SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
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
[X] Definitive proxy statement. Commission only (as permitted
[ ] Definitive additional materials. by Rule 14a-6(e)(2)).
[ ] Soliciting material pursuant to Rule
14a-11(c) or 14a-12.
ORTHOLOGIC CORP.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than 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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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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[LOGO]
1275 West Washington
Tempe, Arizona 85281
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 29, 2003
TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders of OrthoLogic Corp., a Delaware
corporation (the "Company"), will be held on Thursday, May 29, 2003 at 8:00 a.m.
local time, at the offices of the Company at 1275 West Washington, Tempe,
Arizona 85281, for the following purposes:
(1) To elect two directors as Class III directors to serve until the Annual
Meeting of Stockholders to be held in the year 2006 or until their respective
successors are elected;
(2) To consider and act upon a proposal to ratify the appointment of
Deloitte & Touche LLP as independent auditors of the Company for the fiscal year
ending December 31, 2003; and
(3) To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Stockholders of record at the close of business on April 14, 2003 are
entitled to vote at the meeting and at any adjournment or postponement thereof.
Shares can be voted at the meeting only if the holder is present or represented
by proxy. A list of stockholders entitled to vote at the meeting will be open
for inspection at the Company's corporate headquarters for any purpose germane
to the meeting during ordinary business hours for 10 days prior to the meeting.
A copy of the Company's 2002 Annual Report to Stockholders, which includes
certified financial statements, is enclosed. All stockholders are cordially
invited to attend the Annual Meeting in person.
By order of the Board of Directors,
/s/ Thomas R. Trotter
----------------------------------------
Thomas R. Trotter
Chief Executive Officer
Tempe, Arizona
April 15, 2003
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IMPORTANT: IT IS IMPORTANT THAT YOUR STOCKHOLDINGS BE REPRESENTED AT THIS
MEETING. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE
AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE TO
ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF MAILED IN
THE UNITED STATES.
--------------------------------------------------------------------------------
ORTHOLOGIC CORP.
PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 29, 2003
TABLE OF CONTENTS
SOLICITATION, EXECUTION AND REVOCATION OF PROXIES..............................1
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF................................2
Security Ownership of Certain Beneficial Owners and Management............2
PROPOSAL 1: ELECTION OF DIRECTORS..............................................4
Board Meetings and Committees.............................................6
Compensation of Directors.................................................7
Executive Officers........................................................7
COMMITTEE REPORTS..............................................................8
Report of the Compensation Committee of the Board of Directors............8
Compensation Committee Interlocks and Insider Participation..............10
Certain Transactions.....................................................12
Summary Compensation Table...............................................12
Option/SAR Grants in Last Fiscal Year....................................13
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values...........................................14
Employment Contracts, Termination of Employment,
and Change-in-Control Arrangements.....................................14
Performance Graph........................................................15
Section 16(a) Beneficial Ownership Reporting Compliance..................16
PROPOSAL 2: APPOINTMENT OF INDEPENDENT AUDITORS...............................16
PRINCIPAL ACCOUNTING FIRM FEES................................................16
OTHER MATTERS.................................................................17
STOCKHOLDER PROPOSALS.........................................................17
ANNUAL REPORT.................................................................17
[LOGO]
1275 West Washington
Tempe, Arizona 85281
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 29, 2003
SOLICITATION, EXECUTION AND REVOCATION OF PROXIES
Proxies in the accompanying form are solicited on behalf, and at the
direction, of the Board of Directors of OrthoLogic Corp. (the "Company") for use
at the Annual Meeting of Stockholders to be held on May 29, 2003 or any
adjournment thereof (the "Annual Meeting") at the offices of the Company at 1275
West Washington, Tempe, Arizona 85281. All shares represented by properly
executed proxies, unless such proxies have previously been revoked, will be
voted in accordance with the direction on the proxies. If no direction is
indicated, the shares will be voted in favor of the proposals to be acted upon
at the Annual Meeting. The Board of Directors is not aware of any other matter
which may come before the meeting. If any other matters are properly presented
at the meeting for action, including a question of adjourning the meeting from
time to time, the persons named in the proxies and acting thereunder will have
discretion to vote on such matters in accordance with their best judgment.
When stock is in the name of more than one person, the proxy is valid if
signed by any of such persons unless the Company receives written notice to the
contrary. If the stockholder is a corporation, the proxy should be signed in the
name of such corporation by an executive or other authorized officer. If signed
as attorney, executor, administrator, trustee, guardian or in any other
representative capacity, the signer's full title should be given and, if not
previously furnished, a certificate or other evidence of appointment should be
furnished.
This Proxy Statement and the form of proxy which is enclosed are being
mailed to the Company's stockholders commencing on or about April 21, 2003.
A stockholder executing and returning a proxy has the power to revoke it at
any time before it is voted. A stockholder who wishes to revoke a proxy can do
so by executing a later-dated proxy relating to the same shares and delivering
it to the Secretary of the Company prior to the vote at the Annual Meeting, by
written notice of revocation received by the Secretary prior to the vote at the
Annual Meeting or by appearing in person at the Annual Meeting, filing a written
notice of revocation and voting in person the shares to which the proxy relates.
In addition to the use of the mails, proxies may be solicited by personal
conversations or by telephone, telex, facsimile or telegram by the directors,
officers and regular employees of the Company. Such persons will receive no
additional compensation for such services. Arrangements will also be made with
certain brokerage firms and certain other custodians, nominees and fiduciaries
for the forwarding of solicitation materials to the beneficial owners of Common
Stock held of record by such persons, and such brokers, custodians, nominees and
fiduciaries will be reimbursed for their reasonable out-of-pocket expenses
incurred in connection therewith. All expenses incurred in connection with this
solicitation will be borne by the Company.
The mailing address of the principal corporate office of the Company is
1275 West Washington, Tempe, Arizona 85281.
-1-
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Only stockholders of record at the close of business on April 14, 2003 (the
"Record Date") will be entitled to vote at the Annual Meeting. On the Record
Date, there were issued and outstanding 32,889,721 shares of Common Stock. Each
holder of Common Stock is entitled to one vote, exercisable in person or by
proxy, for each share of the Company's Common Stock held of record on the Record
Date. The presence of a majority of the shares of Common Stock entitled to vote,
in person or by proxy, is required to constitute a quorum for the conduct of
business at the Annual Meeting. Abstentions and broker non-votes are each
included in the determination of the number of shares present for quorum
purposes. The Inspector of Election appointed by the Chairman of the Board of
Directors shall determine the shares represented at the meeting and the validity
of proxies and ballots and shall count all proxies and ballots. The two nominees
for director receiving the highest number of affirmative votes (whether or not a
majority) cast by the shares represented at the Annual Meeting and entitled to
vote thereon, a quorum being present, shall be elected as directors. The
affirmative vote of a majority of the shares present in person or by proxy and
entitled to vote is required with respect to the approval of the other proposals
set forth herein.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock at March 1, 2003 with respect to (i)
each person known to the Company to own beneficially more than five percent of
the outstanding shares of the Company's Common Stock, (ii) each director of the
Company and each director nominee, (iii) each of the named executive officers
and (iv) all directors and executive officers of the Company as a group.
SHARES BENEFICIALLY
OWNED (1)
----------------------------
IDENTITY OF STOCKHOLDER OR GROUP NUMBER PERCENT
-------------------------------- ------------ -----------
Thomas R. Trotter (2) 887,400 2.7%
Sherry A. Sturman (3) 91,130 *
Shane P. Kelly (4) 99,519 *
Donna L. Lucchesi (5) 100,233 *
Ruben Chairez (6) 144,967 *
James T. Ryaby (7) 153,297 *
Stuart H. Altman (8) 123,000 *
Fredric J. Feldman (9) 225,850 *
John M. Holliman III (10) 234,000 *
Elwood D. Howse (11) 189,644 *
Augustus A. White III (12) 236,231 *
Heartland Advisors, Inc.
790 North Milwaukee Street
Milwaukee, Wisconsin 53202 (13) 3,237,100 10.1%
Bricoleur Capital Management LLC
12230 El Camino Real, Suite 100
San Diego, CA 92130 (14) 2,101,794 6.6%
Dimensional Fund Advisors Inc.
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401 (15) 1,847,500 5.8%
Fuller & Thaler Asset Management, Inc.
411 Borel Avenue, Suite 402
San Mateo, CA 94402 (16)
1,690,600 5.3%
All directors and executive officers as a
group (12 persons) (17) 2,578,206 7.5%
-2-
----------
* Less than one percent
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission ("SEC") and generally includes voting or
investment power with respect to securities. In accordance with SEC rules,
shares which may be acquired upon exercise of stock options which are
currently exercisable or which become exercisable within 60 days of the
date of the table are deemed beneficially owned by the optionee. Except as
indicated by footnote, and subject to community property laws where
applicable, the persons or entities named in the table above have sole
voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them.
(2) Includes 800,400 shares Mr. Trotter has a right to acquire upon exercise of
stock options.
(3) Includes 89,130 shares Ms. Sturman has a right to acquire upon exercise of
stock options.
(4) Includes 96,542 shares Mr. Kelly has a right to acquire upon exercise of
stock options.
(5) Includes 94,233 shares Ms. Lucchesi has a right to acquire upon exercise of
stock options.
(6) Includes 138,317 shares Dr. Chairez has a right to acquire upon exercise of
stock options.
(7) Includes 126,297 shares Dr. Ryaby has a right to acquire upon exercise of
stock options.
(8) Includes 110,000 shares Dr. Altman has a right to acquire upon exercise of
stock options and 1,000 indirectly owned shares.
(9) Includes 154,850 shares Dr. Feldman has a right to acquire upon exercise of
stock options. Voting and investment power shared with spouse.
(10) Includes 171,000 shares Mr. Holliman has a right to acquire upon exercise
of stock options.
(11) Includes 141,000 shares Mr. Howse has a right to acquire upon exercise of
stock options.
(12) Includes 131,500 shares Dr. White has a right to acquire upon exercise of
stock options and 6,878 indirectly owned shares.
(13) Derived from a Schedule 13G, Amendment No. 9, dated February 13, 2003 filed
by the stockholder pursuant to the Securities Exchange Act of 1934, as
amended (the "1934 Act"). The Schedule 13G states that the securities "may
be deemed beneficially owned within the meaning of Rule 13d-3 of the
Securities Exchange Act of 1934 by Heartland Advisors, Inc and William J.
Nasgovitz, as a result of his position with and ownership in Heartland."
The Schedule 13G, as amended, also states that the Common Stock is held in
investment advisory accounts of Heartland Advisors, Inc., so various people
have ownership rights to the Common Stock. Mr. Nasgovitz, as a result of
his position as an officer and director of Heartland Group, Inc., is deemed
the beneficial owner of 2,000,000 shares of common stock or 6.2% of the
outstanding.
(14) Derived from a Schedule 13G, Amendment No. 1, dated February 12, 2003 filed
by Bricoleur Capital Management LLC ("Bricoleur") pursuant to the 1934 Act.
The Schedule 13G states that Bricoleur is an investment advisor under the
Investment Advisors Act of 1940, that it serves as an investment manager
for certain accounts that hold the securities reported on the Schedule 13G,
and that Bricoleur "has been granted the authority to dispose of and vote
those securities" but that "[e]ach entity trust [that] owns an account has
the right to receive or power to direct the receipt of, dividends from, or
the proceeds from the sale of, the securities held in the account."
(15) Derived from a Schedule 13G, Amendment No. 4, dated February 3, 2003 filed
by Dimensional Fund Advisers, Inc. ("Dimensional") pursuant to the 1934
Act. The Schedule 13G states that Dimensional is an investment advisor
under the Investment Advisors Act of 1940, that it serves as investment
manager to certain investment vehicles and that "[i]n its role as
investment advisor and investment manager, Dimensional possesses voting
and/or investment power over the securities of the Issuer." Dimensional
disclaims beneficial ownership of the securities.
(16) Derived from a Schedule 13G, filed February 13, 2003 by Fuller & Thaler
Asset Management, Inc. ("F&T") and Russell J. Fuller ("Fuller") pursuant to
the 1934 Act. The Schedule 13G states that F&T is an investment advisor
under the Investment Advisors Act of 1940, that Fuller serves as the
company's President, that F&T has "the right to receive or the power to
-3-
direct the receipt of dividends from, or the proceeds from the sale of, the
Common Stock" and that "[n]o account individually holds more than 5 percent
of the outstanding Common Stock."
(17) Includes 2,146,204 shares directors and executive officers have a right to
acquire upon exercise of stock options.
PROPOSAL 1: ELECTION OF DIRECTORS
Two directors are to be elected at the Annual Meeting to serve as Class III
directors until the Annual Meeting of Stockholders to be held in the year 2006
and until their respective successors are elected. UNLESS OTHERWISE INSTRUCTED,
THE PROXY HOLDERS WILL VOTE THE PROXIES RECEIVED BY THEM FOR THE COMPANY'S
NOMINEES STUART H. ALTMAN, PH.D. AND ELWOOD D. HOWSE, JR. Dr. Altman and Mr.
Howse are currently directors of the Company. The two nominees for director
receiving the highest number of affirmative votes (whether or not a majority)
cast by the shares represented at the Annual Meeting and entitled to vote
thereon, a quorum being present, shall be elected as directors. Only affirmative
votes are relevant in the election of directors.
Any stockholder entitled to vote for the election of directors at a meeting
may nominate persons for election as directors only if written notice of such
stockholder's intent to make such nomination is given, either by personal
delivery at 1275 West Washington, Tempe, Arizona or by United States mail,
postage prepaid to Secretary, OrthoLogic Corp., 1275 West Washington, Tempe,
Arizona 85281, not later than: (i) with respect to the election to be held at an
annual meeting of stockholders, 20 days in advance of such meeting; and (ii)
with respect to any election to be held at a special meeting of stockholders for
the election of directors, the close of business on the fifteenth (15th) day
following the date on which notice of such meeting is first given to
stockholders. Each such notice must set forth: (a) the name and address of the
stockholder who intends to make the nomination and of the person or persons to
be nominated; (b) a representation that such stockholder is a holder of record
of stock of the corporation entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice; (c) a description of all arrangements or understandings
between such stockholder and each nominee and any other person or persons
(naming such person or persons) pursuant to which the nomination or nominations
are to be made by such stockholder; (d) such other information regarding each
nominee proposed by such stockholder as would have been required to be included
in a proxy statement filed pursuant to the proxy rules of the SEC if such
nominee had been nominated, or intended to be nominated, by the Board of
Directors; and (e) the consent of each nominee to serve as a director of the
corporation if elected. The chairman of a stockholder meeting may refuse to
acknowledge the nomination of any person not made in compliance with the
foregoing procedure. The nomination and other features of directorships may be
affected by the resolutions establishing series of preferred stock.
Pursuant to the Company's Certificate of Incorporation, as amended, the
Board of Directors is classified into three classes, with each class holding
office for a three-year period. The Certificate of Incorporation restricts the
removal of directors under certain circumstances. The number of directors may be
increased to a maximum of nine. Directors are elected by a plurality of the
votes present in person or represented by proxy and entitled to vote at the
Annual Meeting. Stockholders do not have the right to cumulate their votes in
the election of directors. If any nominee of the Company is unable or declines
to serve as a director at the time of the Annual Meeting, the proxies will be
voted for any nominee who shall be designated by the present Board of Directors
to fill the vacancy. It is not expected that any nominee will be unable or will
decline to serve as a director.
The names of the nominees for director and of the directors whose terms
continue beyond the Annual Meeting, and certain information about them, are set
forth below.
THE BOARD RECOMMENDS A VOTE IN FAVOR OF EACH NAMED NOMINEE
NOMINEES FOR CLASS III DIRECTORS WHOSE TERMS WILL EXPIRE AT THE ANNUAL
MEETING HELD IN THE YEAR 2006:
STUART H. ALTMAN, PH.D.(2) Director since 1998
Stuart H. Altman, 65, has been a Professor of National Health Policy at the
Florence Heller Graduate School for Social Policy, Brandeis University since
1977. He was Dean of the Florence Heller Graduate School from 1977 to 1993. For
-4-
twelve years (1984 to 1996), he was Chairman of the Congressional Prospective
Payment Assessment Commission responsible for advising Congress and the
Administration on Medicare Payment Policies for Hospitals, Nursing Homes, Home
Health Agencies and other health care providers. Dr. Altman has served as the
Chair of the Advisory Board to the Institute of Medicine of the National Academy
of Sciences and was a member of the Board of Trustees of Beth Israel Hospital in
Boston, Massachusetts from 1978 to 1990. From 1971 to 1976, Dr. Altman was
Deputy Assistant Secretary for Planning and Evaluation/Health at Health,
Education and Welfare under President Nixon. Dr. Altman is a director of IDX
Systems Corporation, a publicly held provider of healthcare information systems,
and Lincare Holdings Inc., a publicly held provider of oxygen and other
respiratory therapy services to in-home patients. He is also a member of the
Foundation Board of the Health Plan of New York which is a not-for-profit Health
Maintenance Organization that provides health care services and health insurance
coverage throughout the New York metropolitan area.
ELWOOD D. HOWSE, JR.(1)(2)(3) Director since 1987
Elwood D. Howse, Jr., 63, has served as a director of the Company since
September 1987. He is a general partner of CH Partners IV, a venture capital
fund, and was a co-founder of Cable & Howse Ventures, a venture capital
management firm. Mr. Howse has served as the President of Cable & Howse
Ventures, Inc. since 1981. He is a member of the boards of directors of Applied
Microsystems Corporation, a publicly held provider of software development tools
and technologies, ImageX, Inc., a public business to business Internet market
maker for printed business materials, and BSQUARE Corporation, a public company
that provides products and services for the development and deployment of
wireless and wireline smart devices, as well as several private companies and
not-for-profit organizations.
DIRECTORS CONTINUING IN OFFICE:
CLASS I DIRECTORS WHOSE TERMS WILL EXPIRE AT THE 2004 ANNUAL MEETING:
FREDRIC J. FELDMAN, PH.D.(1)(3) Director since 1991
Fredric J. Feldman, Ph.D., 63, has been the President of FJF Associates, a
consultant to health care venture capital and emerging companies, since February
1992. From September 1995 to June 1996, he was the Chief Executive Officer of
Biex, Inc. a women's healthcare company. Dr. Feldman returned to his position as
Chief Executive Officer of Biex again in 1999. He served as Chief Executive
Officer of Oncogenetics, Inc., a cancer genetics reference laboratory from 1992
to 1995. Between 1988 and 1992, Dr. Feldman was the President and Chief
Executive Officer of Microgenics Corporation, a medical diagnostics company. He
is a director of Sangstat Medical Corp., a publicly held biotech transplant drug
company, and of Ostex International, Inc., a publicly held developer of
diagnostics and therapeutics for skeletal and connective tissue diseases.
THOMAS R. TROTTER Director since 1997
Thomas R. Trotter, 55, joined OrthoLogic as President and Chief Executive
Officer and a Director in October 1997. From 1988 to October 1997, Mr. Trotter
held various positions at Mallinckrodt, Inc. in St. Louis, Missouri, most
recently as President of the Critical Care Division and a member of the
Corporate Management Committee. From 1984 to 1988, he was President and Chief
Executive Officer of Diamond Sensor Systems, a medical device company in Ann
Arbor, Michigan. From 1976 to 1984, he held various senior management positions
at Shiley, Inc. (a division of Pfizer, Inc.) in Irvine, California. He holds a
B.S. degree from the University of Maryland and a Masters of Business
Administration from Pepperdine University.
CLASS II DIRECTORS WHOSE TERMS WILL EXPIRE AT THE 2005 ANNUAL MEETING:
JOHN M. HOLLIMAN III(1)(2)(4) Director since 1987
John M. Holliman III, 49, has served as a director of the Company since
September 1987 and as a Chairman of the Board of Directors since August 1997.
Since February 1993 he has been a general partner of entities, which are the
general partners of Valley Ventures, LP. (formerly known as Arizona Growth
Partners, LP.), Valley Ventures II, LP. and Valley Ventures III, LP, all of
which are capital funds. From 1985 to 1993, he was the Managing Director and
Senior Managing Director of Valley Ventures' predecessor, Valley National
Investors, Inc., a venture capital subsidiary of The Valley National Bank of
Arizona.
-5-
AUGUSTUS A. WHITE III, M.D., PH.D.(4) Director since 1993
Dr. White, 66, became a director of the Company in July 1993. He has been a
Master of the Oliver Wendell Holmes Society and the Ellen and Melvin Gordon
Professor of Medical Education, Harvard Medical School since July 2001;
Professor of Orthopedic Surgery at the Harvard Medical School and the
Harvard-MIT Division of Health Sciences and Technology since July 1978; and
Orthopedic Surgeon-in-Chief, Emeritus, at the Beth Israel Deaconess Medical
Center in Boston since 1990. From 1992 to 1994, he served as the Chief of Spine
Surgery at Beth Israel and is Director of the Daniel E. Hogan Spine Fellowship
Program. He is a graduate of Brown University, the Stanford University Medical
School, holds a Ph.D. from the Karolinska Institute in Stockholm, and graduated
from the Advanced Management Program at the Harvard Business School. Dr. White
is a recipient of the Bronze Star, which he earned while stationed as a Captain
in the U.S. Army Medical Corps in Vietnam. Dr. White is currently a director of
Zimmer Holdings, Inc., a publicly held designer, marketer and manufacturer of
orthopedic products.
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
(4) Member of the Nominating Committee
BOARD MEETINGS AND COMMITTEES
The Board of Directors held a total of six meetings during the fiscal year
ended December 31, 2002. No director attended fewer than 75% of the aggregate of
all meetings of the Board of Directors and any committee on which such director
served during the period of such service.
The Board presently has an Executive Committee, an Audit Committee, a
Compensation Committee and a Nominating Committee. The Executive Committee,
which acts on Board matters that arise between meetings of the full Board of
Directors, consists of Dr. Feldman, Mr. Holliman and Mr. Howse and met one time
during 2002.
The Audit Committee consists of Mr. Howse, Mr. Altman and Mr. Holliman and
met four times in 2002. The Audit Committee assists the Board of Directors in
its oversight of financial reporting practices, including the independent
auditors' qualifications and independence, and the performance of the Company's
internal audit function. The Audit Committee appoints the Company's independent
auditors, which appointment may be ratified by the shareholders. The Audit
Committee meets independently with representatives of the Company's independent
auditors and with representatives of senior management. The Committee reviews
the general scope of the Company's annual audit, the fee charged by the
independent auditors and other matters relating to internal control systems. In
addition, the Audit Committee is responsible for approving, reviewing and
monitoring the performance of non-audit services by the Company's auditors. The
Audit Committee operates under a formal written charter, a copy of which is
included as Appendix A to this proxy statement, that has been adopted by the
Board of Directors. The charter was amended in October of 2002 in response to
rules recently proposed and/or adopted by the SEC and NASDAQ.
The Compensation Committee, which consists of Dr. Feldman and Mr. Howse,
met one time during 2002. The Compensation Committee reviews salaries and
benefit programs designed for senior management, officers and directors and
administers certain grants under the Company's stock option plans with a view to
ensure that the Company is attracting and retaining highly qualified managers
through competitive salary and benefit programs and encouraging extraordinary
effort through incentive rewards.
The Nominating Committee was constituted in March 2002 to examine and
recommend nominations for the Board of Directors and officers of the Company.
The Nominating Committee has nominated Mr. Howse and Dr. Altman for election as
Class III directors for this year's Annual Meeting of Shareholders. The
Nominating Committee consists of Mr. Holliman and Dr. White. The Nominating
Committee met one time during 2002. Where appropriate, the Nominating Committee
will consider timely shareholder recommendations for nominations submitted in
writing to the Secretary of the Company.
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COMPENSATION OF DIRECTORS
During the year ended 2002, the Company paid non-employee directors an
annual retainer of $12,000. Effective January 1, 2003, that amount was increased
to $24,000, payable quarterly in advance. All directors are eligible for the
grant of nonqualified stock options pursuant to the Company's 1997 Stock Option
Plan. The Company issued options to acquire 10,000 non-qualified shares to each
non-employee director on December 31, 2002. All such options vested immediately
and were granted at the market price of $3.61 on the date of grant. The options
have been granted with ten-year terms.
For information regarding options granted to the Company's only
employee-director (Mr. Trotter) during 2002, see the table captioned "Option/SAR
Grant in Last Fiscal Year" below.
The following table summarizes options granted to non-employee directors
during the year ended December 31, 2002:
DATE OF NUMBER OF OPTION
NAME OPTION SHARES PRICE
---- -------- ------ ------
Stuart H. Altman 12/31/02 10,000 $3.610
Fredric J. Feldman 12/31/02 10,000 $3.610
John M. Holliman III 12/31/02 10,000 $3.610
Elwood D. Howse, Jr. 12/31/02 10,000 $3.610
Augustus A. White III 12/31/02 10,000 $3.610
EXECUTIVE OFFICERS
Information regarding the Executive Officers of the Company, other than Mr.
Trotter who is described above, is set forth below.
Name Age Title
---- --- -----
Sherry A. Sturman 38 Senior Vice President and Chief Financial
Officer
Ruben Chairez, Ph.D. 60 Vice President of Medical Regulatory and
Compliance
Jeff Culhane 35 Vice President of Manufacturing and Product
Development
Shane P. Kelly 33 Senior Vice President of Sales
Donna L. Lucchesi 39 Vice President of Marketing
James T. Ryaby, Ph.D. 44 Senior Vice President Research and Clinical
and Chief Technology Officer
Sherry A. Sturman joined OrthoLogic as Director of Finance in October 1997
and began serving as the Vice President of Administration, and Chief Financial
Officer in June 2001 and was promoted to Senior Vice President in early 2003.
From 1994 to 1997, Ms. Sturman was employed as the Chief Financial Officer for
ComCare, a large managed care company based in Phoenix. She has over fifteen
years of financial management experience in both health care and public
companies. She is a Certified Public Accountant, with a Masters in Business
Administration.
Ruben Chairez, Ph.D., joined OrthoLogic in May 1998 as Vice President,
Medical Regulatory and Clinical Affairs and is currently Vice President,
Medical, Regulatory and Compliance. From November 1993 through April 1998, Dr.
Chairez served as Vice President, Regulatory Affairs/Quality Assurance of SenDx
Medical, Inc., a Manufacturer of blood gas analyzer systems. From July 1990 to
November 1993, Dr. Chairez was the Director of Regulatory Affairs with Gen-Probe
Incorporated, an in-vitro diagnostic device manufacturer.
-7-
Jeff Culhane joined OrthoLogic as Vice President, Product Development &
Engineering in June 1998. From May 1993 to June 1998, Mr. Culhane held
Industrial Design and Manager of Product Development positions at OrthoLogic
Canada (previously Toronto Medical Corp.). His related product development
experience includes bone growth stimulators, continuous passive motion devices
and cryotherapy.
Shane P. Kelly joined OrthoLogic in 1991 as a Field Sales and Service
Representative. Since then, he has held various positions within the company in
the area of sales, managed care and operations. He was named Vice President of
Sales in 2000 and was promoted to Senior Vice President in early 2003. Mr. Kelly
received an undergraduate degree in business from Tulane University and a
Masters of Business Administration in International Management from Thunderbird,
The American Graduate School of International Management.
Donna L. Lucchesi joined OrthoLogic in August 1998 as Director of Marketing
- Injectable Products. She was promoted to Director of Marketing in February
2000 and moved into her current position as Vice President of Marketing in
January 2001. From 1990 to 1998, Ms. Lucchesi held a variety of marketing
positions at Mallinchrodt, Inc. in St. Louis, Missouri, most recently as
Director of Health Care Systems Marketing. She holds a Master's Degree in
Business Administration from Washington University.
James T. Ryaby, Ph.D., joined OrthoLogic as Director of Research in 1991
and became Vice President of Research in 1997 and was promoted to Senior Vice
President and Chief Technology Officer in early 2003. Prior to joining
OrthoLogic, he was a research scientist at Mt. Sinai School of Medicine in New
York, where he received his Ph.D. degree in cellular biology. His current
research interests are applications of cytokines, growth factors, and
electromagnetic fields in musculoskeletal tissue repair. Dr. Ryaby also serves
as Adjunct Professor of Bioengineering at Arizona State University.
COMMITTEE REPORTS
THE FOLLOWING REPORT OF THE COMPENSATION COMMITTEE AND AUDIT COMMITTEE OF
THE COMPANY'S BOARD OF DIRECTORS (THE "COMMITTEE") AND THE PERFORMANCE GRAPH
INCLUDED ELSEWHERE IN THIS PROXY STATEMENT SHALL NOT BE DEEMED SOLICITING
MATERIAL OR OTHERWISE DEEMED FILED AND SHALL NOT BE DEEMED TO BE INCORPORATED BY
REFERENCE BY ANY GENERAL STATEMENT INCORPORATING BY REFERENCE THIS PROXY
STATEMENT INTO ANY OTHER FILING UNDER THE SECURITIES ACT OF 1933 OR THE
SECURITIES EXCHANGE ACT OF 1934, EXCEPT TO THE EXTENT THE COMPANY SPECIFICALLY
INCORPORATES THIS REPORT OR THE PERFORMANCE GRAPH BY REFERENCE THEREIN.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Committee recommends the compensation of the Chief Executive Officer to
the Board and reviews and approves the design, administration and effectiveness
of compensation programs for other key executive officers, including salary,
cash bonus levels, other perquisites and certain option grants under the
Company's stock option plans (the "Plans").
COMPENSATION PHILOSOPHY
The objectives of the Company's executive compensation policies are to
attract, retain and reward executive officers who contribute to the Company's
success, to align the financial interests of executive officers with the
performance of the Company, to strengthen the relationship between executive pay
and shareholder value, to motivate executive officers to achieve the Company's
business objectives and to reward individual performance. During 2002, the
Company used base salary, executive officer cash bonuses and stock options to
achieve these objectives. In carrying out these objectives, the Committee
considers the following:
(1) THE LEVEL OF COMPENSATION PAID TO EXECUTIVE OFFICERS IN POSITIONS OF
COMPANIES SIMILARLY SITUATED IN SIZE AND PRODUCTS. To ensure that pay
is competitive, the Committee, from time to time, compares the
Company's executive compensation packages with those offered by other
companies in the same or similar industries or with other similar
attributes. The Company typically surveys publicly available
information regarding companies listed on the Nasdaq National Market
which are comparable in size, products or industry with the Company.
-8-
(2) THE INDIVIDUAL PERFORMANCE OF EACH EXECUTIVE OFFICER. Individual
performance includes any specific accomplishments of such executive
officer, demonstration of job knowledge and skills and teamwork.
(3) CORPORATE PERFORMANCE. Corporate performance is evaluated both
subjectively and objectively. Subjectively, the Compensation Committee
discusses and makes its own determination of how the Company performed
relative to the opportunities and difficulties encountered during the
year and relative to the performance of competitors and business
conditions. Objectively, corporate performance is measured by
predetermined operating and financial goals.
(4) THE RESPONSIBILITY AND AUTHORITY OF EACH POSITION RELATIVE TO THE
OTHER POSITIONS WITHIN THE COMPANY.
The Committee does not quantitatively weigh these factors but considers all
factors as a whole, using its discretion, best judgment and the experiences of
its members, in establishing executive compensation. The application given each
of these factors in establishing the components of executive compensation are as
follows:
BASE SALARY. In establishing base salaries, the Committee believes that it
tends to give greater weight to factors 1, 2 and 4 above. The Company seeks to
pay salaries to executive officers that are commensurate with their
qualifications, duties and responsibilities and that are competitive in the
market. In conducting annual salary reviews, the Committee considers each
individual executive officer's achievements during the prior fiscal year in
meeting the Company's financial and business objectives, as well as the
executive officer's performance of individual responsibilities and the Company's
financial position and overall performance. The Committee considers the low,
midpoint and upper ranges of base salaries publicly disclosed by companies that
OrthoLogic believes are comparable to it and generally targets base salary to
the mid-point of the ranges.
PERFORMANCE BONUSES. In establishing performance bonuses, the Committee
believes that it tends to give greater weight to factors 2 and 4 above and
further believes that such performance bonuses are a key link between executive
pay and stockholder value. The Company has adopted a Management Bonus Plan that
is based upon the financial performance of the Company and other specific
company-wide objectives established by the Committee and approved by the full
Board of Directors. For 2002, executive bonuses were targeted at between 50% and
40% of the executive officers' base salaries if the goals were achieved, with
the more senior executive officers having a higher percentage of total
compensation from annual cash bonuses. The measures chosen by the Committee to
evaluate the Company's performance may vary from year to year depending on the
particular facts and circumstances at the time.
OPTION GRANTS. In establishing option grants or recommendations to the
entire Board, the Committee believes it tends to give greater weight to factors
2 and 3 above. The Committee believes that equity ownership by executive
officers provides incentives to build stockholder value and aligns the interests
of officers with the stockholders. The Committee typically recommends or awards
a grant under a Plan upon hiring executive officers, subject to a four-year
vesting schedule. After the initial stock option grant, the Committee considers
additional grants, usually on an annual basis, under the Plan. Options are
granted at the current market price for the Company's Common Stock and,
consequently, have value only if the price of the Common Stock increases over
the exercise price for the period during which the option is exercisable. The
size of the initial grant is usually determined with reference to the seniority
of the officer, the contribution the officer is expected to make to the Company
and comparable equity compensation offered by others in the industry. In
determining the size of the periodic grants, the Committee considers prior
option grants to the officer, independent of whether the options have been
exercised, the executive's performance during the year and his or her expected
contributions in the succeeding year. The Committee believes that periodic
option grants provide incentives for executive officers to remain with the
Company.
The Omnibus Budget Reconciliation Act of 1993 includes potential
limitations on tax deductions for compensation in excess of $1,000,000 paid to
the Company's Chief Executive Office and four highest-paid executive officers.
The Compensation Committee has analyzed the impact of this change in the tax law
on the compensation policies of the Company, has determined that historically
the effect of this provision on the taxes paid by the Company has and would not
have been significant and has decided for the present to not modify the
compensation policies of the Company based on such changes in the tax law. In
the event that the Committee determines that a material amount of compensation
might potentially not be deductible, it will consider what actions, if any,
should be taken to seek to make such compensation deductible without
compromising its ability to motivate and reward excellent performance.
-9-
CHIEF EXECUTIVE OFFICER COMPENSATION
The Committee reviews the performance of the Chief Executive Officer at
least annually. When Mr. Trotter was hired in October 1997, the Compensation
Committee reviewed data from a survey of salaries for companies comparable in
size, products and industry and considered the Company's earnings and financial
position. Based on this criteria, the Compensation Committee set Mr. Trotter's
salary at $260,000 with a bonus percentage within the range previously approved
for all executive officers. The Company entered into an Amended and Restated
Employment Agreement with Mr. Trotter effective as of July 15, 2002, in which
Mr. Trotter's compensation package was structured in the same manner, with an
increase in salary for fiscal year 2002 to $330,000.
In January 2003, the Compensation Committee met to determine bonuses based
on performance during 2002 and awarded $506,915 to its Chief Executive Officer
and its top five executive officers. At the same meeting, the Compensation
Committee set performance goals for 2003 and structured the 2003 Management
Bonus Plan.
Compensation Committee During 2002:
Fredric J. Feldman Elwood D. Howse, Jr.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2002, Fredric J. Feldman and Elwood D. Howse, Jr., independent
directors, served on the Compensation Committee of the Board of Directors.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The role of the Audit Committee (the "Committee") is to assist the Board of
Directors in its oversight of the Company's financial reporting process. The
Audit Committee operates under a formal written charter, a copy of which is
included as Appendix A to this proxy statement, that has been adopted by the
Board of Directors. The charter was amended and restated in October of 2002 in
response to rules recently proposed and/or adopted by the SEC and NASDAQ. The
Board of Directors, in its business judgment, has determined that all members of
the Committee are "independent," as required by applicable listing standards of
the Nasdaq National Market. As set forth in the Charter, management of the
Company is responsible for the preparation, presentation and integrity of the
Company's financial statements, the Company's accounting and financial reporting
principles and internal controls and procedures designed to assure compliance
with accounting standards and applicable laws and regulations. The independent
auditors are responsible for auditing the Company's financial statements and
expressing an opinion as to their conformity with generally accepted accounting
principles.
Among other matters, the Committee monitors and oversees the activities and
performance of the external auditors, including the audit scope, external audit
fees, and auditor independence matters. The Committee also is responsible for
approving non-audit services proposed to be performed by the independent
auditor. The Committee has responsibility to appoint and dismiss the company's
independent auditor. Management and independent auditor presentations to and
discussions with the Committee also cover various topics and events that may
have significant financial impact or are the subject of discussions between
management and the independent auditor.
In the performance of its oversight function, the Committee has considered
and discussed the audited financial statements with management and the
independent auditors. The Committee has also discussed with the independent
auditors the matters required to be discussed by Statement on Auditing Standards
No. 61, COMMUNICATION WITH AUDIT COMMITTEES, as currently in effect. Finally,
the Committee has received the written disclosures and the letter from the
independent auditors required by Independence Standards Board Standard No. 1,
INDEPENDENCE DISCUSSIONS WITH AUDIT COMMITTEES, as currently in effect, and
written confirmations from management with respect to services provided by the
auditors, has considered whether the provision of non-audit services by the
independent auditors to the Company is compatible with maintaining the auditor's
independence and has discussed with the auditors the auditors' independence. The
Audit Committee met four times in 2002, each time meeting separately with the
auditors without the presence of management.
-10-
The members of the Audit Committee are not professionally engaged in the
practice of auditing or accounting and are not experts in the fields of
accounting or auditing, including in respect of auditor independence. Members of
the Committee rely without independent verification on the information provided
to them and on the representations made by management and the independent
accountants. Accordingly, the Audit Committee's oversight does not provide an
independent basis to determine that management has maintained appropriate
accounting and financial reporting principles or appropriate internal control
and procedures designed to assure compliance with accounting standards and
applicable laws and regulations. Furthermore, the Audit Committee's
considerations and discussions referred to above do not assure that the audit of
the Company's financial statements has been carried out in accordance with
generally accepted auditing standards, that the financial statements are
presented in accordance with generally accepted accounting principles or that
the Company's auditors are in fact "independent."
Based upon the reports and discussions described in this report, and
subject to the limitations on the role and responsibilities of the Committee
referred to above and in the Charter, the Committee recommended to the Board
that the audited financial statements be included in the Company's Annual Report
on Form 10-K for the year ended December 31, 2002 for filing with the Securities
and Exchange Commission.
Audit Committee During 2002
John M. Holliman, III Stuart H. Altman Elwood D. Howse, Jr.
-11-
CERTAIN TRANSACTIONS
The Company has entered into indemnity agreements with all of its directors
and officers for the indemnification of and advancing of expenses to such
persons to the full extent permitted by law.
SUMMARY COMPENSATION TABLE
The following table sets forth, with respect to the years ended December
31, 2002, 2001 and 2000 compensation awarded to, earned by or paid to the
Company's Chief Executive Officer and the five other most highly compensated
executive officers who were serving as executive officers at December 31, 2002.
(1)
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------- ----------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
COMPENSATION OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(2) (#)(3) ($)
--------------------------- ---- --------- -------- ------ ------ ---
Thomas R. Trotter 2002 327,115 165,000 5,400 -- --
President and Chief 2001 312,115 175,000 5,400 300 --
Executive Officer 2000 297,307 120,000 5,400 300,100 --
Sherry A. Sturman 2002 163,077 70,000 -- 40,000 --
Senior Vice President and 2001 155,983 72,000 -- 135,350 --
Chief Financial Officer 2000 113,139 17,100 -- 3,850 --
Shane P. Kelly 2002 163,077 81,915 -- 32,000 --
Senior Vice President of 2001 155,000 70,425 -- 65,300 --
Sales 2000 114,346 85,987 -- 73,100 --
Donna L. Lucchesi 2002 150,654 64,000 -- 20,000 --
Vice President of Marketing 2001 144,477 56,840 -- 125,350 --
2000 116,112 21,750 -- 2,100 --
Ruben Chairez, Ph.D. 2002 150,654 63,000 -- 20,000 --
Vice President of Medical, 2001 143,461 56,260 -- 55,300 --
Regulatory and Compliance 2000 135,654 33,000 -- 100 --
James T. Ryaby, Ph.D. 2002 149,039 63,000 -- 30,000 --
Senior Vice President 2001 143,654 53,360 -- 300 --
Research and Clinical and 2000 136,835 20,700 -- 88,850 --
Chief Technology Officer
----------
(1) The Company's five most highly compensated executive officers have been
included for 2002 due to the comparable compensations of Dr. Chairez and
Dr. Ryaby.
(2) Other Annual Compensation includes an automobile allowance for Mr. Trotter.
(3) Consist entirely of stock options.
-12-
OPTION/SAR GRANTS IN LAST FISCAL YEAR (1)
The following table sets forth information about stock option grants during
the last fiscal year to the named executive officers named in the Summary
Compensation Table.
INDIVIDUAL GRANTS
-------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES OF
SECURITIES OPTION/SARS EXERCISE STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO OR BASE FOR OPTION TERM (2)
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION ------------------------
NAME GRANTED (#)(1) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
---- -------------- ----------- ------ ---------- ------ -------
Thomas R. Trotter -- -- -- -- -- --
Sherry A. Sturman 40,000 12.89% $3.50 11/11/2012 88,045 223,124
Shane P. Kelly 32,000 10.32% $3.50 11/11/2012 70,436 178,499
Donna L. Lucchesi 20,000 6.45% $3.50 11/11/2012 44,023 111,562
Ruben Chairez 20,000 6.45% $3.50 11/11/2012 44,023 111,562
James T. Ryaby 30,000 9.67% $3.50 11/11/2012 66,034 167,343
(1) Consist entirely of stock options.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock appreciation of 5% or 10% compounded
annually from the date the respective options were granted to their
expiration date and are not presented to forecast possible future
appreciation, if any, in the price of the Common Stock. The potential
realizable value of the foregoing options is calculated by assuming that
the market price of the underlying security appreciates at the indicated
rate for the entire term of the option and that the option is exercised at
the exercise price and sold on the last day of its term at the appreciated
price.
-13-
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES (1)
The following table sets forth information with respect to the executive
officers named in the Summary Compensation Table concerning option exercises
during the last fiscal year and the number and value of options outstanding at
the end of the last fiscal year.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED OPTIONS VALUE OF UNEXERCISED
AT FY-END(#)(1) IN-THE-MONEY OPTIONS AT FY-END($)(2)
------------------------------ ------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
Thomas R. Trotter 799,358 1,042 132,800 --
Sherry A. Sturman 77,491 121,509 17,761 19,879
Shane P. Kelly 85,041 109,459 26,148 22,132
Donna L. Lucchesi 83,608 95,792 15,365 17,275
Ruben Chairez 132,744 60,156 6,505 1,934
James T. Ryaby 85,907 131,093 53,928 --
----------
(1) No SARs are outstanding.
(2) Value is based upon closing bid price of $3.344 as reported on the Nasdaq
National Market for December 31, 2002, minus the exercise price, multiplied
by the number of shares underlying the option.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT,
AND CHANGE-IN-CONTROL ARRANGEMENTS
The Company has entered into an Amended and Restated Employment Agreement
with Mr. Trotter, as of July 15, 2002, which amended and restated the prior
Employment Agreement with Mr. Trotter which became effective on October 20,
1997. The Amended and Restated Employment Agreement provides for a minimum base
salary of $330,000, which may be increased subject to annual reviews. Mr.
Trotter is also eligible to participate in the incentive bonus program, as
revised from time to time by the Board of Directors. Under the terms of the
Amended and Restated Employment Agreement, the Company may elect to begin a
two-year transition leading to the termination of Mr. Trotter's employment with
the Company at any time, with or without cause. In the event the Company makes
such an election, Mr. Trotter would be entitled to continue receiving salary and
benefits for a period of 24 months. The Amended and Restated Employment
Agreement also provides that Mr. Trotter is entitled to receive a special bonus
of up to $2 million in the event that the company undergoes a change in control,
or a sale of substantially all of the assets of the company.
The Company has entered into employment agreements with each of Sherry
Sturman, Shane Kelly, Donna Lucchesi, Ruben Chairez and James Ryaby. Each of
these contracts provides for a one-year employment term which is automatically
renewed for another year. The Company may terminate the employee's salary with
cause, in which case the Company shall be obligated to pay such employee's
salary through the date of termination. If the Company terminates the employee's
employment without cause, the employee is entitled, upon executing a severance
agreement, to 12 months of salary.
Under the Company's stock option plans, upon the occurrence of a merger in
which the Company is not the surviving entity, a sale of substantially all of
the assets of the Company, an acquisition by a third party of 100% of the
Company's outstanding equity securities or a similar reorganization of the
Company, 75% of all unvested options will vest, with the balance vesting equally
over 12 months or according to the individual's vesting schedule, whichever is
earlier. Additionally, the Company's 1997 Stock Option Plan provides that, upon
a merger, consolidation or reorganization with another corporation in which the
Company is not the surviving corporation, outstanding options shall be
substituted on an equitable basis for options for appropriate shares of the
surviving corporation, or optionees shall receive cash in exchange for
cancellation of outstanding options.
-14-
The Compensation Committee of the Board of Directors has approved a 2003
bonus plan for the Company's executive officers that provides for bonuses of up
to 50% of base salary, depending on Company and individual performance.
PERFORMANCE GRAPH
Set forth below is a graph comparing the cumulative total shareholder
return on the Company's Common Stock to the cumulative total return of (i) the
Standard & Poor's Healthcare Medical Products and Supplies Index and (ii) the
Russell 2000 Index from December 31, 1997 through December 31, 2002. The graph
is generated by assuming that $100 was invested on December 31, 1997 in each of
the Company's Common Stock, the Standard & Poor's Healthcare Medical Products
and Supplies Index (the "Peer Group") and the Russell 2000 Index, and that all
dividends were reinvested.
[GRAPH]
12/31/97 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02
-------- -------- -------- -------- -------- --------
OrthoLogic Corp. $100 $ 60 $ 46 $ 52 $ 88 $ 65
Peer Group $100 $139 $143 $154 $158 $138
Russell 2000 Index $100 $ 96 $115 $113 $112 $ 88
-15-
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's directors,
its executive officers and any persons holding more than 10% of the Company's
Common Stock are required to report their initial ownership of the Company's
Common Stock and any subsequent changes in that ownership to the SEC. Specific
due dates for these reports have been established, and the Company is required
to disclose any failure to file by these dates. The Company believes that all of
these filing requirements were satisfied during the year ended December 31, 2002
except as set forth below. Stock option grants made on November 11, 2002 to
Shane D. Kelly, James T. Ryaby, Donna L. Lucchesi, Jeffrey Culhane, and Sherry
A. Sturman and on December 31, 2002 to Fredric J. Feldman, Ph.D., Elwood D.
Howse, Jr., John M. Holliman III, Augustus A. White III, M.D., Ph.D., and Stuart
H. Altman, Ph.D. were reported late on a Form 5. In making these disclosures,
the Company has relied solely on written representations of those persons it
knows to be subject to the reporting requirements and copies of the reports that
they have filed with the SEC.
PROPOSAL 2: APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee of the Board of Directors has appointed Deloitte &
Touche LLP as independent auditors to audit the financial statements of the
Company for the fiscal year ending December 31, 2003. The Board of Directors is
submitting the selection of the independent auditors for shareholder
ratification at the 2003 annual meeting, and recommends that stockholders vote
FOR ratification of such appointment. In the event of a negative vote on such
ratification, the Audit Committee will reconsider its selection.
Deloitte & Touche LLP has audited the Company's financial statements
annually since 1987. Its representatives are expected to be present at the
Annual Meeting with the opportunity to make a statement if they desire to do so
and are expected to be available to respond to appropriate questions.
PRINCIPAL ACCOUNTING FIRM FEES
The following table sets froth the aggregate fees billed to the Company for
the years ended December 31, 2002 and December 31, 2001 by our principal
accounting firm, Deloitte & Touche LLP, the member firms of Deloitte Touche
Tohmatsu, and their respective affiliates (collectively, "Deloitte & Touche").
Certain amounts for 2001 have been reclassified to conform to the 2002
presentation format:
Type of Fee Amount
----------- --------------------
2002 2001
-------- --------
Audit-Fees (1) $180,415 $123,926
Audit-Related Fees (2) 112,735 8,900
Total Audit and Audit-Related Fees 293,150 132,826
Tax Fees (3) 325,250 268,430
All Other Fees (4) -- --
Total Fees $618,400 $401,256
(1) Audit fees include fees for services rendered by Deloitte & Touche in
connection with their audit of the Company's consolidated financial
statements for the fiscal years ended December 31, 2002 and 2001, reviews
of the consolidated financial statements included in the Company's
quarterly reports on Form 10-Q or annual reports on Form 10-K during the
applicable fiscal year.
(2) Audit-related fees include fees for services rendered by Deloitte & Touche
for matters such as audits of employee benefit plans, responses to
accounting and reporting-related matters, and consultation for reviews of
employee benefits administration.
(3) Tax fees include fees for services rendered by Deloitte & Touche for tax
compliance, preparation of original and amended tax returns, claims for
refunds and tax payment-planning services.
(4) Deloitte & Touche did not perform nor bill the Company for any other
services during the fiscal years ended December 31, 2002 and 2001 that are
appropriately classified as "All Other Fees."
-16-
The Audit Committee considered whether the provision of non-audit services
by Deloitte & Touche is compatible with maintaining Deloitte & Touche's
independence with the Company.
OTHER MATTERS
The Company knows of no other matters to be submitted at the Annual
Meeting. If any other matter properly comes before the Annual Meeting, it is the
intention of the persons named in the enclosed proxy card to vote the shares
they represent as the Board of Directors may recommend.
STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company which are intended to be presented
by such stockholders at the Company's Annual Meeting for the fiscal year ending
December 31, 2003 must be received by the Company no later than December 22,
2003 in order that they may be considered for inclusion in the proxy statement
and form of proxy relating to that meeting. Additionally, if a stockholder
wishes to present to the Company an item for consideration as an agenda item for
a meeting without inclusion in the proxy statement, he must timely give notice
to the Secretary and give a brief description of the business desired to be
discussed. To be timely for the 2004 Annual Meeting, our bylaws require that
such notice must have been delivered to or mailed to and received by the Company
between 60 and 90 days prior to the 2004 Annual Meeting. If we do not publicly
announce our meeting date or give notice of our meeting date at least 70 days
before our 2004 Annual Meeting, shareholders may submit items for consideration
as agenda items until 5:00 pm on the 15th day after the public disclosure or
notice.
ANNUAL REPORT
A copy of the Company's 2002 Annual Report to Stockholders is enclosed. The
Annual Report to Stockholders is not a part of the proxy soliciting material
enclosed herewith. Upon the written request of any stockholder entitled to vote
at the Annual Meeting, the Company will furnish, without charge, a copy of the
Company's annual report on Form 10-K for the year ended December 31, 2002, as
filed with the Securities and Exchange Commission. Copies of exhibits to the
annual report on Form 10-K are also available upon specific request and payment
of 25 cents per page for reproduction plus $3.00 for postage and handling. All
requests should be directed to the Secretary of the Company at 1275 West
Washington, Tempe, Arizona 85281.
April 15, 2003 THE BOARD OF DIRECTORS
-17-
APPENDIX A
AUDIT COMMITTEE CHARTER
This charter shall be reviewed and updated annually and any change approved by
the board of directors.
ROLE
The audit committee of the board of directors assists the board in fulfilling
its responsibility for oversight of the quality and integrity of the accounting,
auditing and reporting practices of the corporation and other such duties as
described by the Securities and Exchange Commission (the "SEC"), the NASDAQ and
as directed by the board.
COMMITTEE MEMBERSHIP
The membership of the committee shall consist of at least three directors who
are generally knowledgeable in financial and auditing matters, including at
least one member who is a "financial expert" as defined by the rules of the SEC
and the NASDAQ. Each member must meet the independence requirements established
by the SEC and NASDAQ for audit committee members.
The board of directors shall appoint one member of the audit committee as
chairperson. He or she shall be responsible for leadership of the committee,
including preparing the agenda, presiding over the meetings, making committee
assignments and reporting to the board of directors. The chairperson will also
maintain regular communication with the CEO, CFO and the lead independent audit
partner.
RESPONSIBILITIES
The audit committee's primary responsibilities include:
* Appointment and dismissal of the independent auditor hired to audit
the financial statements of the corporation. In so doing, the
committee shall be directly responsible for the compensation and
oversight of the work of the independent auditor, including resolution
of disagreements between management and the independent auditor. The
independent auditor will report directly to the audit committee.
* Pre-approval of all auditing services and permitted non-auditing
services proposed to be performed by the independent auditor, subject
to the de minimus exceptions for non-audit services that were not
recognized as non-audit services at the time of engagement and which
are subsequently approved by the committee prior to completion of the
audit.
* Ensure the rotation of the lead audit partner having primary
responsibility for the audit as required by the SEC.
* To work with management to ensure the corporation does not hire, for
the position of CEO, CFO, controller, chief accounting officer or
other similar position, individuals who have been employees of the
independent auditor during the year period prior to the initiation of
the corporation's audit and were involved in any capacity in the
corporation's audit.
* Oversight of the independent auditor relationship by discussing with
the auditor the nature and rigor of the audit process, receiving and
reviewing audit reports, and providing the auditor full access to the
committee (and the board) to report on any and all appropriated
matters.
* Review of the audited financial statements, including related
disclosures made in the management's discussion and analysis, and
discussing them with management and the independent auditor. These
discussions shall include consideration of the quality of the
corporation's accounting principles as applied in its financial
reporting, including review of estimates, reserves and accruals,
review of critical accounting policies and judgmental areas, review of
audit adjustments whether or not recorded, review of the effects of
off-balance sheet structures on the corporation's financial
statements, discussion of any changes in the selection or application
of accounting principles and such other inquires as may be
appropriate. Based on the review, the committee shall make its audit
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recommendation to the board as to the inclusion of the corporation's
audited financial statements in the corporation's annual report on
Form 10-K.
* Reviewing, with management and the independent auditor, the quarterly
financial information prior to the corporation's filing of Form 10-Q
with regard to:
(a) All critical accounting policies and practices to be used.
(b) All alternative treatments of financial information within
generally accepted accounting principles that have been discussed
with management, ramifications of the use of such alternative
disclosures and treatments, and the treatment preferred by the
independent auditor.
(c) Other material written communications between the independent
auditor and management, such as any management letter or schedule
of unadjusted differences.
This review may be performed by the committee or its chairperson. The
committee will also include in its periodic reports a disclosure of
all non-audit services to be performed by the independent auditor.
* Reporting audit committee activities to the full board and issuing
annually a report to be included in the proxy statement for submission
to the shareholders.
* Review of disclosures made to the committee by the corporation's CEO
and CFO during the certification process for the corporation's
periodic reports about any material weaknesses or significant
deficiencies in the design or operation of internal controls.
* Discussing with management and the external auditors the quality and
adequacy of the corporation's internal controls.
* Review of disclosures made by the corporation's CEO and CFO describing
any fraud involving management or any other employees having a
significant role in the corporation's internal controls.
* Establish procedures for the receipt, retention and treatment of
complaints received by the corporation regarding accounting, internal
accounting controls or auditing matters.
* Establish procedures for the confidential receipt, retention and
treatment of anonymous submissions by employees of concerns regarding
questionable accounting or auditing matters.
* Review and approve all related party transactions.
The committee is expected to maintain free and open communication (including
private executive sessions at least annually) with the independent auditor and
the management of the corporation. In discharging this oversight role, the
committee is empowered to investigate any matter brought to its attention, with
full power to retain outside counsel or other experts for this purpose. The
corporation will provide appropriate funding for such engagements.
MEETINGS
The committee will hold periodic meetings and a minimum of one regular annual
review meeting. The President, Chief Executive Officer, Vice President of
Finance and/or Chief Financial Officer may attend any meeting of the committee,
except for portions of the meetings where his, her or their presence would be
inappropriate, as determined by the committee chairperson.
MINUTES AND REPORTS
Minutes of each meeting of the committee shall be kept and distributed to each
member of the committee, members of the board of directors who are not members
of the committee and the secretary of the corporation. The chairperson of the
committee shall report to the board of directors from time to time, or whenever
so requested by the board of directors.
GENERAL
The powers of the committee shall be limited, and all activities of the
committee shall be governed by the provisions of the bylaws of the corporation.
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ORTHOLOGIC CORP.
PROXY
2003 ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Thomas R. Trotter and Sherry A. Sturman,
and each or either of them, as Proxies, with full power of substitution, to
represent and to vote, as designated below, all shares of Stock which the
undersigned is entitled to vote at the Annual Meeting of Stockholders of
OrthoLogic Corp. to be held on May 29, 2003, or any adjournment thereof, hereby
revoking any proxy previously given.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE NOMINEES AND FOR PROPOSALS 1 and 2.
(Continued and to be dated and signed on the reverse side.)
ORTHOLOGIC CORP.
P.O. BOX 11365 NEW
YORK, N.Y.
10203-0365
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1. ELECTION OF CLASS III DIRECTORS for terms expiring in the year 2006
FOR all nominees listed below (except as marked to the contrary below) [ ]
WITHHOLD AUTHORITY to vote for all nominees listed below [ ]
Nominees: Stuart H. Altman, Ph.D. and Elwood D. Howse, Jr.
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark
the "For" box and write the nominee's name on the exceptions line below.)
Exceptions _____________________________________________________________________
2. PROPOSAL TO RATIFY AND APPROVE THE APPOINTMENT OF DELOITTE & TOUCHE LLP
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment
thereof, all as set forth in the Notice and Proxy Statement relating to
this meeting, receipt of which is hereby acknowledged.
Change of Address and
or Comments Mark Here [ ]
Please sign exactly as name appears to the left.
Where shares are held by more than one owner, all
should sign. When signing as an attorney,
executor, administrator, trustee or guardian,
please give full title as such. If a corporation,
please sign in corporate name by President or
authorized officer. If a partnership, please sign
in partnership name by authorized person.
Dated: _____________________________________, 2003
__________________________________________________
Signature
Votes must be indicated in Black or Blue ink.
(Please sign, date and return this proxy in the enclosed postage prepaid
envelope.)