a Director, the persons named in the enclosed Proxy will vote the
shares represented by each Proxy for such substitute nominee as the Board may
approve.
Any vacancy that occurs on the Board that results from an increase in the
number of Directors may be filled by the affirmative vote of a majority of the
Directors then in office, and any other vacancy on the Board may be filled by
the affirmative vote of a majority of the Directors then in office, even
though less than a quorum of the Board, or by a sole remaining Director.
Certain information with respect to each person nominated for election as a
Director and each person whose term of office as a Director will continue
after the Annual Meeting is set forth below. Each person listed below (except
for Messrs. Eckert and Lawless) became a Director of the Company in connection
with the merger (the "Merger") of STC Technologies, Inc. ("STC") and Epitope,
Inc. ("Epitope") into the Company on September 29, 2000, and served on the
board of either STC or Epitope prior to the Merger.
Michael G. Bolton will resign from the Board following the 2002 Annual
Meeting, and his service as a Director of the Company will end at that time.
The Board wishes to express its deepest appreciation to Mike Bolton for his
contributions and insight in serving the Company and its predecessor, STC
Technologies. Mike's experience and business acumen will be missed, and the
Board wishes him every success and happiness in his future endeavors.
Director
Name Principal Occupation Age Since
---- -------------------- --- --------
Class I (Directors Whose Terms of Office Expire in 2004):
Michael G. Bolton....... Chief Executive Officer and Managing Director 58 2000
of Pennsylvania Early Stage Partners GP, LLC
Frank G. Hausmann....... President and Chief Executive Officer of 44 2000
CenterSpan Communications Corporation
Carter H. Eckert........ Former President and Chief Executive Officer 59 2001
of Knoll Pharmaceutical Company
Class II (Nominees For Terms of Office to Expire in 2005):
William W. Crouse....... Managing Director of HealthCare Ventures LLC 59 2000
Roger L. Pringle........ President of The Pringle Company 61 2000
Class III (Directors Whose Terms of Office Expire in 2003):
Michael J. Gausling..... President and Chief Executive Officer of the 44 2000
Company
Gregory P. Lawless...... Managing Partner of Collins Mabry & Co. 62 2001
5
Michael G. Bolton had been a member of the board of directors of STC since
April 1999. In September 1997, Mr. Bolton became the founding Chief Executive
Officer and Managing Director of Pennsylvania Early Stage Partners GP, LLC
("PA Early Stage") in Wayne, Pennsylvania. Prior to joining PA Early Stage,
Mr. Bolton was a senior executive at Lehigh University, where he held various
leadership positions related to fund raising, technology transfer,
entrepreneurial assistance, and public and government relations. Mr. Bolton
was the founding Chief Executive of the Ben Franklin Technology Center at
Lehigh University and co-founder of the NEPA Venture Fund, and has been an
active participant in the venture capital community for approximately 20
years. Mr. Bolton received his B.A. in Economics and his M.B.A. from Lehigh
University. Mr. Bolton currently serves on the boards of several PA Early
Stage portfolio companies, and is a member of the Advisory Board for the
Wharton School's Center for Entrepreneurship at the University of
Pennsylvania.
Frank G. Hausmann had been a member of the board of directors of Epitope
since December 1999. Mr. Hausmann has been employed by CenterSpan
Communications Corporation since July 1998, serving as President and Chief
Executive Officer since October 1998 and as Vice President, Finance and
Administration and Chief Financial Officer prior to that time. CenterSpan is a
provider of Internet voice and text messaging software designed primarily for
use with interactive games. From August 1997 to May 1998, Mr. Hausmann served
as Vice President, Finance and Chief Financial Officer of Atlas Telecom, Inc.,
a developer of enhanced facsimile and voice-mail solutions. From September
1995 to July 1997, he served as Vice President, Corporate Development and
General Counsel of Diamond Multimedia Systems, Inc., a designer and marketer
of computer video cards, modems and other peripherals. From June 1993 to
September 1995, Mr. Hausmann was Executive Vice President and Chief Financial
Officer of Supra Corporation, a designer and marketer of computer modems that
was acquired by Diamond Multimedia Systems, Inc. in September 1995. From 1983
to 1993, Mr. Hausmann was a consultant and attorney with such firms as Price
Waterhouse and Stoel Rives. Mr. Hausmann received B.S. degrees in Economics
and Political Science from Willamette University and a J.D. degree from the
University of Oregon. He is a member of the Oregon State Bar. Mr. Hausmann is
also a director of CenterSpan Communications Corporation.
Carter H. Eckert became a member of the Board in December 2001. From 1995 to
2001, Mr. Eckert served as President of Knoll Pharmaceutical Company and as
President of the Americas for Knoll's parent company, BASF Pharma. During that
period, Mr. Eckert also was a member of BASF Pharma's Global Pharmaceutical
Board, where he was responsible for global therapeutic franchises and
corporate transactions. Prior to joining Knoll and BASF Pharma in 1995, Mr.
Eckert was President and Chief Executive Officer of Boots Pharmaceuticals,
Inc., a pharmaceutical company, where he was responsible for North American
operations. Mr. Eckert joined Boots Pharmaceuticals in 1985 as Executive Vice
President and Chief Operating Officer after more than a decade at Baxter
Travenol Laboratories, where he served as President of the Pharmaceutical
Products Division. Mr. Eckert currently serves as a director of Boron LePone,
Inc., a trustee of Caldwell College and an operating partner of the Athena
Group. Mr. Eckert received his B.S. in Chemical Engineering from the Illinois
Institute of Technology and his M.B.A. from Northwestern University.
William W. Crouse had been a member of the board of directors of STC since
April 1999. Since 1994, Mr. Crouse has served as Managing Director of
HealthCare Ventures LLC, a venture capital firm. Prior to that time, Mr.
Crouse served as Worldwide President of Ortho Diagnostic Systems, and Vice
President of Johnson & Johnson International. Mr. Crouse has more than 30
years experience in the pharmaceutical industry. He serves as a director of
Dendreon Corporation, The New York Blood Center and Lehigh University. Mr.
Crouse received his B.S. in Finance and Economics from Lehigh University and
his M.B.A. from Pace University.
Roger L. Pringle had been Chairman of the Board and a member of the board of
directors of Epitope, and was a director of Agritope, Inc., a plant genetics
subsidiary of Epitope, since February 1989. Mr. Pringle is President and
founder of The Pringle Company, a strategy and executive consulting firm in
Portland, Oregon. Mr. Pringle is a director of North Pacific Group, Bank of
the Northwest, and H2F Media, Inc. He is also active in funding and advising
start-up and emerging companies.
6
Michael J. Gausling has been the Company's President and Chief Executive
Officer since January 31, 2002. Prior to that, Mr. Gausling was the Company's
President and Chief Operating Officer since September 2000. Mr. Gausling is a
co-founder of STC and served as Chairman of STC's board of directors since
1996, President and Chief Executive Officer since 1990, and a director of STC
since 1987. Mr. Gausling was Executive Vice President, Finance and Operations
at STC from 1987 to 1990. Prior to forming STC, Mr. Gausling had been employed
in the area of corporate finance at Procter and Gamble. Mr. Gausling received
his B.S.M.E. from Rensselaer Polytechnic Institute and his M.B.A. in Finance
from Miami University. Mr. Gausling is also a director of Keystone Savings
Bank.
Gregory B. Lawless became a member of the Board in April 2001. Since 1998,
Mr. Lawless has been the Managing Partner of Collins Mabry & Co., a strategic
advisory firm for the life sciences industry which he co-founded. From 1992 to
1998, Mr. Lawless served as President and Chief Executive Officer of Cygnus,
Inc., a medical diagnostics company, and from 1989 to 1992, was President and
Chief Operating Officer of Chiron Corporation, also a medical diagnostics
company. Mr. Lawless received his B.S. in Pharmacy from Fordham University,
his M.S. in Analytical Chemistry from St. John's University, and his Ph.D. in
Physical Organic Chemistry from Temple University.
Directors' Meetings
The Board held eight meetings and acted by written consent on two occasions
during the year ended December 31, 2001. Each of the Directors listed above
attended more than 75 percent of the combined total of meetings of the Board
and of the committees of the Board on which the Director served during the
period in the year in which he served as a Director.
Committees of the Board
The Board has three standing committees--the Executive Committee, the
Compensation Committee and the Audit Committee. The Compensation and Audit
Committees are each composed entirely of non-employee Directors.
Executive Committee. The Board has designated an Executive Committee to
assist in the discharge of the Board's responsibilities. The Executive
Committee is composed of six Directors, Michael G. Bolton, William W. Crouse,
Michael J. Gausling, Frank G. Hausmann, Gregory B. Lawless, and Roger L.
Pringle. The Executive Committee may exercise all the authority and powers of
the Board in the management of the business and property of the Company,
except those reserved to the Board by the Delaware Business Corporation Law or
the Company's Certificate of Incorporation, as amended. The Executive
Committee did not meet during the year ended December 31, 2001.
Compensation Committee. The Compensation Committee of the Board recommends
to the Board the compensation and benefits for the executive officers of the
Company, administers the Company's stock award plans and employee stock
purchase plan, and performs other tasks as set forth in the Company's Bylaws
or as the Board may direct. Members of the Compensation Committee are Roger L.
Pringle, Chairman, Michael G. Bolton, and Gregory B. Lawless. The Compensation
Committee met three times and acted by written consent on two occasions during
the year ended December 31, 2001.
Audit Committee. The Audit Committee of the Board reviews the Company's
internal audit, accounting and financial controls, and the performance and
independence of the Company's outside auditors. The Audit Committee also
performs those functions set forth in a written charter adopted by the Board,
a copy of which is attached as Exhibit A to this Proxy Statement. Members of
the Audit Committee are Frank G. Hausmann, Chairman, Michael G. Bolton and
Roger L. Pringle. Each member of the Audit Committee is "independent" as
defined in Rule 420D(a)(15) of the National Association of Securities Dealers'
listing standards. The Audit Committee met four times during the year ended
December 31, 2001.
7
Report of the Audit Committee
The following report of the Audit Committee of the Board shall not be deemed
to be incorporated by reference by any general statement incorporating by
reference this Proxy Statement into any filing by the Company under either the
Securities Act of 1933, as amended (the "Securities Act"), or the Exchange
Act, except to the extent that the Company specifically incorporates this
information by reference. The following report shall not otherwise be deemed
filed under such Acts.
The role of the Audit Committee is to assist the Board of Directors in its
oversight of the Company's financial reporting process. The Board of
Directors, in its business judgment, has determined that all members of the
Committee are "independent," as required by applicable listing standards of
the Nasdaq Stock Market. The Committee operates pursuant to a Charter that was
last amended and restated by the Board on October 26, 2000. Management of the
Company is responsible for the preparation, presentation and integrity of the
Company's financial statements, the Company's accounting and financial
reporting principles and internal controls and procedures designed to assure
compliance with accounting standards and applicable laws and regulations. The
independent auditors are responsible for auditing the Company's financial
statements and expressing an opinion as to their conformity with generally
accepted accounting principles.
In the performance of its oversight function, the Committee has considered
and discussed the audited financial statements with management and the
independent auditors. The Committee has also discussed with the independent
auditors the matters required to be discussed by Statement on Auditing
Standards No. 61, "Communication with Audit Committees," as currently in
effect. Finally, the Committee has received the written disclosures and the
letter from the independent auditors required by Independence Standards Board
Standard No. 1, "Independence Discussions with Audit Committees," as currently
in effect, has considered whether the provision of non-audit services by the
independent auditors to the Company is compatible with maintaining the
auditor's independence and has discussed with the auditors the auditors'
independence.
The members of the Audit Committee are not professionally engaged in the
practice of auditing or accounting and are not experts in the fields of
accounting or auditing, including in respect of auditor independence. Members
of the Committee rely without independent verification on the information
provided to them and on the representations made by management and the
independent accountants. Accordingly, the Audit Committee's oversight does not
provide an independent basis to determine that management has maintained
appropriate accounting and financial reporting principles or appropriate
internal control and procedures designed to assure compliance with accounting
standards and applicable laws and regulations. Furthermore, the Audit
Committee's considerations and discussions referred to above do not assure
that the audit of the Company's financial statements has been carried out in
accordance with generally accepted auditing standards, that the financial
statements are presented in accordance with generally accepted accounting
principles or that the Company's auditors are in fact "independent."
Based upon the reports and discussions described in this report, and subject
to the limitations on the role and responsibilities of the Committee referred
to above and in the Committee's Charter, the Committee recommended to the
Board that the audited financial statements be included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2001 to be filed
with the Securities and Exchange Commission.
SUBMITTED BY THE AUDIT COMMITTEE
OF THE COMPANY'S BOARD OF DIRECTORS
Frank G. Hausmann
Michael G. Bolton
Roger L. Pringle
March 26, 2002
8
Nomination of Directors
The Company's Bylaws provide that nominations for election to the Board may
be made by the Board or by any stockholder entitled to vote for the election
of Directors at the Annual Meeting. A stockholder's notice of nomination must
be made in writing to the Company's Secretary and must be delivered to or
received at the principal executive offices of the Company not less than
ninety (90) days nor more than one hundred twenty (120) days prior to the
meeting; provided, however, that in the event that less than one hundred (100)
days' notice or prior public disclosure of the date of the meeting is given or
made to stockholders, notice by the stockholder to be timely must be so
received no later than the close of business on the tenth (10th) day following
the day on which such notice of the date of the meeting was mailed or such
public disclosure was made, whichever first occurs. The notice to the
Secretary must set forth, with respect to the nominee, the name, age, business
address and residence address of the person, the principal occupation or
employment of the person, the class and number of shares of capital stock of
the Company which are beneficially owned by the person, and any other
information relating to the person that is required to be disclosed in
solicitations for proxies for election of directors pursuant to Regulation 14A
under the Exchange Act. The notice must also include the name and record
address of the stockholder and the class and number of shares of capital stock
of the Company which are beneficially owned by the stockholder. The Company
may require any proposed nominee to furnish such other information as may
reasonably be required by the Company to determine the eligibility of the
proposed nominee to serve as a Director of the Company.
Executive Officers
The table below provides information about the executive officers of the
Company as of March 28, 2002. Officers of the Company hold office at the
discretion of the Board.
Name Age Position
---- --- --------
Michael J. Gausling.......... 44 President and Chief Executive Officer
Ronald H. Spair.............. 46 Executive Vice President and Chief Financial
Officer
R. Sam Niedbala, Ph.D........ 41 Executive Vice President and Chief Science
Officer
P. Michael Formica........... 51 Senior Vice President, Operations
William D. Block............. 40 Senior Vice President, Sales and Marketing
Jack E. Jerrett.............. 43 Vice President, General Counsel and Secretary
Mark L. Kuna................. 38 Controller, Assistant Treasurer and Assistant
Secretary
For biographical information on Mr. Gausling, see "Election of Directors."
Ronald H. Spair joined the Company as Executive Vice President and Chief
Financial Officer in November 2001. Prior to that time, Mr. Spair was Vice
President, Chief Financial Officer and Secretary of Delsys Pharmaceutical
Corporation, a pharmaceutical manufacturing system development company, from
January 2001 to September 2001. Prior to joining Delsys, he was Senior Vice
President, Chief Financial Officer and Secretary of SuperGen, Inc., a
pharmaceutical company, from August 1999. Prior to joining SuperGen, Mr. Spair
was Senior Vice President, Chief Financial Officer and Secretary of Sparta
Pharmaceuticals, Inc., a development stage pharmaceutical company, from March
1996 until August 1999. From October 1993 until March 1996, Mr. Spair served
as Vice President, Chief Financial Officer and Assistant Secretary of Lexin
Pharmaceutical Corporation, a development stage biopharmaceutical company.
Before joining Lexin, Mr. Spair served as Vice President, Chief Financial
Officer and Assistant Secretary of Envirogen, Inc., an environmental
biotechnology company, from May 1990 to August 1993. Mr. Spair received his
B.S. in Accounting and M.B.A. from Rider College. He is also a licensed
Certified Public Accountant and is a member of the New Jersey Society of
Certified Public Accountants and the American Institute of Certified Public
Accountants.
R. Sam Niedbala, Ph.D. has been the Company's Executive Vice President and
Chief Science Officer since September 2000. Dr. Niedbala is a co-founder of
STC and had served as Executive Vice President, Chief Science Officer and a
director of STC since 1987. Prior to forming STC, Dr. Niedbala had been
employed by Hoffman-
9
LaRoche, Inc. as a Senior Scientist. Dr. Niedbala received his B.S. in
Chemistry from East Stroudsburg University, and his M.S. in Clinical Chemistry
and Ph.D. in Chemistry from Lehigh University. Dr. Niedbala is also a board
certified forensic examiner.
P. Michael Formica has served as Senior Vice President, Operations for the
Company and STC since May 2000. Prior to that time, Mr. Formica was Division
Manager, Mobil Measurement Technologies for Drager Sicherheitstechnik GmbH
(now called Drager Safety AG & Co. KGaA), in Luebeck, Germany, for eight years
with worldwide responsibility, and Director Sales and Marketing, National
Draeger, Inc. (USA) for two years. Drager is a world leader in chemical
detection systems for the industrial safety market, and breath alcohol
detection instrumentation. Before joining Drager, Mr. Formica held management
positions in marketing, finance, product development, and general management
of several companies. Mr. Formica received his B.S. in Electrical Engineering
from West Virginia University and his M.B.A. from the Graduate School of
Industrial Administration, Carnegie Mellon University.
William D. Block has served as the Company's Senior Vice President, Sales
and Marketing since September 2000. Prior to that time, Mr. Block served as
Epitope's Vice President of Sales and Marketing since May 1999. Before joining
Epitope, Mr. Block was Director of Institutional Sales for McKessonAPS, a
division of McKessonHBOC, since March 1997. Prior to joining McKessonAPS, Mr.
Block held various positions with Baxter International, Inc.'s subsidiary,
Allegiance Corporation, where he worked for six years. His last position with
Allegiance was as a Senior Account Manager/General Manager for the MidAmerica
region where he oversaw sales of medical products and supplies. Mr. Block is
an Army ROTC graduate from Wake Forest University where he received a B.A.
degree in Economics.
Jack E. Jerrett joined the Company as Vice President and General Counsel in
November 2000 and was elected as Secretary in February 2001. Prior to joining
the Company, Mr. Jerrett served in the positions of Associate General Counsel
and Senior Counsel at PPL Electric Utilities Corporation, and acted as general
counsel to PPL Gas Utilities Corporation. Prior to that, Mr. Jerrett was
Senior Corporate Attorney of Union Pacific Corporation and an Associate with
Morgan, Lewis & Bockius. Mr. Jerrett received his B.S. in Accounting from
Villanova University and his J.D. from the Villanova University School of Law.
He is a member of the Pennsylvania and American Bar Associations.
Mark L. Kuna was named as the Company's Controller in February 2001 and
provided accounting and financial analysis support since joining the Company
in October 2000. Prior to that time, Mr. Kuna served as Director of Financial
Planning and Analysis for the greater Philadelphia region of XO
Communications, Inc. since April 1989. Prior to joining XO Communications, Mr.
Kuna served as Vice President and Principal Accounting Officer of Wedco
Technology, Inc. since 1989. Prior to joining Wedco Technology, he was an
accountant with Deloitte and Touche. Mr. Kuna received his B.S. in Accounting
from the University of Scranton, is a licensed Certified Public Accountant,
and is a member of the Pennsylvania and American Institutes of Certified
Public Accountants.
Certain Relationships and Related Transactions
The Company has entered into a Commercial Lease (the "Lease") with Tech III
Partners, LLC ("Tech Partners"), which provides for the construction of a
48,000 square foot facility on land adjacent to the Company's Bethlehem,
Pennsylvania headquarters, and the lease of that facility to the Company. Tech
Partners is owned and controlled by Michael J. Gausling, the Company's
President and Chief Executive Officer, and Dr. R. Sam Niedbala, the Company's
Executive Vice President and Chief Science Officer. The facility is expected
to house manufacturing, research and development, and administrative
operations required to support the expected growth of the Company's business.
Construction of the facility is expected to be completed during the summer of
2002.
The Lease has an initial ten-year term commencing after completion of
construction and a base rent starting at $480,000 and increasing to $528,000
per year over that term. The base rental rate may be increased after the
10
fifth year of the initial term in order to reflect changes in the interest
rate on debt incurred by Tech Partners to finance construction of the leased
facilities. The Company has not guaranteed any debt incurred by Tech Partners.
The Lease also provides the Company with options to renew the Lease for an
additional five years at a rental rate of $600,000 per year, and to purchase
the facility at any time during the initial ten-year term. Prior to deciding
to enter into the Lease, the Board retained Imperial Realty Appraisal LLC, an
independent commercial real estate appraisal firm, to evaluate the proposed
base rental rate under the Lease. Imperial Realty issued an opinion indicating
that the annual base rent set forth in the Lease is below the market rental
rate the Company could otherwise expect to pay to lease a comparable
commercial property in the same general geographic market. The terms of the
Lease are otherwise substantially similar to the commercial lease entered into
by the Company with a third party for its existing Bethlehem, Pennsylvania
headquarters.
Information regarding employment and severance agreements between the named
executive officers and the Company is set forth in the Section entitled
"Employment Agreements" in this Proxy Statement.
Executive Compensation
Summary Compensation Table(1)
The following table summarizes the compensation of the Company's Chief
Executive Officer and certain other executive officers named in this Proxy
Statement.
Annual Long-Term
Compensation Compensation Awards
----------------- ---------------------
Restricted Securities
Name and Principal Stock Underlying All Other
Position Year Salary Bonus Awards Options(2) Compensation(3)
------------------ ---- -------- -------- ---------- ---------- ---------------
Michael J. Gausling(4).. 2001 $225,211 -- -- -- $ 13,000(10)
President and 2000 197,596 $107,000 -- 70,000 3,000
Chief Executive Officer 1999 175,000 70,000 -- 15,888 3,000
Robert D. Thompson(5)... 2001 274,461 -- -- -- 142,561(9)(10)
Former Chief Executive 2000 249,683 -- -- 475,000 136,510(9)(10)
Officer 1999 -- -- -- -- --
R. Sam Niedbala, Ph.D... 2001 185,211 -- -- -- 10,257(10)
Executive Vice 2000 170,385 80,313 -- 70,000 3,000
President and 1999 160,000 48,000 -- 15,888 3,000
Chief Science Officer
P. Michael Formica(6)... 2001 157,134 -- -- -- 9,969(10)
Senior Vice President, 2000 95,356 20,000 -- -- 23,070(9)(10)
Operations 1999 -- -- -- -- --
William D. Block(7)..... 2001 150,211 25,000 -- -- 46,243(9)(10)
Senior Vice President, 2000 150,000 -- -- 45,000 62,287(9)(10)
Sales and Marketing 1999 89,423 -- $29,996 112,500 58,725(9)
William M. Hinchey...... 2001 150,211 -- -- -- 13,000(10)
Former Senior Vice 2000 137,856 54,250 -- 45,000 4,125(10)
President, 1999 135,000 33,750 -- 15,888 3,000
Marketing, Drugs of
Abuse
J. Richard George,
Ph.D.(8)................ 2001 150,236 -- -- -- 13,350(10)
Former Senior Vice 2000 150,000 -- -- 45,000 3,712(10)
President, 1999 150,000 -- -- 25,000 3,384
Research and
Development
--------
(1) Table includes compensation paid by Epitope and STC to the named
executive officers prior to the Merger on September 29, 2000.
(2) Represents the number of shares for which options were awarded. The
options shown for Mr. Thompson in 2000 and all other officers in 1999
include options for the purchase of shares of Epitope and STC common
stock converted into options for the purchase of shares of the Company
as a result of the Merger.
11
(3) Except as otherwise noted in (9) and (10) below, represents amounts
contributed to 401(k) profit sharing plans as employer matching
contributions in the form of common stock or cash.
(4) Mr. Gausling was appointed as Chief Executive Officer of the Company on
January 31, 2002.
(5) Mr. Thompson resigned as Chief Executive Officer and Director of the
Company on January 31, 2002.
(6) Mr. Formica received a $25,000 discretionary cash bonus in March 2002 in
recognition of his performance during 2001.
(7) Mr. Block joined the Company in May 1999, at which time he received
6,233 shares of restricted Common Stock with a dollar value of $29,996
at the time of grant. The restricted shares vested in full on the first
anniversary of Mr. Block's employment date.
(8) Dr. George resigned from his full-time position as Senior Vice
President, Research and Development effective February 28, 2002, and
beginning March 1, 2002, became a Scientific Advisor to the Company
working on a part-time basis.
(9) Includes $128,048 and $33,243 in relocation expenses for Messrs.
Thompson and Block, respectively, in 2001, $135,385, $21,945 and $57,283
in relocation expenses for Messrs. Thompson, Formica and Block,
respectively, in 2000, and $57,307 in relocation expenses for Mr. Block
in 1999, which expenses were reimbursed by the Company. Such expenses
include moving costs, realtor fees, closing costs, furniture storage
costs, other miscellaneous expenses, and federal and state income taxes
on amounts paid as expense reimbursement. Also includes, in 2001, $4,763
in imputed interest on a $75,000 interest-free loan made by the Company
to Mr. Thompson in connection with his relocation to Bethlehem,
Pennsylvania.
(10) Includes automobile allowances in 2001 of $9,750 for Mr. Thompson,
$9,000 for Messrs. Gausling, Block and Hinchey and Dr. Niedbala, $9,350
for Dr. George and $8,625 for Mr. Formica. Includes automobile
allowances in 2000 of $1,125 for Messrs. Thompson, Formica and Hinchey,
$1,100 for Mr. Block and $1,450 for Dr. George.
Fiscal Year-End Option Values(1)
The following table shows 2001 year-end amounts and value of shares of the
Common Stock underlying outstanding options for the named executive officers.
There were no stock options awarded to the named executive officers during
2001.
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal Year- In-the-Money Options
Shares End at Fiscal Year-End(2)
Acquired Value ------------------------- -------------------------
Name on Exercise Realized(3) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- ----------- ------------- ----------- -------------
Michael J. Gausling..... -- -- 25,444 60,444 $ 183,205 $366,465
Robert D. Thompson...... 22,200 $172,126 377,800 75,000 2,860,514 392,700
R. Sam Niedbala......... -- -- 25,444 60,444 183,205 366,465
P. Michael Formica...... -- -- 15,446 71,264 25,007 237,450
William D. Block........ 1,000 8,187 122,750 33,750 871,715 176,715
William M. Hinchey...... -- -- 19,194 33,750 150,480 176,715
J. Richard George....... 65,500 528,511 11,250 33,750 58,905 176,715
--------
(1) The named executive officers held no stock appreciation rights at
December 31, 2001.
(2) In-the-money stock options are options for which the exercise price is
less than the fair market value of the underlying stock on a particular
date. The values shown in the table are based on the difference between
$12.33, which was the average of the high and low sales prices of the
Common Stock as quoted on The Nasdaq Stock Market on December 31, 2001,
and the applicable exercise price.
(3) Value realized represents the difference between the fair market value of
Common Stock underlying the options at the exercise date and the exercise
price of the options.
12
Employment Agreements
The Company has entered into employment agreements with certain of its
executive officers. The agreements with such executive officers, other than
Mr. Spair, were executed at the time of the Merger of Epitope and STC into the
Company.
On January 31, 2002, Mr. Gausling was appointed to the position of President
and Chief Executive Officer of the Company. Pursuant to his employment
agreement, which has an initial term of three years (i.e. through September
29, 2003) and is subject to automatic renewal for successive one-year periods
unless either party gives the other party notice that the term will not be
extended, Mr. Gausling will receive a regular salary of at least $225,000 per
year. Mr. Gausling is also eligible to participate in the executive bonus plan
established by the Company, and to receive or participate in any long-term
incentive plan or any other additional benefits which may be made available by
the Company from time to time. Mr. Gausling will also be reimbursed for job-
related expenses.
Mr. Gausling's employment agreement will terminate upon his death or upon 60
days' written notice from Mr. Gausling to the Company. Mr. Gausling's
employment agreement may also be terminated by the Company for cause (as
defined therein), or without cause. Upon the termination of Mr. Gausling's
employment without cause, Mr. Gausling will continue to be paid his annual
salary for the greater of (x) 12 months, (y) the remaining term of the
employment agreement, or (z) 36 months if Mr. Gausling elects to treat one of
the following events as a termination without cause: (i) a material breach of
the employment agreement by the Company; (ii) a reduction in Mr. Gausling's
salary or a change in his title or a substantial diminution of his duties; or
(iii) a change in control of the Company.
A "change in control" generally is defined to take place when disclosure of
such a change would be required by the proxy rules promulgated by the
Commission or when either:
. a person (other than the Company, any of its subsidiaries, any employee
benefit plan of the Company, or any person with voting power arising
from a revocable proxy) acquires beneficial ownership (as defined in
Rule 13d-3 under the Exchange Act) of 30% or more of the combined voting
power of the Company's voting securities;
. less than a majority of the directors are persons who were either
nominated or selected by the Board;
. the consummation of any consolidation or merger in which the Company is
not the surviving corporation or the sale, lease, exchange or other
transfer of all or substantially all of the assets of the Company; or
. the approval by the stockholders of the Company of any plan or proposal
for the liquidation or dissolution of the Company.
All of the other employment agreements are substantially similar to Mr.
Gausling's, with the following exceptions:
Mr. Thompson served as Chief Executive Officer of the Company at a regular
salary of $275,000 per year. Under his employment agreement, the Company
agreed to pay Mr. Thompson a one-time relocation allowance of $30,000 upon
relocation of his residence to Pennsylvania, and to purchase, or arrange for a
third-party to purchase, Mr. Thompson's house in Portland, Oregon at a
purchase price of $672,000. The Company agreed to pay all mortgage payments on
the house that became due between the date of the relocation of the Company's
headquarters to Pennsylvania and the closing date of the purchase of Mr.
Thompson's Portland, Oregon house, with any amounts so paid to be grossed up
for any income tax owed by Mr. Thompson as a result of such payments. In lieu
of the Company purchasing Mr. Thompson's house in Portland, Oregon, the
Company made a loan to Mr. Thompson in the amount of $100,649 for relocation
purposes, which would not accrue interest if repaid on or before the earlier
of (i) the tenth day following the closing of the sale of Mr. Thompson's house
in Portland, Oregon, or (ii) the first anniversary of the date of the loan.
Interest would accrue at the rate of 9% per year from the due date until the
loan is repaid. Mr. Thompson repaid that loan in April 2001.
13
Prior to the Merger, Mr. Thompson also received a loan of $75,000 from
Epitope to be used for the purchase of his home in the Portland, Oregon area.
The loan did not accrue interest if repaid on or before April 17, 2002.
Interest would accrue at the rate of 9% per year from the due date until the
loan is repaid.
On January 31, 2002, Mr. Thompson resigned as Chief Executive Officer and as
Director of the Company, and his employment agreement was terminated. The
Company and Mr. Thompson have entered into a severance agreement pursuant to
which Mr. Thompson will receive an aggregate of $480,063, which represents the
value of a laptop, home computer and cell phone transferred by the Company to
Mr. Thompson, the payment of Mr. Thompson's COBRA premiums for continuation of
health coverage through January 31, 2003, and the payment to Mr. Thompson of
an amount equal to his regular salary through September 29, 2003. The
severance agreement provides that the $75,000 loan made to Mr. Thompson will
be repaid by application of the net amounts equal to his salary commencing
with payments occurring on or after April 17, 2002.
Dr. Niedbala serves as the Executive Vice President and Chief Science
Officer of the Company at a regular salary of at least $185,000 per year. Dr.
Niedbala's employment agreement contains the same termination provisions as
Mr. Gausling's, except that Dr. Niedbala will be paid his salary for 24
months, rather than 36 months, if he elects to treat one of the events
described above as a termination without cause.
Mr. Spair serves as Executive Vice President and Chief Financial Officer at
a regular salary of at least $200,000 per year. The initial term of Mr.
Spair's employment agreement is two years, rather than three years. Mr. Spair
is entitled to be reimbursed for the reasonable costs to relocate from his
Hamilton, New Jersey home, up to a maximum aggregate amount of $40,000, plus
an additional amount to compensate Mr. Spair for income taxes payable on the
relocation reimbursement. Mr. Spair was also granted an option to purchase
150,000 shares of the Company's Common Stock on the date he commenced
employment with the Company. Mr. Spair's employment agreement contains the
same termination provisions as Mr. Gausling's.
Mr. Formica serves as the Senior Vice President, Operations at a regular
salary of at least $150,000 per year. The initial term of Mr. Formica's
employment agreement is two years, rather than three years. Mr. Formica's
employment agreement contains the same termination provisions as Mr.
Gausling's, except that Mr. Formica will be paid his salary for 24 months,
rather than 36 months, if he elects to treat one of the events described above
as a termination without cause.
Mr. Block serves as the Senior Vice President, Sales and Marketing of the
Company at a regular salary of at least $150,000 per year. The initial term of
Mr. Block's employment agreement is two years, rather than three years. The
Company agreed to purchase Mr. Block's Portland, Oregon home at a purchase
price equal to the average of three independent appraisals or such other price
as agreed to by the Company and Mr. Block, and to pay Mr. Block's mortgage
from the date of his relocation to Pennsylvania through the closing date on
the sale of his Oregon home. The Company also agreed to pay Mr. Block a
$30,000 relocation allowance. Mr. Block's employment agreement contains the
same termination provisions as Mr. Gausling's, except that Mr. Block will be
paid his salary for 24 months, rather than 36 months, if he elects to treat
one of the events above as a termination without cause.
Mr. Hinchey served as the Senior Vice President, Marketing, Drugs of Abuse,
until December 31, 2001, when he retired from the Company and his employment
agreement was terminated. He was paid a regular salary of $150,000 per year.
Mr. Hinchey's employment agreement was for a term of two, rather than three,
years, and contained the same termination provisions as Mr. Gausling's, except
that Mr. Hinchey would have been paid his salary for 24 months, rather than 36
months, if he elected to treat one of the events described above as a
termination without cause.
Dr. George served as the Senior Vice President, Research and Development of
the Company, at a regular salary of $150,000 per year. Dr. George's employment
agreement was for a term of two, rather than three, years. Dr. George's
employment agreement contained the same termination provisions as Mr.
Gausling's, except that Dr. George would have been paid his salary for 24
months, rather than 36 months, if he elected to treat one of
14
the events described above as a termination without cause. Effective February
28, 2002, Dr. George resigned his position as Senior Vice President, Research
and Development and terminated his employment agreement. Effective March 1,
2002, he entered into a new employment agreement with the Company for a one
(1) year term pursuant to which Dr. George will remain employed by the Company
in the position of Scientific Advisor and work on a part-time basis at a
salary of $2,000 per month.
Compensation of Directors
Nonemployee Directors of the Company receive an annual fee of $12,000 for
service on the Board, payable quarterly in advance. No additional fee is paid
for service on a committee of the Board. Nonemployee Directors also receive a
grant of 40,000 stock options upon joining the Board (the "Initial Grant") and
an annual grant of 20,000 stock options each year thereafter (the "Annual
Grant") on the annual option grant date for officers and employees of the
Company. Any nonemployee Director who becomes Chairman of the Board shall
receive an additional grant of 40,000 stock options (the "Chairman Grant") and
that individual's Annual Grant will be increased to 30,000 stock options.
The options granted to nonemployee Directors are nonqualified stock options
and the exercise price of the options is the mean between the high and low
sale prices of the Company's Common Stock as quoted on The Nasdaq Stock Market
on the grant date. Each Initial Grant and Chairman Grant generally vests on a
monthly basis over the 24 months immediately following the grant date, and
each Annual Grant generally vests on a monthly basis over the 12 months
immediately following the grant date. All vesting of the options will cease 90
days after the nonemployee Director ceases to serve on the Board. Options
become exercisable in full immediately upon the occurrence of a change in
control of the Company. A change in control of the Company would occur on the
happening of such events as the beneficial ownership by a person or group of
30 percent or more of the outstanding Common Stock, certain changes in Board
membership affecting a majority of positions, certain mergers or
consolidations, a sale or other transfer of all or substantially all the
Company's assets, or approval by the stockholders of a plan of liquidation or
dissolution of the Company, as well as any change in control required to be
reported by the proxy disclosure rules of the Commission. Payment of the
exercise price may be made in cash or by delivery of previously acquired
shares of Common Stock having a fair market value equal to the aggregate
exercise price.
Compensation Committee Interlocks and Insider Participation
Michael G. Bolton, Gregory B. Lawless and Roger L. Pringle served as members
of the Compensation Committee of the Board during 2001. Neither Mr. Bolton,
Mr. Lawless nor Mr. Pringle currently serves as an officer of the Company.
There are no compensation committee interlocks between the Company and any
other entity involving the Company's or such entity's executive officers or
board members.
15
The following report of the Compensation Committee of the Board (the
"Committee") and the Stock Price Performance Graph shall not be deemed to be
incorporated by reference by any general statement incorporating by reference
this Proxy Statement into any filing by the Company under either the
Securities Act or the Exchange Act, except to the extent that the Company
specifically incorporates this information by reference. The following report
and the Stock Price Performance Graph shall not otherwise be deemed filed
under such Acts.
Report of the Compensation Committee
General. The Committee, which is composed of independent, nonemployee
Directors, is responsible for establishing and administering the Company's
policies that govern executive compensation and benefit practices. The
Committee evaluates the performance of the Chief Executive Officer and reviews
the performance evaluations of the other executive officers, and approves
their salary, merit cash bonus and related benefits. Compensation approved by
the Committee for the Chief Executive Officer and the other executive officers
is then recommended for approval by the Company's Board of Directors. The
Committee also grants certain awards under the Company's stock award plans.
Compensation Philosophy. The Company's executive compensation programs are
designed to (i) align the interests of executive management with the long-term
interests of the Company's stockholders, (ii) motivate executives to achieve
the strategic business goals of the Company and recognize their individual
contributions, and (iii) provide compensation opportunities which are
competitive with those offered by other medical diagnostic companies. In
furtherance of these goals, the components of executive compensation include
base salary, merit cash bonuses, stock option grants and other benefits, and
are linked to both Company and individual performance.
Base Salary. At least annually, the Committee sets the salary for all
executive officers, subject to approval by the Board of Directors. The
Committee receives and considers management recommendations concerning salary
adjustments for executive officers, as well as compensation data regarding
other medical diagnostic companies. The Company generally tries to maintain
executive salaries near the median level paid by similarly situated companies.
The Committee's compensation decisions for 2001 were heavily influenced by
the Company's financial performance. While total revenues for 2001 grew
approximately 20% from the prior year (exclusive of revenues from discontinued
products), the Company did not meet the performance criteria for revenues and
profitability established by the Board of Directors and which formed the basis
for the 2001 Management Incentive Plan (described below). In addition, on
January 31, 2002, Mr. Thompson resigned from the Company, his employment
agreement with the Company was terminated, and he was replaced by Mr. Gausling
as the Company's Chief Executive Officer.
Since the Company failed to meet its stated financial objectives, the
Committee decided not to increase the salaries of the Chief Executive Officer
or the executive officers of the Company during 2001, except for Mr. Formica
who received a mid-year salary increase in July 2001.
Merit Cash Bonuses. In February 2001, the Committee and Board of Directors
approved the 2001 Management Incentive Plan (the "2001 MIP") which established
target cash bonus awards for executive officers and certain other managers for
2001. The terms of the 2001 MIP were designed to provide executive officers
and management with the opportunity to receive cash bonus awards comparable to
bonus opportunities provided in the marketplace. Awards for 2001 were to be
based on each executive's achievement of certain individual performance
targets and the Company's attainment of certain sales and earnings per share
targets for the year. The payment level could have reached 200% of the target
level if the sales and earnings per share targets were exceeded. The Chief
Executive Officer's target payment was 50% of base salary.
In light of the Company's failure to meet its stated financial objectives,
the Committee decided not to award cash bonuses to the Chief Executive Officer
or the other executive officers of the Company during 2001, except for Mr.
Block, who received a discretionary cash bonus in June 2001. Following the end
of 2001, the Committee
16
recognized that certain executive officers made significant contributions to
the Company during 2001 and determined that it would be appropriate to reward
these officers despite the Company's financial performance in 2001. As a
result, the Committee approved certain discretionary cash bonuses to Mr.
Formica and two other executive officers (other than the Chief Executive
Officer) in March 2002.
Stock Options. As previously noted, an important goal of the Company's
compensation program is to align the interests of the executive officers and
other employees with the long-term interests of the Company's stockholders. In
furtherance of this goal, the Board of Directors adopted the 2000 Stock Award
Plan (the "Award Plan") pursuant to which the Company may grant stock-based
awards to directors, officers, and employees of, and consultants and advisers
to, the Company. In general, the size of individual option grants is
determined by the Committee based on the executive's duties and the levels of
option grants for executives with comparable positions at other medical
diagnostic companies. In light of the Company's financial performance for
2001, the Committee elected to defer the annual grant of options to Company
employees and, as a result, did not grant any stock options to the Chief
Executive Officer or any other executive officer of the Company during 2001
other than Ronald H. Spair, the Company's Executive Vice President and Chief
Financial Officer, who received a stock option grant upon joining the Company
in November 2001.
Other Compensation. The Company also maintains a 401(k) profit sharing plan
(the "401(k) Plan") in which all employees of the Company, including executive
officers, are eligible to participate. In addition to amounts which
participants may elect to contribute to the 401(k) Plan, the Company makes
matching contributions up to the lesser of $4,000 or 10% of the participant's
salary. Payments of benefits accrued for 401(k) Plan participants will be made
upon retirement or upon termination of employment prior to retirement provided
certain conditions have been met by the participant prior to termination.
COMPENSATION COMMITTEE:
Roger L. Pringle, Chairman
Michael G. Bolton
Gregory B. Lawless
March 27, 2002
17
Stock Price Performance Graph
The following graph compares the cumulative total returns to investors in
the Company's Common Stock, the Russell 2000 Index and the Nasdaq
Biotechnology Index for the period from December 31, 1996 through December 31,
2001. The graph assumes that $100 was invested on December 31, 1996, in the
Company's Common Stock and in each of the above-mentioned indices, and that
all dividends were reinvested. The Russell 2000 index was chosen because it is
an index of companies with market capitalizations similar to the Company. The
Nasdaq Biotechnology Index was chosen because it includes a number of the
Company's competitors. Indices have been selected because the Company has been
unable to identify a peer group of companies for comparison. No single public
or private company has a comparable mix of technologies under development or
products which serve the same markets as the Company. Stockholders are
cautioned that the graph shows the returns to investors only as of the dates
noted and may not be representative of the returns for any other past or
future period.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN* AMONG
ORASURE TECHNOLOGIES, INC., THE RUSSELL 2000 INDEX AND
THE NASDAQ BIOTECHNOLOGY INDEX
[GRAPHIC MATERIAL OMITTED IN WHICH THE FOLLOWING DATA IS DEPICTED:]
TOTAL CUMULATIVE RETURN
-----------------------------------------------------
DATE 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01
ORASURE TECHNOLOGIES, INC. $100.00 $ 43.48 $ 51.09 $ 56.52 $ 71.74 $105.65
RUSSELL 2000 100.00 122.36 119.25 144.60 140.23 143.71
NASDAQ BIOTECHNOLOGY 100.00 99.93 144.18 290.72 357.52 299.62
--------
* The stock performance data for the Company used to generate the graph
reflects the cumulative total return on the common stock of Epitope for all
periods prior to the September 29, 2000 Merger of Epitope into the Company.
However, the data does not include any adjustment for the spin-off of
Epitope's former subsidiary, Agritope, Inc., which was effected as a
special stock dividend to Epitope's stockholders. In the spin-off, each
stockholder of record of Epitope on December 26, 1997, received one share
of Agritope, Inc., common stock for each five shares of Epitope's common
stock.
18
Item 2. Amendment of the OraSure Technologies, Inc. 2000 Stock Award Plan
General
On November 16, 1999, the Board of Directors of Epitope adopted, subject to
stockholder approval, the Epitope, Inc. 2000 Stock Award Plan (the "Plan").
The Plan was approved by Epitope's stockholders on February 15, 2000. The Plan
initially authorized for award a maximum of 2,500,000 shares of Common Stock,
plus the number of shares that were available for grant under the Epitope,
Inc. 1991 Stock Award Plan (the "1991 Plan") on February 15, 2000 (the "1991
Plan Shares"), and such additional shares that become available under the
terms of the Plan thereafter.
Effective September 29, 2000, in connection with the Merger of Epitope and
STC into the Company, the name of the Plan was changed to the OraSure
Technologies, Inc. 2000 Stock Award Plan and the Plan was adopted as a stock
option plan of the Company. All options granted prior to the Merger were
assumed by and became obligations of the Company. The shares subject to grant
under the Plan had a market value (determined as the average high and low
sales price on the NASDAQ Stock Market) of $6.075 per share on March 28, 2002.
On March 27, 2002, the Board approved and recommended for submission to
stockholders an amendment to increase the number of shares of Common Stock
authorized for grant under the Plan. Assuming that a quorum is present, the
affirmative vote of the holders of a majority of the shares of Common Stock
present, in person or by Proxy at the Annual Meeting, is required for approval
of the amendment to the Plan. Shares represented by a Proxy which are not
voted for approval of the amendment (by voting no or abstaining) will have the
effect of voting against the amendment. Your Board recommends that
stockholders vote FOR approval of the amendment to the Plan.
Amendment of the Plan
As of March 28, 2002, there were 300,145 shares of Common Stock remaining
available for grant as stock options or other equity awards under the Plan. In
order to enable the Company to continue to attract qualified directors,
officers, employees and outside advisors and to compensate its directors,
officers, employees and advisors in a manner that is competitive with
compensation provided by other medical diagnostic companies, the Board of
Directors determined that additional shares of Common Stock would need to be
authorized for grants under the Plan. Accordingly, the Board approved
amendment of the Plan to increase the number of shares authorized by 1,800,000
shares from 2,500,000 shares to 4,300,000 shares, plus the 1991 Plan Shares
and other shares that become available under the terms of the Plan. The Board
determined that this increase in authorized shares will meet the Company's
needs under the Plan for the foreseeable future. A copy of the proposed Plan
amendment is attached to this Proxy Statement as Exhibit B.
Summary of the Plan as Amended
A summary description of certain terms and provisions of the Plan as
proposed to be amended follows.
Purpose
The purpose of the Plan is to promote and advance the interests of the
Company and its stockholders by enabling the Company to attract, retain, and
reward employees, outside advisors, and directors of the Company and any
subsidiaries. The Plan is intended to strengthen the mutuality of interests
between employees, advisors, and directors and the Company's stockholders by
offering equity-based incentives to promote the long-term growth,
profitability and financial success of the Company.
Eligibility
The Plan provides for stock-based awards to (i) employees of the Company and
any subsidiaries, (ii) members of advisory committees or other consultants to
the Company or its subsidiaries ("Advisors"), and (iii) nonemployee directors
of the Company. Persons who help the Company raise money by selling securities
or who
19
promote or maintain a market for the Company's securities are not eligible to
participate in the Plan as Advisors. In addition, only Advisors who, in the
judgment of the Compensation Committee of the Board (the "Committee"), are or
will be contributors to the long-term success of the Company will be eligible
to receive Awards (as defined below). As of March 28, 2002, the Company had
204 employees, nine persons serving as Advisors, and six nonemployee
directors, all of whom are eligible to receive Awards under the Plan.
Administration of the Plan
The Committee administers the Plan and determines the persons who are to
receive Awards and the types, amounts, and terms of Awards. For example, the
Committee may determine the exercise price, the form of payment of the
exercise price, the number of shares subject to an Award, and the date or
dates on which an Award becomes exercisable. The Committee may delegate to one
or more officers of the Company the authority to determine the recipients of
and the types, amounts and terms of Awards granted to participants who are not
Reporting Persons.
The Plan will continue in effect until Awards have been granted covering all
available shares under the Plan or the Plan is otherwise terminated by the
Board. Termination of the Plan will not affect outstanding Awards.
The Plan permits the Board to amend the Plan, subject to stockholder
approval if required by law or the rules of a stock exchange or over-the-
counter trading system. In order to retain favorable treatment of Awards under
applicable tax laws, the Board cannot increase the number of shares covered by
the Plan without further stockholder approval.
Awards
Awards that may be granted under the Plan include stock options, stock
appreciation rights, restricted awards, performance awards, and other stock-
based awards (collectively, "Awards"). The following is a brief summary of the
various types of Awards that may be granted under the Plan.
Stock Options. Options granted under the Plan may be either incentive stock
options ("ISOs"), a tax-favored form of Award meeting the requirements of
Section 422 of the Internal Revenue Code, as amended, or nonqualified options
("NQOs"), which are not entitled to special tax treatment. ISOs must expire no
more than ten years from the date of grant. The Plan does not limit the
maximum term of NQOs. The exercise price of any ISO granted under the Plan may
not be less than the fair market value of the Common Stock on the date of
grant. The exercise price of any NQO generally may not be less than 75 percent
of the fair market value of the Common Stock on the date of grant. The Plan
authorizes the Committee to issue deferred compensation options with an option
price substantially less than the fair market value (but not less than $1 per
share) for the purpose of deferring a specified amount of income for a
recipient.
The agreement evidencing the grant of a stock option (the "Option
Agreement") will specify, as determined by the Committee, the time or times
when the option is exercisable, in whole or in part, and the extent to which
the option remains exercisable after the option holder ceases to be an
employee, Advisor or nonemployee director of the Company. The Option Agreement
may, in the discretion of the Committee, provide whether the option will
become fully exercisable upon the death, disability or retirement of the
option holder or upon a change of control of the Company. An option may be
exercised by payment of the exercise price in cash or, at the discretion of
the Committee, in any combination of cash, previously held shares of Common
Stock or share equivalents, or with proceeds from the sale of shares subject
to the option.
The Committee, in its discretion, may provide in the Option Agreement that,
to the extent that the option is exercised using previously acquired shares of
Common Stock, the option holder shall automatically be granted a replacement
("reload") option for a number of shares of Common Stock equal to the number
of shares surrendered upon exercise with an option price equal to the fair
market value of Common Stock on the date of exercise and subject to such other
terms as the Committee determines.
20
In no event may options for more than 500,000 shares of Common Stock be
granted to any individual under the Plan during any fiscal year period.
Stock Appreciation Rights. A recipient of stock appreciation rights ("SARs")
will receive, upon exercise, a payment (in cash or in shares of Common Stock)
based on the increase in the price of a share of Common Stock between the date
of grant and the date of exercise. SARs may be granted in connection with
options or other Awards granted under the Plan or may be granted as
independent Awards. In no event may SARs for more than 500,000 shares of
Common Stock be granted to any individual under the Plan during any fiscal
year period.
Restricted Awards. Restricted Awards may take the form of restricted shares
or restricted units. Restricted shares are shares of Common Stock that may be
subject to forfeiture if the recipient terminates employment or service as an
Advisor or nonemployee director during a specified period (the "Restriction
Period"). Stock certificates representing restricted shares are issued in the
name of the recipient, but are held by the Company until the expiration of the
Restriction Period. From the date of issuance of restricted shares, the
recipient is entitled to the rights of a stockholder with respect to the
shares, including voting and dividend rights. Restricted units are Awards of
units equivalent in value to a share of Common Stock, which similarly may be
subject to forfeiture if the recipient terminates employment or service as an
Advisor or nonemployee director during the applicable Restriction Period. At
the expiration of the Restriction Period, payment with respect to restricted
units is made in an amount equal to the value of the number of shares of
Common Stock covered by the restricted units. Payment may be in cash,
unrestricted shares of Common Stock, or any other form approved by the
Committee.
Performance Awards. Performance Awards are designated in units equivalent in
value to a share of Common Stock. A Performance Award is subject to forfeiture
if or to the extent that the Company, a subsidiary, an operating group, or the
recipient, as specified by the Committee in the Award, fails to meet
performance goals established for a designated performance period. Performance
Awards earned by attaining performance goals are paid at the end of a
performance period in cash, shares of Common Stock, or any other form approved
by the Committee. The number of shares of Common Stock issuable with respect
to Performance Awards granted to any individual executive officer may not
exceed 150,000 shares for any calendar year.
Other Stock-Based Awards. The Committee may grant other Awards that involve
payments or grants of shares of Common Stock or are measured by or in relation
to shares of Common Stock.
Shares Subject to the Plan
The maximum number of shares of Common Stock for which Awards may be granted
under the Plan (as amended) is 4,300,000 shares, plus the 1991 Plan Shares. In
addition, if an Award under the Plan, the 1991 Plan or the Incentive Stock
Option Plan for Key Employees of Epitope, Inc. (the "Epitope ISOP") is
cancelled or expires for any reason prior to becoming fully vested or
exercised or is settled in cash in lieu of shares, or is exchanged for other
Awards under the Plan, all shares covered by such Awards will be made
available for future Awards under the Plan. Any shares used as full or partial
payment to the Company of the option, purchase or other exercise price of an
Award, and any shares covered by a stock appreciation right which are not
issued upon exercise, will also become available for future Awards. As of
March 28, 2002, there were options outstanding to purchase 3,936,543 shares of
Common Stock which had been granted under the Plan, the 1991 Plan or the
Epitope ISOP.
In the event of a change in the Company's capitalization affecting the
Common Stock, including a stock dividend, stock split, recapitalization,
merger, consolidation, split-up, combination or exchange of shares or other
form of reorganization, the Committee shall make such proportionate
adjustments as it may determine, in its sole discretion to be appropriate as a
result of such change, to the aggregate number of shares for which Awards may
be granted under the Plan, the maximum number of shares which may be sold or
awarded to any participant, the number of shares covered by each outstanding
Award, and the price per share in respect of outstanding Awards.
21
Federal Income Tax Consequences
The following discussion summarizes the principal anticipated federal income
tax consequences of Awards granted under the Plan, to participants and to the
Company.
Incentive Stock Options. A recipient of an option does not realize taxable
income upon the grant or exercise of an ISO. If no disposition of shares
occurs within two years from the date of grant or within one year from the
date of exercise, then (a) upon the sale of the shares, any amount realized in
excess of the exercise price is taxed to the option recipient as long-term
capital gain and any loss sustained will be a long-term capital loss, and (b)
no deduction is allowed to the Company for federal income tax purposes. For
purposes of computing alternative minimum taxable income, an ISO is treated as
an NQO.
If shares of Common Stock acquired upon the exercise of an ISO are disposed
of prior to the expiration of the two-year and one-year holding periods
described above, then (a) the recipient 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 at exercise (or, if less, the amount realized on a
sale of the shares) over the exercise price thereof and (b) the Company would
be entitled to deduct such amount. Any further gain realized is taxed as a
short-term or long-term capital gain, as applicable, and does not result in
any deduction for the Company. Any disqualifying disposition as described
above will generally avoid the alternative minimum tax consequences of the
exercise of an ISO.
Nonqualified Options. No income is realized by an option recipient at the
time an NQO is granted. Upon exercise, (a) ordinary income is realized by the
option recipient in an amount equal to the difference between the exercise
price and the fair market value of the shares on the date of exercise and (b)
the Company receives a tax deduction for the same amount. Upon disposition of
the shares, appreciation or depreciation after the date of exercise is treated
as a short-term or long-term capital gain or loss, as applicable, and will not
result in any deduction to the Company.
Payment of Exercise Price in Shares. The Committee may permit participants
to pay all or a portion of the exercise price for an option using previously
acquired shares of Common Stock. If an option is exercised and payment is made
in previously held shares, there is no taxable gain or loss to the participant
other than any gain recognized as a result of exercise of the option, as
described above.
Stock Appreciation Rights. The grant of an SAR to a participant will not
cause the recognition of income by the participant. Upon exercise of an SAR,
the participant will realize ordinary income equal to the amount of cash
payable to the participant plus the fair market value of any shares of Common
Stock delivered to the participant. The Company will be entitled to a
deduction equal to the amount of ordinary income realized by the participant
in connection with the exercise of an SAR.
Restricted Awards and Performance Awards. Generally, a participant will not
recognize any income upon issuance of a Restricted Award or Performance Award
that is subject to forfeiture. Generally, a participant will recognize
ordinary income upon the vesting of Restricted Awards or Performance Awards in
an amount equal to the amount of cash payable to the participant plus the fair
market value of shares of Common Stock delivered to the participant. Dividends
paid with respect to Awards during the period such Awards are subject to
forfeiture will be taxable as ordinary income to the participant. However, a
participant may elect to recognize compensation income upon the grant of
restricted shares, based on the fair market value of the shares of Common
Stock subject to the Award at the date of grant. If a participant makes such
an election, dividends paid with respect to the restricted shares will not be
treated as ordinary income, but rather as dividend income, and the participant
will not recognize additional income when the restricted shares vest. The
Company will be entitled to a deduction equal to the amount of ordinary income
recognized by the participant. If a participant who receives an Award of
restricted shares makes the special election described above, the Company will
not be entitled to deduct dividends paid with respect to the restricted
shares.
Limitation on Deductibility of Certain Compensation. Section 162(m) of the
Internal Revenue Code generally makes nondeductible to the Company taxable
compensation paid to a single individual in excess of
22
$1 million in any calendar year if the individual is the Chief Executive
Officer or one of the next four highest-paid executive officers, unless the
excess compensation is considered to be "performance based." Among other
requirements contained in Section 162(m), the material terms of a compensation
plan in which such officers participate must be approved by stockholders for
awards or compensation provided under the plan to be considered "performance
based." The Company may in the future consider structuring Awards to attempt
to meet the requirements of Section 162(m) if it determines the action to be
advisable.
Annual Report
The Company's Annual Report to Stockholders for the year ended December 31,
2001, accompanies this Proxy Statement. On written request, the Company will
provide, without charge, a copy of its Annual Report on Form 10-K for the year
ended December 31, 2001, filed with the Commission (including a list briefly
describing the exhibits thereto), to any record holder or beneficial owner of
the Company's Common Stock on March 28, 2002, the record date for the Annual
Meeting, or to any person who subsequently becomes such a record holder or
beneficial owner. Requests should be directed to the attention of the
Secretary of the Company at the address of the Company set forth in the Notice
of Annual Meeting of Stockholders immediately preceding this Proxy Statement.
Independent Accountants
Change in Accountant. On December 18, 2000, the Company informed its
independent accountants, PricewaterhouseCoopers LLP ("PWC"), that they would
be dismissed upon completion of their audit of the Company's financial
statements for the three-month transition period ended December 31, 1999. PWC
previously audited the financial statements of the Company's predecessor,
Epitope, for the years ended September 30, 1998 and September 30, 1999.
On September 29, 2000, the Company changed its fiscal year to a calendar
year, and therefore no report of PWC was issued on the Company's financial
statements for the fiscal year ended September 30, 2000. PWC has issued a
report on the Company's interim financial statements for the transition period
October 1, 1999 through December 31, 1999. The reports of PWC on Epitope's
financial statements for the years ended September 30, 1998 and September 30,
1999, and for the three months ended December 31, 1999, did not contain an
adverse opinion or a disclaimer of opinion and were not qualified or modified
as to uncertainty, audit scope or accounting principles. In addition, during
its audits for the fiscal years ended September 30, 1998 and September 30,
1999, and for the three months ended December 31, 1999, (i) there were no
disagreements with PWC on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to PWC's satisfaction, would have caused PWC to
make reference to the subject matter of such disagreements in their reports,
and (ii) there were no reportable events as defined in Item 304(a)(1)(v) of
Regulation S-K under the Exchange Act.
Because the Company's headquarters, including its Financial Department, were
relocated to the former headquarters of STC in Bethlehem, Pennsylvania, it was
determined that it would be appropriate to retain Arthur Andersen LLP
("Andersen"), the independent accountants of STC, as the Company's independent
accountants. The Company's Audit Committee and Board authorized the dismissal
of PWC and retention of Andersen. The Company retained Andersen as its
independent accountants effective December 18, 2000.
Andersen has examined the financial statements of the Company for the year
ended December 31, 2001. The Company expects representatives of Andersen to be
present at the Annual Meeting and to be available to respond to appropriate
questions from stockholders. The representatives of Andersen will have the
opportunity to make a statement at the meeting if they desire to do so.
In light of recent events involving Andersen, the Company is reevaluating
whether to engage Andersen as the Company's independent accountants for 2002
or to engage another firm to act in that capacity. A decision on
23
this matter has not yet been made. If a decision is made to change independent
accountants, the Company will promptly provide the disclosure required by the
regulations of the Commission.
Audit Fees. The aggregate audit fees billed by Andersen related to the
Company's annual financial statements for the year ended December 31, 2001 and
those financial statements included in the Company's quarterly reports on Form
10-Q during 2001, totaled $98,500.
Financial Information Systems Design and Implementation Fees. The Company
did not engage Andersen to provide systems design and implementation services
(as defined in paragraph (c)(4)(ii) of Rule 2-01 of Regulation S-X under the
Exchange Act) during the year ended December 31, 2001.
All Other Fees. The aggregate fees billed by Andersen to the Company for
non-audit services rendered to the Company for the year ended December 31,
2001 totaled $75,200. These services consisted of preparation of various
federal and state tax returns for the Company, certain tax planning
assistance, and review of certain registration statements filed by the Company
and the issuance of consents in connection therewith.
The Audit Committee of the Company's Board of Directors has determined that
the provision of the services covered under the captions "Financial
Information Systems Design and Implementation Fees" and "All Other Fees" above
are compatible with maintaining Andersen's independence.
Deadline For Stockholder Proposals
Stockholders of the Company may submit proposals for inclusion in the proxy
materials for the Company's 2003 Annual Meeting of Stockholders. Any such
proposals must meet the stockholder eligibility and other requirements imposed
by rules issued by the Securities and Exchange Commission and must be received
by the Company at 150 Webster Street, Bethlehem, Pennsylvania 18105,
Attention: Secretary, not later than December 13, 2002.
The Company's Bylaws provide that a stockholder proposal must meet certain
predetermined requirements in order to be considered at the Annual Meeting. In
order to be considered, a stockholder's proposal must be made in writing to
the Company's Secretary and must be delivered to or received at the principal
executive offices of the Company not less than ninety (90) days nor more than
one hundred twenty (120) days prior to the meeting; provided, however, that in
the event that less than one hundred (100) days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received no later than the close of
business on the tenth (10th) day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made, whichever
first occurs. The notice to the Secretary must set forth, with respect to each
matter the stockholder proposes to bring before the meeting, a brief
description of the matter and the reasons for considering that matter at the
Annual Meeting. The notice must also include the name and record address of
the stockholder, the class and number of shares of capital stock of the
Company which are beneficially owned by the stockholder, and any material
interest the stockholder has in this matter(s) to be considered at the Annual
Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Jack E. Jerrett
Secretary
April 12, 2002
24
Exhibit A
OraSure Technologies, Inc.
Audit Committee of the Board of Directors
Charter of Responsibility
Article I
Mission Statement
The audit committee will assist the board of directors in fulfilling its
oversight responsibilities. The audit committee will review the financial
reporting process, the system of internal control, the audit process and the
company's process for monitoring compliance with laws and regulations. In
performing its duties, the committee will maintain effective working
relationships with the board of directors, management, and the external
auditors.
Article II
Membership
Section 1. Term: Members of the committee are appointed by the board of
directors and shall serve for a term of one year. Each committee member may be
re-appointed for additional terms at the discretion of the board of directors.
Section 2. Independence: The audit committee shall consist only of
independent directors. A director will not be considered "independent" if he
or she has:
--been employed by the company or its affiliates in the current or past
three years;
--accepted any compensation from the company or its affiliates in excess of
$60,000 during the previous fiscal year (except for board service,
retirement plan benefits, or non-discretionary compensation);
--an immediate family member who is, or has been in the past three years,
employed by the company or its affiliates as an executive officer;
--been a partner, controlling shareholder or an executive officer of any
for-profit business to which the company made, or from which it received,
payments (other than those which arise solely from investments in the
company's securities) that exceed five percent of the company's or
business's consolidated gross revenues for that year, or $200,000,
whichever is more, in any of the past three years, or;
--been employed as an executive of another entity where any of the
company's executives serve on that entity's compensation committee.
Section 3. Background and Experience: Audit committee members shall possess
financial literacy which is the ability to read and understand fundamental
financial statements, including the company's balance sheet, income statement,
and cash flow statement. At least one committee member shall possess
accounting or related financial management expertise, which would include past
employment experience in finance or accounting, requisite professional
certification in accounting, or any other comparable experience or background
which results in the individual's financial sophistication, including being or
having been a chief executive officer (CEO) or other senior officer with
financial oversight responsibilities.
Article III
Organization
Section 1. Number: The audit committee shall consist of not less than three
members of the board of directors.
Section 2. Chairperson: The board of directors shall appoint one member of
the audit committee to act as the committee chairperson.
25
Section 3. Meetings: The audit committee shall meet as often as necessary,
as determined by the committee chairperson. Meetings will usually be scheduled
in conjunction with board meetings. Members shall be given at least 5 days
notice of each meeting, but may waive notice in writing. Meetings will follow
an agenda and approved minutes of the meeting shall be maintained. In addition
to the committee, other participants may include the external auditors, the
CEO, chief financial officer (CFO) and controller, or others as determined by
the committee. The audit committee shall meet privately at least once per year
with management and at least once per year with the external auditors.
Article IV
Roles and Responsibilities
Section 1: Internal Controls: The audit committee shall determine whether
internal control recommendations made by external auditors have been
implemented by management and ensure that external auditors have kept the
audit committee informed about fraud, illegal acts, and deficiencies in
internal controls.
Section 2: Financial Reporting--General: The audit committee shall: a)
review significant accounting and reporting issues, including recent
professional and regulatory pronouncements, and understand their impact on the
financial statements; and b) discuss significant risks and exposures and plans
to minimize such risks with management and external auditors.
Section 3: Annual Financial Statements: The audit committee shall, prior to
filing of the Company's annual financial statements with the Securities and
Exchange Commission (SEC) on Form 10-K: a) review the annual financial
statements and determine whether they are complete and consistent with the
information known to committee members; b) determine the presence of complex
and/or unusual transactions and the appropriateness of their accounting and
disclosure treatment; c) determine that accounting for, and disclosure of,
judgmental areas such as valuation of assets and liabilities, loss reserves,
and other commitments and contingencies are adequate; d) review management's
handling of proposed audit adjustments identified by the external auditors; e)
review the Management's Discussion and Analysis (MD&A) section of the annual
report on Form 10-K and consider whether the information is adequate and
consistent with the committee members' knowledge about the company and its
operations; f) ensure that the external auditors communicate required matters
to the committee, including the written disclosures and letter from the
external auditors required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), as may be modified or
supplemented; g) discuss with the external auditors their independence; h)
discuss the audited financial statements with management; i) discuss with the
external auditors the matters required to be discussed by SAS 61 (Codification
of Statements on Accounting Standards, AU (S) 380), as may be modified or
supplemented; and j) recommend to the board of directors whether the audited
financial statements be included in the annual report on Form 10-K.
Section 4: Interim Financial Statements: Prior to release of the Company's
quarterly financial statements to the SEC on Form 10-Q, the audit committee or
the committee chairperson shall require the external auditors to inform the
committee of any significant: disagreements with management, new accounting
policies, adjustments to the financial statements or unusual events or
transactions.
Section 5: Compliance with Securities Laws and Regulations: The audit
committee shall review the effectiveness of the system for monitoring
compliance with laws and regulations and management's investigation and
follow-up on any fraudulent acts or accounting irregularities. Periodic
updates shall be obtained from management and general counsel regarding
compliance. The audit committee shall review the findings of examinations by
regulatory agencies such as the SEC, and be satisfied that regulatory
compliance matters have been considered in the preparation of the financial
statements.
Section 6: External Auditors: The audit committee shall meet with the
external auditors to review the proposed audit scope and approach, review the
independence of the external auditors by reviewing the non-audit services they
perform for the company and the assertion of their independence in accordance
with professional
26
standards. At least once annually, the audit committee shall review the
performance of the external auditors with the full board of directors and
determine the reappointment or discharge of the external auditors, who are
ultimately accountable to the board of directors and the audit committee.
Section 7: Other Responsibilities: The audit committee shall:
--establish periodic meetings with the external auditors, internal
auditors, and management in separate executive sessions to discuss any
matters that the committee or these groups believe should be discussed
privately;
--ensure that significant findings or recommendations made by the external
auditors are received and discussed on a timely basis;
--review, with the company's general counsel, any legal matters that could
have a significant impact on the company's financial statements;
--review the policies and procedures in effect for considering officers'
expenses and perquisites;
--if necessary, institute special investigations, and if appropriate, hire
special counsel or experts to assist;
--perform oversight functions as required by the full board;
--review and update the audit committee charter annually and receive full
board approval of any changes;
--regularly update the board of directors about committee activities and
make appropriate recommendations.
27
Exhibit B
Proposed Amendment of OraSure Technologies, Inc.
2000 Stock Award Plan (the "Plan")
On March 27, 2002, the Company's Board of Directors approved, and
recommended for approval by stockholders, a 1,800,000-share increase in the
number of authorized shares under the Plan. In order to reflect this increase
in authorized shares, Section 4.2.2 of the Plan was amended, subject to
stockholder approval, as follows:
"4.2.2 Number of Shares. The maximum number of Shares for which
Awards may be granted under the Plan is 4,300,000 Shares, plus the
number of Shares that are available for grant under the Epitope, Inc.,
1991 Stock Award Plan (the "1991 Plan"), on February 15, 2000, subject
to adjustment pursuant to Article 14 of the Plan."
28
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[LOGO] OraSure Technologies, Inc.
diagnostic solutions for the new millennium
P R O X Y
2002 Annual Meeting of Stockholders
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Jack E. Jerrett and Ronald H. Spair, and
each of them, proxies with full power of substitution, to vote all of the shares
which the undersigned is entitled to vote at the 2002 Annual Meeting of
Stockholders of OraSure Technologies, Inc. (the "Company"), to be held on
Monday, May 20, 2002, and at any adjournment or adjournments thereof, with all
the powers the undersigned would possess if personally present, with respect to
the matters listed on the reverse side.
The shares represented by this Proxy, if properly executed, will be voted
as specified on the reverse side or, if no specification is made, will be voted
FOR the election of the nominees listed on the reverse side as directors and FOR
the amendment of the OraSure Technologies, Inc. 2000 Stock Award Plan. If any
other business properly comes before the meeting, the proxies named above will
have discretionary authority to vote thereon in accordance with their best
judgment.
PLEASE MARK, DATE, SIGN, AND RETURN THE PROXY CARD PROMPTLY.
(Continued and to be signed on reverse side.)
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[FOLD AND DETACH HERE]
[LOGO] OraSure Technologies, Inc.
diagnostic solutions for the new millennium
2002 Annual Meeting of Stockholders
Monday, May 20, 2002
================================================================================
Please mark
your vote as
indicated in
this example
================================================================================
[x]
FOR WITHHOLD
1. Election of Directors [ ] [ ]
Class II (Term expiring 2005)
01 William W. Crouse
02 Roger L. Pringle
(Instruction: To withhold authority to vote for any individual nominee, mark FOR
and strike a line through the nominee's name in the list above. To withhold
authority to vote for all nominees, mark WITHHOLD.)
FOR AGAINST ABSTAIN
2. Amendment of OraSure Technologies, Inc. [ ] [ ] [ ]
2000 Stock Award Plan
By checking the box to the right, I consent to future delivery of annual [ ]
reports, proxy statements, prospectuses and other materials and stockholder
communications electronically via the Internet at a webpage which will be
disclosed to me. I understand that the Company may no longer distribute printed
materials to me for any future stockholder meeting until such consent is
revoked. I understand that I may revoke my consent at any time by contacting the
Company's transfer agent, Mellon Investor Services LLC, Ridgefield Park, NJ and
that costs normally associated with electronic delivery, such as usage and
telephone charges as well as any costs I may incur in printing documents, will
be my responsibility.
Signature(s) Dated 2002.
------------------------------ ------------
NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee, guardian or other
representative, please give full title as such.
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[FOLD AND DETACH HERE]
Vote by Internet or Telephone or Mail
24 Hours a Day, 7 Days a Week
Internet and telephone voting is available through 4PM Eastern Time
on May 17, 2002
Your telephone or Internet vote authorizes the named proxies to vote your shares
in the same manner as if you marked, signed and returned your proxy card.
-------------------------- --------------------- ---------------------
Internet Telephone Mail
http://www.eproxy.com/osur 1-800-435-6710
Mark, sign and date
Use the Internet to vote Use any touch-tone your proxy card
your proxy. Have your telephone to vote and return it in
proxy card in hand when your proxy. Have your the enclosed
you access the web site. OR proxy card in hand OR postage-paid
You will be prompted to when you call. You envelope.
enter your control number, will be prompted to
located in the box below, enter your control
to create and submit an number, located in
electronic ballot. the box below, and
then follow the
directions given.
-------------------------- --------------------- ---------------------
If you vote your proxy by Internet or by telephone,
you do NOT need to mail back your proxy card.
You can view the Annual Report and Proxy Statement
on the internet at: http://www.orasure.com
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