UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
______________________
SCHEDULE
14A
PROXY
STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE
ACT OF 1934
Filed
by
the Registrant x
Filed
by
a party other than the Registrant o
Check
the
appropriate box:
o
Preliminary proxy statement.
o
Confidential, for use of the Commission only (as permitted by Rule 14a-6(e)(2)).
x
Definitive proxy statement.
o
Definitive additional materials.
o
Soliciting material pursuant to §240.14a-12.
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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 the
Registrant)
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Payment
of filing fee (check the appropriate box):
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No
fee required.
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| o |
Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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1)
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Title
of each class of securities to which transaction applies:
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2)
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Aggregate
number of securities to which transaction applies:
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3)
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Per
unit price or other underlying value of transaction computed pursuant
to
Exchange Act Rule 0-11 (set forth the
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4)
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Proposed
maximum aggregate value of transaction:
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5)
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Total
fee paid:
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Fee
paid previously with preliminary
materials.
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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.
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1)
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Amount
Previously Paid:
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2)
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Form,
Schedule or Registration Statement No.:
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3)
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Filing
Party:
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4)
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Date
Filed:
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1275
West
Washington Street
Tempe,
Arizona 85281
NOTICE
OF
ANNUAL MEETING OF STOCKHOLDERS
To
Be
Held Thursday, May 10, 2007
TO
THE
STOCKHOLDERS:
The
Annual Meeting of Stockholders of OrthoLogic Corp., a Delaware corporation
(the
“Company”), will be held on Thursday, May 10, 2007 at 8:00 a.m., local time, at
the offices of the Company at 1275 West Washington Street, Tempe, Arizona
85281,
for the following purposes:
(1) To
elect
a director as a Class I director to serve until the Annual Meeting of
Stockholders to be held in the year 2010 or until a successor is
elected;
(2) To
ratify
the appointment of Ernst & Young LLP, as the Company’s independent
registered public accounting firm for the fiscal year ending December 31,
2007;
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 Monday, March 26, 2007 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 2006 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/
John
M. Holliman, III
John
M.
Holliman, III
Executive
Chairman
Tempe,
Arizona
April
13,
2007
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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.
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OrthoLogic
Corp.
PROXY
STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO
BE HELD THURSDAY, MAY 10, 2007
TABLE
OF CONTENTS
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1275
West
Washington Street
Tempe,
Arizona 85281
PROXY
STATEMENT
ANNUAL
MEETING OF STOCKHOLDERS
To
Be Held Thursday, May 10, 2007
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 Thursday, May 10, 2007, at 8:00 a.m.,
local time, or any adjournment thereof (the “Annual Meeting”) at the offices of
the Company at 1275 West Washington Street, 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 of the Company
(the
“Board”) 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 13, 2007.
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 executive offices of the Company is 1275
West
Washington Street, Tempe, Arizona 85281.
VOTING
SECURITIES AND PRINCIPAL HOLDERS THEREOF
Only
stockholders of record at the close of business on March 26, 2007 (the “Record
Date”) will be entitled to vote at the Annual Meeting. On the Record Date, there
were issued and outstanding 41,594,491 shares of the Company’s 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 nominee
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 a director.
Abstentions and broker non-votes will not be taken into account in determining
the outcome of the election. 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. Abstentions
have the effect of negative votes. Stockholders
are not entitled to any dissenter’s or appraisal rights under Delaware law or
the Company’s Restated Certificate of Incorporation for the proposals set forth
in this Proxy Statement.
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 9, 2007 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, (iii) each of
the named executive officers and (iv) all directors and executive officers
of
the Company as a group.
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Shares
Beneficially
Owned
(1)
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Identity
of Stockholder or Group
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Number
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Percent
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Michael
D. Casey (2)
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106,612
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*
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Fredric
J. Feldman (3)
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308,462
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*
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John
M. Holliman, III (4)
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412,937
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*
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Elwood
D. Howse (5)
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260,256
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*
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William
M. Wardell (6)
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49,690
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*
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Augustus
A. White III (7)
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325,343
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*
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Randolph
C. Steer (8)
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121,965
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*
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Les
M. Taeger (9)
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125,625
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*
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Dana
B. Shinbaum (10)
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113,438
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*
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James
T. Ryaby (11)
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304,901
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*
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James
M. Pusey (12)
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170,469
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*
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Sherry
A. Sturman
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22,000
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*
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All
directors and executive officers as a group
(13)
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2,321,698
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5.3
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________________________________
*
Less
than one percent
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(1)
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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.
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(2)
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Includes
95,000 shares Mr. Casey has a right to acquire upon exercise of
stock
options.
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(3)
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Includes
210,000 shares Dr. Feldman has a right to acquire upon exercise
of stock
options. Voting and investment power shared with
spouse.
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(4)
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Includes
321,667 shares Mr. Holliman has a right to acquire upon exercise
of stock
options, 3,000 shares indirectly owned as trustee, 1,658 shares
indirectly
owned as trustee of Valley Ventures III,
LP
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(5)
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Includes
200,000 shares Mr. Howse has a right to acquire upon exercise of
stock
options.
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(6)
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Includes
45,000 shares Dr. Wardell has a right to acquire upon exercise
of stock
options.
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(7)
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Includes
210,000 shares Dr. White has a right to acquire upon exercise of
stock
options.
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(8)
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Includes
96,667 shares Dr. Steer has a right to acquire upon exercise of
stock
options.
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(9)
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Includes
115,625 shares Mr. Taeger has a right to acquire upon exercise
of stock
options.
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(10)
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Includes
98,438 shares Mr. Shinbaum has a right to acquire upon exercise
of stock
options.
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(11)
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Includes
282,001 shares Dr. Ryaby has a right to acquire upon exercise of
stock
options.
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(12)
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Includes
170,469 shares Dr. Pusey has a right to acquire upon exercise of
stock
options.
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(13)
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Includes
1,844,867 shares directors and executive officers have a right
to acquire
upon exercise of stock options.
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PROPOSAL
1: ELECTION OF DIRECTOR
One
director is to be elected at the Annual Meeting to serve as a Class I director
until the Annual Meeting of Stockholders to be held in the year 2010 or until
his respective successor is elected. Unless otherwise instructed, the proxy
holders will vote the Proxies received by them FOR the Company’s nominee Fredric
J. Feldman, Ph.D. Dr. Feldman is currently a director of the Company. The
nominee 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 a
director. Only affirmative votes are relevant in the election of
directors.
Pursuant
to the Company’s Restated Certificate of Incorporation, the Board of Directors
is classified into three classes, with each class holding office for a
three-year period. The Restated 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
name
of the nominee 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 The Named Nominee
INFORMATION
CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
Nominee
for Class I Director Whose Term Will Expire at the Annual Meeting Held in
the
Year 2010
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Fredric
J. Feldman, Ph.D. (1)
(2)
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Director
since 1991
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Fredric
J. Feldman, Ph.D., 66, 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. 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 has been a
director of a number of public and private companies involved in the healthcare
industry.
Class
II Directors Whose Terms Will Expire at the 2008 Annual
Meeting:
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John
M. Holliman, III (1)
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Director
since 1987
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John
M.
Holliman, III, 53, became Executive Chairman and Principal Executive Officer
of
the Company on April 5, 2006 and has served as a director of the Company
since
September 1987 and as 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 venture capital funds that invest principally in life science companies
.
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Augustus
A. White III, MD, Ph.D.
(2) (4)
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Director
since 1993
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Dr.
White, 70, became a director of the Company in July 1993. He is the former
Master of the Oliver Wendell Holmes Society and currently the Ellen and Melvin
Gordon Professor of Medical Education and 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.
Class
III Directors Whose Terms Will Expire at the 2009 Annual
Meeting:
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Elwood
D. Howse, Jr. (1)(2)(3)
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Director
since 1987
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Elwood
D.
Howse, Jr., 67, has served as a director of the Company since September 1987.
In
1982, Mr. Howse founded Cable, Howse and Ragen, investment banking and stock
brokerage firm, now owned by Wells Fargo and known as Ragen MacKenzie. In
1977,
Mr. Howse co-founded Cable & Howse Ventures, an early stage venture capital
firm focused on technology. In 1976, he served as Vice President, Corporate
Finance, for Foster & Marshall, a northwest stock brokerage firm. In 1974 he
was the Chief Financial Officer of Seattle Stevedore Company and the Miller
Produce Company. Mr. Howse has served as a corporate director and advisor
to various public, private and non-profit enterprises. He served on the board
of
the National Venture Capital Association and is past President of the Stanford
Business School Alumni Association. He currently serves on the boards of
directors of BSQUARE Corporation (BSQR), Formotus, Inc., Perlego Systems
Inc.,
PowerTech Group, Inc., and not-for-profits, Junior Achievement Worldwide
and
Junior Achievement of Washington.
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William
M. Wardell, MD, Ph.D. (4)
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Director
since February 2006
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Dr.
Wardell, 68, was appointed by the OrthoLogic Board of Directors on February
11,
2006, to fill a vacancy (Class III) on the Board. He owns and operates the
consulting firm Wardell Associates International LLC in Princeton, NJ, where
he
specializes in drug development, regulatory approval, and safety for a range
of
pharmaceutical and biotechnology companies. Dr. Wardell has published over
one
hundred scientific papers and four books, and has testified as an expert
in drug
development during several Congressional hearings. Dr. Wardell has 22 years
of
experience in the healthcare industry, holding leadership positions as
President, Protein Engineering Corporation (now DYAX); Senior Vice President
of
Drug Development, Parke-Davis; Vice President and Medical Director, Boehringer
Ingelheim Pharmaceuticals; Senior Scientific Officer, Covance; and Executive
Director of the Covance Institute for Drug Development Sciences. During his
tenure at these companies, Dr. Wardell was responsible for 11 approved New
Drug
Applications. He previously served as an associate professor of Pharmacology,
Toxicology and Medicine, attending on the Clinical Pharmacology consultation
service of Strong Memorial Hospital at the University of Rochester Medical
Center, where he co-founded and directed the University’s Center for the Study
of Drug Development. Dr. Wardell earned his MA, PhD in pharmacology, and
MD at
the University of Oxford (UK), and was a Merck International Fellow in Clinical
Pharmacology and Medicine under Dr. Louis Lasagna at the University of Rochester
/ Strong Memorial Hospital. He currently serves on the Board of Directors
of
PhytoCeutica, Inc., the Scientific Advisory Board of Eleos, Inc., and the
Board
of the American Board of Clinical Pharmacology.
Class
I Director Whose Term Will Expire at the Annual Meeting of Stockholders on
May
10, 2007:
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Michael
D. Casey (3)
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Director
since 2004
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Michael
D. Casey, 61, became a director of the Company in January 2004, filling a
newly
created vacancy on the Board of Directors. Mr. Casey informed the OrthoLogic
Board of Directors on March 28, 2007, that he does not intend to seek
re-election to the Board at the Annual Meeting of Stockholders on May 10,
2007
due to personal and family commitments, and, accordingly, his term will expire
on that date.
******
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(1)
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Member
of the Executive Committee.
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(2)
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Member
of the Audit Committee.
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(3)
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Member
of the Compensation Committee.
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(4)
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Member
of the Corporate Governance/Nominating
Committee
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******
BOARD
MEETINGS AND COMMITTEES
The
Board
of Directors was composed of six outside directors. On April 5, 2006, Mr.
Holliman became Executive Chairman and Principal Executive Officer of the
Company and is no longer an independent director under NASD Marketplace Rule
4200(a)(15). The Board has determined that each director other than Mr. Holliman
is independent for purposes of Marketplace Rule 4200(a)(15) of the National
Association of Securities Dealers, Inc. (“NASD”). The Board of Directors held a
total of twelve meetings during the fiscal year ended December 31, 2006.
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. Currently, the Board of Directors does not have a policy
regarding director attendance at the Company’s annual meeting of stockholders.
All of the directors attended last year’s annual meeting of stockholders in
person.
Independent
directors regularly meet in executive sessions without the Executive Chairman
or
other members of management to review the criteria upon which the performance
of
the Executive Chairman is based, the performance of the Executive Chairman
against that criteria, to ratify the compensation of the Executive Chairman
as
approved by the Compensation Committee, and to discuss other relevant
matters.
The
Board
presently has an Executive Committee, an Audit Committee, a Compensation
Committee and a Corporate Governance/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.
During
2006 the Executive Committee did not meet separately as all matters were
discussed and acted on by the full Board.
Audit
Committee
The
Audit
Committee, which is a separately-designated standing committee established
in
accordance with section 3(a)(58)(A) of the Exchange Act, consisted of Mr.
Howse
(Chairman), Dr. White and Dr. Feldman and met five times in 2006. 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. 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 written charter that has been adopted by the Board of Directors.
The
Board
of Directors has determined that the composition of the Audit Committee,
the
attributes of its members and the responsibilities of the Audit Committee,
as
reflected in its charter, are in accordance with applicable NASD Marketplace
Rules for audit committees. In particular, all audit Committee members possess
the required level of financial literacy, at least one member of the Audit
Committee meets the current standard of requisite financial management expertise
and the Board of Directors has determined that Elwood D. Howse, Jr., the
Chairman of the Audit Committee, is an “audit committee financial expert” as
defined in Item 401(h) of Regulation S-K of the Securities and Exchange
Commission (the “SEC”). Additionally, Mr. Howse and each of the other members of
the Audit Committee is an “independent director” as defined in NASD Marketplace
Rule 4200(a)(15).
The
Audit
Committee Charter is available on the Company’s website at
www.orthologic.com.
Compensation
Committee
The
Compensation Committee, which consists of Mr. Casey and Mr. Howse, met three
times during 2006. Each member of the Compensation Committee is an “independent”
director as defined in NASD Marketplace Rule 4200(a)(15) and is an “outside
director” as defined in Section 162(m) of the Internal Revenue Code. 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 Compensation Committee does not have a written
charter.
Corporate
Governance/Nominating Committee
The
Corporate Governance/Nominating Committee examines and recommends nominations
for the Board of Directors and officers of the Company. The criteria prepared
by
the Corporate Governance/Nominating Committee are used to determine whether
the
selection of a particular nominee, either nominated by the Company or by
a
stockholder, would be appropriate. The Corporate Governance/Nominating Committee
operates under a written charter, a copy of which is posted on our website.
Although the Corporate Governance/Nominating Committee has not established
minimum standards for Board nominees, the Corporate Governance/Nominating
Committee generally seeks candidates with chief operating, executive or
financial officer experience in complex organizations; a commitment to give
the
time and attention to the duties required of them; and evidence of an
independent and inquiring mind willing to question management’s assumptions. On
an as needed basis, the Corporate Governance/Nominating Committee uses the
services of outside consultants to assist the Corporate Governance/Nominating
Committee to identify capable director candidates.
The
Corporate Governance/Nominating Committee consists of Dr. Wardell and Dr.
White.
Dr. Wardell and Dr. White are independent directors under NASD Marketplace
Rule
4200(a)(15 The Corporate Governance/Nominating Committee met one time during
2006. The Corporate Governance/Nominating Committee nominated Mr. Casey and
Dr.
Feldman for election as Class I directors for this year’s annual meeting of
stockholders.
Stockholder
Nomination of Director Candidates
The
Corporate Governance/Nominating Committee will consider for nomination as
a
director of the Company any director candidate recommended or nominated by
stockholders in accordance with the process outlined below.
Stockholders
wishing to recommend candidates for consideration by the Corporate
Governance/Nominating Committee may do so by providing the candidate’s name,
contact details, biographical data, and qualifications in writing to the
Corporate Governance/Nominating Committee, c/o Secretary, 1275 West Washington
Street, Tempe, Arizona 85281. The Board may change the process for the means
by
which stockholders may recommend director candidates to the Corporate
Governance/Nominating Committee. Please refer to the Company’s website at
www.orthologic.com and the Company’s SEC filings for any changes to this
process. The Company has not received any stockholder recommendations of
director candidates with regard to the election of directors covered by this
Proxy Statement or otherwise.
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 Street, Tempe, Arizona or by United States
mail, postage prepaid to Secretary, OrthoLogic Corp., 1275 West Washington
Street, 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
Company if elected. The chairman of the stockholders’ meeting may refuse to
acknowledge the nomination of any person not made in compliance with the
foregoing procedure.
Stockholder
Communications with Board
Stockholders
wishing to communicate with the Board of Directors or with a Board member
should
address communications to the Board or to the particular Board member, c/o
Secretary, 1275 West Washington Street, Tempe, Arizona 85281. All communications
sent in this manner to the Board members will be forwarded directly to the
Board. From time to time, the Board may change the process for the means
by
which stockholders may communicate with the Board or its members. Please
refer
to the Company’s website at www.orthologic.com for any changes to this process.
COMPENSATION
OF DIRECTORS
|
Name
|
Fees
Earned or Paid in
Cash
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan Compensation
($)
|
Change
in
Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings
($)
|
All
Other
Compensation
($)
|
Total
($)
|
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
|
Michael
D. Casey
Director
|
28,000
|
20,000
|
46,000
|
94,000
|
|||
|
Fredric
J. Feldman, Ph.D.
Director
|
28,000
|
20,000
|
46,000
|
94,000
|
|||
|
John
M. Holliman, III,
Executive
Chairman
|
28,000
|
20,000
|
174,000
|
133,000
|
355,000
|
||
|
Elwood
D. Howse,
Director
|
28,000
|
20,000
|
46,000
|
94,000
|
|||
|
William
M. Wardell, MD, Ph.D.
Director
|
28,000
|
8,000
|
48,000
|
78,000
|
162,000
|
||
|
Augustus
A. White, III,
MD,
Ph.D.
Director
|
28,000
|
20,000
|
46,000
|
94,000
|
During
the year ended December 31, 2006, the Company paid directors an annual retainer
of $24,000 payable quarterly in advance and $1,000 for each board meeting
attendance. All directors are eligible for the grant of nonqualified stock
options pursuant to the Company’s 1997 Stock Option Plan or 2005 Equity
Incentive Plan. On June 10, 2005, the Board of Directors approved an annual
award to each director of a non-qualified stock option to purchase 10,000
shares
of the Company’s common stock. The Company issued to each director non-qualified
options to acquire 10,000 shares at a price of $4.90 per share on January
1,
2006 (fair value of $25,000), and 10,000 shares at a price of $1.43 per share
on
January 1, 2007 (fair value of $11,000). Annual option grants are granted
on
January 1 of each year at the closing market price on the last trading day
of
the prior year. On May 12, 2006 the Board of Directors issued each director
non-qualified options to purchase 25,000 shares of the Company’s Common Stock at
$1.75 a share (fair value of $21,000). These options vested immediately and
were
granted at the market price on the date of grant. All options have been granted
with ten-year terms.
On
June
10, 2005 the Board of Directors also approved an annual award to each director
of $25,000 of restricted stock. The shares granted vest one year from the
date
of issuance. The Board of Directors conditionally granted to each director
6,510
shares on June 10, 2005 and 5,102 shares on January 1, 2006, subject to
shareholder approval of the 2005 Equity Incentive Plan. On May 12, 2006 the
Company’s shareholders approved the 2005 Equity Incentive Plan and the
conditional grants became effective (fair value on May 12, 2006 of 11,612
shares
was $20,000) and all shares were fully vested at December 31, 2006. On January
1, 2007 the Board awarded 17,483 shares of restricted stock to each director,
which represents a fair value of $25,000, with the number of shares determined
by the closing price of the Company’s Common stock on the last trading day of
2006.
William
M. Wardell, MD, Ph.D, performed various regulatory related consulting services
for the Company during 2006 for which he was paid $78,000.
On
April
4, 2006, John M. Holliman, III, became Executive Chairman of the Company
and
subsequently entered into an agreement that provides for annual compensation
of
$200,000 and eligibility for an additional payment (bonus) of up to 40% of
the
annual compensation, to be determined assuming a fiscal year ending March
31,
2007.
On
May
12, 2006, John M. Holliman, III, Executive Chairman, was granted an option
to
purchase 200,000 shares of the Company’s common stock at $1.75 per share, the
closing market price on the date of grant. The options vest over a two-year
period and have a fair value of $196,000 on the date of grant. (See the
Executive Compensation Summary Compensation Table included in this proxy
statement for additional information.)
Director
Outstanding Equity Awards at Fiscal Year-End
|
Name
|
Option
Awards
|
|||||||||||||||
|
Number
of Securities Underlying Unexercised Options (#)
Exercisable
|
Number
of Securities Underlying Unexercised Options
(#)
Unexercisable
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options (#)
|
Options
Exercise Price ($)
|
Option
Expiration Date
|
||||||||||||
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)_
|
|||||||||||
|
Michael
D. Casey
|
40,000
|
7.40
|
1/23/2014
|
|||||||||||||
|
John
M. Holliman, III
|
20,000
|
3.58
|
|
8/24/2011
|
||||||||||||
|
*
|
58,333
|
141,667
|
1.75
|
5/12/2016
|
||||||||||||
|
|
|
|||||||||||||||
|
William
M. Wardell, MD, Ph.D.
|
10,000
|
5.33
|
2/11/2016
|
|||||||||||||
|
|
||||||||||||||||
|
Augustus
A. White, III, MD, Ph.D.
|
10,000
|
3.25
|
8/21/2008
|
|||||||||||||
|
|
||||||||||||||||
|
Various
directors:
|
||||||||||||||||
|
(2)
(3) (4) (6)
|
12,000
|
5.25
|
5/16/2007
|
|||||||||||||
|
(2)
(3) (4) (6)
|
13,000
|
5.38
|
10/17/2007
|
|||||||||||||
|
(2)
(3) (4) (6)
|
5,000
|
5.53
|
1/1/2008
|
|||||||||||||
|
(2)
(3) (4) (6)
|
5,000
|
3.34
|
12/31/2008
|
|||||||||||||
|
(2)
(3) (4) (6)
|
5,000
|
2.53
|
12/29/2009
|
|||||||||||||
|
(2)
(3) (4) (6)
|
5,000
|
2.44
|
12/15/2010
|
|||||||||||||
|
(2)
(3) (4) (6)
|
30,000
|
3.19
|
1/19/2011
|
|||||||||||||
|
(2)
(3) (4) (6)
|
25,000
|
3.93
|
10/26/2011
|
|||||||||||||
|
(2)
(3) (4) (6)
|
5,000
|
4.89
|
12/31/2011
|
|||||||||||||
|
(2)
(3) (4) (6)
|
10,000
|
3.61
|
12/31/2012
|
|||||||||||||
|
(2)
(3) (4) (6)
|
10,000
|
6.13
|
12/31/2013
|
|||||||||||||
|
(2)
(3) (4) (6)
|
30,000
|
7.40
|
1/23/2014
|
|||||||||||||
|
(2)
(3) (4) (6)(1)
|
10,000
|
6.25
|
12/31/2014
|
|||||||||||||
|
(2)
(3) (4) (6)(1)
|
10,000
|
4.90
|
1/2/2016
|
|||||||||||||
|
(2)
(3) (4) (6)(1)(5)
|
25,000
|
1.75
|
5/12/2016
|
|||||||||||||
|
Casey,
Michael (1)
|
*
Vest monthly over a two-year period ending 5/12/08
|
||||
|
Feldman,
Fred (2)
|
All
other directors options were fully vested on 12/31/2006
|
||||
|
Holliman,
John (3)
|
|||||
|
Howse,
Elwood (4)
|
|||||
|
Wardell,
William (5)
|
|||||
|
White,
Augustus (6)
|
|||||
Executive
Officers
The
following table sets forth information regarding our executive
officers:
|
Name
|
Title
|
|
|
Age
|
||
|
John
M. Holliman, III
|
53
|
Executive
Chairman and Principal Executive Officer
|
|
Randolph
C. Steer, MD, Ph.D.
|
57
|
President
|
|
Les
M. Taeger
|
56
|
Senior
Vice President and Chief Financial Officer
|
|
Dana
B. Shinbaum
|
44
|
Vice
President, Business Development
|
|
James
T. Ryaby, Ph.D.
|
48
|
Senior
Vice President and Chief Scientific Officer (resigned effective
November
17, 2006)
|
|
James
M. Pusey, MD
|
48
|
President
and Chief Executive Officer (resigned April 5, 2006)
|
|
Sherry
A. Sturman
|
42
|
Senior
Vice President and Chief Financial Officer (resigned January 16,
2006)
|
OrthoLogic
announced the resignation of its Chief Financial Officer, Sherry A. Sturman,
and
the hiring of its new Chief Financial Officer, Les M. Taeger, effective January
16, 2006. Effective January 16, 2006 Ms. Sturman began a two-year transition
period per the terms of her employment agreement leading to the termination
of
her employment with the Company. On April 5, 2006 the Company announced the
resignation of its Chief Executive Officer, Dr. James M. Pusey. Effective
April
5, 2006, John M. Holliman, III, Chairman of the Board, assumed certain duties
of
the Chief Executive Officer and Randolph C. Steer assumed the duties of the
President. On November 22, 2006 the Company announced the resignation of
its
Senior Vice President and Chief Scientific Officer, James T. Ryaby, Ph.D.
John
M.
Holliman, III, became Executive Chairman and Principal Executive Officer
of the
Company on April 5, 2006 and has served as a director of the Company since
September 1987 and as 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 venture capital funds that invest principally in life science companies.
Randolph
C. Steer, MD, Ph.D., became President of the Company on April 5, 2006. Dr.
Steer
has been an independent pharmaceutical, biotechnology and medical devices
consultant since 1989, and has provided consulting services to OrthoLogic
since
2002. He has a broad scientific, medical and business background, including
extensive experience in pre-clinical, clinical and regulatory affairs, having
held key management positions in leading corporations and having served as
an
advisor to many companies in the United States and abroad. Dr. Steer has
also
advised numerous venture capital firms, investment banks and independent
investors on the commercial development of drugs, biologics, diagnostics
and
medical devices. He has served as Associate Director of Medical Affairs at
Marion Laboratories; Medical Director at Ciba Consumer Pharmaceuticals
(Ciba-Geigy Corporation); Vice President, Senior Vice President and Member
of
the Executive Committee at Physicians World Communications Group; Chairman,
President and Chief Executive Officer of Advanced Therapeutics Communications
International, a global drug regulatory group, and Chairman and Chief Executive
Officer of Vicus.com, Inc. He is a member of the Board of Directors of Techne
Corporation and BioCryst Pharmaceuticals. Dr. Steer received his MD degree
from
the Mayo Medical School and his Ph.D. from the University of Minnesota, where
he
also completed a residency and subspecialty fellowship in clinical and chemical
pathology. He is a Fellow of the American College of Clinical
Pharmacology.
Les
M.
Taeger joined OrthoLogic as Senior Vice President and Chief Financial Officer
on
January 16, 2006. Mr. Taeger most recently served as Chief Financial Officer
of
CardioTech International, Inc. (“CardioTech”). CardioTech is a publicly-traded,
medical device company that develops, manufactures and sells advanced products
for the treatment of cardiovascular disease. From September, 2000 to February,
2004, when Mr. Taeger became Chief Financial Officer of CardioTech, Mr. Taeger
served as Chief Financial Officer of Gish Biomedical, Inc. (“Gish”). Gish, now a
subsidiary of CardioTech pursuant to a merger transaction involving the
companies in April, 2003, specializes in the manufacture and sale of products
used in open-heart surgery, vascular access and orthopedic surgery. Prior
to his
employment with CardioTech and Gish, Mr. Taeger was employed for over five
years
as Chief Financial Officer of Cartwright Electronics, Inc., a division of
Meggitt, PLC. Mr. Taeger is a Certified Public Accountant, with a Bachelor
degree in accounting.
Dana
B.
Shinbaum joined OrthoLogic as Vice President of Business Development in October
2005. Previously he served as Vice President, Product Planning and Market
Analytics at Savient Pharmaceuticals, Inc., and has over seventeen years
of
experience in the pharmaceutical/biotechnology industry. While at Savient
his
responsibilities included creating and developing new business opportunities,
leading global project teams and managing product launches. He played key
strategic planning roles in Savient’s acquisition of Rosemont Pharmaceuticals
Ltd. and the divestiture of Bio-Technology General Ltd., Savient’s global
biologics business. Prior to joining Savient, Mr. Shinbaum was at Wyeth-Ayerst
Laboratories, where he served in a variety of market planning and marketing
roles, including Product Manager for the PREMARIN® franchise. Mr. Shinbaum
received a Master of Business Administration, summa
cum laude,
from
Drexel University in Philadelphia and a Bachelor of Arts degree from Lafayette
College in Easton, Pennsylvania.
James
T.
Ryaby, Ph.D., (departed Executive) joined OrthoLogic as Director of Research
in
1991, became Vice President of Research in 1997 and was promoted to Senior
Vice
President and Chief Technology Officer in early 2003.
James
M.
Pusey, MD (departed Executive), joined OrthoLogic as President and Chief
Executive Officer on March 15, 2005.
Sherry
A.
Sturman (departed Executive) joined OrthoLogic as Director of Finance in
October
1997 and began serving as the Vice President of Administration and Chief
Financial Officer in June 2000, and was promoted to Senior Vice President
in
early 2003.
EXECUTIVE
COMPENSATION
COMPENSATION
DISCUSSION AND ANALYSIS
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. The Company used base salary,
cash bonuses, restricted stock and stock options to achieve these objectives.
Review
of
Current Compensation Components of Executive Chairman and other Executive
Officers
The
Compensation Committee reviews all components of the Executive Chairman’s and
other executive officers’ compensation, including salary, bonus, restricted
stock, accumulated vested and unvested stock options, the dollar value to
the
executive and cost to the company of all perquisites and other personal
benefits, as well as the actual projected payout obligations under several
potential severance and change-in-control scenarios and any limitations on
the
deductibility for federal income tax purposes of all compensation. Documentation
is provided to the Compensation Committee consisting of the
following:
| 1) |
Each
Executive has individual performance goals for the fiscal
year.
The Compensation Committee reviews the performance goals and expectations
for individual executive positions. Based on recommendations from
the
Executive Chairman and the Compensation Committee’s evaluation of the
performance achievement of these goals, the Compensation Committee
determines the resulting bonus and/or changes to salary components
for the
executive officers. The Executive Chairman also recommends individual
performance objectives for himself for each fiscal year. The Compensation
Committee approves the performance objectives of the Executive
Chairman
and evaluates the Executive Chairman’s performance measured against these
objectives and evaluates and formulates any potential changes in
compensation accordingly.
|
| 2) |
The
Company’s performance is compared against the goals for the fiscal
year.
Strategic, high level performance expectations are identified each
fiscal
year for the Company. The Executive Chairman provides documentation
to the
Compensation Committee regarding the expectations and corresponding
results of operations.
|
| 3) |
The
level of compensation for executives in similar positions for companies
of
similar size and development structure is used as a
benchmark.
To enable the Company to continue to attract and retain executives
in the
competitive marketplace, executive compensation for similar companies
is
reviewed annually. The Company typically obtains this data through
a
review of publicly available executive compensation information
for
comparable public companies listed on the Nasdaq Global Market
and through
purchased survey data tailored to the industry and size of the
Company.
|
The
Compensation Committee’s Conclusion
Based
on
the review detailed above, the Compensation Committee, at its meeting held
at
the beginning of the fiscal year, formulates its recommendations regarding
what
areas of the compensation components will be adjusted for the upcoming year
and
what the performance bonus for the prior year will be.
Board
Approval
At
the
first Compensation Committee meeting of the year, the Compensation Committee
reviews the Executive Chairman and other executive officers’ compensation and
bonuses and presents its recommendations to the Board of Directors. The final
total compensation package decision regarding the Executive Chairman is made
by
the Independent Directors in an Executive Session without the Executive Chairman
or other members of management present, and the final decisions on other
executives’ total compensation packages are made by the full Board of Directors.
The
following discussion is provided to facilitate stockholder understanding
of the
Named Executive Officer compensation information included with this proxy
statement. Overall our compensation decisions are framed by the nature of
our
business as a development stage pharmaceutical company with the need for
highly
specialized and talented individuals. Our compensation policies are designed
to
take into account the fact that the competition for executives is with all
sizes
of pharmaceutical firms and must factor in not just comparable compensation,
including health care, retirement or other traditional executive benefits,
but
issues such as location and position stability. We operate in Tempe, Arizona,
a
relatively small market for biotechnology, and in a field with substantial
product development risks, with no current revenue and limited funds.
ANNUAL
BASE COMPENSATION AND CASH BONUS
As
previously mentioned, each executive officer receives a base salary and a
cash
bonus which is based on performance against both Company and individual
performance goals. We have established base salaries which we feel are
comparable to other biotechnology firms and with the potential cash bonus,
provide for a reasonable level of cash-based compensation to the executives.
Base compensation in 2006 ranged from $368,000 for Dr. Pusey (resigned April
5,
2006) to $227,000 for Mr. Taeger. In 2006 the bonus potential ranged from
50% of
base salary for Dr. Pusey to 40% for Mr. Shinbaum. The bonus plan placed
25-30%
of the executive’s cash compensation at risk, which we believe is a reasonable
level of risk for cash-based compensation. In 2006, performance for the bonus
plan was weighted 70% towards Company goals and 30% towards individual goals.
Company and individual goals included a combination of operating, such as
timely
completion of clinical or pre-clinical tasks and performance against our
strategic plan, financial, such as performance to budget or generation of
unbudgeted cost savings, and administrative, such as maintaining compliance
with
Securities and Exchange Commission rules, regulations and reporting
requirements. We believe that the cash compensation at risk and the performance
goals of the 2006 bonus plan serve to align our executive’s interests with our
interests and focus their efforts where we believe they have the potential
to
achieve performance we have identified as important to accomplishing objectives
necessary to advance our development efforts.
The
disclosed bonus compensation for 2006 for Dr. Pusey and Mr. Shinbaum include
negotiated amounts which were part of our employment offer to them in 2005.
Such
amounts were determined based on the position and competitive factors at
the
time of the offers.
Equity
Based Compensation
As
previously discussed, we provide a certain level of cash compensation to
each
executive as both a short-term reward and to focus executive performance
on
short-term goals that are part of our long-term strategies. Additionally,
we use
a combination of stock option grants and stock awards, both during the
employment offer process and annually, to generate a commitment to and a
long-term investment in our company. Grants and awards connected with employment
offers were determined based on the position and competitive factors at the
time
of the offers.
Stock
Option Grants
As
part
of our long-term incentives we grant options to purchase shares of our common
stock to our executives. Grants to our executives under our compensation
plan
ranged from options to purchase 50,000 shares for Dr. Pusey to options to
purchase 35,000 shares for Mr. Shinbaum. Grants are targeted such that an
annual
$1 increase in market price, currently an annual $42,000,000 increase in
shareholder value, would provide approximately 10% of the executive’s
compensation. We believe grants at these levels serve to gradually increase
our
executive’s commitment to our company and align their interests with other
stockholders of the company.
Stock
option compensation in 2006 for Mr. Holliman and Dr. Steer relate to grants
negotiated as part of our offers to them to assume the duties of Executive
Chairman and President, respectively, in April 2006, upon the resignation
of our
CEO Dr. Pusey.
On
March
15, 2006, the Company reported results of an analysis of data from its Phase
3
clinical trial of the novel synthetic peptide Chrysalin®
(TP508)
in unstable, displaced distal radius (wrist) fractures. Subsequent to the
release of the results we experienced a significant decline in our stock
price
which greatly diminished the value of the past long-term incentive grants
and
awards. In order to strengthen the alignment of our executives interests
with
our shareholders interests during what we believe is a critical period in
our
development efforts, in June 2006, we granted our executives non-qualified
stock
options to purchase, from 200,000 (Dr. Pusey) to 150,000 (other executives),
shares of our common stock, with the options vesting monthly over two years.
These grants were not part of our annual compensation plan and were separately
determined to be an important step in reestablishing a competitive long-term
compensation component to our executive compensation plan.
Stock
Awards
In
2006
there were no stock awards for executive performance. The disclosed compensation
relates to awards made in 2005 to Dr. Ryaby and Ms. Sturman and to Dr. Pusey
and
Mr. Shinbaum for awards negotiated as part of our employment offers to them
in
2005, on which the performance conditions were achieved in 2006.
We
believe stock awards are an important element in our compensation plan, however
in 2006 we made no stock awards due to the previously discussed additional
stock
option grant to executives in June 2006. Future awards may be made and are
targeted to comprise approximately 10% of total executive compensation and
will
be a fixed dollar amount award with the number of shares determined by the
closing market price on the date prior to the date of grant. Given the
compensation levels of our executives we believe awards at these levels serve
to
gradually increase our executive’s commitment to our company and align their
interests with other stockholders of the company.
Fringe Benefits, Perquisites and Retirement Benefits
Our
executives participate in group health, dental, life, and disability programs
and participate in our 401K plan on the same basis as other employees. No
perquisites are provided to executives that are not provided to other employees
or that in aggregate exceed $10,000 per year.
As
part
of our employment offer to Dr. Pusey in 2005, we agreed to annually reimburse
Dr. Pusey for up to $30,000 in personal travel expenses. In 2006 Dr. Pusey
was
reimbursed $14,000 for personal travel expenses.
REPORT
OF THE COMPENSATION COMMITTEE OF THE BOARD OF
DIRECTORS
The
Compensation Committee of the Company’s Board of Directors (the “Compensation
Committee”) recommends the compensation of the Executive Chairman and President
to the Board and reviews and approves the design, administration and
effectiveness of compensation programs for other key executive officers,
including salary, cash bonus levels, other perquisites and stock awards or
option grants under the Company’s stock option plans. The Compensation Committee
has reviewed and discussed the Compensation Discussion and Analysis with
management, and based on this review and discussion, the Compensation Committee
recommended to the Board of Directors that the Compensation Discussion and
Analysis be included in this proxy statement.
Compensation
Committee during 2006:
Michael
D. Casey
Elwood
D.
Howse, Jr.
Fredric
J. Feldman, Ph.D. (replaced by Mr. Casey on August 24, 2006)
COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
During
2006, Fredric J. Feldman, Ph.D., Michael D. Casey and Elwood D. Howse, Jr.,
each
an independent director, served on the Compensation Committee of the Board
of
Directors. Dr. Feldman was replaced on the Compensation Committee by Mr.
Casey
on August 24, 2006.
Summary
Compensation Table
The
following table sets forth, with respect to the year ended December 31, 2006
compensation awarded to, earned by or paid to the Company’s named executive
officers.
|
Name
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Change
in Pension Value and Nonqualified Deferred Compensation
Earnings
($)
|
All
Other
Compensation
($)
|
Total
($)
|
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
|
John
M. Holliman, III
Executive
Chairman
|
2006
|
133,000
|
20,000
|
174,000
|
28,000
(1)
|
355,000
|
|||
|
Randolph
C. Steer, MD, Ph.D.
President
|
2006
|
200,000
|
174,000
|
66,000
(2)
|
440,000
|
||||
|
Les
M. Taeger
Chief
Financial Officer
|
2006
|
198,000
|
86,000
|
351,000
|
635,000
|
||||
|
Dana
B. Shinbaum
VP
Business Development
|
2006
|
227,000
|
107,000
|
26,000
|
187,000
|
547,000
|
|||
|
James
M. Pusey,
MD
|
2006
|
197,000
|
188,000
|
426,000
|
487,000
|
14,000
(3)
|
1,312,000
|
||
|
Sherry
A. Sturman
|
2006
|
173,000
|
35,000
|
208,000
|
|||||
|
James
T. Ryaby,
Ph.D.
|
2006
|
196,000
|
35,000
|
151,000
|
70,000
(4)
|
452,000
|
|
(1)
|
Mr.
Holliman is a member of the Board of Directors and received $28,000
in
Board fees in 2006.
|
|
(2)
|
Prior
to becoming an employee, Dr. Steer performed consulting services
for the
Company for which he was paid $66,000 in
2006.
|
|
(3)
|
Dr.
Pusey’s employment agreement provided for reimbursement of personal travel
expenses up to $30,000 per year. Prior to his resignation on April
5,
2006, Dr. Pusey had been reimbursed $14,000 for personal travel
expenses.
|
|
(4)
|
On
November 12, 2006, Dr. Ryaby resigned his position as Senior Vice
President and Chief Scientific Officer and entered into a consulting
agreement with the Company that provided for an initial payment
of $40,000
and monthly consulting fees of
$21,000.
|
Option
GRANTS / STOCK AWARDS
The
following table sets forth information about stock option grants and stock
awards during the last fiscal year to the executive officers named in the
Summary Compensation Table.
Grants
of Plan-based Awards
|
Name
|
Grant
Date
|
All
Other Stock
Awards:
Number
of Shares
of
Stock
or
Units
(#)
|
All
Other Option
Awards:
Number of Securities
Underlying
Options
(#)
|
Exercise
or Base Price of Option Awards
($/Share)
|
Grant
Date Fair Value of Stock and Option Awards (1)
($)
|
|
(a)
|
(b)
|
(i)
|
(j)
|
(k)
|
(l)
|
|
John
M. Holliman, III
Executive
Chairman
|
1/1/06
5/12/06
5/12/06
5/12/06
|
11,612
|
10,000
25,000
200,000
|
4.90
1.75
1.75
|
25,000
21,000
196,000
20,000
|
|
Randolph
C. Steer, MD, Ph.D.
President
|
5/12/06
|
200,000
|
1.75
|
196,000
|
|
|
Les
M. Taeger
Chief
Financial Officer
|
1/16/06
6/2/06
|
150,000
150,000
|
5.15
1.70
|
482,000
143,000
|
|
|
Dana
B. Shinbaum
VP
Business Development
|
1/30/06
6/2/06
5/12/06
|
15,000
|
35,000
150,000
|
5.39
1.70
|
119,000
143,000
26,000
|
|
James
M. Pusey, MD
|
2/11/06
|
50,000
|
5.33
|
168,000
|
|
|
Sherry
A. Sturman
|
5/12/06
|
20,000
|
35,000
|
||
|
James
T. Ryaby, Ph.D.
|
1/30/06
6/2/06
5/12/06
|
20,000
|
35,000
150,000
|
5.39
1.70
|
119,000
143,000
35,000
|
(1)
Fair
value of the grants at the date of the grants was determined using the
Black-Scholes model as described in Note 8 to our Annual Report on Form 10-K
filed with the Securities and Exchange Commission on March 14,
2007.
Outstanding
Equity Awards at Fiscal
Year-End
|
Name
|
Option
Awards
|
|||||||||||||||
|
Number
of Securities Underlying Unexercised Options (#)
Exercisable
|
Number
of Securities Underlying Unexercised Options (#)
Unexercisable
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options (#)
|
Option
Exercise Price ($)
|
Option
Expiration Date
|
||||||||||||
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)_
|
|||||||||||
|
John
M. Holliman, III
|
||||||||||||||||
|
12,000
|
5.25
|
5/16/2007
|
||||||||||||||
|
13,000
|
5.38
|
10/17/2007
|
||||||||||||||
|
5,000
|
5.53
|
1/1/2008
|
||||||||||||||
|
5,000
|
3.34
|
12/31/2008
|
||||||||||||||
|
5,000
|
2.53
|
12/29/2009
|
||||||||||||||
|
5,000
|
2.44
|
12/15/2010
|
||||||||||||||
|
30,000
|
3.19
|
1/19/2011
|
||||||||||||||
|
20,000
|
3.58
|
8/24/2011
|
||||||||||||||
|
25,000
|
3.93
|
10/26/2011
|
||||||||||||||
|
5,000
|
4.89
|
12/31/2011
|
||||||||||||||
|
10,000
|
3.61
|
12/31/2012
|
||||||||||||||
|
10,000
|
6.13
|
12/31/2013
|
||||||||||||||
|
30,000
|
7.40
|
1/23/2014
|
||||||||||||||
|
10,000
|
6.25
|
12/31/2014
|
||||||||||||||
|
10,000
|
4.90
|
1/2/2016
|
||||||||||||||
|
25,000
|
1.75
|
5/12/2016
|
||||||||||||||
|
**
|
58,333
|
141,667
|
1.75
|
5/12/2016
|
||||||||||||
|
Randolph
C. Steer, MD, Ph.D.
|
5,000
|
5.94
|
1/30/2008
|
|||||||||||||
|
**
|
58,333
|
141,667
|
1.75
|
5/12/2016
|
||||||||||||
|
Les
M. Taeger ***
|
34,375
|
115,625
|
5.15
|
1/16/2016
|
||||||||||||
|
**
|
37,500
|
112,500
|
1.70
|
6/2/2016
|
||||||||||||
|
Dana
B. Shinbaum
|
14,583
|
35,417
|
3.27
|
10/29/2015
|
||||||||||||
|
*
|
0
|
35,000
|
5.39
|
1/30/2016
|
||||||||||||
|
**
|
37,500
|
112,500
|
1.70
|
6/2/2016
|
||||||||||||
|
Number
of Securities Underlying Unexercised Options (#)
Exercisable
|
Number
of Securities Underlying Unexercised Options (#)
Unexercisable
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options (#)
|
Option
Exercise Price ($)
|
Option
Expiration Date
|
||||||||||||
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)_
|
|||||||||||
|
James
M. Pusey, MD
|
24,375
|
5.31
|
4/5/2008
|
|||||||||||||
|
103,125
|
5.88
|
4/5/2008
|
||||||||||||||
|
42,969
|
5.88
|
4/5/2008
|
||||||||||||||
|
James
T. Ryaby, Ph.D.
|
15,000
|
6.00
|
2/21/2007
|
|||||||||||||
|
100
|
4.94
|
8/15/2007
|
||||||||||||||
|
2,000
|
5.38
|
10/17/2007
|
||||||||||||||
|
35,000
|
5.00
|
7/1/2008
|
||||||||||||||
|
3,750
|
3.63
|
1/22/2009
|
||||||||||||||
|
100
|
3.53
|
1/21/2010
|
||||||||||||||
|
3,750
|
3.53
|
1/21/2010
|
||||||||||||||
|
85,000
|
4.56
|
5/19/2010
|
||||||||||||||
|
300
|
3.93
|
10/26/2011
|
||||||||||||||
|
30,000
|
3.50
|
11/11/2012
|
||||||||||||||
|
42,000
|
3.28
|
3/5/2013
|
||||||||||||||
|
271
|
229
|
5.90
|
10/22/2014
|
|||||||||||||
|
*
|
0
|
35,000
|
5.39
|
1/30/2016
|
||||||||||||
|
**
|
37,500
|
112,500
|
1.70
|
6/2/2016
|
||||||||||||
*
Vesting
four years - 25% year one and monthly thereafter
**
Vesting two years - monthly
***
Vesting four years - monthly
OPTION
EXERCISES AND STOCK VESTED
|
Option
Awards
|
Stock
Awards
|
|||
|
Name
|
Number
of Shares
Acquired
on Exercise
(#)
|
Value
Realized
on
Exercise
($)
|
Number
of Shares
Acquired
On Vesting
(#)
|
Value
Realized on
Vesting
($)
|
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
|
Dana
B. Shinbaum
|
15,000
|
26,000
|
||
|
James
M. Pusey, MD
|
100,000
|
230,000
|
||
|
James
T. Ryaby, Ph.D.
|
20,000
|
35,000
|
||
|
Sherry
A. Sturman
|
20,000
|
35,000
|
||
Employment
Contracts, Termination of Employment, and
Change-in-Control
Arrangements
The
Company hired Dr. James M. Pusey as Chief Executive Officer and Dr. Pusey
signed
an employment agreement with OrthoLogic on March 3, 2005, which provides
for a
minimum base salary of $350,000, which could be increased subject to annual
reviews, and allowed for Dr. Pusey’s participation in a discretionary bonus
program, which provided for a bonus of up to 50% of his base salary. Dr.
Pusey
received a signing bonus of $125,000 and an additional bonus of $125,000
paid at
the one year anniversary of the commencement of his employment. In addition,
Dr.
Pusey’s employment agreement provided for the reimbursement of certain business,
relocation and travel expenses as well as the medical, dental and other fringe
benefits generally granted to the Company’s senior management. Under Dr. Pusey’s
employment agreement, Dr. Pusey could be terminated at any time, with or
without
cause, at the option of either the Company or Dr. Pusey. In the event that
Dr.
Pusey was terminated without cause, he would have been entitled to receive
12
months’ salary, payable at the rate in effect at the time of termination in the
ordinary course of business as if Dr. Pusey was continuing as an employee
of the
Company.
On
March
3, 2005, the Company granted to Dr. Pusey options to purchase 425,000 shares
of
the Company’s common stock at an exercise price equal to the closing price of
the Company’s common stock on March 3, 2005, as reported by the Nasdaq Global
Market, and granted to Dr. Pusey, effective as of the date he commenced his
employment, March 15, 2005, an option to purchase an additional 75,000 shares
of
the Company’s common stock at an exercise price equal to the closing price of
the Company’s common stock on that date, as reported by the Nasdaq Global Market
(the grant of the options to purchase 425,000 shares and 75,000 shares are
collectively, the “Initial Option Grant”). The grants are evidenced by a Letter
of Stock Option Grant for 200,000 shares and a Letter of Stock Option Grant
for
300,000 shares, each of which provide for immediate vesting upon effectiveness
of the grants as to 10% of the shares covered thereby and monthly vesting
of the
remainder in equal amounts over a period of 48 months, subject to continued
employment by Dr. Pusey.
On
March
3, 2005, the Company also granted to Dr. Pusey 200,000 shares of restricted
stock of the Company (the “Restricted Shares”). The Letter of Restricted Stock
Grant provides that the Restricted Shares shall be subject to restrictions
on
transferability and forfeiture, with such restrictions to lapse as to 50%
of
such stock upon the acceptance by the United States Food and Drug Administration
for filing of a New Drug Application for Chrysalin for fresh fracture
indications, and with the restrictions to lapse as to the remaining 50% upon
the
attainment of certain milestones to be mutually agreed upon by Dr. Pusey
and the
Compensation Committee of the Company’s Board of Directors. On March 18, 2006,
100,000 shares of Dr. Pusey’s restricted stock became fully
vested.
In
the
event that the Company underwent a change of control or a sale of substantially
all of its assets, Dr. Pusey’s employment agreement provided that Dr. Pusey
would have been entitled to receive a special bonus of up to $2.0 million,
and
at least 90% of the shares included in the Initial Option Grant would have
fully
vested and the restrictions on at least 90% of the Restricted Shares would
have
fully lapsed upon such a change of control or sale of assets.
On
April
5, 2006, Dr. Pusey resigned his position as Chief Executive Officer and
President of the Company. Under Dr. Pusey’s separation agreement, Dr. Pusey
received severance benefits of $100,000, paid in six equal installments and
the
Company’s normal executive health benefits for the six month period following
his resignation. In accordance with Company policy, all of Dr. Pusey’s unvested
stock options and restricted stock were cancelled upon Dr. Pusey’s
resignation.
Effective
April 5, 2006, Mr. John M. Holliman, III, became Executive Chairman and
Principal Executive Officer. On
May
12, 2006, the Company entered into an agreement with VV III Management, LLC
and
John M. Holliman, III, to compensate Mr. Holliman for his services as the
Company’s Executive Chairman and principal executive officer (the “Holliman
Agreement”).
Under
the
Holliman Agreement, Mr. Holliman’s services to the Company may be terminated by
the Company at any time, with or without cause. In the event of termination
without cause in connection with or following a Change in Control, payments
under the Holliman Agreement will continue for six months after the date
of
termination. It provides for annual base cash compensation of $200,000, payable
in accordance with the Company’s standard payroll practices and a target bonus
of 40% of base compensation upon the achievement of individual and corporate
performance objectives. In addition, the Holliman Agreement includes other
terms
and conditions consistent with agreements entered into with other Company
executives.
In
connection with Mr. Holliman’s services to the Company as its Executive Chairman
and principal executive officer, on May 12, 2006 the Company also granted
him
options to purchase 200,000 shares of the Company’s common stock at an exercise
price equal to $1.75, the closing price of the Company’s common stock on the
date of grant as reported by the Nasdaq Global Stock Market. These options
will
vest in equal amounts over a twenty-four month period and are exercisable,
subject to the vesting schedule, for ten years from the date of grant. In
the
event of a change of control or liquidation of the Company, the vesting of
the
options will be accelerated so that the options will become fully
exercisable.
Effective
April 5, 2006, Randolph C. Steer,
MD,
Ph.D., became President of the Company. Dr. Steer has performed consulting
services for the Company since 2002. On
May
12, 2006, the Company also entered into an agreement with Randolph C. Steer,
MD,
Ph.D., to compensate Dr. Steer for his services as the Company’s President and
Chief Operating Officer (the “Steer Agreement”). In connection with Dr. Steer’s
services to the Company, Dr. Steer also executed an Intellectual Property,
Confidentiality and Non-Competition Agreement, which sets forth restrictions
on
the disclosure of Company proprietary information and protects the Company’s
interest in its intellectual property, and an Indemnification Agreement,
which
provides for indemnification by the Company for certain Company-related claims
against the directors or officers to the fullest extent permitted by law,
as
well as the advancement of expenses relating to such claims.
Under
the
Steer Agreement, Dr. Steer’s services to the Company may be terminated by the
Company at any time, with or without cause. If the event of termination is
without cause, payments under the Steer Agreement will continue for three
months
after the date of termination. The Steer Agreement provides for annual base
cash
compensation of $300,000, payable in accordance with the Company’s standard
payroll practices and a target bonus of 40% of base compensation upon the
achievement of individual and corporate performance objectives. In addition,
the
Steer Agreement includes other terms and conditions consistent with agreements
entered into with other Company executives.
In
connection with Dr. Steer’s services to the Company, on May 12, 2006 the Company
also granted him options to purchase 200,000 shares of the Company’s common
stock at an exercise price equal to $1.75, the closing price of the Company’s
common stock on the date of grant as reported by the Nasdaq Stock Market.
These
options will vest in equal amounts over a twenty-four month period and are
exercisable, subject to the vesting schedule, for ten years from the date
of
grant. In the event of a change of control or liquidation of the Company,
the
vesting of the options will be accelerated so that the options will become
fully
exercisable.
On
October 17, 2005, the Company entered into an employment agreement with
Dana Shinbaum (the “Shinbaum Employment Agreement”), pursuant to which
Mr. Shinbaum serves as the Company’s Vice President of Business Development
and Strategic Marketing. Under the Shinbaum Employment Agreement,
Mr. Shinbaum may be terminated at any time, with or without cause, at the
option of either the Company or Mr. Shinbaum. If the Company terminates Mr.
Shinbaum without cause, provided Mr. Shinbaum first executes a Severance
Agreement in the form then used by the Company, the Company shall continue
to
pay to Mr. Shinbaum his minimum base salary in effect at the time of termination
for a period of one year following the date of termination, at the time and
in
the manner dictated by the Company’s standard payroll policies. Should such
termination occur as a result of a Change in Control, the Company shall also
pay
Mr. Shinbaum a pro-rata share of his bonus at the time of termination. Effective
January 29, 2007, Mr. Shinbaum’s annual base salary was increased to $235,000.
Under the initial terms of Mr. Shinbaum’s employment with the Company, the
Company granted him 15,000 shares of restricted stock, subject to performance
vesting requirements, which fully vested in 2006, and options to purchase
50,000
shares of the Company’s common stock at an exercise price equal to the closing
price of the Company’s common stock on the business day immediately preceding
the date of such grant, as reported by the Nasdaq Global Market. In addition,
Mr. Shinbaum is eligible to participate in the Company’s discretionary
bonus program, which provides for a bonus of up to 40% of his base salary,
and
Mr. Shinbaum will receive medical, dental and other fringe benefits
generally granted to the Company’s senior management. Under the employment
agreement, Mr. Shinbaum was granted a signing bonus of $50,000, paid $35,000
on
the date of the agreement and $15,000 upon completion of one year of service.
Mr. Shinbaum also received relocation assistance of $34,735.
On
January 10, 2006, the Company entered into an employment agreement with Les
M. Taeger, dated as of January 10, 2006, effective as of January 16,
2006 (the “Taeger Employment Agreement”), pursuant to which Mr. Taeger
serves as the Company’s Senior Vice President / Chief Financial Officer. Under
the Taeger Employment Agreement, Mr. Taeger may be terminated at any time,
with or without cause, at the option of either the Company or Mr. Taeger.
If the Company terminates Mr. Taeger without cause, provided Mr. Taeger first
executes a Severance Agreement in the form then used by the Company, the
Company
shall continue to pay to Mr. Taeger his minimum base salary in effect at
the
time of termination for a period of one year following the date of termination,
at the time and in the manner dictated by the Company’s standard payroll
policies. Should such termination occur as a result of a Change in Control,
the
Company shall also pay Mr. Taeger a pro-rata share of his bonus at the time
of
termination. Effective January 29, 2007, Mr. Taeger’s annual base salary was
increased to $235,000. Under the initial terms of Mr. Taeger’s employment
with the Company, the Company granted him options to purchase 150,000 shares
of
the Company’s common stock at an exercise price equal to the closing price of
the Company’s common stock on the business day immediately preceding the date of
such grant, as reported by the Nasdaq Global Market. In addition,
Mr. Taeger is eligible to participate in the Company’s discretionary bonus
program, which provides for a bonus of up to 45% of his base salary, and
Mr. Taeger will receive medical, dental and other fringe benefits generally
granted to the Company’s senior management.
On
November 8, 2004, the Company entered into a Third Amended and Restated
Employment Agreement with Sherry A. Sturman (the “Sturman Agreement”), which
provides for a minimum base salary, currently $225,000 per year.
Ms. Sturman was also eligible for annual and long-term incentives,
including performance-based bonuses. Under the terms of the Sturman Agreement,
on January 16, 2006, Ms. Sturman elected a two-year transition leading to
the termination of Ms. Sturman’s employment with the Company. Under the
terms of the Sturman Agreement, Ms. Sturman was eligible to continue
receiving salary, at declining base salary rates, and benefits from February
16,
2006 to February 15, 2008.
The
Company entered into an employment agreement with James T. Ryaby, Ph.D. This
annual contract provided for a one-year employment term that was automatically
renewed. Effective
as of November 17, 2006, the Company entered into a Separation Agreement
and
Release (the "Separation Agreement") and a Consulting Agreement (the "Consulting
Agreement") with James T. Ryaby, Ph.D., the Company's Senior Vice President
and
Chief Scientific Officer in connection with Dr. Ryaby’s resignation. Under the
terms of the Separation Agreement, the Company’s Employment Agreement with Dr.
Ryaby dated June 1, 2001, as amended, was terminated effective November 17,
2006. The Separation Agreement provides that Dr. Ryaby’s outstanding stock
options will continue to vest and vested options will continue to be exercisable
during the term of the Consulting Agreement.
Under
the
Consulting Agreement, Dr. Ryaby will provide exclusive consulting services
for
the Company through March 20, 2007, and substantially exclusive consulting
services thereafter. The Consulting Agreement terminates on December 31,
2007,
but may be terminated by either party upon sixty (60) days notice given on
or
after March 20, 2007. The Consulting Agreement provides for payment for services
at an annual rate of $250,000, payable monthly, and a one-time payment of
$40,000 to cover Dr. Ryaby’s consulting start-up expenses.
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. If the
option holder loses his position with the Company as a result of the merger
or
sale, 100% of his options will immediately vest. Additionally, the Company’s
1997 Stock Option Plan and 2005 Equity Incentive Plan provide 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.
REPORT
OF THE AUDIT COMMITTEE OF THE BOARD OF
DIRECTORS
The
role
of the Audit Committee (the “Audit Committee”) is to assist the Board of
Directors in its oversight of the Company’s financial reporting process.
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 registered public accountant is 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 Audit Committee monitors and oversees the activities and
performance of the external independent registered public accountant, including
the audit scope, external audit fees, and auditor independence matters. The
Audit Committee also is responsible for approving non-audit services proposed
to
be performed by the independent auditor. The Audit Committee has responsibility
to appoint and dismiss the Company’s independent auditor. Management and
independent auditor presentations to and discussions with the Audit 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 Audit Committee reviewed and
discussed the audited financial statements with management and the independent
registsered public accountant. The Audit Committee has also discussed with
the
independent registered public accountant the matters required to be discussed
by
Statement on Auditing Standards No. 61, as amended, Communication
with Audit Committees,
and
Rule 2-07 of Regulation S-X. Finally, the Audit Committee has received the
written disclosures and the letter from the independent registered public
accountant 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 independent registered public accountant, has
considered whether the provision of non-audit services by the independent
registered public accountant to the Company is compatible with maintaining
the
auditor’s independence and has discussed with the independent registered public
accountant the independent registered public accountant’s independence. The
Audit Committee met four times in 2006, each time meeting separately with
the
independent registered public accountant without the presence of management.
Based
upon the reports and discussions described in this report, the Audit 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, 2006
for filing with the Securities and Exchange Commission.
Audit
Committee during 2006:
Elwood
D.
Howse, Jr.
Augustus
A. White, III, MD, Ph.D.
Fredric
J. Feldman, Ph.D.
The
foregoing report of the Audit Committee of the Company’s Board of Directors
shall not be deemed soliciting material or otherwise deemed filed and shall
not
be subject to the liabilities of Section 18 of the Securities Exchange Act
of
1934, or 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 that we specifically incorporate the Report by reference
therein.
CODE
OF CONDUCT AND CORPORATE GOVERNANCE
In
March
2004, the Company adopted a code of conduct that applies to all of its employees
and has particular sections that apply only to its principal executive officer
and senior financial officers. The Company has posted the text of its code
of
conduct on its website under the “Investors” section under the link for the
“Code of Conduct.” In addition, the Company will promptly disclose on its
website (1) the nature of any amendment to its code of conduct that applies
to
its principal executive officer and senior financial officers, and (2) the
nature of any waiver, including an implicit waiver, from a provision of its
code
of conduct that is granted to one of these specified officers, the name of
such
officer who is granted the waiver and the date of the waiver.
The
full
Board of Directors addresses all matters regarding corporate governance (that
is, the relationships of the Board, the stockholders and management in
determining the direction and performance of the Company) and the procedural
rules regarding the operation of the Board itself. As such, the Board reviews
all proposals submitted by stockholders for action at the annual stockholders’
meeting with regards to each such proposal.
CERTAIN
RELATIONSHIPS AND RELATED
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 fullest extent permitted by law.
On
February 23, 2006, the Company entered into an Asset Purchase Agreement and
Plan of Reorganization (the “Definitive Agreement”) to acquire certain assets
and certain liabilities of AzERx, Inc. (“AzERx”) for $390,000 in cash and the
issuance of 1,325,000 shares of the Company’s common stock, with a market value
of $7.5 million based on the closing share price on the date the Definitive
Agreement was entered into. Pursuant to the terms of the Definitive Agreement,
the Company acquired an exclusive license for the core intellectual property
relating to AZX100, a 24-amino acid peptide. In addition, the Company agreed
to
issue 30,000 shares of its common stock to Arizona Science and Technology
Enterprises, LLC, the licensor of AzERx’s core technology patents, in connection
with certain modifications of the license effective upon consummation of
the
transactions contemplated in the Definitive Agreement. The transaction closed
February 27, 2006.
The
Chairman of the Company’s Board of Directors, John M. Holliman, III, is a member
of the AzERx board of directors and is affiliated with Valley Ventures III,
L.P., an investment fund that owned approximately 30% of AzERx’s fully diluted
equity at the time of the transaction. Mr. Holliman recused himself from
all Board matters involving AzERx. This included the Board’s analysis of AzERx
as a potential target of acquisition for expanding the Company’s drug
development portfolio, and subsequent negotiations between the Company and
AzERx, which were led by the Company’s Chief Executive Officer. In addition,
Mr. Holliman was not present during the deliberations and vote of the Board
approving the Definitive Agreement and the transactions contemplated thereby.
The Board has evaluated NASDAQ Listing Standards and Security and Exchange
Regulations regarding director independence and believes Mr. Holliman continued
to meet the requirements to be considered an independent director until April
5,
2006, at which time Mr. Holliman became Executive Chairman and Principal
Executive Officer of the Company and no longer met the requirements to be
considered an independent director.
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, 2006 except
as
follows:
1)
The
Board of Directors receive an annual grant on January 1 of each year of fully
vested options to purchase 10,000 shares of the Company’s common stock. The
grants on January 1, 2006 were required to be reported by January 3, 2006,
but
were actually reported on Form 4’s filed with the SEC on January 13, 2006;
and
2)
As
reported on Form 5 filed with the SEC on February 14, 2007, John M. Holliman,
III, did not file by the appropriate due date a change in ownership of the
Company’s common stock caused by the acquisition of a beneficial interest of
1,658 shares of the Company’s common stock, in connection with the AzERx, Inc.
transaction on February 27, 2006, through Mr. Holliman’s interest in a
partnership that holds a general partnership interest in Valley Ventures
III,
LP.
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.
EQUITY
COMPENSATION PLANS
The
following provides tabular disclosure of the number of securities to be issued
upon the exercise of outstanding options, the weighted average exercise price
of
outstanding options, and the number of securities remaining available for
future
issuance under equity compensation plans as of December 31, 2006, aggregated
into two categories - plans that have been approved by stockholders and plans
that have not.
|
Number
of Securities to
be
issued upon exercise
of
outstanding options,
warrants
and rights
|
Weighted
Average
exercise
price of
outstanding
options,
warrants
and rights
|
Number
of securities remaining
available
for future issuances
under
equity compensation plans
(excluding
securities reflected in
|
|
|
Plan
Category:
|
column
a)
|
||
|
Equity
Compensation Plans Approved by Secutity Holders
|
3,438,126
|
$3.69
|
1,030,894
|
|
Equity
Compensation Plans Not Approved by Security Holders (1)
|
103,125
|
$5.88
|
-
|
|
3,541,251
|
$3.75
|
1,030,894
|
|
(1)
|
Includes
options outstanding and exercisable by James M. Pusey, MD, former
CEO, to
purchase 103,125 shares of the Company's common stock at a weighted
average exercise price of $5.88 with no additional options
|
PROPOSAL
2: RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANT
On
June
14, 2006 the Company dismissed Deloitte & Touche, LLP, (“Deloitte”) as its
independent registered public accounting firm. The decision to dismiss Deloitte
was initiated and approved by the Audit Committee of the Company’s Board of
Directors. On June 19, 2006, the Audit Committee of the Board of Directors
appointed Ernst & Young LLP (“E&Y) as our independent registered public
accounting firm.
The
Board
of Directors is submitting the selection of the independent registered public
accountant firm for shareholder ratification at the 2006 Annual Meeting and
recommends that stockholders vote FOR ratification of such appointment.
In
the
event the shareholders fail to ratify the appointment, the Audit Committee
will
consider it a direction to consider other accounting firms for the subsequent
year. E&Y 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.
Deloitte’s
reports on the Company’s financial statements for the fiscal years ended
December 31, 2005 and 2004, respectively, did not contain an adverse opinion
or
a disclaimer of opinion, and were not qualified or modified as to uncertainty,
audit scope, or accounting principles. Deloitte’s audit reports on the Company’s
financial statements for the fiscal years ended December 31, 2005 and 2004
did
contain an explanatory paragraph regarding the fact that the Company was
in the
Development Stage. The audit reports of Deloitte on management’s assessment of
the effectiveness of internal control over financial reporting and the
effectiveness of internal control over financial reporting as of December
31,
2005 and 2004 did not contain an adverse opinion or disclaimer of opinion
and
were not qualified or modified as to uncertainty, audit scope or accounting
principles. In connection with the audits of the financial statements of
the
Company for the years ended December 31, 2005 and 2004 and through the interim
period of January 1, 2006 through June 14, 2006, there were no disagreements
between us and Deloitte on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to Deloitte’s satisfaction, would have caused
Deloitte to make a reference to the subject matter of the disagreements in
connection with its reports. During the years ended December 31, 2005 and
2004,
and during the subsequent interim period of January 1, 2006 through June
14,
2006, there were no reportable events, as defined in Item 304(a)(1)(v) of
Regulation S-K. During the Company’s fiscal years ended December 31, 2005 and
2004 and through the interim period of January 1, 2006 through June 14, 2006,
we
did not consult with E&Y regarding any of the matters or events set forth in
Item 304(a)(2)(i) and (ii) of Regulations S-K.
The
Company provided Deloitte with a copy of this disclosure and requested that
Deloitte furnish it with a letter addressed to the Securities and Exchange
Commission stating whether or not Deloitte agrees with the above statements.
A
copy of such letter dated June 19, 2006 from Deloitte is filed as Exhibit
16.1
to our Form 8-K filed with the Securities and Exchange Commission on June
20,
2006.
THE
BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY’S
INDEPENDENT REGISTERED PUBLIC ACCOUNTANT FOR THE 2007 FISCAL
YEAR.
PRINCIPAL
ACCOUNTING FIRM FEES
The
following table sets forth the aggregate fees billed to the Company for the
years ended December 31, 2006 and December 31, 2005 by our principal accounting
firms Ernst & Young, LLP and Deloitte & Touche LLP.
|
Type
of Fee
|
Amount
|
||||||
|
2006
|
2005
|
||||||
|
Audit-Fees
(1)
|
$
|
332,000
|
$
|
540,000
|
|||
|
Audit-Related
Fees (2)
|
59,000
|
22,000
|
|||||
|
Total
Audit and Audit-Related Fees
|
391,000
|
562,000
|
|||||
|
Tax
Fees (3)
|
28,000
|
35,000
|
|||||
|
All
Other Fees (4)
|
-
|
-
|
|||||
|
Total
Fees
|
$
|
419,000
|
$
|
597,000
|
|||
| (1) |
Audit
fees include fees for services rendered in connection with the
audits of
the Company’s financial statements for the fiscal years ended December 31,
2006 and 2005, audit of management’s assessment including Management’s
Annual Report on Internal Control over Financial Reporting as of
December
31, 2006 and 2005, and reviews of the financial statements included
in the
Company’s quarterly reports on Form 10-Q during the applicable fiscal
year.
|
| (2) |
Audit-related
fees include fees for services rendered for matters such as the
purchase
of substantially all of the assets of AzERx, Inc., sales of shares
of the
Company’s common stock to PharmaBio Development, Inc., audits of employee
benefit plans and responses to accounting and reporting-related
matters.
|
| (3) |
Tax
fees include fees for services rendered for tax compliance, preparation
of
original and amended tax returns, claims for refunds and other
tax
services.
|
| (4) |
Our
principal accounting firms did not perform nor bill the Company
for any
other services during the fiscal years ended December 31, 2006
and 2005
that are appropriately classified as “All Other
Fees.”
|
The
Audit
Committee has concluded that the services provided by the principal accounting
firms that were not related to the audit of the Company’s financial statements
were at all times compatible with maintaining that firm’s independence.
Consistent
with the rules of the Securities and Exchange Commission regarding auditor
independence, the Audit Committee has responsibility for appointing, setting
compensation for, and overseeing the work of, the independent auditor. In
recognition of this responsibility, the Audit Committee has included in its
charter the responsibility to pre-approve “all auditing services and permitted
non-auditing services proposed to be performed by the independent auditor,
subject to the de minimis 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.” No
fees were paid to the independent auditor pursuant to the “de minimis” exception
to the foregoing pre-approval policy in 2006.
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, 2007 must be received by the Company no later than December 14, 2007
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, she or it must timely give
notice
to the Secretary and give a brief description of the business desired to
be
discussed. To be timely for next year’s 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 that Annual Meeting. If we do not publicly
announce our meeting date or give notice of our meeting date at least 70
days
before next year’s Annual Meeting, stockholders 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 2006 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, 2006, 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 Street, Tempe, Arizona 85281.
HOUSEHOLDING
We
have
adopted the “householding” procedure approved by the Securities and Exchange
Commission that allows the Company to deliver one proxy statement and annual
report to a household of stockholders instead of delivering a set of documents
to each stockholder in the household. This procedure is more cost effective
because it reduces the number of materials to be printed and mailed. If they
have elected, stockholders who share the same last name and address will
receive
one proxy statement and annual report per address unless the Company receives,
or has previously received, contrary instructions. Stockholders will continue
to
receive separate proxy cards/voting instruction forms to vote their
shares.
If
you
would like to receive a separate copy of the proxy statement and annual report
for this year, please write or call the Company at the following address
or
telephone number: OrthoLogic Corp., Corporate Secretary, 1275 West Washington
Street, Tempe, Arizona 85281; (800) 937-5520. Upon receipt of your request,
the
Company will promptly deliver the requested materials to you.
If
you
and other OrthoLogic stockholders of record with whom you share and address
currently receive multiple sets of the proxy statement and annual report,
and
you would like to receive only a single copy of each in the future, please
contact our distribution agent, ADP, by calling (800) 542-1061. If you hold
your
shares in street name (that is, through a bank, brokerage account or other
record holder), please contact your bank, broker or the other record holder
to
request information about householding. You may also revoke your consent
to
householding by contacting ADP, Attention Householding Department, 51 Mercedes
Way, Edgewood, NY 11717, telephone (800) 542-1061.
|
April
13, 2007
|
THE
BOARD OF DIRECTORS
|
ORTHOLOGIC
CORP.
PROXY
2007
ANNUAL MEETING OF STOCKHOLDERS
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The
undersigned hereby appoints John M. Holliman, III and Les M. Taeger, and
each or
either of them, as Proxies, with full power of substitution, to represent
and to
vote, as designated below, all shares of common stock which the undersigned
is
entitled to vote at the Annual Meeting of Stockholders of OrthoLogic Corp.
to be
held on May 10, 2007, 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
PROPOSAL NOS. 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
|
|
1.
|
PROPOSAL
TO ELECT A CLASS I DIRECTOR FOR A TERM EXPIRING IN YEAR
2010
|
FOR
the
nominee listed below (except as marked to the contrary below) o
WITHHOLD
AUTHORITY to vote for the nominee listed below o
Nominee:
Fredric J. Feldman, Ph.D.
(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 THE APPOINTMENT OF ERNST & YOUNG, LLP, as the Company’s
|
Independent
Registered Public Accounting Firm for fiscal year 2007
|
FOR
¨
|
AGAINST
o
|
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 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,
partnership, limited liability entity, or any other entity, please sign in
the
name of the entity by the president or other authorized officer.
|
Dated:
|
,
2007
|
|
Signature
|
||
Votes
must be indicated in Black or Blue ink.
(Please
sign, date and return this proxy in the enclosed postage prepaid
envelope.)