SCHEDULE 14A INFORMATION
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 Section 240.14a-12
Somanetics Corporation
-----------------------------------
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(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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[ ] 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 the registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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DETROIT.1075333.11
[SOMANETICS LOGO]
1653 EAST MAPLE ROAD
TROY, MICHIGAN 48083-4208
NOTICE OF THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 21, 2005
To the Shareholders of Somanetics Corporation:
THIS IS OUR NOTICE TO YOU that the annual meeting of shareholders of
Somanetics Corporation will be held at the Troy Marriott, 200 W. Big Beaver
Road, Troy, Michigan 48084, at 10:00 a.m. eastern standard time on Thursday,
April 21, 2005 for the following purposes:
1. To select one director to serve until the 2008 annual meeting of
shareholders and until his successor is elected and qualified.
2. To consider and act upon a proposal to approve the Somanetics Corporation
2005 Stock Incentive Plan, pursuant to which up to 600,000 common shares
are reserved for issuance.
3. To transact such other business as may properly come before the meeting
and any adjournment thereof.
Only shareholders of record on February 22, 2005 will be entitled to
notice of the meeting or any adjournment of the meeting and to vote at the
meeting or any adjournment of the meeting.
All shareholders are cordially invited to attend the meeting. Whether or
not you expect to attend the meeting, please complete, date and sign the
enclosed proxy and return it as promptly as possible to ensure your
representation at the meeting. A return postage-prepaid envelope is enclosed for
that purpose. If you return the proxy, you may withdraw your proxy and vote your
shares in person if you attend the meeting.
Your attention is called to the attached proxy statement and the
accompanying proxy. A copy of our annual report for the fiscal year ended
November 30, 2004 accompanies this notice.
By order of the Board of Directors
Bruce J. Barrett
President and Chief Executive Officer
Troy, Michigan
March 4, 2005
SOMANETICS CORPORATION
1653 EAST MAPLE ROAD
TROY, MICHIGAN 48083-4208
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
APRIL 21, 2005
GENERAL INFORMATION
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Somanetics Corporation. The proxies are
being solicited for use at the 2005 annual meeting of shareholders to be held at
the Troy Marriott, 200 W. Big Beaver Road, Troy, Michigan 48084, at 10:00 a.m.
eastern standard time on Thursday, April 21, 2005, and at any adjournment of
that meeting. The 2005 annual meeting of shareholders is being held for the
purposes described in the notice of annual meeting of shareholders on the prior
page. We expect that this proxy statement and accompanying proxy will be first
sent or given to shareholders on or about March 4, 2005.
Solicitation
We will bear the entire cost of soliciting proxies in the enclosed form,
including the costs of preparing, assembling, printing and mailing this proxy
statement, the accompanying proxy and any additional information we furnish to
shareholders. We may supplement our solicitation of proxies by mail with
telephone, telegraph, facsimile, e-mail or personal solicitation by our
directors, officers or other regular employees. We will not pay any additional
compensation to our directors, officers or other regular employees for these
services. We will request that brokers, nominees and other similar record
holders forward soliciting material, and we will reimburse them upon request for
their out-of-pocket expenses.
VOTING SECURITIES AND PRINCIPAL HOLDERS
Voting Rights and Outstanding Shares
Only shareholders of record at the close of business on February 22, 2005
will be entitled to notice of the annual meeting or any adjournment of the
meeting and to vote at the annual meeting or any adjournment of the meeting. As
of the close of business on February 22, 2005, we had 10,145,382 outstanding
common shares, $0.01 par value, the only class of our stock outstanding and
entitled to vote.
Each common share is entitled to one vote on each matter submitted for a
vote at the meeting. The presence, in person or by proxy, of the holders of
record of a majority of the outstanding common shares entitled to vote, or
5,072,692 shares, is necessary to constitute a quorum for the transaction of
business at the meeting or any adjournment of the meeting.
1
Revocability of Proxies
A shareholder giving a proxy may revoke it at any time before it is voted
by giving written notice of revocation to our Secretary or by executing and
delivering to our Secretary a later dated proxy. A shareholder's attendance at
the meeting will not have the effect of revoking any proxy given by that
shareholder unless the shareholder gives written notice of revocation to our
Secretary before the proxy is voted. Any written notice revoking a proxy, and
any later dated proxy, should be sent to Somanetics Corporation, 1653 East Maple
Road, Troy, Michigan 48083-4208, Attention: Investor Relations Department.
Valid proxies in the enclosed form that are returned in time for the
meeting and executed and dated in accordance with the instructions on the proxy
will be voted as specified in the proxy. If no specification is made, the
proxies will be voted FOR the election as director of the nominee listed below,
and FOR the proposed approval of the Somanetics Corporation 2005 Stock Incentive
Plan, pursuant to which up to 600,000 common shares are reserved for issuance.
Principal Holders of Our Voting Securities
The following table contains information with respect to the beneficial
ownership of our common shares as of February 22, 2005 by each person known to
us to beneficially own more than 5% of our common shares, our only outstanding
class of voting shares:
PERCENTAGE OF
AMOUNT AND NATURE OF COMMON SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OWNED (1)
------------------------------------ -------------------- ------------------
Bruce J. Barrett.................... 974,359 (2) 8.9%
1653 East Maple Road
Troy, Michigan 48083-4208
------------------------
(1) Based on 10,145,382 common shares outstanding as of February 22, 2005.
(2) Includes 786,867 common shares that Mr. Barrett has the right to acquire
within 60 days of February 22, 2005 and 187,492 common shares owned jointly with
his wife.
I. ELECTION OF DIRECTOR
Our Board of Directors proposes that the person named below as "nominee
for election as one of our directors for a three-year term" be elected as one of
our directors, to hold office until the annual meeting of shareholders to be
held in 2008 and until his successor is elected and qualified. Dr. Ausman was
last elected as a director at the 2002 annual meeting of shareholders on April
17, 2002. Effective on the date of the 2005 annual meeting of shareholders, the
size of the Board of Directors will be reduced to four members. If a quorum is
present, the nominee receiving the greatest number of votes cast at the meeting
or its adjournment will be elected. Withheld votes and broker non-votes will not
be deemed votes cast in determining which nominee receives the greatest number
of votes cast, but will be counted for purposes of determining whether a quorum
is present. The persons named in the accompanying proxy intend to vote all valid
proxies received by them FOR the election of the nominee listed below unless
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the person giving the proxy withholds authority to vote for this nominee. The
nominee listed below has consented to serve if elected. If the nominee is unable
or declines to serve, which we do not expect to happen, the proxy holders intend
to vote the proxies in accordance with their best judgment for another qualified
person.
The following information is furnished as of February 22, 2005 with
respect to our nominee for election as one of our directors, with respect to
each person whose term of office as one of our directors will continue after the
meeting, with respect to one person whose term of office as one of our directors
will not continue after the meeting, with respect to each of our executive
officers who is named in the Summary Compensation Table below, and with respect
to all of our directors and executive officers as a group:
AMOUNT AND PERCENTAGE
NATURE OF OF
POSITION AND OFFICES COMMON SHARES COMMON TERM
DIRECTOR WITH US AND OTHER BENEFICIALLY SHARES TO
NAME SINCE AGE PRINCIPAL OCCUPATION OWNED OWNED(1) EXPIRE
----------------------- -------- -- ---------------------------------- ------------- ---------- ------
NOMINEE FOR ELECTION AS ONE OF OUR DIRECTORS FOR A THREE-YEAR TERM
Dr. James I. Ausman.... 6/94 67 Director, Somanetics, Professor 38,785 (2) * 2008
of Neurosurgery, University
of Illinois at Chicago, Consultant
for The Tiber Group, Editor
of Surgical Neurology and
Neurosurgeon Consultant
DIRECTORS CONTINUING IN OFFICE
Daniel S. Follis...... 4/89 67 Director, President of 15,620 (3) * 2006
Verschuren & Follis, Inc. and
President of Follis Corporation
Robert R. Henry........ 12/98 64 Director and President of 333,200 (4) 3.3% 2006
Robert R. Henry & Co., Inc.
Bruce J. Barrett....... 6/94 45 President, Chief Executive 974,359 (5) 8.9% 2007
Officer and a Director
DIRECTOR NOT CONTINUING IN OFFICE
Joe B. Wolfe........... 11/01 62 Director, Capital Markets of 23,500 (6) * 2005
Westminster Securities Corporation
OTHER EXECUTIVE OFFICERS
Richard S. Scheuing........................................... 135,334 (7) 1.3%
Dominic J. Spadafore.......................................... 81,167 (8) *
Mary Ann Victor............................................... 139,167 (9) 1.4%
Pamela A. Winters............................................. 173,417 (10) 1.7%
All directors and executive officers as a group (11 persons).. 2,159,439 (11) 18.4%
--------------
* Less than 1%
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(1) Based on 10,145,382 common shares outstanding as of February 22, 2005.
(2) Includes 26,011 common shares that Dr. Ausman has the right to acquire
within 60 days of February 22, 2005, 9,744 common shares owned jointly
with his wife, and 3,030 shares held in an individual retirement account
over which Dr. Ausman exercises sole voting and investment control.
(3) Includes 3,500 common shares that Mr. Follis has the right to acquire
within 60 days of February 22, 2005. The 15,620 common shares shown above
as beneficially owned by Mr. Follis include 2,820 common shares owned by
The Infinity Fund, a limited partnership in which Mr. Follis is a 6.068%
limited partner and a 50% general partner and which is administered by
Verschuren & Follis, Inc., a corporation in which Mr. Follis is a 50%
shareholder, a director and the President.
(4) Includes 16,500 common shares that Mr. Henry has the right to acquire
within 60 days of February 22, 2005.
(5) Includes 786,867 common shares that Mr. Barrett has the right to acquire
within 60 days of February 22, 2005 and 187,492 common shares owned
jointly with his wife.
(6) Includes 23,500 common shares that Mr. Wolfe has the right to acquire
within 60 days of February 22, 2005.
(7) Includes 135,334 common shares that Mr. Scheuing has the right to acquire
within 60 days of February 22, 2005.
(8) Includes 78,667 common shares that Mr. Spadafore has the right to acquire
within 60 days of February 22, 2005 and 2,500 common shares that Mr.
Spadafore owns jointly with his spouse.
(9) Includes 134,067 common shares that Ms. Victor has the right to acquire
within 60 days of February 22, 2005, 2,000 common shares held by Ms.
Victor's husband and 3,100 common shares held by Ms. Victor's husband
jointly with his mother.
(10) Includes 173,417 common shares that Ms. Winters has the right to acquire
within 60 days of February 22, 2005.
(11) Includes 1,615,893 common shares that all executive officers and directors
as a group have the right to acquire within 60 days of February 22, 2005.
BIOGRAPHICAL INFORMATION
The following is a brief account of the business experience during the
past five years of the nominee for our Board of Directors and of each of our
directors whose term of office will continue after the meeting:
James I. Ausman, M.D., Ph.D. Dr. Ausman has served as one of our directors
since June 1994. Since July 2002, he has served as a consultant for The Tiber
Group, a healthcare strategic planning and market research company, and since
March 2001 has been a neurosurgeon consultant. He has been Professor of the
Department of Neurosurgery at the University of Illinois at Chicago since 1991
and served as its head from 1991 until September 2001. From September 1978 until
July 1991, he was Chairman of the Department of Neurosurgery at Henry Ford
Hospital in Detroit. From December 1987 until July 1991, he served as Director
of the Henry Ford Neurosurgical Institute, also at Henry Ford Hospital. In
addition, he was Clinical Professor of Surgery, Section of Neurosurgery at the
University of Michigan in Ann Arbor from 1980 until 1991. Dr. Ausman received a
B.S. degree in chemistry and biology from Tufts
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University, a Doctorate of Medicine from Johns Hopkins University School of
Medicine, a Masters of Arts in Physiology from the State University of New York
at Buffalo, and a Ph.D. in Pharmacology from George Washington University. He
has also received graduate training in neurosurgery at the University of
Minnesota and has obtained board certification from the American Board of
Neurological Surgery. He is now a Visiting Professor of Neurosurgery at the
University of California at Los Angeles and editor of Surgical Neurology. He
serves as the medical expert for KMIR 6 TV in Palm Desert, California.
Daniel S. Follis. Mr. Follis has served as one of our directors since
April 1989. Since 1981, he has served as President of Verschuren & Follis, Inc.,
which advises and administers The Infinity Fund, a limited partnership that
invests in emerging growth companies. Since 1995 he has also served as President
of Follis Corporation, a sales and marketing company engaged in media sales,
television production, serving as a manufacturer's representative and investment
management. Mr. Follis received a B.A. degree in business from Michigan State
University.
Robert R. Henry. Mr. Henry has served as one of our directors since
December 1998. He has been President of Robert R. Henry & Co., Inc., a financial
consulting and investment firm, since 1989. Mr. Henry has been an advisory
director of Morgan Stanley since 1989, and from 1977 through 1989 was a managing
director of Morgan Stanley. He received an M.B.A. from Harvard Business School
and a B.A. from Williams College.
Bruce J. Barrett. Mr. Barrett has served as our President and Chief
Executive Officer and as one of our directors since June 1994. Earlier in his
career, Mr. Barrett served, from June 1993 until May 1994, as the Director,
Hospital Products Division for Abbott Laboratories, Ltd., a health care
equipment manufacturer and distributor, and from September 1989 until May 1993,
as the Director, Sales and Marketing for Abbott Critical Care Systems, a
division of Abbott Laboratories, Inc., a health care equipment manufacturer and
distributor. While at Abbott Critical Care Systems, Mr. Barrett managed Abbott's
invasive oximetry products for approximately four years. From September 1981
until June 1987, he served as the group product manager of hemodynamic
monitoring products of Baxter Edwards Critical Care, an affiliate of Baxter
International, Inc., another health care equipment manufacturer and distributor.
Mr. Barrett received a B.S. degree in marketing from Indiana State University
and an M.B.A. degree from Arizona State University. Mr. Barrett is a party to an
employment agreement with us that requires us to elect him to the offices he
currently holds.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended November 30, 2004, our Board of Directors
held four meetings. Our Board of Directors has determined that each of Messrs.
Follis and Henry and Dr. Ausman are independent as independence is defined in
the National Association of Securities Dealers' listing standards, as those
standards have been modified or supplemented.
Audit Committee
Our Board of Directors has established a separately-designated, standing
Audit Committee that consists of three directors and is established for the
purpose of overseeing our
5
accounting and financial reporting processes and audits of our financial
statements. Robert R. Henry (Chairman), James I. Ausman, M.D., Ph.D., and Daniel
S. Follis are the current members of this committee. Each of the members of our
Audit Committee is independent as independence for audit committee members is
defined in the National Association of Securities Dealers' listing standards, as
those standards have been modified or supplemented. The Audit Committee:
- is directly responsible for the appointment, compensation, retention
and oversight of the work of any registered public accounting firm
engaged for the purpose of preparing or issuing an audit report or
performing other audit, review or attest services for us, including
responsibility for the resolution of disagreements between
management and the auditor regarding financial reporting; each such
registered public accounting firm must report directly to the Audit
Committee;
- ensures that before the independent accountant is engaged by us to
render audit or non-audit services, the engagement is approved by
the Audit Committee or the engagement to render the service is
entered into pursuant to pre-approval policies and procedures
established by the Audit Committee; this pre-approval authority may
be delegated to one or more members of the Audit Committee;
- takes, or recommends that the full board takes, appropriate action
to oversee the independence of our independent accountants;
- oversees our independent accountants' relationship by discussing
with our independent accountants the nature, scope and rigor of the
audit process, receiving and reviewing audit and other reports from
the independent accountants and providing our independent
accountants with full access to the committee and the board to
report on any and all appropriate matters;
- reviews and discusses the audited financial statements and the
matters required to be discussed by SAS 61 with management and the
independent accountants, including discussions concerning the
independent accountant's judgments about the quality of our
accounting principles, applications and practices as applied in our
financial reporting;
- recommends to the board whether the audited financial statements
should be included in our Annual Report on Form 10-K;
- reviews with management and the independent accountants the
quarterly financial information before we file our Form 10-Qs; this
review is performed by the committee or its chairperson;
- discusses with management and the independent accountants the
quality and adequacy of our internal controls;
- establishes procedures for (1) the receipt, retention, and treatment
of complaints received by us regarding accounting, internal
accounting controls, or auditing matters, and (2) confidential,
anonymous submission by our employees of concerns regarding
questionable accounting or auditing matters;
- reviews related party transactions required to be disclosed in our
proxy statement for potential conflict of interest situations and
approves all such transactions;
- discusses with management the status of pending litigation as it
pertains to the financial statements and disclosure and other areas
of oversight as the committee deems appropriate; and
- reports committee activities to the full board.
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During the fiscal year ended November 30, 2004, our Audit Committee held seven
meetings. Our Board of Directors has adopted a written charter for the Audit
Committee, a copy of which was attached as an appendix to our proxy statement in
connection with the 2004 annual meeting of shareholders.
Audit Committee Financial Expert
Our Board of Directors has determined that we have an Audit Committee
financial expert, as defined by the Securities and Exchange Commission, serving
on our Audit Committee. Robert R. Henry is our Audit Committee financial expert,
and he is independent as independence for audit committee members is defined in
the National Association of Securities Dealers' listing standards, as those
standards have been modified or supplemented. Mr. Henry's experience that
qualifies him as our Audit Committee financial expert includes investment
banking experience serving as managing director of Morgan Stanley from 1977 to
1989, corporate securities underwriting experience with Morgan Stanley from 1965
to 1977 and an M.B.A. from Harvard Business School in 1964. See "Biographical
Information."
Audit Committee Report
Our Audit Committee has:
- reviewed and discussed our audited financial statements for the
fiscal year ended November 30, 2004 with our management;
- discussed with our independent auditors the matters required to be
discussed by SAS 61 (Codification of Statements on Auditing
Standards, AU 380), as it has been modified or supplemented;
- received the written disclosures and the letter from our independent
accountants required by Independence Standards Board Standard No. 1
(Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees), as it has been modified or
supplemented; and
- discussed with our independent accountants our independent
accountants' independence.
Based on the review and discussions described above in this paragraph, our Audit
Committee recommended to our Board of Directors that the audited financial
statements for the fiscal year ended November 30, 2004 be included in our Annual
Report on Form 10-K for the fiscal year ended November 30, 2004 for filing with
the Securities and Exchange Commission.
Management is responsible for the Company's financial reporting process
including its system of internal control, and for the preparation of
consolidated financial statements in accordance with generally accepted
accounting principles. The Company's independent auditors are responsible for
auditing those financial statements. Our responsibility is to monitor and review
these processes. It is not our duty or our responsibility to conduct auditing or
accounting reviews or procedures. We are not employees of the Company and we may
not be, and we may not represent ourselves to be or to serve as, accountants or
auditors by profession or experts in
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the field of accounting or auditing. Therefore, we have relied, without
independent verification, on management's representation that the financial
statements have been prepared with integrity and objectivity and in conformity
with accounting principles generally accepted in the United States of America
and on the representations of the independent auditors included in their report
on the Company's financial statements. Our oversight does not provide us with an
independent basis to determine that management has maintained appropriate
accounting and financial reporting principles or policies, or appropriate
internal controls and procedures designed to assure compliance with accounting
standards and applicable laws and regulations. Furthermore, our considerations
and discussions with management and the independent auditors do not assure that
the Company's financial statements are presented in accordance with generally
accepted accounting principles, that the audit of our Company's financial
statements has been carried out in accordance with generally accepted auditing
standards or that our Company's independent accountants are in fact
"independent."
By the Audit Committee
Robert R. Henry, Chairman
James I. Ausman, M.D., Ph.D.
Daniel S. Follis
Compensation Committee
Our Board of Directors has a standing Compensation Committee which
consists of three directors. Daniel S. Follis (Chairman), James I. Ausman, M.D.,
Ph.D. and Robert R. Henry are the current members of this committee. Each of the
members of our Compensation Committee is independent as independence is defined
in the National Association of Securities Dealers' listing standards, as those
standards have been modified or supplemented. The Compensation Committee makes
recommendations to the Board of Directors with respect to compensation
arrangements and plans for senior management, officers and directors of the
Company and administers the Company's 1991 Incentive Stock Option Plan and 1997
Stock Option Plan, and, if approved by shareholders, the 2005 Stock Incentive
Plan. During the fiscal year ended November 30, 2004, the Compensation Committee
held four meetings.
Nominating Committee
Our Board of Directors has a standing Nominating Committee which consists
of three directors. James I. Ausman, M.D., Ph.D. (Chairman), Robert R. Henry and
Daniel S. Follis are the current members of this committee. The Nominating
Committee identifies individuals to become board members and selects, or
recommends for the board's selection, director nominees to be presented for
shareholder approval at the annual meeting of shareholders or to fill any
vacancies. During the fiscal year ended November 30, 2004, the Nominating
Committee held two meetings.
Our Board of Directors has adopted a written charter for the Nominating
Committee, a copy of which was attached as an appendix to our proxy statement in
connection with the 2004 annual meeting of shareholders and is also available to
shareholders on our website, at http://www.somanetics.com. Each of the members
of our Nominating Committee is independent
8
as independence is defined in the National Association of Securities Dealers'
listing standards, as those standards have been modified or supplemented.
The Nominating Committee's policy is to consider any director candidates
recommended by shareholders. Such recommendations must be made pursuant to
timely notice in writing to our Secretary, at Somanetics Corporation, 1653 East
Maple Road, Troy, Michigan 48083-4208. To be timely, the notice must be received
at our offices at least 120 days before the anniversary of the mailing of our
proxy statement relating to the previous annual meeting of shareholders. The
notice must set forth:
- with respect to the director candidate,
- the candidate's name, age, business address and residence
address,
- the candidate's principal occupation or employment,
- the number of our common shares beneficially owned by the
candidate,
- information with respect to the candidate's independence, as
defined under Nasdaq's listing standards for independent
directors in general and with respect to Audit Committee
members,
- information with respect to other boards on which the
candidate serves,
- information with respect to direct or indirect transactions,
relationships, arrangements and understandings between the
candidate and us and between the candidate and the shareholder
giving the notice, and
- any other information relating to the candidate that we would
be required to disclose in our proxy statement if we were to
solicit proxies for the election of the candidate as one of
our directors or that is otherwise required under Securities
and Exchange Commission rules, including the candidate's
written consent to being named in the proxy statement as a
nominee and to serving as a director if elected, and
- with respect to the shareholder giving the notice,
- the name and address of the shareholder as they appear on our
stock transfer records, and
- the number of our common shares beneficially owned by the
shareholder (and the period they have been held).
The Nominating Committee has not established specific, minimum qualifications
for recommended nominees or specific qualities or skills for one or more of our
directors to possess. The Nominating Committee uses a subjective process for
identifying and evaluating nominees for director, based on the information
available to, and the subjective judgments of, the members of the Nominating
Committee and our then current needs, although the committee does not believe
there would be any difference in the manner in which it evaluates nominees based
on whether the nominee is recommended by a shareholder. Historically, nominees
have been existing directors or business associates of our directors or
officers.
CODE OF BUSINESS CONDUCT AND ETHICS
We adopted a Code of Business Conduct and Ethics on December 12, 2003 that
applies to all of our employees, officers and directors, including our principal
executive officer, principal
9
financial officer, principal accounting officer or controller, or persons
performing similar functions. Our Code of Business Conduct and Ethics contains
written standards that we believe are reasonably designed to deter wrongdoing
and to promote:
- Honest and ethical conduct, including the ethical handling of actual
or apparent conflicts of interest between personal and professional
relationships;
- Full, fair, accurate, timely, and understandable disclosure in
reports and documents that we file with, or submit to, the
Securities and Exchange Commissions and in other public
communications we make;
- Compliance with applicable governmental laws, rules and regulations;
- The prompt internal reporting of violations of the code to an
appropriate person or persons named in the code; and
- Accountability for adherence to the code.
This Code of Business Conduct and Ethics is attached to our Annual Report
on Form 10-K for the fiscal year ended November 30, 2003 as Exhibit 14.1. We
have also posted it on our Web site at http://www.somanetics.com. We will
provide to any person without charge, upon request, a copy of our Code of
Business Conduct and Ethics. Requests for a copy of our Code of Business Conduct
and Ethics should be made to our Secretary at Somanetics Corporation, 1653 East
Maple Road, Troy, Michigan 48083-4208. We intend to satisfy the disclosure
requirement under Item 5.05 of Form 8-K regarding an amendment to, or a waiver
from, a provision of our Code of Business Conduct and Ethics that applies to our
principal executive officer, principal financial officer, principal accounting
officer or controller or persons performing similar functions and that relates
to any element of the code definition enumerated in Securities and Exchange
Commission, Regulation S-K, Item 406(b) by posting such information on our Web
site at http://www.somanetics.com within five business days following the date
of the amendment or waiver.
SHAREHOLDER COMMUNICATIONS WITH THE BOARD
Our Board of Directors has a process for shareholders to send
communications to the Board of Directors, its Nominating Committee or its Audit
Committee, including complaints regarding accounting, internal accounting
controls, or auditing matters. Communications can be sent to the Board of
Directors, its Nominating Committee or its Audit Committee or specific directors
either by regular mail to the attention of the Board of Directors, its
Nominating Committee, its Audit Committee or specific directors, at our
principal executive offices at 1653 East Maple Road, Troy, Michigan 48083-4208,
or by e-mail to directors01@somanetics.com. All of these communications will be
reviewed by our Secretary (1) to filter out communications that our Secretary
deems are not appropriate for our directors, such as spam and communications
offering to buy or sell products or services, and (2) to sort and relay the
remainder (unedited) to the appropriate directors.
We encourage all of our directors to attend the annual meeting of
shareholders, if possible. All four of our continuing directors attended the
2004 annual meeting of shareholders.
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EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information for each of the fiscal years
ended November 30, 2004, 2003 and 2002 concerning compensation of (1) all
individuals serving as our Chief Executive Officer during the fiscal year ended
November 30, 2004, and (2) our four most highly-compensated other executive
officers in fiscal 2004 who were serving as executive officers as of November
30, 2004 and whose total annual salary and bonus exceeded $100,000:
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
--------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) ($) (2)
---------------------------- ----- --------- -------- ------------ ------------
Bruce J. Barrett, President..... 2004 238,415 184,653 0 11,374
and Chief Executive Officer 2003 225,500 103,253 132,000 3,174
2002 164,750 0 100,000 -0-
Richard S. Scheuing, Vice....... 2004 114,811 49,162 0 6,574
President, Research and 2003 111,100 19,002 56,000 -0-
Development 2002 110,000 0 10,000 -0-
Dominic J. Spadafore, Vice...... 2004 133,486 100,570 0 9,778
President of Sales and 2003 130,866 64,553 36,000 1,578
Marketing (1) 2002 43,333 23,333 100,000 -0-
Mary Ann Victor, Vice President 2004 111,384 57,861 0 7,689
of Communications and 2003 106,400 29,005 56,000 897
Administration and Secretary 2002 95,875 0 60,000 -0-
Pamela A. Winters, Vice......... 2004 114,811 49,461 0 7,621
President of Operations 2003 111,100 26,562 50,000 948
2002 100,625 0 60,000 -0-
---------------
(1) Mr. Spadafore became one of our executive officers on August 1, 2002. The
Compensation shown in the table for fiscal 2002 is compensation paid to him in
all capacities in fiscal 2002.
(2) Amounts for 2004 include (a) the following matching contributions paid by us
into our 401(k) plan on behalf of the following persons: $8,200 for Mr. Barrett,
$6,574 for Mr. Scheuing, $8,200 for Mr. Spadafore, $6,792 for Ms. Victor, and
$6,586 for Ms. Winters, and (b) the following premiums paid for additional
disability insurance for the following persons: $3,174 for Mr. Barrett, $1,578
for Mr. Spadafore, $897 for Ms. Victor, and $1,035 for Ms. Winters.
Aggregated Option Exercises and Fiscal Year-End Option Value Table
The following table sets forth information concerning each exercise of
stock options during the fiscal year ended November 30, 2004 by each of the
executive officers named in the
11
Summary Compensation Table above and the value of unexercised options held by
them as of November 30, 2004:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END (#) AT FY-END ($)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------- ------------ ----------- ------------- ----------- -------------
Bruce J. Barrett...... 37,932 79,244 786,867 121,333 7,723,970 1,243,450
Richard S. Scheuing... 26,175 202,921 135,334 40,666 1,365,294 409,386
Dominic J. Spadafore.. 0 0 78,667 57,333 891,884 625,756
Mary Ann Victor....... 22,000 240,460 134,067 57,333 1,388,085 591,557
Pamela A. Winters..... 19,200 202,671 173,417 53,333 1,735,673 551,597
"Value Realized" represents the fair value of the underlying securities on the
exercise date, based on the closing sale price on the previous date, minus the
aggregate exercise price of the options.
Compensation of Directors
We refer to our directors who are not our officers or employees as Outside
Directors. Our Outside Directors receive $1,000 for each Board meeting attended
in person, $250 for each telephonic Board meeting attended, and $250 for each
Board committee meeting attended on a date other than the date of a Board
meeting. We also reimburse Outside Directors for their reasonable expenses of
attending Board and Board committee meetings. In addition, our Board of
Directors has determined to grant Outside Directors who continue to serve as our
directors after each annual meeting of shareholders, 10-year options to purchase
3,500 common shares each year on the date of the annual meeting of shareholders,
exercisable at the fair market value of the common shares on the date of grant.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
Bruce J. Barrett. As of May 13, 1994, we entered into an employment
agreement with Bruce J. Barrett, pursuant to which, as amended, he is employed
as President and Chief Executive Officer, or in such other position as the Board
of Directors determines, for a period ending April 30, 2006. Mr. Barrett's
annual salary is currently $246,232, which may be increased by the Board of
Directors. Mr. Barrett is also entitled to participate in any bonus plan
established by the Compensation Committee of the Board of Directors. We adopted
a bonus plan for fiscal 2004 and for fiscal 2005 that covers officers. Mr.
Barrett is entitled to various fringe benefits under the agreement, including 12
months of compensation and six months of benefits if his employment under the
agreement is terminated without cause or if the agreement expires without being
renewed. Mr. Barrett has agreed not to compete with us during specified periods
following the termination of his employment.
Dominic J. Spadafore. As of August 1, 2002, we entered into an employment
agreement with Dominic J. Spadafore, pursuant to which he is employed as Vice
President of Sales and Marketing, or in such other position as the Board of
Directors determines, for a period ending upon his death, termination by us upon
his disability or with or without cause or termination by
12
Mr. Spadafore. Mr. Spadafore's annual salary is currently $135,252, which may be
increased by the Board of Directors. Mr. Spadafore is also entitled to
participate in commission incentive plans, and during the first year of his
employment, he was entitled to receive minimum incentive compensation of $70,000
payable monthly in arrears. Mr. Spadafore also received an option to purchase
100,000 common shares as an inducement essential to his entering into the
employment agreement.
Mr. Spadafore is entitled to various fringe benefits under the agreement.
If we terminate (or our successor terminates) Mr. Spadafore's employment under
the agreement without cause within 90 days before, or one year after, a change
in control, he is entitled to 12 months of his salary, unless (1) the successor
is bound by and performs the employment agreement, (2) the successor offers Mr.
Spadafore employment on the same terms and conditions without any substantial
decrease in salary without his consent, or (3) Mr. Spadafore accepts employment
with the successor. Mr. Spadafore has agreed not to compete with us and not to
solicit our employees during specified periods following the termination of his
employment, and he has agreed to various confidentiality obligations.
Stock Option Terms. All options granted under our stock option plans
through February 22, 2005, that are not already 100% exercisable immediately,
including options granted to Messrs. Barrett, Scheuing and Spadafore, Ms. Victor
and Ms. Winters, become 100% exercisable immediately ten days before or upon
specified changes in control of the Company.
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended November 30, 2004, James I. Ausman, M.D.,
Ph.D., Daniel S. Follis (Chairman) and Robert R. Henry, served as the members of
our Compensation Committee. None of the members of our Compensation Committee
was, during the fiscal year ended November 30, 2004, one of our officers or
employees, or one of our former officers. None of the committee members had any
relationship with us requiring disclosure by us pursuant to Securities and
Exchange Commission rules regarding disclosure of related-party transactions.
Board Compensation Committee Report on Executive Compensation
General. The Compensation Committee's overall compensation policy
applicable to our executive officers is to provide a compensation package
intended to attract and retain qualified executives and to provide them with
incentives to achieve our goals and increase shareholder value. The Compensation
Committee implements this policy through salaries, bonuses, equity incentives, a
401(k) plan, and employment agreements and miscellaneous personal benefits.
Salaries. The Compensation Committee's policy is to provide salaries that
it believes are necessary to attract and retain qualified executives. In
determining its recommendations for executive officer salaries, the Compensation
Committee consults other members of the Board, but generally relies to a
significant extent on Mr. Barrett's recommendations as our Chief Executive
Officer. The Compensation Committee also considers its members' knowledge of
salaries paid by companies of comparable size in the electronics and medical
electronics industry (including some companies included in the industry index
used by us in our performance graph
13
below), individual performance, the executive's position, our financial
resources, performance and prospects and the salaries of our other officers and
employees. Salaries for fiscal 2004 were determined based on a subjective
evaluation of the factors described above, without giving any specific priority
or weighting to any of the factors, and included salary increases ranging from
2% to approximately 9%, based primarily on Mr. Barrett's recommendations,
individual performance, and our first full year of profitability in fiscal 2003.
Bonuses. The Compensation Committee's policy is to recommend bonuses that
compensate executive officers for achieving our goals. In addition, the
Compensation Committee's policy is to consider discretionary bonuses, determined
near the end of the fiscal year, to compensate executive officers for
performance or achievements during the fiscal year not covered by bonuses paid
earlier in the year.
For fiscal 2004, we adopted the 2004 Incentive Compensation Plan for all
non-commissioned officers and non-commissioned, full-time, salaried employees.
Half of the potential bonuses under the plan were based on our revenues,
determined quarterly ("Plan A"). The quarterly bonus equalled (1) the percentage
of our year-to-date revenues compared to budgeted revenues, (2) multiplied by a
factor, (3) multiplied by the employee's salary, (4) multiplied by a "pay-out
rate", and (5) multiplied by .125 (i.e., one-half of the potential bonus,
divided among the four quarters). No bonus was payable for revenues less than
85% of budgeted revenues, and the formula required an improvement in revenues
for every quarter. The factors ranged from .50 for revenues from 85% to 90% of
budget to 1.00 for revenues in excess of 100% of budget. Pay-out rates ranged
from 10% to 50%, depending on the employee, and were 50%, 25%, 35% and 30% for
Messrs. Barrett and Scheuing, Ms. Victor and Ms. Winters, respectively. Mr.
Spadafore participated in a sales commission incentive program.
The other half of the bonuses under the plan was based on pre-defined
objectives for each employee ("Plan B"). This half of the bonus equaled (1) the
percentage of objectives achieved, (2) multiplied by the employee's salary, (3)
multiplied by the "pay-out rate", (4) multiplied by .5 (i.e., half of the total
potential bonus), (5) multiplied by our percentage of our revenues compared to
budgeted revenues, and (6) multiplied by the percentage of our net income
compared to budgeted net income. This formula required improvements in sales and
in net income. The Compensation Committee retained discretion to increase or
decrease performance bonuses. In fiscal 2004, we met 102%, 101%, 103% and 102.7%
of our cumulative revenue targets in the first, second, third and fourth
quarters, respectively, and met 138% of our net income target in fiscal 2004,
and, therefore, paid bonuses under Plan A and Plan B aggregating $544,413.86.
Equity Incentives. The Compensation Committee's policy has been to award
stock options to each of our officers, employees and directors in amounts
reflecting their position and ability to influence our overall performance,
determined based on the Committee's subjective judgment after reviewing the
number of options previously granted to such person, the number of options
granted to persons in similar positions both at Somanetics and at other
companies deemed comparable to us (based on the members' knowledge of options
granted by other companies), the number of options remaining available for grant
and management's recommendations.
14
The Compensation Committee's policy has been to grant options with a term
of ten years to provide a long-term incentive and to fix the exercise price of
the options at the fair market value of the underlying shares on the date of
grant. Such options only provide compensation if the price of the underlying
shares increases. In addition, the Committee's policy has been to grant options
that vest over a specific period to provide the executive with an incentive to
remain with us. Generally, options granted to our executives vest in three equal
annual installments beginning one year after the date of grant. The Committee's
policy has also been to provide new executives with options to attract them to
us based on negotiations with new executives, management's recommendations and
the Committee's subjective judgment primarily after reviewing the number of
options granted to our other executives.
Because of changes in our stock price, options already granted to our
executive officers and impending changes in accounting for stock options, the
Compensation Committee did not grant any stock options to executive officers in
fiscal 2004, although it did grant options to directors and ten new employees.
The Compensation Committee has proposed a new 2005 Stock Incentive Plan for
shareholder approval, described in more detail in Part II of this proxy
statement. The new plan would permit awards of stock options, restricted stock
and restricted stock units.
The Compensation Committee expects that if the new plan is approved by
shareholders, the number and type of equity incentive awarded under the plan to
executives will be determined based on the same factors described above used by
the Compensation Committee in connection with previous stock option grants,
management's recommendations and the Compensation Committee's subjective
judgment primarily after reviewing the previous awards of equity incentives to
such executives and their ownership of Common Shares. The Compensation Committee
believes that it will likely award restricted stock to executive officers, but
reserves the right to use any of the equity incentive features of the new plan,
if it is approved by shareholders.
The purposes of the new plan are (1) to align the interests of our
shareholders and recipients of awards by increasing the recipients' proprietary
interest in our growth and success, (2) to advance our interests by attracting
and retaining officers, other employees, non-employee directors, consultants,
advisors, independent contractors and agents and (3) to motivate such persons to
act in the long-term best interests of the Company and our shareholders.
Generally, the Compensation Committee reserves the right to pay
compensation to our executives in amounts it deems appropriate regardless of
whether such compensation is deductible for federal income tax purposes. Equity
incentives granted to executives are subject to limits on permitted federal
income tax deductions related to those equity incentives, including under
current treasury regulations concerning the $1,000,000 cap on executive
compensation deductions under Section 162(m) of the Internal Revenue Code of
1986, as amended. The Committee believes that such awards are more important to
us than the potential loss of related compensation deductions relating to those
equity incentives, especially in light of our net operating loss carryforwards
and the non-cash nature of deductions available relating to some of these equity
incentives.
15
401(k) Plan. We have adopted a 401(k) plan to provide all eligible
employees a means to accumulate retirement savings. Participants may defer
specified portions of their compensation and (1) we match 200% of employee
contributions up to a contribution by us equal to 4% of the employee's
compensation and (2) we may, but are not required to, make additional
discretionary contributions. The amount of additional discretionary
contributions are based on the Committee's subjective judgment of what is
appropriate, after reviewing management's recommendation. As a result of the
matching contribution implemented in 2004 to reward employees for their
collective efforts in making us profitable, the Committee recommended that we
not make an additional discretionary contribution to the 401(k) plan for fiscal
2004.
Employment Agreements and Miscellaneous Personal Benefits. The
Compensation Committee's policy has been to have employment agreements with
Messrs. Barrett and Spadafore to provide them with specified minimum positions,
periods of employment, salaries, fringe benefits and severance benefits. These
benefits are intended to permit these executive officers to focus their
attention on performing their duties to us, rather than on the security of their
employment, and to provide such officers with benefits deemed by the
Compensation Committee to be suitable for their offices. The Compensation
Committee's policy, however, is that personal benefits (other than severance
pay) should not exceed 10% of the executive's salary and bonus for the year.
Fiscal 2004 Compensation Decisions Concerning CEO. In August 2003, the
Compensation Committee recommended that Mr. Barrett's salary be increased
approximately 4% to $234,507 effective December 1, 2003, and in August 2004, the
Compensation Committee recommended that Mr. Barrett's salary be increased
approximately 5% effective August 1, 2004. As described in "Salaries", the
amount of the recommended salary for Mr. Barrett was based primarily on the
Committee's subjective evaluation of Mr. Barrett's recommendation, its members'
consultation with other directors, its members' knowledge of salaries paid by
companies of comparable size in the electronics and medical electronics
industries, Mr. Barrett's performance in fiscal 2003 and 2004 and his position
with us, our financial resources, performance and prospects, including our first
full year of profitability in fiscal 2003 and our performance in fiscal 2004,
and the salaries of our other officers and employees.
In December 2003, the Committee recommended the approval of the 2004
Incentive Compensation Plan, and in March 2004, November 2004 and December 2004,
the Committee recommended paying the Plan A and Plan B portions of the bonus
under that plan, including $63,220 to Mr. Barrett under Plan A, based on our
sales in fiscal 2004 and $121,433 under Plan B, based on our sales and net
income in fiscal 2004 and Mr. Barrett's achievement of individual objectives in
fiscal 2004. The Committee recommended adoption of the bonus plan as a means to
compensate executive officers for achieving our goals, specifically our sales,
profitability and individual officer goals pursuant to the formula contained in
the plan and described above. In February 2005, the Committee recommended that
no additional bonuses be paid to our executive officers for fiscal 2004,
primarily as a result of the bonuses paid under the plan.
16
Because of changes in our stock price, options already granted to our
executive officers and impending changes in accounting for stock options, the
Compensation Committee did not grant any stock options to executive officers in
fiscal 2004.
In August 2004, the Committee recommended an amendment to our 401(k) plan
to add a matching contribution to reward employees for their collective efforts
in making us profitable. In February 2005, the Committee recommended that no
additional discretionary contribution be made to the 401(k) plan for fiscal 2004
as a result of the matching contribution added to the 401(k) plan in fiscal
2004.
By the Compensation Committee
Dr. James I. Ausman
Daniel S. Follis
Robert R. Henry
Performance Graph
The following line graph compares for the fiscal years ended November 30,
2000, 2001, 2002, 2003 and 2004 (1) the yearly percentage change in our
cumulative total shareholder return (i.e., the change in share price divided by
the initial share price, expressed as the resulting value of a $100 investment;
we have not paid cash dividends) on our Common Shares, with (2) the cumulative
total return of The Standard & Poor's SmallCap 600 Index and with (3) the
cumulative total return on the Nasdaq Medical Devices Index.
COMPARISON OF CUMULATIVE TOTAL RETURN*
AMONG SOMANETICS CORPORATION,
STANDARD & POOR'S SMALLCAP 600 INDEX AND
NASDAQ MEDICAL DEVICES INDEX**
[PERFORMANCE GRAPH]
17
1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ----
Somanetics Corporation........................... 100.00 143.18 280.00 146.91 568.73 1,009.45
Standard & Poor's SmallCap 600 Index............. 100.00 107.72 120.73 113.88 150.07 183.29
Nasdaq Medical Devices Index..................... 100.00 104.94 105.03 92.47 133.70 154.54
Assumes $100 invested on November 30, 1999 in Somanetics Corporation Common
Shares, The Standard & Poor's SmallCap 600 Index and the Nasdaq Medical Devices
Index.
--------------
*Total return assumes reinvestment of dividends.
**Fiscal Year ending November 30.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our officers
and directors, and persons who own more than ten percent of a registered class
of our equity securities, to file reports of ownership and changes in ownership
with the Securities and Exchange Commission. Officers, directors and greater
than ten-percent shareholders are required by Securities and Exchange Commission
regulation to furnish us with copies of all Section 16(a) reports they file.
Based solely on review of the copies of such reports furnished to us during or
with respect to fiscal 2004, or written representations that no Forms 5 were
required, we believe that during the fiscal year ended November 30, 2004 all
Section 16(a) filing requirements applicable to our officers, directors and
greater than ten-percent beneficial owners were complied with.
II. PROPOSAL TO APPROVE THE SOMANETICS CORPORATION
2005 STOCK INCENTIVE PLAN
We are asking our shareholders to approve the Somanetics Corporation 2005
Stock Incentive Plan (the "Plan"). In order to attract and retain officers,
other employees, non-employee directors, consultants, advisors, independent
contractors and agents, the Board of Directors has adopted the Plan, subject to
the approval of our shareholders.
GENERAL
The purposes of the Plan are (1) to align the interests of our
shareholders and recipients of awards by increasing the recipients' proprietary
interest in our growth and success, (2) to advance our interests by attracting
and retaining officers, other employees, non-employee directors, consultants,
advisors, independent contractors and agents and (3) to motivate such persons to
act in the long-term best interests of the Company and its shareholders.
The Plan permits us to grant stock options, including both nonqualified
options and incentive options, restricted stock and restricted stock units
("RSUs") to officers, other employees, non-employee directors, consultants,
advisors, independent contractors and agents of the Company and its
subsidiaries.
18
Persons deemed to be our affiliates, i.e., persons who directly or
indirectly through one or more intermediaries, control, are controlled by, or
are under common control with, us, must resell securities acquired under the
Plan pursuant to a registration statement under the Securities Act of 1933 and
the related rules and regulations, Rule 144 under the Securities Act or an
applicable exemption under the Securities Act.
We are the issuer of the securities offered pursuant to the Plan. The
common shares, par value $0.01 per share, we issue under the Plan may be either
our authorized and unissued or reacquired common shares. The Plan is not subject
to any provisions of the Employee Retirement Income Security Act of 1974 and is
not qualified under Section 401(a) of the Internal Revenue Code of 1986.
As of February 22, 2005, the closing sales price of our common shares was
$14.09.
APPROVAL OF THE PLAN
Shareholder approval of the Plan requires the approval by a majority of
the votes cast by the holders of common shares at the meeting and entitled to
vote on the action. Abstentions, withheld votes and broker non-votes will not be
deemed votes cast in determining approval of this proposal, but will be counted
in determining the number of common shares present or represented by proxy in
determining whether a quorum is present. We do not intend to place the proposed
Plan into effect unless approval is obtained at the meeting, and such approval
is sought, in part, to exempt the awards of equity incentives under the Plan
from the provisions of Section 162(m) of the Internal Revenue Code of 1986 and
in order to comply with the shareholder approval requirements for securities
traded on the Nasdaq SmallCap Market.
The following is a summary of the Plan, which is qualified in its entirety
by reference to the full text of the Plan, which is set forth on Exhibit A to
this Proxy Statement.
ADMINISTRATION; PLAN PARTICIPANTS
The Compensation Committee of the Board of Directors or such other
committee as may be designated by the Board of Directors or the Board of
Directors itself (the "Committee") will administer the Plan. The Plan authorizes
the Committee to interpret the Plan, to make rules relating to the Plan, and to
make all other determinations that the Committee believes are necessary to
administer the Plan. To the extent permitted by applicable law, the Committee
may delegate some or all of its power and authority to administer the Plan to
our chief executive officer or any other of our executive officers. The persons
administering the Plan are entitled to indemnification and reimbursement by us
in respect of claims, loss, damage or expense to the full extent permitted by
law, except as otherwise may be provided under our Articles of Incorporation or
bylaws, and under directors' and officers' liability insurance.
Officers, other employees, non-employee directors, consultants, advisors,
independent contractors and agents of the Company and its subsidiaries are
eligible to participate in the Plan. Approximately seven officers, 29 other
employees, four non-employee directors, and two consultants and advisors are
currently eligible to participate in our existing equity incentive
19
plans, most of whom have been granted stock options under our plans or
independent of our plans. The Committee, in its discretion, will choose
participants in the Plan from and among those officers, other employees,
non-employee directors, consultants, advisors, independent contractors and
agents of the Company and its subsidiaries. No determination has yet been made
with respect to participants in the Plan. The Committee will select the
participants to be granted awards and determine the type and terms and
conditions of awards.
AMENDMENT OR TERMINATION OF THE PLAN
The Plan may be terminated at any time by our Board of Directors. Unless
sooner terminated, the Plan will terminate ten years after it was adopted by our
Board of Directors. No awards may be granted after termination of the Plan, but
termination of the Plan will not affect the validity of any award outstanding on
the date of termination.
The Board of Directors may amend the Plan at any time, subject to any
requirement of shareholder approval required by applicable law, rule or
regulation, including Section 162(m) and Section 422 of the Internal Revenue
Code. No amendment may impair any award which has been granted under the Plan
without the consent of the holder.
MAXIMUM AWARDS
Awards may be granted for a maximum of 600,000 common shares. Any shares
subject to any award granted under the Plan that are forfeited or not delivered
due to the termination of such award or the settlement of such award in cash,
and any shares that are delivered to us by a participant or withheld from
delivery to a participant for purposes of paying the exercise price or tax
withholding obligations with respect to an award granted under the Plan will
become available for future awards under the Plan. To the extent necessary for
an award to be exempt from the deduction limits under Section 162(m) of the
Internal Revenue Code of 1986, as discussed below, the maximum number of shares
subject to options granted to any individual during any calendar year may not
exceed 300,000 shares. The total fair market value (determined at the time an
incentive option is granted) of shares for which incentive options are
exercisable for the first time by any individual during any calendar year cannot
exceed $100,000.
The Committee will appropriately adjust the number of shares which may be
made the subject of new awards or are then subject to outstanding awards, the
option price of each outstanding stock option, and the aggregate number of
shares available at any time under the Plan to reflect such events as a stock
split, stock dividend, or other extraordinary corporate event.
AWARDS
Awards granted under the Plan will be evidenced by a written agreement
between us and each participant, which will be in accordance with the Plan and
may contain restrictions and limitations that do not violate the terms of the
Plan. The Committee may grant a participant one or more of the following awards
or any combination of them.
20
Stock Options.
The Committee may grant either incentive options meeting the definition of
incentive stock option under Section 422 of the Internal Revenue Code of 1986,
or nonqualified options not meeting that definition, or any combination of
incentive and nonqualified options. The exercise price for options may not be
less than 100% (110% in the case of an incentive option granted to a participant
owning more than 10% of our voting shares) of the fair market value of our
common shares on the grant date. Incentive options may only be granted to our
employees or employees of any of our subsidiaries in which we own directly or
indirectly 50% or more of the combined voting power of all classes of its stock.
Incentive options are generally nontransferable by a participant other
than by will or the laws of descent and distribution and stock options will be
exercisable, during the lifetime of the participant, only by the participant.
However, the Committee may allow in an award agreement for the transfer of a
nonqualified option.
The Committee will determine the conditions to the exercisability of each
option and the terms relating to the exercise or cancellation of an option upon
a termination of employment or service. Each option will be exercisable for no
more than ten years after its date of grant, except that an incentive option
granted to a participant owning more than 10% of our voting shares will be
exercisable for no more than five years after its date of grant.
Upon exercise of an option, the purchase price may be paid in cash, by
delivery of previously owned common shares or, to the extent permitted by law,
under a cashless exercise program with a brokerage firm.
The Committee will not amend or replace previously granted options in a
transaction that constitutes a "repricing" under the Nasdaq Stock Market
Marketplace Rules without the approval of our shareholders.
Restricted Stock Awards and RSUs.
The Committee may grant restricted stock or RSUs to a participant.
Restricted stock and RSUs are nontransferable and will have an established
restriction period that may differ for each participant and with respect to all
or any portion of the same award. An award of restricted stock or RSUs will be
subject to the participant's continued employment or service during the
restriction period. Participants are entitled to all dividend and voting rights
with respect to restricted stock. A participant will have no stock ownership
interest as a result of being granted RSUs, but the Committee may allow a
participant to receive dividend equivalents on such units.
At the expiration of the restriction period, (1) with respect to
restricted stock, we will reissue stock certificates to the participant or the
legal representative of the participant's estate without a legend, and (2) with
respect to RSUs, we will pay a participant an amount equal to the fair market
value of that number of shares to which such RSU relates. The amount paid with
respect to an RSU may be paid in cash, common shares (including restricted
stock), or any combination, and may be paid currently or on a deferred basis
with provision for the payment or
21
crediting of a dividend equivalent. All of the terms relating to the termination
of a restriction period, or the forfeiture and cancellation of a restricted
stock award or RSU upon a termination of employment or service, whether by
reason of disability, retirement, death or any other reason, will be determined
by the Committee.
CHANGE IN CONTROL
For purposes of the Plan, we would undergo a change in control in the
event of certain acquisitions of 40% or more of our common shares, a change in a
majority of the Board of Directors, or the consummation of a reorganization,
merger or consolidation or sale or disposition of all or substantially all of
our assets (unless, among other conditions, our shareholders receive 60% or more
of the stock of the surviving company) or the consummation of our liquidation or
dissolution. Unless otherwise specified in the agreement relating to an award,
in the Committee's discretion, either (1) (a) each restricted stock award and
RSU and performance share award will be cancelled in exchange for a cash payment
for each share subject to the award in an amount equal to the highest price paid
to our shareholders in connection with the change in control, or the fair market
value per common share on the date of the change in control, whichever is
greater, and (b) each outstanding option will be cancelled in exchange for a
cash payment for each share subject to the award in an amount equal to the
excess, if any, of the amount determined as described in clause (a) over the
applicable exercise price of the option, or (2) all restricted stock and RSUs
will become fully vested, all outstanding options will become fully exercisable
and an appropriate number of shares, if any, received by our shareholders in any
such transaction will be substituted for our common shares subject to
outstanding options and other awards, and an appropriate adjustment will be made
to any applicable exercise price.
FEDERAL INCOME TAX CONSEQUENCES
The rules governing the tax treatment of stock options, restricted stock
awards and RSUs are quite technical. Therefore, the description of the tax
consequences set forth below is necessarily general in nature and does not
purport to be complete. Also, the statutory provisions are subject to change, as
are their interpretations, and their application may vary in individual
circumstances. Finally, the tax consequences under applicable state and local
income tax laws may not be the same as under the federal income tax laws.
Stock Options.
Incentive options granted pursuant to the Plan are intended to qualify as
"Incentive Stock Options" within the meaning of Section 422 of the Internal
Revenue Code of 1986. If the participant makes no disposition of the shares
acquired pursuant to exercise of an incentive option within one year after the
transfer of the shares to such participant or within two years from the grant of
the option, the participant will realize no taxable income as a result of the
grant or exercise of such option (except for purposes of the alternative minimum
tax upon the exercise of such option), and any gain or loss that is subsequently
realized may be treated as long-term capital gain or loss, as the case may be.
Under these circumstances, we will not be entitled to a deduction for federal
income tax purposes with respect to either the grant of such incentive options
or the transfer of shares upon their exercise.
22
If incentive option shares are disposed of prior to the expiration of
these time periods, the participant will recognize ordinary income in the year
in which the disqualifying disposition occurs, the amount of which will
generally be the lesser of (1) the excess of the market value of the shares on
the date of exercise over the option price, or (2) the gain recognized on such
disposition. In general, this amount will be deductible by us for federal income
tax purposes in the same year, as long as the amount constitutes reasonable
compensation. In addition, the excess, if any, of the amount realized on a
disqualifying disposition over the market value of the shares on the date of
exercise will be treated as capital gain.
A participant who acquires shares by exercise of a nonqualified option
generally realizes as taxable ordinary income, at the time of exercise, the
excess of the fair market value of the shares on the date of exercise over the
exercise price. In general, this amount will be deductible by us in the same
year, as long as the amount constitutes reasonable compensation and we satisfy
federal income tax withholding requirements. Subsequent appreciation or decline
in the value of the shares on the sale or other disposition of the shares will
generally be treated as capital gain or loss.
Restricted Stock Awards.
A participant who is granted a restricted stock award under the Plan is
not required to include the value of the shares subject to such award in
ordinary income until the first time the participant's rights in the shares are
transferable or are not subject to substantial risk of forfeiture, whichever
occurs earlier, unless the participant timely files an election under Section
83(b) of the Internal Revenue Code of 1986 to be taxed on the receipt of the
shares. In either case, the amount of income will equal the fair market value of
the shares at the time the income is recognized. We will ordinarily be entitled
to a deduction, in the amount of the ordinary income recognized by the
participant, at the same time the participant recognizes such income, as long as
the amount constitutes reasonable compensation and we satisfy federal income tax
withholding requirements.
RSUs.
A participant who is granted an RSU will generally not recognize any
income upon the grant of the award. The participant will generally recognize as
ordinary income an amount equal to the amount of any cash received and the fair
market value of any shares transferred to the participant upon the vesting of
such award. We will ordinarily be entitled to a deduction, in the amount of the
ordinary income recognized by the participant, at the same time the participant
recognizes such income, as long as the amount constitutes reasonable
compensation and we satisfy federal income tax withholding requirements.
Section 162(m).
Section 162(m) of the Code denies a deduction to any publicly-held
corporation for compensation paid to the following employees in a taxable year
to the extent such compensation exceeds $1 million: our chief executive officer
and our four highest compensated executive
23
officers (other than our chief executive officer). Compensation attributable to
awards under the Plan to a covered employee, alone or when combined with other
types of compensation received by the covered employee from us, may cause this
limitation to be exceeded in any particular year. Certain types of compensation,
however, including so-called "performance-based compensation," are disregarded
for purposes of the deduction limitation.
Withholding Payments.
If, upon the grant, release of restrictions or settlement of or in respect
of an award, or upon any other event or transaction under or relating to the
Plan, we must pay amounts for federal income or employment tax withholding, the
Committee will determine whether we appropriately reduce the amount of stock,
cash or other property to be paid to the participant or whether the participant
must pay such amount to us to enable us to pay or to reimburse us for paying
such income or employment tax withholding. We may permit withholding taxes to be
paid by the participant in cash, by delivery of previously owned common shares,
by withholding common shares or, to the extent permitted by law, under a
cashless exercise program with a brokerage firm.
Compensation attributable to stock options having an exercise price not
less than the fair market value of our common shares on the grant date may
qualify as performance-based compensation under the Plan.
Section 409A
A new provision, Section 409A, was added to the Code at the end of 2004 by
the American Job Creation Act of 2004. Section 409A makes significant changes to
the tax treatment of certain types of deferred compensation. Failure to comply
with the requirements of Section 409A results in current income of amounts
deferred, along with interest and a significant tax penalty. Certain types of
equity-based compensation are exempt from Section 409A. We intend to operate the
Plan so that all grants under the Plan are exempt from Section 409A. The tax
discussion above assumes that the Plan is in fact operating in this manner.
The foregoing general tax discussion is intended for the information of
shareholders considering how to vote with respect to this proposal and not as
tax guidance to participants in the Plan. Different tax rules may apply to
specific participants and transactions under the Plan, and participants are
strongly urged to consult their own tax advisors regarding the federal, state,
local and any other tax consequences to them of participating in the Plan.
ACCOUNTING TREATMENT
Restricted stock awards and RSUs will require a charge against our
earnings representing the value of any benefit conferred, which may vary based
upon the terms of the award and will be spread over any applicable restricted
period.
24
In December 2004, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 (revised), "Share Based
Payment." This Statement, which is effective for interim or annual reporting
periods that begin after June 15, 2005, revised Statement No. 123, "Accounting
for Stock-Based Compensation," and requires that compensation costs related to
share-based payment transactions, including stock options and RSUs, be
recognized in the financial statements at their fair value on the date of grant
spread over any applicable vesting period. This Statement will be effective for
our fiscal quarter ending November 30, 2005.
NEW PLAN BENEFITS
If the shareholders do not approve the Plan, any awards granted under the
Plan will be void. The actual amounts that would be awarded under the Plan,
including the actual benefits or amounts that would be received by or allocated
to executive officers, directors, and non-executive officer employees, cannot be
determined at this time because awards are not determined by an objective
formula under the Plan. Similarly, the benefits or amounts that would have been
awarded to executive officers, directors, and non-executive officer employees
during fiscal 2004, if the Plan had been in effect, are not determinable.
EQUITY COMPENSATION PLAN INFORMATION
The following information is provided as of November 30, 2004 with respect
to compensation plans, including individual compensation arrangements, under
which our equity securities are authorized for issuance:
(c)
Number of securities
(a) (b) remaining available for
Number of securities to Weighted-average future issuance under
be issued upon exercise exercise price of equity compensation plans
of outstanding options, outstanding options (excluding securities
Plan category warrants and rights warrants and rights reflected in column (a))
--------------------------- ----------------------- ------------------- -------------------------
Equity compensation
plans approved by
security holders (1)..... 4,266,529 $ 3.43 67,041
Equity compensation
plans not approved by
security holders (2)..... 169,786 $ 4.52 0
--------- ------
Total...................... 4,436,315 67,041
========= ======
------------
(1) These plans consist of: (a) the 1991 Incentive Stock Option Plan, which
terminated in 2001 except for the options granted before that date, (b) the 1993
Director Stock Option Plan, terminated in 1998, except for the options granted
before that date, (c) the Somanetics Corporation 1997 Stock Option Plan, and (d)
the outstanding Warrants granted to CorRestore LLC and its agent Wolfe & Company
to purchase an aggregate of 2,120,000 common shares at
25
$3.00 a share in connection with the June 2, 2000 CorRestore License Agreement.
Does not include the proposed 2005 Equity Incentive Plan described in Part II of
this proxy statement.
(2) These plans consist of non-qualified options to purchase 169,786 common
shares granted to 13 of our directors, officers, employees and advisors,
including three current executive officers, one former executive officer and one
current director, granted independent of our stock option plans (including one
option granted in fiscal 2002 to purchase 100,000 common shares as an inducement
essential to an new executive officer entering into an employment agreement with
us). The options are subject to anti-dilution adjustments.
The options granted independent of our stock option plans were granted on
December 22, 1995, January 5, 1996, April 24, 1997 and August 1, 2002. All of
the options have vested, except for an option to purchase 100,000 common shares
granted on August 1, 2002, which vests in one-third cumulative annual
installments beginning August 1, 2003, and also 100% immediately 10 business
days before or upon specified changes in control of us. Options granted to three
current and former officers and vested at the time of termination of employment,
continue to be exercisable until the original termination date notwithstanding
such termination, unless such termination is for cause, in which case such
options expire at the date of such termination. Other options expire at the date
of termination of employment, unless extended in the discretion of the
Compensation Committee of our Board of Directors.
The non-plan options expire 10 years after they were granted, except for
two options to purchase 21,500 common shares granted on December 22, 1995, which
expire March 13, 2005. The exercise prices of these options, which were at least
the fair market value of the underlying common shares on the date of grant,
range from $2.30 to $13.125. At the time these options are exercised, the
optionee must pay the full option price for all shares purchased:
- in cash, or
- with the consent of the Compensation Committee or the Board of
Directors, in its discretion, and to the extent permitted by
applicable law,
- in common shares,
- by a promissory note payable to the order of us that is
acceptable to the Compensation Committee or the Board of
Directors,
- by a cash down payment and a promissory note for the unpaid
balance,
- subject to any conditions established by the Compensation
Committee or the Board of Directors, by having us retain from
the shares to be delivered upon exercise of the stock option
that number of shares having a fair market value on the date
of exercise equal to the option price,
- by delivery to us of written notice of the exercise, in such
form as the Compensation Committee or the Board of Directors
may prescribe, accompanied by irrevocable instructions to a
stock broker to promptly deliver to us full payment for the
shares with respect to which the option is exercised from the
proceeds of the stock broker's sale of the shares or loan
against them,
- in such other manner as the Compensation Committee or the
Board of Directors determines is appropriate, in its
discretion.
26
Specified consolidations, mergers, transfers of substantially all of our
properties and assets, dissolutions, liquidations, reorganizations or
reclassifications in such a way that holders of common shares are entitled to
receive stock, securities, cash or other assets with respect to, or in exchange
for, their common shares, are each referred to as a "Transaction." If we engage
in a Transaction, then each holder of a non-plan option after consummation of
the Transaction will be entitled to receive (for the same aggregate exercise
price) the stock and other securities, cash and assets the holder would have
received in the Transaction if he or she had exercised the option in full
immediately before consummation of the Transaction.
In addition, in connection with a Transaction, the Compensation Committee
or the Board of Directors, acting in its discretion without the consent of any
holder of any non-plan option and regardless of any other provision of the
option, may:
- permit such options to be exercised in full for a limited period of
time, after which all unexercised options and all rights of holders
of such options would terminate,
- permit such options to be exercised in full for their then remaining
terms, or
- require all such options to be surrendered to us for cancellation
and payment to each holder in cash of the excess of the fair market
value of the underlying common shares as of the date the Transaction
is effective over the exercise price, less any applicable
withholding taxes.
The Compensation Committee or the Board of Directors may not select an
alternative for a holder that would result in his or her liability under Section
16(b) of the Exchange Act, without the holder's consent. If all of the
alternatives have such a result, the Compensation Committee or Board of
Directors will take action to put the holder in as close to the same position as
he or she would have been in if one of the alternatives described above had been
selected, but without resulting in any payment by the holder under Section 16(b)
of the Exchange Act. With the consent of each holder, the Compensation Committee
or Board of Directors may make such provision with respect to any Transaction as
it deems appropriate.
The options may not be transferred other than by will or by the laws of
descent and distribution, and during the optionee's lifetime, the option is
exercisable only by the optionee.
III. OTHER MATTERS
ANNUAL REPORT
A COPY OF OUR ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR ENDED
NOVEMBER 30, 2004 ACCOMPANIES THIS PROXY STATEMENT. WE FILE AN ANNUAL REPORT ON
FORM 10-K WITH THE SECURITIES AND EXCHANGE COMMISSION. WE WILL PROVIDE, WITHOUT
CHARGE, TO EACH PERSON BEING SOLICITED BY THIS PROXY STATEMENT, UPON THE WRITTEN
REQUEST OF ANY SUCH PERSON, A COPY OF OUR ANNUAL REPORT ON FORM 10-K FOR THE
FISCAL YEAR ENDED NOVEMBER 30, 2004 (AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, EXCLUDING EXHIBITS FOR WHICH A REASONABLE CHARGE SHALL BE IMPOSED).
ALL SUCH REQUESTS SHOULD BE DIRECTED TO SOMANETICS CORPORATION, 1653 EAST MAPLE
ROAD, TROY, MICHIGAN 48083-4208, ATTENTION: INVESTOR RELATIONS DEPARTMENT.
27
INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP are our independent accountants and have reported on
the financial statements in our 2004 Annual Report to Shareholders, which
accompanies this proxy statement. Our independent accountants are appointed by
the Audit Committee of our Board of Directors. We will not select our
independent accountants for the fiscal year ending November 30, 2005 until later
in our fiscal year.
A representative of Deloitte & Touche LLP is expected to be present at the
Annual Meeting of Shareholders and will have the opportunity to make a statement
at the meeting if she desires to do so. The representative will also be
available to respond to appropriate questions.
The following table presents aggregate fees billed for each of the years
ended November 30, 2004 and 2003 for professional services rendered by Deloitte
& Touche LLP in the following categories:
Fiscal Year Ended
November 30,
----------------------------------------
2004 2003
------------------ ------------------
Audit Fees (1)................................................ $ 78,050 $ 57,000
Audit-Related Fees............................................ $ 0 $ 0
Tax Fees (2).................................................. $ 46,200 $ 45,000
All Other Fees................................................ $ 0 $ 0
---------------
(1) Consists of fees for the audit of our annual financial statements, review of
financial statements included in our Form 10-Qs, and services provided in
connection with our Registration Statements on Form S-8 in connection with
increases in authorized shares under the 1997 Plan in fiscal 2003.
(2) Consists of tax return preparation fees.
In accordance with Section 10A(i) of the Exchange Act, before Deloitte &
Touche LLP is engaged by us to render audit or non-audit services, the
engagement is approved by our Audit Committee. None of the audit-related, tax
and other services described in the table above were approved by the Audit
Committee pursuant to Rule 2-01(c)(7)(i)(C) of Regulation S-X.
SHAREHOLDER PROPOSALS
Proposals of shareholders that are intended to be presented at our 2006
Annual Meeting of Shareholders must be received by our Secretary at our offices,
1653 East Maple Road, Troy, Michigan 48083-4208, no later than November 4, 2005
to be considered for inclusion in the proxy statement and proxy relating to that
meeting. Such proposals should be sent by certified mail, return receipt
requested.
We must receive notice of any proposals of shareholders that are intended
to be presented at our 2006 Annual Meeting of Shareholders, but that are not
intended to be considered for
28
inclusion in our proxy statement and proxy related to that meeting, no later
than January 18, 2006 to be considered timely. Such proposals should be sent by
certified mail, return receipt requested and addressed to Somanetics
Corporation, 1653 East Maple Road, Troy, Michigan 48083-4208, Attention:
Investor Relations Department. If we do not have notice of the matter by that
date, our form of proxy in connection with that meeting may confer discretionary
authority to vote on that matter, and the persons named in our form of proxy
will vote the shares represented by such proxies in accordance with their best
judgment.
OTHER BUSINESS
Neither we nor the members of our Board of Directors intend to bring
before the annual meeting any matters other than those set forth in the Notice
of Annual Meeting of Shareholders, and none of us has any present knowledge that
other matters will be presented for action at the annual meeting by others.
However, if other matters are properly presented to the meeting, the persons
named in the enclosed proxy intend to vote the shares represented by the proxy
in accordance with their best judgment.
By order of the Board of Directors
Bruce J. Barrett
President and Chief Executive Officer
Troy, Michigan
March 4, 2005
29
EXHIBIT A
SOMANETICS CORPORATION
2005 STOCK INCENTIVE PLAN
1. INTRODUCTION
1.1 Purposes.
The purposes of the Somanetics Corporation 2005 Stock Incentive Plan (this
"Plan") are (1) to align the interests of the Company's shareholders and the
recipients of awards under this Plan by increasing the proprietary interest of
such recipients in the Company's growth and success, (2) to advance the
interests of the Company by attracting and retaining officers, other employees,
non-employee directors, consultants, advisors, independent contractors and
agents and (3) to motivate such persons to act in the long-term best interests
of the Company and its shareholders.
1.2 Definitions.
"Agreement" shall mean the written agreement evidencing an award under
this Plan between the Company and the recipient of such award.
"Board" shall mean the Board of Directors of the Company.
"Change in Control" shall have the meaning set forth in Section 4.8(b).
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Committee" shall mean the Board or the committee designated by the Board
to perform any of the functions and duties of the Committee under the Plan.
"Common Shares" shall mean the common shares, par value $.01 per share, of
the Company.
"Company" shall mean Somanetics Corporation, a Michigan corporation, or
any successor to Somanetics Corporation.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value" shall mean the average of the high and low transaction
prices of a Common Share on The Nasdaq SmallCap Market on the date as of which
such value is being determined or, if the Common Shares are not listed on The
Nasdaq SmallCap, the average of the high and low transaction prices of a Common
Share on the principal market on which the Common Shares are traded on the date
as of which such value is being determined, or if there shall be no reported
transaction for such date, on the next preceding date for which a transaction
was reported; provided, however, that if Fair Market Value for any date cannot
be so determined,
Fair Market Value shall be determined by the Committee by whatever means or
method as the Committee, in the good faith exercise of its discretion, shall at
such time deem appropriate.
"Incentive Stock Option" shall mean an option to purchase Common Shares
that meets the requirements of Section 422 of the Code, or any successor
provision, and that is intended by the Committee to constitute an Incentive
Stock Option.
"Incumbent Board" shall have the meaning set forth in Section 4.8(b)(2).
"Mature Shares" shall mean previously-acquired Common Shares for which the
holder has good title, free and clear of all liens and encumbrances, and which
such holder either (1) has held for at least six months or (2) has purchased on
the open market.
"Non Qualified Stock Option" shall mean an option to purchase Common
Shares that is not an Incentive Stock Option.
"Outstanding Common Shares" shall have the meaning set forth in Section
4.8(b)(1).
"Outstanding Voting Securities" shall have the meaning set forth in
Section 4.8(b)(1).
"Person" shall have the meaning set forth in Section 4.8(b)(1).
"Restricted Stock" shall mean Common Shares that are subject to a
Restriction Period.
"Restricted Stock Award" shall mean an award of Restricted Stock under
this Plan.
"Restricted Stock Unit" shall mean a right that entitles the holder to
receive, upon vesting, one Common Share (which may be Restricted Stock) or cash
in an amount equal to the Fair Market Value of one Common Share on the date of
vesting.
"Restricted Stock Unit Award" shall mean an award of Restricted Stock
Units under this Plan.
"Restriction Period" shall mean any period designated by the Committee
during which (1) the Common Shares subject to a Restricted Stock Award may not
be sold, transferred, assigned, pledged, hypothecated or otherwise encumbered or
disposed of, except as provided in this Plan or the Agreement relating to such
award, or (2) the restrictions applicable to a Restricted Stock Unit Award shall
remain in effect.
"Stock Award" shall mean a Restricted Stock Award or a Restricted Stock
Unit Award.
"Subsidiary" shall mean any corporation, limited liability company,
partnership, joint venture or similar entity in which the Company owns, directly
or indirectly, an equity interest possessing more than 25% of the combined
voting power of the total outstanding equity interests of such entity.
"Tax Date" shall have the meaning set forth in Section 4.5.
"Ten Percent Holder" shall have the meaning set forth in Section 2.1(a).
2
1.3 Administration.
This Plan shall be administered by the Committee. Any one or a combination
of the following awards may be made under this Plan to eligible persons: (1)
options to purchase Common Shares in the form of Incentive Stock Options or Non
Qualified Stock Options, and (2) Stock Awards in the form of Restricted Stock or
Restricted Stock Units. The Committee shall, subject to the terms of this Plan,
select eligible persons for participation in this Plan and determine the form,
amount and timing of each award to such persons and, if applicable, the number
of Common Shares and the number of Restricted Stock Units subject to such an
award, the exercise price associated with the award, the time and conditions of
exercise or settlement of the award and all other terms and conditions of the
award, including, without limitation, the form of the Agreement evidencing the
award. The Committee may, in its sole discretion and for any reason at any time,
subject to the requirements of Section 162(m) of the Code and the regulations
thereunder in the case of an award intended to be qualified performance-based
compensation, take action such that (1) all or any outstanding options shall
become exercisable in part or in full, or (2) all or a portion of the
Restriction Period applicable to any outstanding Restricted Stock Award or
Restricted Stock Unit Award shall lapse. The Committee shall, subject to the
terms of this Plan, interpret this Plan and its application and establish rules
and regulations it deems necessary or desirable for the administration of this
Plan and may impose, incidental to the grant of an award, conditions with
respect to the award, such as limiting competitive employment or other
activities. All such interpretations, rules, regulations and conditions shall be
final, binding and conclusive.
The Committee may, subject to the applicable law (including Section 162(m)
of the Code and the regulations thereunder in the case of an award intended to
be qualified performance-based compensation), delegate some or all of its power
and authority under this Plan to the Chief Executive Officer or other executive
officer of the Company as the Committee deems appropriate.
No member of the Board or Committee, and neither the Chief Executive
Officer nor any other executive officer to whom the Committee delegates any of
its power and authority under this Plan, shall be liable for any act, omission,
interpretation, construction or determination made in connection with this Plan
in good faith, and the members of the Board and the Committee and the Chief
Executive Officer or other executive officer shall be entitled to
indemnification and reimbursement by the Company in respect of any claim, loss,
damage or expense (including attorneys' fees) arising therefrom to the full
extent permitted by law, except as otherwise may be provided in the Company's
Articles of Incorporation and/or Bylaws, and under any directors' and officers'
liability insurance that may be in effect from time to time.
A majority of the Committee shall constitute a quorum. The acts of the
Committee shall be either (1) acts of a majority of the members of the Committee
present at any meeting at which a quorum is present or (2) acts approved in
writing by all of the members of the Committee without a meeting.
3
1.4 Eligibility.
Participants in this Plan shall consist of such officers, other employees,
non-employee directors, consultants, advisors, independent contractors and
agents, and persons expected to become officers, other employees, non-employee
directors, consultants, advisors, independent contractors and agents, of the
Company or a Subsidiary as the Committee in its sole discretion may select from
time to time. For purposes of this Plan, references to employment shall also
mean an agency or independent contractor relationship and references to
employment by the Company shall also mean employment by a Subsidiary. The
Committee's selection of a person to participate in this Plan at any time shall
not require the Committee to select such person to participate in this Plan at
any other time.
1.5 Shares Available.
(a) Subject to adjustment as provided in Section 4.7, the number of
Common Shares that shall be available for awards under this Plan shall be
600,000.
(b) The Committee may adopt reasonable counting procedures to ensure
appropriate counting, avoid double counting (as, for example, in the case
of substitute awards) and make adjustments if the number of Common Shares
actually delivered differs from the number of shares previously counted in
connection with an award. To the extent that Common Shares subject to an
outstanding award granted under this Plan are not issued or delivered to
the holder of the award or are returned to the Company by the holder of
the award by reason of (1) the expiration, termination, cancellation or
forfeiture of such award, (2) the settlement of such award in cash, or (3)
the delivery or withholding of Common Shares to pay all or a portion of
the exercise price of an award, if any, or to satisfy all or a portion of
the tax withholding obligations relating to an award, then such Common
Shares shall again be available under this Plan. This Section 1.5(b) shall
apply to Incentive Stock Options only to the extent consistent with
application Internal Revenue Service regulations relating to Incentive
Stock Options under the Code.
(c) Common Shares shall be made available from authorized and
unissued Common Shares, or authorized and issued Common Shares reacquired
and held as treasury shares or otherwise or a combination thereof.
(d) To the extent necessary for an award to be qualified performance
based compensation under Section 162(m) of the Code and the regulations
thereunder, the maximum number of Common Shares with respect to which
options may be granted during any calendar year to any person shall be
300,000, subject to adjustment as provided in Section 4.7. All shares with
respect to which an award is granted under this Plan shall be counted for
purposes of the per-person share limitation of this Section 1.5(d),
regardless of whether the recipient of the award does not realize the
benefit of the award as a result of forfeiture, cancellation, expiration,
termination or other event. If a stock option is modified after grant to
reduce its exercise price, the modified stock option shall be treated as a
newly granted stock option for purposes of this per-person share
limitation, with the shares covered by both the original and the modified
4
grant counting against the number of available shares under this
per-person share limitation.
2. STOCK OPTIONS
2.1 Stock Options.
The Committee may, in its discretion, grant options to purchase Common
Shares to such eligible persons as may be selected by the Committee. Each
option, or portion thereof, that is not an Incentive Stock Option shall be a
Non-Qualified Stock Option. An Incentive Stock Option may not be granted to any
person who is not an employee of the Company or any subsidiary (as defined in
Section 424 of the Code). Each Incentive Stock Option shall be granted within
ten years of the date this Plan is adopted by the Board. To the extent that the
aggregate Fair Market Value (determined as of the date of grant) of Common
Shares with respect to which options designated as, or intended to be, Incentive
Stock Options are exercisable for the first time by a participant during any
calendar year (under this Plan or any other plan of the Company, or any parent
or subsidiary as defined in Section 424 of the Code) exceeds the maximum amount
(currently $100,000) established by the Code, such options shall constitute
Non-Qualified Stock Options.
Options shall be subject to the following terms and conditions and shall
be subject to such additional terms and conditions, not inconsistent with the
terms of this Plan, as the Committee shall deem advisable:
(a) Number of Shares and Purchase Price. The number of Common Shares
subject to an option and the purchase price per Common Share purchasable
upon exercise of the option shall be determined by the Committee;
provided, however, that the purchase price per Common Share purchasable
upon exercise of an option shall not be less than 100% of the Fair Market
Value of a Common Share on the date of grant of such option; provided
further, that if an Incentive Stock Option shall be granted to any person
who, at the time such option is granted, owns capital stock possessing
more than ten percent of the total combined voting power of all classes of
capital stock of the Company (or of any parent or subsidiary as defined in
Section 424 of the Code) (a "Ten Percent Holder"), the purchase price per
Common Share shall not be less than the minimum price (currently 110% of
Fair Market Value) required by the Code in order for the option to
constitute an Incentive Stock Option.
(b) Exercise Period and Exercisability. The period during which an
option may be exercised shall be determined by the Committee; provided,
however, that no option shall be exercised later than ten years after its
date of grant; provided further, that if an Incentive Stock Option shall
be granted to a Ten Percent Holder, such option shall not be exercised
later than five years after its date of grant. The Committee may, in its
discretion, establish Performance Measures which shall be satisfied or met
as a condition to the grant of an option or to the exercisability of all
or a portion of an option. The Committee shall determine whether an option
shall become exercisable in cumulative or non-cumulative installments and
in part or in full at any time. An exercisable option, or portion thereof,
may be exercised only with respect to whole Common Shares.
5
(c) Method of Exercise. An option may be exercised (1) by giving
written notice to the Company specifying the number of whole Common Shares
to be purchased and by accompanying such notice with payment therefor in
full (or by arranging for such payment to the Company's satisfaction)
either (A) in cash, (B) by delivery (either actual delivery or by
attestation procedures established by the Company) of Mature Shares having
an aggregate Fair Market Value, determined as of the date of exercise,
equal to the aggregate purchase price payable by reason of such exercise,
(C) except as may be prohibited by applicable law, in cash by a
broker-dealer acceptable to the Company to whom the optionee has submitted
irrevocable instructions to promptly deliver to the Company full payment
for the Common Shares with respect to which the option is exercised from
the proceeds of the stockbroker's sale of or loan against some or all of
the Common Shares, or (D) any combination of the foregoing, in each case
to the extent set forth in the Agreement relating to the option, and (2)
by executing such documents as the Company may reasonably request. Any
fraction of a Common Share which would be required to pay such purchase
price shall be disregarded and the remaining amount due shall be paid in
cash by the optionee. No certificate representing Common Shares shall be
delivered until the full purchase price therefor and any withholding taxes
thereon, as described in Section 4.5, have been paid (or arrangement made
for such payment to the Company's satisfaction).
2.2 Termination of Employment or Service.
Subject to the requirements of the Code, all of the terms relating to the
exercise, cancellation, disposition or other treatment of an option upon a
termination of employment or service with the Company of the holder of such
option, whether by reason of disability, retirement, death or any other reason,
shall be determined by the Committee.
2.3 No Repricing of Awards.
Notwithstanding anything in this Plan to the contrary and subject to
Section 4.7, without the approval of shareholders, the Committee will not amend
or replace previously granted options in a transaction that constitutes a
"repricing," as such term is used in the Nasdaq Stock Market Marketplace Rules
and related interpretations or, if the Common Shares are not listed on The
Nasdaq Stock Market, in the rules of the principal market on which the Common
Shares are traded.
3. STOCK AWARDS
3.1 Stock Awards.
The Committee may, in its discretion, grant Stock Awards to such eligible
persons as may be selected by the Committee. The Committee may grant Stock
Awards under this Plan independently, in lieu of, or in conjunction with, any
cash bonus award otherwise payable to an employee pursuant to any bonus or
incentive plan maintained by the Company from time to time.
6
3.2 Terms of Stock Awards.
Stock Awards shall be subject to the following terms and conditions and
shall be subject to such additional terms and conditions, not inconsistent with
the terms of this Plan, as the Committee shall deem advisable.
(a) Number of Shares and Other Terms. The number of Common Shares
subject to a Restricted Stock Award or a Restricted Stock Unit Award, and
the Restriction Period applicable to a Restricted Stock Award or a
Restricted Stock Unit Award, shall be determined by the Committee.
(b) Vesting and Forfeiture. The Agreement relating to a Restricted
Stock Award or a Restricted Stock Unit Award shall provide, in the manner
determined by the Committee, in its discretion, and subject to the
provisions of this Plan, for the vesting of the Common Shares subject to
such Restricted Stock Award or the vesting of such Restricted Stock Unit
Award if the holder of such award remains continuously in the employment
or service of the Company during the specified Restriction Period and for
the forfeiture of all or a portion of the Common Shares subject to such
Restricted Stock Award or the forfeiture of such Restricted Stock Unit
Award if the holder of such award does not remain continuously in the
employment or service of the Company during the specified Restriction
Period.
(c) Share Certificates. During the Restriction Period, a certificate
or certificates representing a Restricted Stock Award may be registered in
the holder's name or a nominee name at the discretion of the Company and
may bear a legend, in addition to any legend which may be required
pursuant to Section 4.6, indicating that the ownership of the Common
Shares represented by such certificate is subject to the restrictions,
terms and conditions of this Plan and the Agreement relating to the
Restricted Stock Award. All certificates registered in the holder's name
shall be deposited with the Company, together with stock powers or other
instruments of assignment (including a power of attorney), each endorsed
in blank with a guarantee of signature if deemed necessary or appropriate
by the Company, which would permit transfer to the Company of all or a
portion of the Common Shares subject to the Restricted Stock Award in the
event such award is forfeited in whole or in part. Upon termination of any
Restriction Period (and the satisfaction of any continuation of employment
or service requirements) applicable to a Restricted Stock Award or to a
Restricted Stock Unit Award payable in whole or in part in Common Shares,
in each case subject to the Company's right to require payment of any
taxes in accordance with Section 4.5, a certificate or certificates
evidencing ownership of the requisite number of Common Shares shall be
delivered to the holder of such award.
(d) Rights with Respect to Restricted Stock Awards. Unless otherwise
set forth in the Agreement relating to a Restricted Stock Award, and
subject to the terms and conditions of a Restricted Stock Award, the
holder of such award shall have all rights as a shareholder of the
Company, including, but not limited to, voting rights, the right to
receive dividends and the right to participate in any capital adjustment
applicable to all holders of Common Shares; provided, however, that a
distribution with respect to
7
Common Shares, other than a regular cash dividend, shall be deposited with
the Company and shall be subject to the same restrictions as the Common
Shares with respect to which such distribution was made.
(e) Settlement of Vested Restricted Stock Unit Awards. The Agreement
relating to a Restricted Stock Unit Award (1) shall specify whether such
award may be settled in Common Shares (including Restricted Stock) or cash
or a combination thereof and (2) may specify whether the holder thereof
shall be entitled to receive, on a current or deferred basis, dividend
equivalents, and, if determined by the Committee, interest on, or the
deemed reinvestment of, any deferred dividend equivalents, with respect to
the number of Common Shares subject to such award. Prior to the settlement
of a Restricted Stock Unit Award in Common Shares, the holder of such
award shall have no rights as a shareholder of the Company with respect to
the Common Shares subject to such award.
3.3 Termination of Employment or Service.
All of the terms relating to the termination of the Restriction Period
relating to a Restricted Stock Award or a Restricted Stock Unit Award, or any
forfeiture and cancellation of such award upon a termination of employment or
service with the Company of the holder of such award, whether by reason of
disability, retirement, death or any other reason, shall be determined by the
Committee.
4. GENERAL
4.1 Effective Date and Term of Plan.
This Plan shall be effective on the date the Board of Directors of the
Company adopts this Plan, provided that the shareholders of the Company approve
the Plan within 12 months after its adoption by the Board of Directors. This
Plan shall terminate ten years after its effective date, unless terminated
earlier by the Board. Termination of this Plan shall not affect the terms or
conditions of any award granted prior to termination. If this Plan is not
approved by the shareholders of the Company, this Plan and any awards granted
under this Plan shall be null and void.
4.2 Amendments.
The Board may amend this Plan as it shall deem advisable, subject to any
requirement of shareholder approval required by applicable law, rule or
regulation, including Section 162(m) and Section 422 of the Code and the
regulations thereunder and any rule of The Nasdaq Stock Market or, if the Common
Shares are not listed on The Nasdaq Stock Market, any rule of the principal
market on which the Common Shares are then traded. No amendment may impair the
rights of a holder of an outstanding award without the consent of such holder.
4.3 Agreement.
Each award shall be evidenced by an Agreement executed by the Company and
the recipient of such award and, upon execution by each party and delivery of
the executed
8
Agreement to the Company, such award shall be effective as of the effective date
set forth in the Agreement.
4.4 Non-Transferability of Awards.
Unless otherwise specified in the Agreement relating to an award, no award
shall be transferable other than by will, the laws of descent and distribution
or pursuant to beneficiary designation procedures approved by the Company.
Except to the extent permitted by the foregoing sentence or the Agreement
relating to an award, each award may be exercised or settled during the holder's
lifetime only by the holder or the holder's legal representative or similar
person. Except to the extent permitted by the second preceding sentence or the
Agreement relating to an award, no award may be sold, transferred, assigned,
pledged, hypothecated, encumbered or otherwise disposed of (whether by operation
of law or otherwise) or be subject to execution, attachment or similar process.
Upon any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or
otherwise dispose of any such award, such award and all rights thereunder shall
immediately become null and void.
4.5 Tax Withholding.
The Company shall have the right to require, prior to the issuance or
delivery of any Common Shares or the payment of any cash pursuant to an award
made under this Plan, payment by the holder of such award of any Federal, state,
local or other taxes which may be required to be withheld or paid in connection
with such award. In the discretion of the Company (1) the Company may withhold
whole Common Shares which would otherwise be delivered to a holder, having an
aggregate Fair Market Value determined as of the date the obligation to withhold
or pay taxes arises in connection with an award (the "Tax Date"), or withhold an
amount of cash which would otherwise be payable to a holder, in the amount
necessary to satisfy any such obligation or (2) the holder may be permitted to
satisfy any such obligation by any of the following means: (A) a cash payment to
the Company, (B) delivery (either actual delivery or by attestation procedures
established by the Company) to the Company of Mature Shares having an aggregate
Fair Market Value, determined as of the Tax Date, equal to the amount necessary
to satisfy any such obligation, (C) in the case of the exercise of an option,
except as may be prohibited by applicable law, a cash payment by a broker-dealer
acceptable to the Company to whom the optionee has submitted irrevocable
instructions to promptly deliver to the Company an amount (in addition to the
option exercise price) equal to the withholding tax owing in respect of such
option exercised from the proceeds of the stockbroker's sale of or loan against
some or all of the Common Shares subject to the option, or (D) any combination
of the foregoing. Any fraction of a Common Share which would be required to
satisfy such an obligation shall be disregarded and the remaining amount due
shall be paid in cash by the holder.
4.6 Restrictions on Shares.
Each award made under this Plan shall be subject to the requirement that
if at any time the Company determines that the listing, registration or
qualification of the Common Shares subject to such award upon any securities
market or under any law, or the consent or approval of any governmental body, or
the taking of any other action is necessary or desirable as a condition of, or
in connection with, the exercise or settlement of such award or the delivery of
shares
9
thereunder, such award shall not be exercised or settled and such shares shall
not be delivered unless such listing, registration, qualification, consent,
approval or other action shall have been effected or obtained, free of any
conditions not acceptable to the Company. The Company may require that
certificates evidencing Common Shares delivered pursuant to any award made under
this Plan bear a legend indicating that the sale, transfer or other disposition
thereof by the holder is prohibited except in compliance with the Securities Act
of 1933, as amended, and the rules and regulations thereunder.
4.7 Adjustment.
In the event of any stock split, stock dividend, recapitalization,
reorganization, merger, consolidation, combination, exchange of shares,
liquidation, spin-off or other similar change in capitalization or event, or any
distribution to holders of Common Shares other than a regular cash dividend, the
number and class of securities available under this Plan, the number and class
of securities subject to each outstanding award, the purchase price per security
of each outstanding option, and the maximum number of securities with respect to
which awards may be granted in any calendar year to any person shall be
appropriately adjusted by the Committee, such adjustments to be made in the case
of outstanding options without an increase in the aggregate purchase price. The
decision of the Committee regarding any such adjustment shall be final, binding
and conclusive; provided, however, that no fractional shares shall be issued
pursuant to the Plan, no awards may be granted under the Plan with respect to
fractional shares, and any fractional shares resulting from such adjustments
shall be eliminated from any outstanding award.
4.8 Change in Control.
(a) Actions Upon A Change In Control. Notwithstanding any provision
in this Plan, unless otherwise specified in the Agreement relating to an
award, in the event of a Change in Control, in the Committee's discretion,
either (1) (a) all outstanding options shall immediately become
exercisable in full, (b) the Restriction Period applicable to any
outstanding Restricted Stock Award or Restricted Stock Unit Award shall
lapse, and (c) there shall be substituted for each Common Share available
under this Plan, whether or not then subject to an outstanding award, the
number and class of shares into which each outstanding Common Share shall
be converted pursuant to such Change in Control, if any; provided that in
the event of any such substitution, the purchase price per share in the
case of an option shall be appropriately adjusted by the Committee (whose
determination shall be final, binding and conclusive), such adjustments to
be made in the case of outstanding options without an increase in the
aggregate purchase price, or (2) each outstanding award shall be
surrendered to the Company by the holder thereof, and each such award
shall immediately be canceled by the Company, and the holder shall
receive, within ten days of the occurrence of a Change in Control, a cash
payment from the Company in an amount equal to (a) in the case of an
option, the number of Common Shares then subject to such option,
multiplied by the excess, if any, of the greater of (I) the highest per
share price offered to shareholders of the Company in any transaction
whereby the Change in Control takes place, or (II) the Fair Market Value
of a Common Share on the date of occurrence of the Change in Control. over
the purchase price per Common Share subject to the option, and (b) in the
case of a Restricted Stock Award or
10
Restricted Stock Unit Award the number of Common Shares or the number of
Restricted Stock Units, as the case may be, then subject to such award,
multiplied by the greater of (A) the highest per share price offered to
shareholders of the Company in any transaction whereby the Change in
Control takes place or (B) the Fair Market Value of a Common Share on the
date of occurrence of the Change in Control.
(b) "Change in Control" shall mean:
(1) the acquisition by any individual, entity or group (a
"Person"), including any "person" within the meaning of Section
13(d)(3) or 14(d)(2) of the Exchange Act, of beneficial ownership
within the meaning of Rule 13d-3 promulgated under the Exchange Act,
of 40% or more of either (1) the then outstanding Common Shares of
the Company (the "Outstanding Common Shares") or (2) the combined
voting power of the then outstanding securities of the Company
entitled to vote generally in the election of directors (the
"Outstanding Voting Securities"); excluding, however, the following:
(A) any acquisition directly from the Company (excluding any
acquisition resulting from the exercise of an exercise, conversion
or exchange privilege unless the security being so exercised,
converted or exchanged was acquired directly from the Company), (B)
any acquisition by the Company, (C) any acquisition by an employee
benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company, or (D) any
acquisition by any corporation pursuant to a transaction which
complies with clauses (1), (2) and (3) of subsection (3) of this
Section 4.8(b); provided further, that for purposes of clause (B),
if any Person (other than the Company or any employee benefit plan
(or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company) shall become the beneficial
owner of 40% or more of the Outstanding Common Shares or 40% or more
of the Outstanding Voting Securities by reason of an acquisition by
the Company, and such Person shall, after such acquisition by the
Company, become the beneficial owner of any additional Outstanding
Common Shares or any additional Outstanding Voting Securities and
such beneficial ownership is publicly announced, such additional
beneficial ownership shall constitute a Change in Control;
(2) individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of such Board; provided that any individual who
becomes a director of the Company subsequent to the date hereof
whose election, or nomination for election, by the Company's
shareholders was approved by the vote of at least a majority of the
directors then comprising the Incumbent Board shall be deemed a
member of the Incumbent Board;
(3) the consummation of a reorganization, merger or
consolidation, or sale or other disposition of all or substantially
all of the assets, of the Company (a "Corporate Transaction");
excluding, however, a Corporate Transaction pursuant to which (1)
all or substantially all of the individuals or entities who are the
beneficial owners, respectively, of the Outstanding Common Shares
and the
11
Outstanding Voting Securities immediately prior to such Corporate
Transaction will beneficially own, directly or indirectly, more than
60% of, respectively, the outstanding Common Shares, and the
combined voting power of the outstanding securities entitled to vote
generally in the election of directors, as the case may be, of the
corporation resulting from such Corporate Transaction (including,
without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of the
Company's assets either directly or indirectly) in substantially the
same proportions relative to each other as their ownership,
immediately prior to such Corporate Transaction, of the Outstanding
Common Shares and the Outstanding Voting Securities, as the case may
be, (2) no Person (other than: the Company; any employee benefit
plan (or related trust) sponsored or maintained by the Company or
any corporation controlled by the Company; the corporation resulting
from such Corporate Transaction; and any Person which beneficially
owned, immediately prior to such Corporate Transaction, directly or
indirectly, 40% or more of the Outstanding Common Shares or the
Outstanding Voting Securities, as the case may be) will beneficially
own, directly or indirectly, 40% or more of, respectively, the
outstanding Common Shares of the corporation resulting from such
Corporate Transaction or the combined voting power of the
outstanding securities of such corporation entitled to vote
generally in the election of directors and (3) individuals who were
members of the Incumbent Board will constitute at least a majority
of the members of the board of directors of the corporation
resulting from such Corporate Transaction; or
(4) the consummation of a plan of complete liquidation or
dissolution of the Company.
4.9 Deferrals.
The Committee may determine that the delivery of Common Shares or the
payment of cash, or a combination thereof, upon the exercise or settlement of
all or a portion of any award made under this Plan shall be deferred, or the
Committee may, in its sole discretion, approve deferral elections made by
holders of awards. Deferrals shall be for such periods and upon such terms as
the Committee may determine in its sole discretion.
4.10 No Right of Participation, Employment or Service.
No person shall have any right to participate in this Plan. Neither this
Plan nor any award made under this Plan shall confer upon any person any right
to continued employment by or service with the Company, any Subsidiary or any
affiliate of the Company or affect in any manner the right of the Company, any
Subsidiary or any affiliate of the Company to terminate the employment or
service of any person at any time without liability under this Plan.
4.11 Rights as Shareholder.
No person shall have any right as a shareholder of the Company with
respect to any Common Shares or other equity security of the Company which is
subject to an award under this
12
Plan unless and until such person becomes a shareholder of record with respect
to such Common Shares or equity security.
4.12 Designation of Beneficiary.
If permitted by the Company, a holder of an award may file with the
Committee a written designation of one or more persons as such holder's
beneficiary or beneficiaries (both primary and contingent) in the event of the
holder's death. To the extent an outstanding option granted under this Plan is
exercisable after the holder's death, such beneficiary or beneficiaries shall be
entitled to exercise such option pursuant to procedures prescribed by the
Committee.
Each beneficiary designation shall become effective only when filed in
writing with the Committee during the holder's lifetime on a form prescribed by
the Committee. The spouse of a married holder domiciled in a community property
jurisdiction shall join in any designation of a beneficiary other than such
spouse. The filing with the Committee of a new beneficiary designation shall
cancel all previously filed beneficiary designations.
If a holder fails to designate a beneficiary, or if all designated
beneficiaries of a holder predecease the holder, then each outstanding option
under this Plan held by such holder at the time of the holder's death, to the
extent then or thereafter exercisable, may be exercised by such holder's
executor, administrator, legal representative or similar person, or as otherwise
prescribed under the laws of descent and distribution.
4.13 Governing Law.
This Plan, each award under this Plan and the related Agreement, and all
determinations made and actions taken pursuant thereto, to the extent not
otherwise governed by the Code or the other laws of the United States, shall be
governed by the laws of the State of Michigan and construed in accordance
therewith without giving effect to principles of conflicts of laws.
4.14 Foreign Employees.
Without amending this Plan, the Committee may grant awards to eligible
persons who are subject to the laws of foreign countries or jurisdictions on
such terms and conditions different from those specified in this Plan as may in
the judgment of the Committee be necessary or desirable to foster and promote
achievement of the purposes of this Plan and, in furtherance of such purposes,
the Committee may make such modifications, amendments, procedures, subplans and
the like as may be necessary or advisable to comply with provisions of laws of
other countries or jurisdictions in which the Company or its Subsidiaries
operate or have employees.
4.15 Section 409A of the Code.
Notwithstanding any other provision of the Plan, no award under the Plan
shall have any terms or features (including, without limitation, terms or
features relating to the type of award, time of or events triggering vesting,
method of exercise or payment of withholding tax, method of settlement, form and
timing of consideration payable in settlement, or deferral or other elections),
whether at the time of grant or subsequent to the time of grant, that would
cause the award to be nonqualified deferred compensation that fails to comply
with the requirements under
13
Section 409A of the Code and the guidance and regulations issued thereunder.
Moreover, notwithstanding any other provision of the Plan, no action may be
taken by the Committee or the Board under or in respect of the Plan (including,
without limitation, Plan amendments under Section 4.2 or adjustments under
Section 4.7) that would cause the Plan or any award under the Plan to be a
nonqualified deferred compensation plan that fails to comply with the
requirements of Section 409A of the Code and the guidance and regulations issued
thereunder.
14
SOMANETICS CORPORATION
PROXY
BOARD OF DIRECTORS PROXY FOR ANNUAL MEETING APRIL 21, 2005. THIS PROXY IS
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF SOMANETICS CORPORATION
The undersigned hereby appoints Bruce J. Barrett and Mary Ann Victor, and
each of them, attorneys and proxies with full power of substitution in each of
them, in the name, place and stead of the undersigned to vote as proxy all the
common shares, par value $0.01 per share, of the undersigned in Somanetics
Corporation (the "Company") which the undersigned is entitled to vote at the
Annual Meeting of Shareholders of the Company to be held on April 21, 2005, and
at any and all adjournments thereof.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTOR AND FOR
PROPOSAL 2.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X]
1. Election of Director
NOMINEE:
[ ] FOR THE NOMINEE DR. JAMES I. AUSMAN
[ ] WITHHOLD AUTHORITY FOR THE NOMINEE
______________________________________________________
FOR AGAINST ABSTAIN
2. Approval of the Somanetics Corporation 2005 Stock
Incentive Plan, pursuant to which up to 600,000 common [ ] [ ] [ ]
shares are reserved for issuance.
3. In their discretion with respect to any other matters that may properly come
before the meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE HEREIN. THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED
FOR THE ELECTION OF THE DIRECTOR NAMED IN PROPOSAL 1 AND FOR PROPOSAL 2 IF NO
INSTRUCTIONS TO THE CONTRARY ARE INDICATED OR IF NO INSTRUCTION IS GIVEN.
PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE.
To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that changes
to the registered name(s) on the account may not be submitted via this
method. [ ]
Signature of Shareholder:____ Date:_____ Signature of Shareholder:____ Date:____
NOTE: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as executor,
administrator, attorney, trustee or guardian, please give full title as such. If
the signer is a corporation, please sign full corporate name by duly authorized
officer, giving full title as such. If signer is a partnership, please sign in
partnership name by authorized person.
DETROIT.1276691.10